10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934,

for the fiscal year ended December 31, 2011, or

¨ 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.

(Exact name of Registrant as specified in its charter)

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)

(617) 346-7200

Registrant’s Telephone Number

Securities registered pursuant to Section 12(b) of the Act:

Title	Name of Exchange on Which Registered
Depository Shares for Series C non-cumulative preferred stock	NYSE

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    

Yes  ¨     No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act    Yes  ¨    No  x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

No Common Stock of the Registrant was held by nonaffiliates of the Registrant at June 30, 2011. As of February 28, 2012, the Registrant had 520,307,043 shares of Common Stock outstanding.

Form 10-K Cross Reference Index

	Page
Forward-Looking Statements		3-4
PART I
Item 1 - Business		5-12
Item 1A - Risk Factors		13-16
Item 1B - Unresolved Staff Comments		17
Item 2 - Properties		17
Item 3 - Legal Proceedings		17
Item 4 - Mine Safety Disclosures		17
PART II
Item  5 - Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		17
Item 6 - Selected Financial Data		18-19
Item  7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)		20-62
Item 7A - Quantitative and Qualitative Disclosures About Market Risk		63
Item 8 - Financial Statements and Supplementary Data		63
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		148
Item 9A - Controls and Procedures		148
Item 9B - Other Information		148
PART III
Item 10 - Directors, Executive Officers and Corporate Governance		149-153
Item 11 - Executive Compensation		154-193
Item  12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		194
Item 13 - Related Party Transactions		195-201
Item 14 - Principal Accounting Fees and Services		201-202
PART IV
Item 15 - Exhibits and Financial Statement Schedules		203-204
Signatures		205-206

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements made by or on behalf of Santander Holdings USA, Inc. (“SHUSA” or the “Company”). SHUSA may from time to time make forward-looking statements in SHUSA’s filings with the Securities and Exchange Commission (the “SEC” or the “Commission”) (including this Annual Report on Form 10-K and the Exhibits hereto), and in other communications by SHUSA, which are made in good faith by SHUSA, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Some of the statements made by SHUSA, including any statements preceded by, followed by or which include the words “may,” “could,” “should,” “pro forma,” “looking forward,” “will,” “would,” “believe,” “expect,” “hope,” “anticipate,” “estimate,” “intend,” “plan,” “strive,” “hopefully,” “try,” “assume” or similar expressions constitute forward-looking statements.

These forward-looking statements include statements with respect to SHUSA’s vision, mission, strategies, goals, beliefs, plans, objectives, expectations, anticipations, estimates, intentions, financial condition, results of operations, future performance and business of SHUSA and are not historical facts. Although SHUSA believes that the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors (some of which are beyond SHUSA’s control). Among the factors, that could cause SHUSA’s financial performance to differ materially from that expressed in the forward-looking statements are:

• 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 ability of certain European member countries to continue to service their debt and the risk that a weakened European economy could negatively affect U.S.-based financial institutions, counterparties with which SHUSA does business and the stability of the global financial markets;

• 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 SHUSA’s investment portfolio;

• revenue enhancement initiatives may not be successful in the marketplace or may result in unintended costs;

• changing market conditions may force management to alter the implementation or continuation of cost savings or revenue enhancement strategies;

• SHUSA’s timely development of competitive new products and services in a changing environment and the acceptance of such products and services by customers;

• the willingness of customers to substitute competitors’ products and services and vice versa;

• the ability of SHUSA and its third party vendors to convert and maintain SHUSA’s data processing and related systems on a timely and acceptable basis and within projected cost estimates;

• the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, capital, liquidity, proper accounting treatment, securities and insurance, and the application thereof by regulatory bodies and the impact of changes in and interpretation of generally accepted accounting principles in the United States;

• the impact of the “Dodd-Frank Wall Street Reform and Consumer Protection Act” enacted in July 2010 which is a significant development for the industry. The full impact of this legislation to SHUSA and the industry will be unknown until the rulemaking processes mandated by the legislation are complete, although the impact will involve higher compliance costs and certain elements, have and, will negatively affect SHUSA’s revenue and earnings;

• additional legislation and regulations or taxes, levies or other charges may be enacted or promulgated in the future, and management is unable to predict the form such legislation or regulation may take or to the degree which management need to modify SHUSA’s businesses or operations to comply with such legislation or regulation;

• the cost and other effects of the consent order issued by the Office of the Comptroller of the Currency to Sovereign Bank requiring the Bank to take certain steps to improve its mortgage servicing and foreclosures practices, as is further described in Part I;

• 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;

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• 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;

• SHUSA’s success in managing the risks involved in the foregoing.

If one or more of the factors affecting SHUSA’s forward-looking information and statements proves incorrect, the actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, SHUSA cautions you not to place undue reliance on any forward-looking information and statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect the results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. New factors emerge from time to time and management cannot assess the impact of any such factor on SHUSA’s business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward looking statement. Any forward looking statements only speak as of the date of this document and SHUSA undertakes no obligation to update any forward-looking information and statements, whether written or oral, to reflect any change. All forward-looking statements attributable to SHUSA are expressly qualified by these cautionary statements.

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Part I

Item 1 Business

General

Santander Holdings USA, Inc (“SHUSA” or the “Company), formerly known as Sovereign Bancorp Inc. is the parent company of Sovereign Bank, National Association (“Sovereign or the “Bank”), a federally chartered savings bank as of December 31, 2011 which converted to a national banking association on January 26, 2012. In connection with the charter conversion, the Bank changed its name to Sovereign Bank, National Association. Also effective on January 26, 2012, SHUSA became a bank holding company. Sovereign had over 720 retail branches, over 2,300 ATMs and 8,557 team members as of December 31, 2011 with principal markets in the Northeastern United States. The Bank’s primary business consists of attracting deposits from its network of retail branches, and originating small business and middle market commercial loans, multi-family loans, residential mortgage loans, home equity loans and lines of credit, and auto and other consumer loans in the communities served by those offices. The Bank uses its deposits, as well as other financing sources, to fund its loan and investment portfolios. The Bank earns interest income on its loan and investment portfolios. In addition, the Bank generates non-interest income from a number of sources including deposit and loan services, sales of loans and investment securities, capital markets products and bank-owned life insurance. The principal non-interest expenses include employee compensation and benefits, occupancy and facility-related costs, technology and other administrative expenses. The volumes, and accordingly the financial results, of the Bank are affected by the economic environment, including interest rates, consumer and business confidence and spending, as well as the competitive conditions within its geographic footprint.

SHUSA is headquartered in Boston, Massachusetts, and its principal executive offices are at 75 State Street, Boston, Massachusetts. The Bank’s home office is in Wilmington, Delaware.

On January 30, 2009, SHUSA became a wholly owned subsidiary of Banco Santander, S.A. (“Santander”). Pursuant to a Transaction Agreement, dated October 13, 2008, between the Company and Santander (the “Transaction Agreement”), Santander acquired all of the outstanding shares of the Company’s common stock that it did not already own in exchange for the right to receive 0.3206 Santander American Depository Shares, or ADSs, for each share of Company common stock. As a result of the Santander transaction, the Company’s state of incorporation changed from Pennsylvania to Virginia.

In July 2009, Santander contributed Santander Consumer USA Inc (“SCUSA”), a majority owned subsidiary, into the Company. SCUSA, headquartered in Dallas, Texas, is a specialized consumer finance company engaged in the purchase, securitization, and servicing of retail installment contracts originated by automobile dealers and direct organization of retail installment contracts over the internet. SCUSA acquires retail installment contracts from manufacturer franchised dealers in connection with their sale of used and new automobiles and trucks primarily to nonprime customers with limited credit histories or past credit problems. SCUSA also purchases retail installment contracts from other companies.

SCUSA’s results of operations were consolidated from January 2009 until December 31, 2011. On December 31, 2011, the Company deconsolidated SCUSA as a result of certain agreements with investors entered into during the fourth quarter 2011 (“SCUSA Transaction”). The SCUSA Transaction reduced the Company’s ownership interest and its power to direct the activities that most significantly impact SCUSA’s economic performance so that SHUSA no longer has a controlling interest in SCUSA. Accordingly, as of December 31, 2011, SCUSA is accounted for as an equity method investment. Refer to the SCUSA Transaction section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Note 3 to the Consolidated Financial Statements for additional information.

Segments

The Company has five business segments including Retail banking, Corporate banking, Specialized Business, Global Banking and Markets, and SCUSA.

The Company’s segments are focused principally around the customers the Bank serves. The Retail banking segment is primarily comprised of the branch locations and the residential mortgage business. The branches offer a wide range of products and services to customers and each attracts deposits by offering a variety of deposit instruments including demand and interest bearing demand deposit accounts, money market and savings accounts, certificates of deposits and retirement savings products. The branches also offer consumer loans such as home equity loans and line of credits. The Retail banking segment also includes business banking loans and small business loans to individuals.

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The Specialized Business segment is primarily comprised of non-strategic lending groups which include indirect automobile, aviation and continuing care retirement communities financing.

The Corporate banking segment provides the majority of the Company’s commercial lending platforms, such as commercial real estate loans, multi-family loans, commercial and industrial loans and the Company’s related commercial deposits.

The Global Banking and Markets segment includes businesses with large corporate domestic and foreign clients.

SCUSA is a specialized consumer finance company engaged in the purchase, securitization and servicing of retail installment contracts originated by automobile dealers and direct origination of retail installment contracts over the internet.

The financial results for each of these business segments are included in Note 26 of the Notes to Consolidated Financial Statements and are discussed in Item 7, MD&A. Results of the Company’s business segments are presented based on its management structure and management accounting practices.

Subsidiaries

SHUSA had three principal consolidated majority-owned subsidiaries at December 31, 2011: the Bank, Independence Community Bank Corp. and Sovereign Delaware Investment Corporation.

Employees

At December 31, 2011, SHUSA had 7,531 full-time and 1,026 part-time employees. This compares to 10,515 full-time and 1,199 part-time employees as of December 31, 2010. The decline is primarily due to the effects of the SCUSA Transaction. Refer to the SCUSA Transaction section of Item 7, MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information. None of these employees are represented by a collective bargaining agreement.

Competition

The Bank is subject to substantial competition in attracting and retaining deposits and in lending funds. The primary factors in competing for deposits include the ability to offer attractive rates, the convenience of office locations, and the availability of alternate channels of distribution. Direct competition for deposits comes primarily from national and state banks, thrift institutions, and broker dealers. Competition for deposits also comes from money market mutual funds, corporate and government securities, and credit unions. The primary factors driving commercial and consumer competition for loans are interest rates, loan origination fees, service levels and the range of products and services offered. Competition for origination of loans normally comes from thrift institutions, national and state banks, mortgage bankers, mortgage brokers, finance companies, and insurance companies.

Supervision and Regulation

The Bank continued to be chartered as a federal savings bank as of December 31, 2011. As of January 26, 2012, the Bank was converted to a national banking association and is highly regulated by various regulatory agencies as to all its activities, and subject to extensive examination, supervision, and reporting.

On July 21, 2011, as required by the Dodd-Frank Act, the Office of the Comptroller of the Currency (“OCC”) assumed responsibility from the Office of Thrift Supervision (“OTS”) for the ongoing examination, supervision, and regulation of federal savings associations and rulemaking for all savings associations, state and federal. As a national bank, and since July 21, 2010 while it was a federal savings bank, the Bank is and has been subject to supervision, enforcement, and rulemaking authority by the OCC.

The Bank is required to file reports with the OCC describing its activities and financial condition and is periodically examined to test compliance with various regulatory requirements. The deposits of the Bank are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is also subject to examination by the FDIC. Such examinations are conducted for the purpose of protecting depositors and the insurance fund and not for the purpose of protecting holders of equity or debt securities of SHUSA or the Bank. The Bank is a member of the Federal Reserve Branch of Boston and is subject to regulation by the Board of Governors of the Federal Reserve System with respect to reserves maintained against deposits and certain other matters.

The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Pittsburgh, which is part of the twelve regional banks comprising the FHLB system.

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As of December 31, 2011, SHUSA was a non-bank subsidiary of a bank holding company for purposes of the Bank Holding Company Act of 1956, as amended (the “BHCA”); as of January 26, 2012, SHUSA has become a bank holding company for purposes of the BHCA. As such, SHUSA is prohibited from engaging in any activity, directly or through a subsidiary, which is not permissible for subsidiaries of bank holding companies. Generally, financial activities are permissible, while commercial and industrial activities are not.

On July 21, 2010, President Obama signed into law the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (“Dodd-Frank Act”), which is a significant development for the industry. The elements of the act addressing financial stability are largely focused on issues related to systemic risks and capital markets-related activities. The act includes a number of specific provisions designed to promote enhanced supervision and regulation of financial firms and financial markets, protect consumers and investors from financial abuse and provide the government with tools to manage a financial crisis and raise international regulatory standards. The act also introduces a substantial number of reforms that reshape the structure of the regulation of the financial services industry, requiring more than 60 studies to be conducted and more than 200 regulations to be written over the next two years.

Holding Company Regulation

As SHUSA is a subsidiary of Santander, Santander may be required to obtain approval from the Federal Reserve if SHUSA were to acquire shares of any depository institution (bank or savings institution) or any holding company of a depository institution. In addition, Santander may have to provide notice to the Federal Reserve if SHUSA acquires any financial entity that is not a depository institution, such as a lending company.

Control of the Bank

Under the Change in Bank Control Act (the “Control Act”), individuals, corporations or other entities acquiring SHUSA common stock may, alone or together with other investors, be deemed to control SHUSA and thereby the Bank. If deemed to control SHUSA, such person or group will be required to obtain OCC approval to acquire the Company’s common stock and could be subject to certain ongoing reporting procedures and restrictions under federal law and regulations. Ownership of more than 10% of the capital stock may be deemed to constitute “control” if certain other control factors are present.

On October 13, 2008, the Company and Santander entered into the Transaction Agreement whereby Santander agreed to acquire all the outstanding shares of the Company not currently owned by it. SHUSA merged with and into a wholly owned subsidiary of the Bank organized under the laws of the Commonwealth of Virginia and immediately thereafter, pursuant to a share exchange under Virginia law, become a wholly owned subsidiary of Santander.

In late January 2009, stockholders of both Santander and the Company agreed to the terms of the transaction agreement. On January 30, 2009, the Company was acquired by Santander. On February 3, 2010, the Bank’s holding company name was changed to SHUSA.

Banco Santander (SAN.MC, STD.N, BNC.LN) is a retail and commercial bank, based in Spain, with a presence in 10 main markets. At the end of 2011, Santander was the largest bank in the euro zone and 13th in the world by market capitalization. Founded in 1857, Santander had at year-end €1,383 billion in managed funds, more than 102 million customers, 14,756 branches – more than any other international bank – and 193,000 employees. It is the largest financial group in Spain and Latin America. Furthermore, it has relevant positions in the United Kingdom, Portugal, Poland, Northeastern U.S. and, through its Santander Consumer Finance arm, in Germany. Santander had €5.4 billion in net attributable profit in 2011.

Regulatory Capital Requirements

Federal regulations require federal savings associations and national banks to maintain minimum capital ratios. Under the Federal Deposit Insurance Act (“FDIA”), insured depository institutions must be classified in one of five defined categories (well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized). Under OCC regulations, an institution will be considered “well-capitalized” if it has (i) a total risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a Tier 1 leverage ratio of 5% or greater and (iv) is not subject to any order or written directive to meet and maintain a specific capital level. A savings institution’s capital category is determined with respect to its most recent financial report filed with the OCC. In the event an institution’s capital deteriorates to the undercapitalized category or below, the FDIA and OCC regulations prescribe an increasing amount of regulatory intervention, including the adoption by the institution of a capital restoration plan, a guarantee of the plan by its parent holding company and the placement of a hold on increases in assets, number of branches and lines of business.

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If capital has reached the significantly or critically undercapitalized levels, further material restrictions can be imposed, including restrictions on interest payable on accounts, dismissal of management and (in critically undercapitalized situations) appointment of a receiver or conservator. Critically undercapitalized institutions generally may not, beginning 60 days after becoming critically undercapitalized, make any payment of principal or interest on their subordinated debt. All but well-capitalized institutions are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to the FDIA and OCC regulations, savings associations which are not categorized as well capitalized or adequately-capitalized are restricted from making capital distributions which include cash dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the capital account of a savings association. At December 31, 2011, the Bank met the criteria to be classified as “well-capitalized.”

Standards for Safety and Soundness

The federal banking agencies adopted certain operational and managerial standards for depository institutions, including internal audit system components, loan documentation requirements, asset growth parameters, information technology and data security practices, and compensation standards for officers, directors and employees. The implementation or enforcement of these guidelines has not had a material adverse effect on the Company’s results of operations.

Foreclosures

In October 2010, the Bank began a comprehensive review of its foreclosure processes. Based on the results of the review, the Bank took corrective action to address deficiencies in the mortgage foreclosure practices and is implementing additional measures to address the issues raised in the consent order discussed below. As of December 31, 2011, the Bank services approximately 151,000 residential mortgage loans including approximately 3,600 which are in the process of foreclosure. These loans are comprised of loans owned by the Bank and loans serviced for third parties.

The Bank also owns loans serviced by third parties including approximately 300 that are in the process of foreclosure. The average number of residential mortgage and home equity foreclosures initiated monthly for loans serviced by the Bank and Bank owned-loans serviced by third parties is approximately 225 and 340, as of December 31, 2011 and 2010, respectively.

On April 13, 2011, the Bank consented to the issuance of a consent order by the Bank’s previous primary federal banking regulator, the Office of Thrift Supervision (“OTS”), as part of an interagency horizontal review of foreclosure practices at 14 mortgage servicers. The Bank, upon its conversion to a national bank on January 26, 2012, entered into a stipulation consenting to the issuance of a Consent Order (the “Order”) issued by the Office of the Comptroller of the Currency, which contains the same terms as the OTS consent order. The Order requires the Bank to take a number of actions, including designating a Board committee to monitor and coordinate the Bank’s compliance with the provisions of the Order, developing and implementing plans to improve the Bank’s mortgage servicing and foreclosure practices, designating a single point of contact for borrowers throughout the loss and mitigation foreclosure processes and taking certain other remedial actions. Under the Consent Order, the Bank has retained an independent consultant to conduct a review of certain foreclosure actions or proceedings for loans serviced by the Bank.

The Company incurred $24.7 million of costs in 2011 relating to compliance with the Order. The estimated costs for 2012 include $12 million of costs related to file reviews that were previously expected to be incurred in 2011. Recurring legal and operational expenses to comply with the Order are estimated to be approximately $7.0 million annually. The Company and the Bank may incur further expenses related to compliance with the Order. The Order and any other proceedings and investigations could adversely affect the Company’s reputation.

In addition, the Company incurred $196 thousand of costs in 2011 related to compensatory fees as a result of foreclosure delays. The Company expects to incur additional compensatory fees in 2012.

The Order will remain in effect until modified or terminated by the OCC. Any material failure to comply with the provisions of the Order could result in enforcement actions by the OCC. While the Bank intends to take such actions as may be necessary to enable the Bank to comply fully with the provisions of the Order, and management is not aware of any impediments that may prevent the Bank from achieving full compliance with the Order, there can be no assurance that the Bank will be able to comply fully with the provisions of the Order, or to do so within the timeframes required, or that compliance with the Order will not be more time consuming, more expensive, or require more managerial time than anticipated. The Bank may also be subject to remediation costs and civil money penalties under the Order or it could be subject to other proceedings or investigations with respect to its foreclosure activities, however, management is unable to determine at this time the likelihood or amount of such costs or penalties under the Order or with respect to any other such events and accordingly, no accrual has been recorded.

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Insurance of Accounts and Regulation by the FDIC

The Bank is a member of the Deposit Insurance Fund, which is administered by the FDIC. Deposits are insured up to the applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States government. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the Deposit Insurance Fund. The FDIC also has the authority to initiate enforcement actions against savings institutions and may terminate an institution’s deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The FDIC charges financial institutions deposit premium assessments to ensure it has reserves to cover deposits that are under FDIC insured limits, which in early October 2008, the U.S. government increased to $250,000 per depositor per ownership category. In October 2008, the FDIC announced a program that provided unlimited insurance on non-interest bearing accounts for covered institutions through December 31, 2009, which has been subsequently extended through December 31, 2012. The Bank participated in the unlimited coverage program through December 31, 2009 but determined not to participate in the extension.

Due to bank failures over the past few years, the reserve ratio is below its target balance of 1.15%. In the second quarter of 2009, the FDIC assessed additional fees to institutions who have secured borrowings in excess of 15% of their deposits. Additionally, the FDIC approved a special assessment charge of 5 cents per $100 of an institution’s assets minus its Tier 1 capital on June 30, 2009 to help bolster the reserve fund, which was payable on September 30, 2009.

During the fourth quarter of 2009, the FDIC announced that all depository institutions would be required to prepay three years of assessments in order to quickly raise funds and replenish the reserve ratio while not immediately impacting banks’ earnings. The Bank paid $347.9 million on December 31, 2009 to the FDIC based on an estimate of what the deposit assessments would be over the next three years. This amount was accounted for as a prepaid asset and will be expensed based on the actual deposit assessments in future years until it is depleted. The remaining prepaid asset at December 31, 2011 is $188.3 million. No additional prepay was ordered by the FDIC during 2011.

In February 2011, the FDIC amended 12 CFR 327 to implement revisions to the Federal Deposit Insurance Act (“FDIA”) made by the Dodd-Frank Act by modifying the definition of an institution’s deposit insurance assessment base; to change the assessment rate adjustments; to revise the deposit insurance assessment rate schedules in light of the new assessment base and altered adjustments; to implement Dodd-Frank’s dividend provisions; to revise the large insured depository institution assessment system to better differentiate for risk and better take into account losses from large institution failures that the FDIC may incur; and to make technical and other changes to the FDIC’s assessment rules. The revision also established a minimum ratio of deposit insurance reserves to estimated insured deposits of 1.15% prior to September 2020 and 1.35% thereafter. This amendment had an effective date of April 1, 2011. Please refer to the section Supervision and Regulation for further discussion on Dodd-Frank.

In addition to deposit insurance premiums, all insured institutions are required to pay a Financing Corporation assessment, in order to fund the interest on bonds issued to resolve thrift failures in the 1980s. In 2011, the Bank paid Finance Corporation Assessments of $4.4 million compared to $4.3 million that was paid in 2010. The annual rate for all insured institutions reduced over the year from $0.102 in the first quarter of 2011 to $0.068 in the fourth quarter for every $1,000 in domestic deposits. The rate reduction beginning with the fourth quarter of 2011 reflects the change from an assessment base computed on deposits to an assessment base computed on assets as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The assessments are revised quarterly and will continue until the bonds mature in the year 2017.

Federal Restrictions on Transactions with Affiliates and Insiders

All savings institutions and national banks are subject to affiliate and insider transaction rules applicable to member banks of the Federal Reserve System set forth in the Federal Reserve Act and the Home Owners Loan Act (HOLA), as well as such additional limitations as the institutions’ primary federal regulator may adopt. These provisions prohibit or limit a savings institution from extending credit to, or entering into certain transactions with, affiliates, principal shareholders, directors and executive officers of the savings institution and its affiliates. For these purposes, the term “affiliate” generally includes a holding company such as SHUSA and any company under common control with the savings institution or bank.

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Restrictions on Subsidiary Savings Institution Capital Distributions

SHUSA’s principal sources of funds are cash dividends paid to it by the Bank, investment income and borrowings. OCC regulations limit the ability of savings associations, such as the Bank, to pay dividends and make other capital distributions. Associations that are subsidiaries of a savings and loan holding company must file a notice with the OCC at least 30 days before the proposed declaration of a dividend or approval of the proposed capital distribution by its board of directors. In addition, a savings association must obtain prior approval from the OCC if it fails to meet certain regulatory conditions, or if, after giving effect to the proposed distribution, the association’s capital distributions in a calendar year would exceed its year-to-date net income plus retained net income for the preceding two years or the association would not be at least adequately capitalized or if the distribution would violate a statute, regulation, regulatory agreement or a regulatory condition to which the association is subject.

Qualified Thrift Lender

When the Bank was chartered as a federal savings bank, it was subject to the Qualified Thrift Lender Test, under HOLA (“QTL Test”), which specifies that a savings bank have at least 65% of its portfolio assets, as defined by regulation, in qualified thrift investments. As an alternative, the savings institution under HOLA may maintain 60% of its assets in those assets specified in Section 7701(a) (19) of the Internal Revenue Code. Under either test, such assets primarily consist of residential housing related loans, certain consumer and small business loans, as defined by the regulations, and mortgage related investments. At December 31, 2011, the Bank satisfied the QTL Test. As a national bank, the Bank no longer is subject to the QTL Test.

Other Loan Limitations

When the Bank was chartered as a federal savings bank, it was subject to federal laws which limit the amount of non-residential mortgage loans a savings bank, may make. Separate from the QTL test, the law limits a savings institution to a maximum of 20% of its total assets in commercial loans not secured by real estate, however, only 10% can be large commercial loans not secured by real estate (defined as loans in excess of $2 million to one obligor), with another 10% of assets permissible in “small business loans.” Commercial loans secured by real estate can be made in an amount up to four times an institution’s total risk-based capital. An institution can also have commercial leases, in addition to the above items, up to 10% of its assets. Commercial paper, corporate bonds, and consumer loans taken together cannot exceed 35% of an institution’s assets. For this purpose, however, residential mortgage loans and credit card loans are not considered consumer loans, and are both unlimited in amount. The foregoing limitations are established by statute, and cannot be waived by the OCC. At December 31, 2011, the Bank was in compliance with all these limits. As a national bank, the Bank is no longer subject to these limits.

Federal Reserve Regulation

Under Federal Reserve Board regulations, the Bank is required to maintain a reserve against its transaction accounts (primarily interest-bearing and non interest-bearing checking accounts). Because reserves must generally be maintained in cash or in low-interest-bearing accounts, the effect of the reserve requirements is to reduce an institution’s asset yields.

Numerous other regulations promulgated by the Federal Reserve Board affect the business operations of the Bank. These include regulations relating to equal credit opportunity, electronic fund transfers, collection of checks, truth in lending, truth in savings, availability of funds, home mortgage disclosure and margin credit.

Federal Home Loan Bank System

The Federal Home Loan Bank System (“FHLB”) was created in 1932 and consists of twelve regional FHLBs. The FHLBs are federally chartered but privately owned institutions created by U.S. Congress. The Federal Housing Finance Board is an agency of the federal government and is generally responsible for regulating the FHLB System. Each FHLB is owned by its member institutions. The primary purpose of the FHLBs is to provide funding to their members for making housing loans as well as for affordable housing and community development lending. FHLBs are generally able to make advances to their member institutions at interest rates that are lower than could otherwise be obtained by such institutions. As a member, the Bank is required to make minimum investments in FHLB stock based on the level of borrowings from the FHLB. The Bank is a member of FHLB Pittsburgh and has investments of $555.4 million as of December 31, 2011. The Bank utilized advances from the FHLB to fund balance sheet growth and provide liquidity. SHUSA had access to advances with the FHLB of up to $18.3 billion at December 31, 2011 and had outstanding advances of $11.1 billion at December 31, 2011. The level of borrowings capacity the Bank has with the FHLB is contingent upon the level of qualified collateral the Bank holds at a given time.

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In December 2008, the FHLB of Pittsburgh announced it was suspending dividends on its stock and that it would not repurchase any excess capital stock in order to maintain their liquidity and capital position. Management considered this and concluded that the investment in FHLB Pittsburgh is not impaired at December 31, 2011, 2010 and 2009. Starting October 29, 2010 and continuing on a quarterly basis during 2011, FHLB Pittsburgh repurchased excess shares of capital stock. The amount of repurchases during 2011 and 2010 totaled approximately $113.6 million and $32.3 million, respectively. The amount of excess capital stock repurchased from any member was the lesser of 5 percent of the member’s total capital stock outstanding or its excess capital stock outstanding through October 28, 2010. Management will continue to closely monitor this investment in future periods.

Community Reinvestment Act

The Community Reinvestment Act (“CRA”) requires financial institutions regulated by the federal financial supervisory agencies to ascertain and help meet the credit needs of their communities, including low to moderate-income neighborhoods within those communities, while maintaining safe and sound banking practices. The regulatory agency periodically assesses the Bank’s record in meeting the credit needs of the communities it serves. A bank’s performance under the CRA is important in determining whether the bank may obtain approval for, or utilize streamlined procedures in, certain applications for acquisitions or to engage in new activities. The Bank’s lending activities are in compliance with applicable CRA requirements, and the Bank’s current CRA rating is “outstanding,” the highest category.

Anti-Money Laundering and the USA Patriot Act

Several federal laws, including the Bank Secrecy Act, the Money Laundering Control Act, and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) require all financial institutions to, among other things, implement policies and procedures relating to anti-money laundering, compliance, suspicious activities, and currency transaction reporting and due diligence on customers. The USA Patriot Act substantially broadened existing anti-money laundering legislation and the extraterritorial jurisdiction of the U.S.; imposes compliance and due diligence obligations; creates crimes and penalties; compels the production of documents located both inside and outside the U.S., including those of non-U.S. institutions that have a correspondent relationship in the U.S.; and clarifies the safe harbor from civil liability to clients. The U.S. Treasury has issued a number of regulations that further clarify the USA Patriot Act’s requirements or provide more specific guidance on their application.

Financial Privacy

Under the Gramm-Leach-Bliley Act, financial institutions are required to disclose to their retail customers its policies and practices with respect to sharing nonpublic customer information with its affiliates and non-affiliates, how it maintains customer confidentiality, and how it secures customer information. Customers are required under GLBA to be provided with the opportunity to “opt out” of information sharing with non-affiliates, subject to certain exceptions.

Other Legislation

The activities of financial institutions are subject to regulation under various U.S. federal laws, including the Truth-in-Lending, Truth-in-Savings, Equal Credit Opportunity, Fair Credit Reporting, Fair Debt Collection Practices Service members Civil Relief, Unfair and Deceptive Practices, Real Estate Settlement Procedures, and Electronic Funds Transfer Acts, as well as various state laws.

On July 21, 2010, the banking regulatory agencies jointly published final guidance for structuring incentive compensation arrangements at financial institutions. While the guidance does not set forth any specific formula or pay cap, it contains principles financial institutions would be required to follow with respect to compensation to employees who can expose the institution to material amounts of risk. The guidance’s primary principles include: (i) providing incentives that balance risk and rewards, (ii) having effective controls and risk management, and (iii) instituting strong corporate governance.

The Dodd-Frank Act created the Consumer Financial Protection Bureau, which has broad power to adopt new regulations to protect consumers, which power it may exercise at its discretion as long as it advances the protection of consumers. Such regulations may further restrict the Bank from collecting certain fees, require changes to policies and procedures, and provide additional disclosures to consumers.

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Environmental Laws

Environmentally related hazards have become a source of high risk and potentially significant liability for financial institutions relative to their loans. Environmentally contaminated properties owned by an institution’s borrowers may result in a drastic reduction in the value of the collateral securing the institution’s loans to such borrowers, high environmental cleanup costs to the borrower affecting its ability to repay the loans, the subordination of any lien in favor of the institution to a state or federal lien securing clean up costs, and liability to the institution for cleanup costs if it forecloses on the contaminated property or becomes involved in the management of the borrower. To minimize this risk, the Bank may require an environmental examination of, and report with respect to, the property of any borrower or prospective borrower if circumstances affecting the property indicate a potential for contamination, taking into consideration the potential loss to the institution in relation to the burdens to the borrower. Such examination must be performed by an engineering firm experienced in environmental risk studies and acceptable to the institution, and the costs of such examinations and reports are the responsibility of the borrower. These costs may be substantial and may deter a prospective borrower from entering into a loan transaction with the Bank. The Bank is not aware of any borrower who is currently subject to any environmental investigation or clean up proceeding that is likely to have a material adverse effect on the financial condition or results of operations of SHUSA.

Corporate Information

All reports filed electronically by SHUSA with the SEC, including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those reports are accessible on the SEC’s Web site at www.sec.gov.

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Item 1A Risk Factors

The following list describes several risk factors that are applicable to the Company:

• The Current Economic Environment May Deteriorate Adversely Affecting the Asset Quality, Earnings and Cash Flow.

The Company faces various material risks, including credit risk and the risk that the demand for products will decrease. In a recession or other economic downturn, these risks would probably become more acute. In an economic downturn, the Company’s credit risk and associated provision for credit losses and legal expense will increase. Also, decreases in consumer confidence, real estate values, and interest rates, usually associated with a downturn, could combine to make the types of loans the Bank originates less profitable and could cause elevated levels of losses on the Company’s commercial and consumer loans. While economic conditions in the United States and worldwide have begun to improve, there can be no assurance that this improvement will continue. Such conditions could adversely affect the credit quality of the Company’s loans, results of operations and financial condition.

• Adverse Economic Conditions in Europe and Latin America May Negatively Impact the Company

As a wholly-owned subsidiary of Santander, significant aspects of the Company’s strategy, infrastructure and capital funding are dependent on its parent, Santander. Although Santander has a significant presence in various markets around the world, Santander’s results of operations are materially affected by conditions in the capital markets and the economy generally in Europe and Latin America. Accordingly, a significant decline in general economic conditions in Europe or Latin America, whether caused by recession, inflation, unemployment, changes in securities markets, acts of terrorism, or other occurrences could impact Santander, and, in turn, have a material adverse effect on the Company’s financial condition and results of operations.

• Disruptions in the Global Financial Markets have Affected, and May Continue to Adversely Affect, SHUSA’s Business and Results of Operations.

Although market conditions have improved, unemployment in the United States continues to remain near historically high levels, and conditions are expected to remain challenging for financial institutions in 2012. Dramatic declines in the housing market during the most recent recession, with falling home prices and increasing foreclosures and unemployment, resulted in significant write–downs of asset values by financial institutions, including government–sponsored entities and major commercial and investment banks. These write–downs, initially of mortgage–backed securities but spreading to credit default swaps and other derivatives, have caused many financial institutions to seek additional capital and to merge with other financial institutions. Furthermore, certain European member countries have fiscal obligations that exceed their fiscal revenue, which has raised concerns about such countries’ abilities to continue to service their debt and foster economic growth. A weakened European economy may spread beyond Europe and could cause investors to lose confidence in the safety and soundness of European financial institutions and the stability of European member economies. Such events could, likewise, negatively affect U.S.-based financial institutions, counterparties with which SHUSA does business and the stability of the global financial markets. Disruptions in the global financial markets also adversely affected the corporate bond markets, debt and equity underwriting and other elements of the financial markets. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, some lenders and institutional investors reduced and, in some cases, ceased to provide funding to certain borrowers, including other financial institutions. The impact on available credit, increased volatility in the financial markets and reduced business activity has adversely affected, and may continue to adversely affect, SHUSA’s businesses, capital, liquidity or other financial condition and results of operations, access to credit and the trading price of SHUSA’s preferred stock or debt securities.

• SHUSA May Experience Further Write-Downs of its Financial Instruments and Other Losses Related to Volatile and Illiquid Market Conditions.

Market volatility, illiquid market conditions and disruptions in the credit markets continue to present difficulties in valuing certain of SHUSA’s assets. Subsequent valuations, in light of factors then prevailing, may result in significant changes in the values of these assets in future periods. In addition, at the time of any sales of these assets, the price SHUSA ultimately realizes will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value. Any of these factors could require the Company to take further write–downs in respect of these assets, which may have an adverse effect on the Company’s results of operations and financial condition in future periods.

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• Liquidity is Essential to the Company’s Businesses, and the Company Relies on External Sources, Including Government Agencies to Finance a Significant Portion of its Operations.

Adequate liquidity is essential to SHUSA’s businesses. The Bank primarily relies on the Federal Home Loan Bank, deposits and other third party sources of funding for its liquidity needs. SHUSA’s credit ratings are also important to its liquidity. A reduction in SHUSA’s credit ratings could adversely affect its liquidity, widen its credit spreads or otherwise increase its borrowing costs.

• A Change in the United States sovereign debt credit rating could have a significant impact on the value of the Bank’s assets

On August 5, 2011, Standard & Poor’s (“S&P”), one of three major credit rating agencies which also include Moody’s Investors Service and Fitch, lowered its long-term credit rating on the United States sovereign debt from AAA to AA+. Moody’s and Fitch each maintained the highest rating on U.S. sovereign debt, but have assigned a negative outlook to its ratings. The implications of these actions by the ratings agencies could include negative effects on U.S. Treasury securities as well as instruments issued, guaranteed or insured by government agencies or government-sponsored institutions. These types of instruments are significant assets for the Company. In addition, the potential impact could exacerbate the other risks to which the Company is subject to including, but not limited to, the risk factors described therein.

• Impact of Future Regulation Changes May Have an Adverse Impact on the Company’s Profitability.

Congress often considers new financial industry legislation, and the federal banking agencies routinely propose new regulations. New legislation and regulation may include dramatic changes with respect to the federal deposit insurance system, consumer financial protection measures, compensation and systematic risk oversight authority. There can be no assurances that new legislation and regulations will not adversely affect us.

On July 21, 2010, President Obama signed into law the “Dodd-Frank Wall Street Reform and Consumer Protection Act”, which instituted major changes to the banking and financial institutions regulatory regimes in light of the recent performance of and government intervention in the financial services sector. The act includes a number of specific provisions designated to promote enhanced supervision and regulation of financials firms and financial markets, protect consumers and investors from financial abuse and provide the government with tools to manage a financial crisis and raise international regulatory standards. The act also introduces a substantial number of reforms that reshape the structure of the regulation of the financial services industry, requiring more than 60 studies to be conducted and more than 200 regulations to be written over the next two years. Although the true impact of this legislation to SHUSA and the industry will be unknown until these are complete, they will involve higher compliance costs and certain elements, such as the debit interchange legislation, will negatively affect the Company’s revenue and earnings. See further discussion on Dodd-Frank in Item 1-Business.

These and other changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect SHUSA in substantial and unpredictable ways. Such changes present the risk of financial loss due to regulatory fines or penalties, restriction or suspension of business, or cost of mandatory corrective action as a result of failing to adhere to applicable laws, regulations, and supervisory guidance.

• The Preparation of SHUSA’s Financial Statements Requires the Use of Estimates That May Vary From Actual Results.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make significant estimates that affect the financial statements. One example of a significant critical estimate is the level of the allowance for credit losses. Due to the inherent nature of this estimate, SHUSA cannot provide absolute assurance that it will not significantly increase the allowance for credit losses and/or sustain credit losses that are significantly higher than the provided allowance.

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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.

SHUSA is subject to the income tax laws of the U.S., its states and municipalities and certain foreign countries. These tax laws are complex and subject to different interpretations by the taxpayer and relevant Governmental taxing authorities which is sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense and filing returns, the Company must make judgments and interpretations about the application of these inherently complex tax laws.

• Changing Interest Rates May Adversely Affect the Bank’s Profits.

To be profitable, the Bank must earn more money from interest on loans and investments and fee-based revenues than the interest the Bank pays to the depositors and creditors and the amount necessary to cover the cost of the operations of the Bank. Rising interest rates may hurt income because they may reduce the demand for loans and the value of the investment securities and loans, and increase the amount that is paid to attract deposits and borrow funds. If interest rates decrease, net interest income could be negatively affected if interest earned on interest-earning assets, such as loans, mortgage-related securities, and other investment securities, decreases more quickly than interest paid on interest-bearing liabilities, such as deposits and borrowings. This would cause net interest income to go down. In addition, if interest rates decline, loans and investments may prepay earlier than expected, which may also lower income. Interest rates do and will continue to fluctuate, and management cannot predict future Federal Reserve Board actions or other factors that will cause rates to change. If the yield curve steepens or flattens, it could impact net interest income in ways management may not accurately predict.

• The Bank Experiences Intense Competition for Loans and Deposits.

Competition among financial institutions in attracting and retaining deposits and making loans is intense. The Bank’s most direct competition for deposits has come from commercial banks, savings and loan associations and credit unions doing business in the Bank’s areas of operation, as well as from nonbanking sources, such as money market mutual funds and corporate and government debt securities. Competition for loans comes primarily from commercial banks, savings and loan associations, consumer finance companies, insurance companies and other institutional lenders. The Bank competes primarily on the basis of products offered, customer service and price. A number of institutions with which the Bank competes have greater assets and capital than the Bank does and, thus, may have a competitive advantage.

• The Company is Subject to Substantial Regulation Which Could Adversely Affect Its Business and Operations.

As a financial institution, the Company and the Bank are subject to extensive regulation, which materially affects their businesses. Statutes, regulations and policies to which the Company and the Bank are subject may be changed at any time, and the interpretation and the application of those laws and regulations by regulators is also subject to change. There can be no assurance that future changes in regulations or in their interpretation or application will not adversely affect either the Company or the Bank.

The regulatory agencies having jurisdiction over banks and thrifts have under consideration a number of possible rulemaking initiatives which impact bank and thrift and bank and bank holding company capital requirements. Adoption of one or more of these proposed rules could have an adverse effect on the Company and the Bank.

• Changes in Accounting Standards Could Impact Reported Earnings.

The accounting standard setters, including the FASB, SEC and other regulatory bodies, periodically change the financial accounting and reporting standards that govern the preparation of SHUSA’s consolidated financial statements. These changes can be hard to predict and can materially impact how it records and reports its financial condition and results of operations. In some cases, SHUSA could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.

• The Company Relies on Third Parties for Important Products and Services.

Third party vendors provide key components of the Company’s business infrastructure such as loan and deposit servicing systems, internet connections and network access. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect the Company’s ability to deliver products and services to customers and otherwise to conduct business.

Replacing these third party vendors could also entail significant delays and expense.

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• Framework for Managing Risks May Not be Effective in Mitigating Risk and Loss to the Company.

Risk management framework is made up of various processes and strategies to manage the Company’s risk exposure. Types of risks to which the Company is subject include liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal risk, compliance risk and reputation risk, among others. The framework to manage risk, including the framework’s underlying assumptions, may not be effective under all conditions and circumstances. If the risk management framework proves ineffective, the Company could suffer unexpected losses and could be materially adversely affected.

• Disclosure Controls and Procedures Over Financial Reporting May Not Prevent or Detect All Errors or Acts of Fraud.

Disclosure controls and procedures over financial reporting are designed to reasonably assure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Any disclosure controls and procedures over financial reporting or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by any unauthorized override of the controls. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.

• System Integration Risks Exist Related to the Acquisition of the Company by Santander.

On January 30, 2009, the Company was acquired by Santander. Successful integration into existing businesses of Santander depends upon the integration of key systems to fully realize revenue synergies and cost savings from the transaction. By its nature, SHUSA’s businesses depend upon automated systems to record and process high volumes of transactions. Accordingly, performing system conversions may lead to business disruptions or certain errors being repeated or compounded before they are discovered and successfully rectified.

• Reputational and Compliance Risk Exist Related to the Company’s Foreclosure Activities

Please refer to Foreclosures section within Item 1—Business and Note 22 to the Consolidated Financial Statements for further discussion.

• Compromises of the Company’s data security could materially harm the Company’s reputation and business

The Company is subject to the risk of data security breaches. In the ordinary course of business, the Company’s activities include the collection, storage and transmission of certain personal and financial information from individuals, such as customers and employees. Security breaches could expose the Company to a risk of loss of this information, litigation, and potential liability. The Company’s cyber security measures may be breached due to the actions of outside parties, employee error, or otherwise, and, as a result, an unauthorized party may obtain access to the Company’s or customers’ information. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information in order to gain access to the Company’s or customers’ information. Any such breach or unauthorized access could result in significant legal and financial exposure, damage to the Company’s reputation, and a loss of confidence that could potentially have an adverse effect on future business with current and potential customers. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of the Company’s security occurs, the market perception of the effectiveness of the Company’s cyber security measures could be harmed and the Company could lose potential future business.

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Item 1B Unresolved Staff Comments

None.

Item 2 Properties

SHUSA utilizes 778 buildings that occupy a total of 5.9 million square feet, including 223 owned properties with 1.7 million square feet, 431 leased properties with 2.5 million square feet and 124 sale and leaseback properties with 1.7 million square feet. Seven major buildings contain 1.2 million square feet, which serve as the headquarters or house significant operational and administrative functions:

Columbia Park Operations Center—Dorchester, Massachusetts—Leased

195 Montague Street Regional Headquarters for Independence Community Bank Corp. — Brooklyn, New York—Owned

East Providence Call Center and Operations and Loan Processing Center—East Providence, Rhode Island—Leased

75 State Street Bank Headquarters for SHUSA and Sovereign Bank—Boston, Massachusetts—Leased

405 Penn Street Sovereign Bank Plaza Call Center and Operations and Loan Processing Center—Reading, Pennsylvania— Leased

601 Penn Street Loan Processing Center—Reading, Pennsylvania—Owned

1130 Berkshire Boulevard Administrative Offices—Wyomissing, Pennsylvania—Owned

The majority of the seven properties of the Company outlined above are utilized for general corporate purposes by the Other function. The remaining 771 properties consist primarily of bank branches and lending offices used by the Retail banking segment.

Item 3 Legal Proceedings

Reference should be made to Note 19 to the Consolidated Financial Statements for disclosure regarding the lawsuit filed by SHUSA against the Internal Revenue Service/United States and “Litigation” in Note 22—“Commitments and Contingencies” for SHUSA’s litigation disclosure which is incorporated herein by reference.

Item 4 Mine Safety Disclosures

Not applicable.

PART II

Item 5 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock was traded on the New York Stock Exchange (“NYSE”) under the symbol “SOV” through January 29, 2009. On January 30, 2009, all shares of the Company common stock were acquired by Santander and delisted from the NYSE. Following such delisting, there has not been, nor is there currently, an established public trading market in shares of the Company’s common stock. As of the date of this filing, Santander was the sole holder of the Company’s common stock.

Refer to the Liquidity and Capital Resources section in Item 7, MD&A for further discussion on dividends.

Refer to Note 20 to the Consolidated Financial Statements for further discussion on equity compensation plans.

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Item 6 Selected Financial Data

		September 30,			September 30,			September 30,			September 30,			September 30,
	SELECTED FINANCIAL DATA
	FOR THE YEAR ENDED DECEMBER 31,
(Dollars in thousands)	2011 (1)			2010 (1)			2009(1)			2008			2007
Balance Sheet Data
Total assets	$	80,565,199		$	89,651,815		$	82,953,215		$	77,093,668		$	84,746,396
Loans held for investment, net of allowance		50,223,888			62,820,434			55,733,953			54,439,146			56,729,982
Loans held for sale		352,471			150,063			118,994			327,332			547,760
Investment securities		16,133,946			15,691,984			14,301,638			10,020,110			15,142,392
Deposits and other customer accounts		47,797,515			42,673,293			44,428,065			48,438,573			49,915,905
Borrowings and other debt obligations		18,278,433			33,630,117			27,235,151			20,964,185			26,272,512
Stockholders’ equity		12,596,163			11,260,670			9,387,535			5,596,714			6,992,325
Summary Statement of Operations
Total interest income	$	5,253,013		$	4,784,489		$	4,423,586		$	3,923,164		$	4,656,256
Total interest expense		1,388,199			1,385,850			1,780,082			2,040,722			2,813,013
Net interest income		3,864,814			3,398,639			2,643,504			1,882,442			1,843,243
Provision for credit losses (2)		1,319,951			1,627,026			1,984,537			911,000			407,692
Net interest income after provision for credit losses		2,544,863			1,771,613			658,967			971,442			1,435,551
Total non-interest income / (expense) (2)		1,996,672			1,029,469			342,297			(818,743	)		354,396
General and administrative expenses(3)		1,842,224			1,573,100			1,520,460			1,484,306			1,336,865
Other expenses (4)		532,786			208,997			603,703			302,027			1,862,794
Income/(loss) before income taxes		2,166,525			1,018,985			(1,122,899	)		(1,633,634	)		(1,409,712	)
Income tax (benefit)/provision (5)		908,279			(40,390	)		(1,284,464	)		723,576			(60,450	)
Net income/(loss)	$	1,258,246		$	1,059,375		$	161,565		$	(2,357,210	)	$	(1,349,262	)
Selected Financial Ratios
Return on average assets (6)		1.37	%		1.25	%		0.20	%		(2.99	)%		(1.62	)%
Return on average equity (7)		10.53	%		10.12	%		1.98	%		(31.27	)%		(15.40	)%
Average equity to average assets (8)		12.97	%		12.34	%		9.89	%		9.55	%		10.52	%
Efficiency ratio (9)		40.52	%		40.25	%		71.14	%		167.94	%		145.59	%

(1) In July 2009, Santander contributed SCUSA, a majority owned subsidiary, into the Company. SCUSA’s results of operations were consolidated from January 2009 until December 31, 2011. SCUSA will subsequently be accounted for as an equity method investment. Refer to the SCUSA Transaction section in MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information. The contribution resulted in increases to total assets, borrowings and debt obligations and stockholder’s equity at December 31, 2009 of $9.1 billion, $7.5 billion and $1.3 billion, respectively. The 2009 statement of operations was also impacted with increases to net interest income, provision for credit losses and general and administrative expense of $1.3 billion, $720.9 million and $253.0 million, respectively. At December 31, 2011, the SCUSA Transaction resulted in decreases to total assets, net loans, investments and borrowings of $17.6 billion, $16.7 billion, $188.3 million, and $16.8 billion, respectively.

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(2) The U.S. recession during 2008 and 2009 and continued levels of high unemployment have negatively impacted provisions for credit losses. Beginning in 2010 and continuing through 2011, the Company began to experience favorable credit quality trends and declining provisions due, in large part, to the modest economic recovery in the U.S. and the Company’s footprint. Non-interest income in 2011 includes the pre-tax gain related to the SCUSA Transaction of $987.7 million. Non-interest income in 2010 includes $205.3 million of gains on the sale of investment securities as well as higher servicing fees due to portfolio acquisition volume at SCUSA. Non-interest income in 2009 includes other-than-temporary impairment (“OTTI”) charges of $180.2 million and increases to multi-family recourse reserves of $188.9 million. Non-interest income for 2008 includes a $602.3 million loss on the sale of the CDO portfolio and a $575.3 million pre-tax OTTI charge on FNMA and FHLMC preferred stock and a pre-tax OTTI charge of $307.9 million on certain non-agency mortgage backed securities. Non-interest income for 2007 includes a pre-tax OTTI charge of $180.5 million on FNMA and FHLMC preferred stock.

(3) The increase in general and administrative expense from 2010 to 2011 was due primarily to increased compensation and benefit expenses and increased loan servicing expenses at SCUSA. Compensation and benefit expense increased due to additional employee count and the reinstatement of personnel benefits. From June 2009 to June 2010, the Company ceased matching employee contributions. In July 2010, the Company resumed matching 100.0% of employee contributions up to 3.0% of their compensation and 50.0% of employee contributions between 3.0% and 5.0%. 2011 includes $215.1 million of loan servicing expense compared to $144.5 in 2010. 2011 also includes an increase in compensation and benefits from $707.6 million in 2010 to $796.1 million in 2011.

(4) 2011 includes the PIERS litigation accrual expense of $344.2 million. See further discussion in Note 22 to the Consolidated Financial Statements. 2011 and 2010 include debt extinguishment charges of $38.7 and $25.8 million, respectively. 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, the Bank redeemed $1.4 billion of high cost FHLB advances incurring a debt extinguishment charge of $68.7 million. 2008 results include an impairment charge of $95.0 million on an equity method investment. The impairment was caused by a decline in 2008 earnings compared to prior years from this investment as well as the expectation that future results would be significantly impacted by the recessionary environment. 2007 results include a $1.6 billion goodwill impairment charge.

(5) 2011 includes the tax effect of the gain related to the SCUSA Transaction of $381.6 million, tax effect related to the accrual for the PIERS litigation and an increase to the deferred tax valuation allowance. Due to the profitability of SHUSA in 2010 and expected future growth in profits of SHUSA by the end of 2010, SHUSA began to consider the projected taxable income of the total company, and not just that of SCUSA, in its realizability analysis. As a result, the Company was able to reduce its deferred tax valuation allowance by $309.0 million for the year ended December 31, 2010. During 2009, Santander contributed SCUSA into SHUSA. As a result of incorporating the future taxable income projections of SCUSA, the Company was able to reduce its deferred tax valuation allowance by $1.3 billion for the year ended December 31, 2009. SHUSA recorded a $1.4 billion valuation allowance against its deferred tax assets for the year-ended December 31, 2008.

(6) Return on average assets is calculated by dividing net income by the average balance of total assets for the year.

(7) Return on average equity is calculated by dividing net income by the average balance of stockholders’ equity for the year.

(8) Average equity to average assets is calculated by dividing the average balance of stockholder’s equity for the year by the average balance of total assets for the year.

(9) Efficiency ratio is calculated by dividing the total of general and administrative expenses and other expenses for the year by the total of net income interest and non-interest income.

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Santander Holdings USA, Inc. and Subsidiaries

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Executive Summary

The Company is comprised of one major subsidiary, the Bank. The Bank is a $78 billion financial institution as of December 31, 2011 with retail branches, operations and team members located principally in Pennsylvania, Massachusetts, New Jersey, Connecticut, New Hampshire, New York, Rhode Island, Delaware and Maryland. The Bank gathers substantially all of its deposits in these market areas. The Bank uses these deposits, as well as other financing sources, to fund the loan and investment portfolios. The Bank earns interest income on the loan and investment portfolios. In addition, the Bank generates non-interest income from a number of sources including deposit and loan services, sales of loans and investment securities, capital markets products and bank-owned life insurance. The principal non-interest expenses include employee compensation and benefits, occupancy and facility-related costs, technology and other administrative expenses. The volumes, and accordingly the financial results, are affected by the economic environment, including interest rates, consumer and business confidence and spending, as well as the competitive conditions within the Company’s geographic footprint. On January 30, 2009, the Company was acquired by Santander.

In July 2009, Santander contributed SCUSA, a majority owned subsidiary, into the Company. SCUSA’s results of operations were consolidated from January 2009 until December 31, 2011. On December 31, 2011, the Company deconsolidated SCUSA as a result of certain agreements with investors entered into during the fourth quarter 2011. Accordingly, as of December 31, 2011 SCUSA is accounted for as an equity method investment. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information.

Customers select the Bank for banking and other financial services based on its ability to assist customers and provide customized solutions. Following the acquisition by Santander, the Company began to change its strategy substantially. During 2009 and much of 2010, the Company’s primary emphasis was stabilization and turning around the operating results of the Company by realigning various elements of the Santander business model into the Company’s reporting structure. The second phase, transformation, has already begun and focuses on creating a sound, sustainable, and competitive franchise.

Successful stabilization efforts included improving risk management and collections, improving the Company’s margins and efficiency, and reorganizing to align to Santander business models. Noteworthy accomplishments include a return to positive operating cash flows and profitability in 2010, establishment of a centralized and independent risk management function, implementation of certain pricing and fee assessment changes to the deposit portfolio, implementation of a new sales process across the network while introducing several new products in connection with the Better Banking campaigns, and completion of a significant reduction in workforce, in large part, from consolidating certain back office functions and eliminating certain middle to senior management positions.

Moving forward, the Company’s priorities to transform the franchise include the following key initiatives:

• Growing Corporate Banking is a key priority for the Bank. Management plans to take a measured and gradual approach to building a strong franchise. Significant Corporate Banking initiatives include strengthening the Large Corporate unit as a competitive provider for large corporate customers, balancing penetration of different Corporate Banking units within the Bank’s footprint in New England, Metro New York, and the Mid-Atlantic region, increasing participation in syndicated and club loans to in-footprint companies, upgrading the technology platform and operational capabilities, and taking advantage of Santander’s global presence by seeking U.S. Transaction Banking business from non-U.S. Santander clients.

• Management’s priority in Global Banking and Markets (GBM) is to grow the business in the existing Santander US client base through a sector specific approach with a differentiated product offering. This will include different types of financing, hedging and transactional services with the objective of improving the existing cross-selling and increasing revenue per client. GBM also expects to grow as a product provider to the Large Corporate and Middle Market client segments served by the Bank.

• Retail Banking efforts are focused on increasing market share in the existing primary service area, cross-selling to existing and new customers, and reducing dependence on third-party service providers. Significant initiatives in Retail Banking include migrating to Santander’s retail banking platform and subsequent implementation of more robust product applications and MIS, enhancing the online, ATM, and call center platforms, introducing mobile banking and enhanced functionality in the existing electronic banking platform, and developing the capability to issue and service credit cards directly.

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Santander Holdings USA, Inc. and Subsidiaries

• Integrating information technology and operations systems by building a reliable and sales-oriented technology infrastructure to drive efficiency across all areas of the Bank. This allows leverage of Santander’s factories, technology expertise and cost management approach as appropriate to minimize costs while maintaining quality of service.

In order to improve operating returns, management has continued to focus on acquiring and retaining customers by demonstrating convenience through the Bank’s locations, technology and business approach while offering innovative and easy-to-use products and services.

Economy

More than two-and-a-half years after the official end of the longest and deepest recession since World War II, the United States is continuing to undergo a slower-than-average recovery, similar to the experience of other countries facing financial crises. The recovery started strong with growth in the nation’s gross domestic product (GDP) averaging 3.0 percent over the first six quarters after the official end of the recession, but slowed considerably in the first half of 2011. Many analysts have referred to the recovery to date as “modest” or “disappointing.” The unemployment rate fell from a peak of 10.0% in late 2009 to 8.5 % by December 2011. The unemployment rate in the majority of the Company’s principal locations is lower than the national average, and is lower in December 2011 than December 2010. The slow recovery of the unemployment rate has been accompanied by a 2% decline in the labor force participation rate since the onset of the recession. The long-term unemployed, those out of work for 27 or more weeks, account for an unprecedented share of the unemployed. Home prices declined by more than 30% from their peak in early 2006, and the housing market remains at or very near record lows.

Recent Industry Consolidation in the Geographic Footprint

The Company believes its acquisition by Santander strengthened the Company’s financial position and enabled the Company to execute its strategy of focusing on its core retail and commercial customers in the Company’s geographic footprint. The banking industry has experienced significant consolidation in recent years, which is likely to continue in future periods. Consolidation may affect the markets in which the Company operates as new or restructured competitors integrate acquired businesses, adopt new business practices or change product pricing as they attempt to maintain or grow market share. Recent merger activity involving national, regional and community banks and specialty finance companies in the Northeastern United States, has affected the competitive landscape in the markets the Company serves. Management continually monitors the environment in which it operates to assess the impact of the industry consolidation on the Company, as well as the practices and strategies of the Company’s competitors, including loan and deposit pricing, customer expectations and the capital markets.

Current Regulatory Environment

On July 21, 2010, President Obama signed into law the “Dodd-Frank Wall Street Reform and Consumer Protection Act”, which is a significant development for the industry. The elements of the Act addressing financial stability are largely focused on issues related to systemic risks and capital markets-related activities. The Act includes a number of specific provisions designed to promote enhanced supervision and regulation of financial firms and financial markets, protect consumers and investors from financial abuse and provide the government with tools to manage a financial crisis and raise international regulatory standards. The Act also introduces a substantial number of reforms that reshape the structure of the regulation of the financial services industry, requiring more than 60 studies to be conducted and more than 200 regulations to be written over the next two years.

The true impact of this legislation to the Company and the industry will be unknown until these reforms are complete, although they will involve higher compliance costs. Certain elements have, and will continue to, negatively affect the Company’s revenue and earnings; while certain other elements, such as the “Collins Amendment”, will phase in the heightened capital standards by eliminating trust preferred securities as tier 1 regulatory capital for certain financial institutions. Other impacts include increases to the levels of deposit insurance assessments on large insured depository institutions, impacts to the nature and levels of fees charged to consumers, changes to the types of derivative activities that the Bank and other insured depository institutions may conduct, and other increases to capital, leverage and liquidity requirements for banks and bank holding companies. Financial institutions deemed to be systemically important (generally defined as financial institutions, similar to the Company, with greater than $50 billion in total assets) will be subject to additional supervision and requirements to develop resolution plans for potential economic and market events that could have a significant negative impact on their business. These changes could impact the future profitability and growth of the Company.

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Santander Holdings USA, Inc. and Subsidiaries

In the fourth quarter of 2009, The Federal Reserve Board (FRB) announced regulatory changes to debit card and ATM overdraft practices that were effective July 1, 2010. These changes prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions. These changes have adversely impacted consumer banking fee revenue.

In December 2010, the Basel Committee on Banking Supervision issued “Basel III: A global regulatory framework for more resilient banks and banking systems” (“Basel III”). Basel III is a comprehensive set of reform measures designed to strengthen the regulation, supervision and risk management of the banking sector. Basel III is expected to significantly increase the capital required to be held by banks or holding companies and narrow the types of instruments which would qualify as providing appropriate capital. Banks or holding companies will also be required to hold a capital conservation buffer, which would be designed to absorb losses during periods of economic stress. Banks or holding companies not meeting these requirements will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The phase-in period for the new minimum capital requirements and related buffers will begin in 2013 and is expected to be completed by 2019.

In July 2011, the Basel Committee issued the proposed consultative document “Globally Systemic Important Banks: Assessment Methodology and the Additional Loss Absorbency Requirement” which sets out measures for global, systemically important financial institutions including the methodology for measuring systemic importance, and the additional capital requirements. In November 2011, the Basel Committee issued the final provisions of the document. This will be phased in from 2016 through 2018.

The Basel III rules do not apply to U.S. banks or holding companies automatically. As timing for the U.S. banking agency’s publication to implement the Basel III capital framework and the implementation schedule is unknown, significant uncertainty exists to the ultimate impacts of Basel III on U.S. financial institutions.

Recent Developments in Bank Regulation

In May 2011, the Bank applied to the Office of the Comptroller of the Currency (“OCC”) to become a national bank organized under the National Bank Act. In connection with this application, the Company submitted an application to the FRB to become a bank holding company, upon the conversion of the bank to a national bank, under the Bank Holding Company Act of 1956, as amended. On October 14, 2011, the FRB approved the Company’s application. On November 8, 2011 the OCC approved the application by the Bank. Effective on January 26, 2012, the Bank converted from a federal savings bank to a national banking association. In connection with the charter conversion, the Bank has changed its name to Sovereign Bank, National Association. Also effective on January 26, 2012, the Company has become a bank holding company.

As a national bank, the Bank is no longer subject to federal thrift regulations and instead is subject to the OCC’s regulations under the National Bank Act. The various laws and regulations administered by the OCC for national banks affect corporate practices and impose certain restrictions on activities and investments, but the Company does not believe that the Bank’s current or currently proposed business will be limited materially, if at all, by these restrictions. In addition, as a national bank, the Bank is no longer subject to the qualified thrift lender requirement, which requires thrifts to maintain a certain percentage of their “portfolio assets” in certain ‘qualified thrift investments,” such as residential housing related loans, certain consumer and small business loans and residential mortgage-backed securities. The Bank is no longer subject to the restrictions in the Home Owners’ Loan Act limiting the amount of commercial loans that the Bank may make.

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Santander Holdings USA, Inc. and Subsidiaries

As a bank holding company, the Company is subject to the comprehensive, consolidated supervision and regulation of the FRB. The Company is subject to risk-based and leverage capital requirements and information reporting requirements. The Company believes that it is “well capitalized” under the FRB’s capital standards.

Additionally, because the Company has more than $50 billion in total consolidated assets, as a bank holding company it will become subject to the heightened prudential and other requirements for large bank holding companies. The Dodd-Frank Act imposes heightened prudential requirements on bank holding companies with at least $50 billion in total consolidated assets and requires the FRB to establish prudential standards for such large bank holding companies that are more stringent than those applicable to other bank holding companies, including standards for risk-based capital requirements and leverage limits, liquidity, risk-management requirements, and credit exposure reporting and concentration limits. As part of the Dodd-Frank enhanced supervision framework, the Company will be subject to annual stress tests by the FRB, and the Company and the Bank will be required to conduct semi-annual and annual stress tests, respectively, reporting results to the FRB and the OCC. The FRB also has discretionary authority to establish additional prudential standards, on its own or at the Financial Stability Oversight Council’s recommendation, regarding contingent capital, enhanced public disclosures, short-term debt limits, and otherwise as it deems appropriate.

Additionally, federal laws restrict the types of activities in which bank holding companies may engage, and subject them to a range of supervisory requirements, including regulatory enforcement actions for violations of laws and policies. Bank holding companies may engage in the business of banking and managing and controlling banks, as well as closely related activities. The Company does not expect the limitations described above will adversely affect the current operations or materially prohibit the Company from engaging in activities that are currently contemplated by its business strategies.

On June 29, 2011, the FRB issued the final rule implementing the debit card interchange fee and routing regulation rules pursuant to the “Durbin amendment”. The final rule establishes standards for assessing whether debit card interchange fees received by debit card issuers are “reasonable and proportional” to the costs incurred by issuers for electronic debit transactions. In addition, the final rule prohibits network exclusivity arrangements on debit cards to ensure merchants have choices in how debit card transactions are routed. The effective date for the provision regarding debit card interchange fees and the network exclusivity prohibition was October 1, 2011 and April 1, 2012, respectively. The negative impact of the Durbin amendment on revenue is approximately $50 to $60 million annually based on the current debit card transaction volume.

Current Interest Rate Environment

Net interest income represents a significant portion of the Company’s revenues. Accordingly, the interest rate environment has a substantial impact on SHUSA’s earnings. Currently, the Company is in an asset sensitive interest rate risk position. During 2011, the net interest margin increased to 4.86% from 4.69% in 2010. This increase in margin is primarily attributable to the changing interest rate environment combined with a mix shift from higher cost wholesale deposits to lower cost retail deposits. Net interest margin in future periods will be impacted by several factors such as but not limited to, the Company’s ability to grow and retain core deposits, the future interest rate environment, loan and investment prepayment rates, and changes in nonaccrual loans. See further discussion in “Asset and Liability Management” including the estimated impact of changes in interest rates on the Company’s net interest income.

Credit Risk Environment

The credit quality of the loan portfolio has a significant impact on the operating results. The Company had net charge-offs of $1.3 billion in 2011 compared to $1.2 billion in 2010. Net charge-offs related to SCUSA in 2011 were $451.3 million compared to $432.0 million in 2010. The provision for credit losses was $1.3 billion in 2011 compared to $1.6 billion in 2010.

Unemployment in the United States continues to remain near historically high levels, and conditions are expected to remain challenging for financial institutions into 2012. Conditions in the housing market have been difficult over the past few years and declining real estate values and financial stress on borrowers have resulted in elevated levels of delinquencies and charge-offs. Accordingly, consumers and financial institutions remain cautious as weak housing markets, high unemployment, and volatile global credit and market environments remain a concern.

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Santander Holdings USA, Inc. and Subsidiaries

Conditions in the housing market have significantly impacted areas of the Company’s business. Certain segments of the Bank’s consumer and commercial loan portfolios have exposure to the housing market. Total residential real estate loans including held for sale increased to $11.6 billion at December 31, 2011 from $11.2 billion at December 31, 2010, while Alt-A residential real estate loans (also known as limited documentation) decreased to $1.5 billion from $1.9 billion over the same respective period. Charge-offs on the Alt-A residential real estate loans have increased year-over-year and totaled $95.8 million for the year ended December 31, 2011 compared to $45.3 million for the year ended December 31, 2010. The increase in charge-offs in the Alt-A residential real estate loan portfolio during 2011 was due to a one-time write-off of $46.8 million of Specific Valuation Allowances (SVAs) in this portfolio. In certain circumstances, SVAs were permitted to be used instead of partial charge-offs by the OTS, the Company’s former regulator. To conform to OCC policies, the Bank charged-off $103.7 million of mortgage loans against their related SVAs during 2011. These charge-offs did not have an impact on the results of operations. Future performance of the residential loan portfolio will continue to be significantly influenced by home prices in the residential real estate market, unemployment and general economic conditions.

The homebuilder industry also has been impacted by difficult new home sales volumes and values of residential real estate which has impacted the profitability and liquidity of these companies. Declines in real estate prices have been the most pronounced in certain states where previous increases were the largest, such as California, Florida and Nevada. Additionally, heightened foreclosure volumes have continued in various other areas due to the generally challenging economic environment and levels of unemployment. The Company provided financing to various homebuilder companies which is included in the commercial loan portfolio. The Company has been reducing its loss exposure to this loan portfolio which has resulted in the decline to $95.8 million at December 31, 2011 compared to $189.4 million at December 31, 2010. At December 31, 2011, the entire homebuilder loan portfolio is in the Company’s geographic footprint which generally has had more stable economic conditions on a relative basis compared to the national economy. Management will continue to monitor the credit quality of this portfolio in future periods given the recent market conditions and determine the impact, if any, on the allowance for loan losses related to these homebuilder loans.

Concerns regarding Greece’s ability to meet its debt obligations have continued to heighten. In addition, recent market sentiment has raised serious doubt about the credit quality of certain other European jurisdictions. Other than transactions with the parent company, Santander, as further described in Notes 13 and 27 to the Consolidated Financial Statements, the Company’s exposure to Eurozone countries includes the following (amounts are in thousands):

		September 30,		September 30,		September 30,
Country	Bonds(1)		Government Institution Bonds		Total(2)
Germany	$	45,424	$	—	$	45,424
Spain		181,199		75,683		256,882
France		176,797		—		176,797
Italy		68,756		—		68,756
Portugal		65,859		—		65,859
	$	538,035	$	75,683	$	613,718

⁽¹⁾  Includes investments in multi-national corporations including covered bonds with high investment grade ratings and operating diversification outside of their home countries. The above country represents the ultimate obligor, however the investment is in corporations or entities that are domiciled in a different country.

⁽²⁾  The Company’s exposure includes $310.0 million in non-financial institutions and $304.0 million in financial institutions.

Overall, gross exposure to these countries is less than 1.0% of the Company’s total assets as of December 31, 2011. The Company has no exposure to any other country in the Eurozone including Ireland or Greece. The Company currently does not have credit protection on any of these exposures. During 2011, the Company entered into cross currency swaps in order to hedge the foreign exchange risk on certain Euro denominated investments.

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Santander Holdings USA, Inc. and Subsidiaries

On August 5, 2011, Standard & Poor’s (“S&P”), one of three major credit rating agencies which also include Moody’s Investors Service and Fitch, lowered its long-term credit rating on the United States sovereign debt from AAA to AA+. Moody’s and Fitch each maintained the highest rating on U.S. sovereign debt, but have assigned a negative outlook to its ratings. The implications of these actions by the ratings agencies could include negative effects on U.S. Treasury securities as well as instruments issued, guaranteed or insured by government agencies or government-sponsored institutions. These types of instruments are significant assets for the Company. In addition, the potential impact could exacerbate the other risks to which the Company is subject to including, but not limited to, the risk factors described in Part I, Item 1A – Risk Factors of the Annual Report on Form 10-K.

On October 11, 2011, Fitch Ratings downgraded six Spanish banks, including Santander, indicating that this was due to the downgrade of the Kingdom of Spain to AA-, as well as to the fact that banks worldwide and particularly in Europe, face challenges in fundamentals and in the markets. Fitch ratings were downgraded for Banco Santander from AA with stable outlook to AA- with negative outlook. Also on October 11, 2011, Standard & Poor’s downgraded Spanish banks because it believes the sluggish growth prospects, the still depressed real estate market and increased turbulence in capital markets will impact financial entities in the coming months. Banco Santander’s long-term debt ratings are AA- with negative outlook. On October 19, 2011, Moody’s also downgraded Spanish entities as a result of downgrading Spain’s sovereign debt to A1. The long-term debt ratings of Banco Santander were downgraded from Aa2 to Aa3, maintaining a negative outlook.

As a result of the continuing decline in the European markets, as well as the downgrade of the Kingdom of Spain from AA- to A on January 27, 2012, Fitch Ratings downgraded fifteen Spanish banks, including Santander on February 13, 2012. Fitch ratings were downgraded for Santander from AA- to A. Also on February 13, 2012, Standard & Poor’s downgraded Spanish banks because it expects Spanish banks’ profitability to remain below the historical average over the medium term, owing to high credit provisions which could impair the Spanish banking system’s competitive dynamics. Santander’s long-term debt rating was downgraded from AA- to A+ with negative outlook. On February 16, 2012, Moody’s put over 100 banks, including certain Spanish banks on rating review for possible downgrade. The long-term debt ratings of Banco Santander are currently listed as “rate under review” for possible downgrade from its current rating of Aa3 with a negative outlook.

During 2011 and 2012 the rating agencies took the following actions regarding the Company and the Bank:

Standard and Poor’s: On October 14, 2011 Standard & Poor’s said that its ratings on SHUSA and the Bank were not affected by the downgrade of Santander on October 11, 2011. Standard & Poor’s ratings remained at A/A-1 with a stable outlook for SHUSA and the Bank. On November 29, 2011, reflecting its new rating methodology, Standard & Poor’s raised SHUSA and the Bank’s ratings to A+/A-1 with a negative outlook. On February 13, 2012, in conjunction with its downgrade of Banco Santander, Standard and Poor also downgraded SHUSA and the Bank’s ratings from A+ with negative outlook to A with negative outlook.

Fitch: In conjunction with its downgrade of Banco Santander, on October 11, 2011 Fitch also downgraded SHUSA and the Bank’s ratings from AA- with stable outlook to A+ with negative outlook for both SHUSA and the Bank. On February 13, 2012, in conjunction with its downgrade of Banco Santander, Fitch also downgraded SHUSA and the Bank’s ratings from A+ with negative outlook to A- with negative outlook.

Moody’s: In April 2011, Moody’s upgraded the Bank’s long-term debt ratings from A3 to A2 and its short term rating from P-2 to P-1. In addition, SHUSA’s outlook was improved from negative to stable but remains at a long-term debt rating of Baa1. There have been no additional actions from Moody’s related to SHUSA or the Bank’s ratings.

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Santander Holdings USA, Inc. and Subsidiaries

Results of Operations for the Years Ended December 31, 2011 and 2010

		September 30,			September 30,
	YEAR ENDED DECEMBER 31,
(Dollars in thousands)	2011			2010
Net interest income	$	3,864,814		$	3,398,639
Provision for credit losses		(1,319,951	)		(1,627,026	)
Total non-interest income		1,996,672			1,029,469
General and administrative expenses		(1,842,224	)		(1,573,100	)
Other expenses		(532,786	)		(208,997	)
Income tax (provision)/benefit		(908,279	)		40,390
Net income	$	1,258,246		$	1,059,375

The major factors affecting comparison of earnings between 2011 and 2010 were:

• Net interest income increased $466.2 million or 13.7% during 2011 principally due to higher balances at SCUSA. Excluding the impact of SCUSA, net interest income increased $39.2 million as net interest margin decreased from 2.71% in 2010 to 2.62% in 2011.

• The decrease in provision for credit losses in 2011 is related to the improvement in credit metrics as compared to 2010 though the allowance for credit losses still remains at elevated levels due to current economic environment.

• Non-interest income increased $967.2 million:

(1) 2011 includes the $987.7 million pre-tax gain recognized related to the SCUSA Transaction. See further discussion in Note 3 to the Consolidated Financial Statements.

(2) Net gains on investment securities of $74.6 million and $200.6 million in 2011 and 2010, respectively.

(3) Current year results included the growth of consumer loan fees of $116.3 million in fees related to the SCUSA loan portfolio.

• The increase in general and administrative expense from 2010 to 2011 was due primarily to increased loan servicing expenses at SCUSA and additional employee headcount and the reinstatement of personnel benefits in late 2010 at the Bank.

• Other expenses were $532.8 million in 2011, as compared to $209.0 million in 2010. The increase in other expenses was primarily due to from the accrual for the Trust PIERS litigation of $344.2 million in December 2011.

• The Company recorded an income tax provision of $908.3 million in 2011 compared to an income tax benefit of $40.4 million in 2010. Results for 2011 include some non-deductible expenses related to accruals for litigation matters and the impact of the SCUSA Transaction. Results for 2010 include a reduction of the deferred tax valuation allowance by $309.0 million.

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Santander Holdings USA, Inc. and Subsidiaries

Net Interest Income

Net interest income for 2011 was $3.9 billion compared to $3.4 billion for 2010, an increase of 13.7%. The increase in net interest income in 2011 was primarily due to increased earnings on loans. Excluding SCUSA, net interest income was $1.7 billion for 2011, compared to $1.6 billion for 2010, an increase of 2.4%. Additionally, the Bank continued to focus on net interest spreads, both in loans and deposits, as the interest rate environment remained low in 2011.

Interest on investment securities and interest-earning deposits was $419.0 million for 2011 compared to $470.7 million for 2010. Though the average investment portfolio increased by $1.4 billion during 2011, the average investment portfolio continued to be approximately 18.0% of the total average assets. The average life of the investment portfolio has decreased to 4.24 years at December 31, 2011 compared to 6.06 years at December 31, 2010. As higher yielding investments continue to mature and available funds are used to purchase lower yielding investments, the yield on investments decreased to 2.74% in 2011 from 3.36% in 2010.

Interest on loans was $4.8 billion and $4.3 billion for 2011 and 2010, respectively. The average balance of loans was $66.1 billion with an average yield of 7.32% for 2011 compared to an average balance of $60.4 billion with an average yield of 7.17% for 2010. These increases are driven by $8.0 billion of loans acquired by SCUSA during the latter half of 2010, $1.7 billion of loans acquired by the Bank during the first quarter of 2011, and $181.9 million of credit card loans acquired by the Bank during the second quarter of 2011. At December 31, 2011, approximately 35% of the Bank’s total loan portfolio reprices monthly or more frequently.

Interest on total deposits was $248.7 million for 2011 compared to $228.6 million for 2010. The average balance of deposits was $39.2 billion with an average cost of 0.64% for 2011 compared to an average balance of $35.0 billion with an average cost of 0.65% for 2010. The decrease in interest expense is due to the continued lower interest rate environment in 2011, as well as repricing efforts on promotional money market and time deposit accounts during 2011. Additionally, the average balance of non-interest bearing deposits increased to $7.6 billion in 2011 from $7.1 billion in 2010.

Interest on borrowings and other debt obligations was $1.1 billion and $1.2 billion for 2011 and 2010, respectively. The average balance of total borrowings and other debt obligations was $30.9 billion with an average cost of 3.69% for 2011 compared to an average balance of $30.2 billion with an average cost of 3.84% for 2010. The increase in borrowing levels is primarily due to SCUSA asset earning growth which has been funded with increased borrowing.

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Santander Holdings USA, Inc. and Subsidiaries

Table 1 presents a summary on a tax equivalent basis of the Company’s average balances, the yields earned on average assets and the cost of average liabilities for the years indicated (in thousands):

Table 1: Net Interest Margin

		xxxxx			xxxxx			xxxxx			xxxxx			xxxxx			xxxxx			xxxxx			xxxxx			xxxxx
	YEAR ENDED DECEMBER 31
	2011									2010									2009
	Average						Yield/			Average						Yield/			Average						Yield/
	Balance			Interest			Rate			Balance			Interest			Rate			Balance			Interest			Rate
Interest-earning assets:
Interest-earning deposits	$	2,608,839		$	6,044			0.23	%	$	1,250,666		$	3,320			0.27	%	$	2,772,893		$	7,771			0.28	%
Investment securities(1)
Available for sale		13,448,887			448,908			3.34			13,337,912			508,408			3.81			10,855,257			428,161			3.94
Other		551,741			117			0.02			659,845			1,235			0.19			700,414			1,761			0.25
Total investments		16,609,467			455,069			2.74			15,248,423			512,963			3.36			14,328,564			437,693			3.05
Loans:
Commercial loan		22,180,497			891,797			4.02			23,255,452			1,024,413			4.41			26,192,894			1,153,341			4.40
Multi-family		6,954,761			352,159			5.06			5,502,976			292,098			5.31			4,530,207			253,687			5.60
Consumer:
Residential mortgage		11,530,366			518,721			4.50			10,993,027			535,783			4.87			11,001,667			574,454			5.22
Home equity loans and lines of credit		6,924,307			267,493			3.86			7,031,078			282,760			4.02			6,912,879			302,619			4.38
Total consumer loans secured by real estate		18,454,673			786,214			4.26			18,024,105			818,543			4.54			17,914,546			877,073			4.90
Auto loans		16,110,669			2,599,689			16.14			13,325,555			2,173,337			16.31			10,366,356			1,740,423			16.79
Other		2,435,783			215,503			8.85			257,055			17,891			6.96			275,388			19,105			6.94
Total Consumer		37,001,125			3,601,406			9.73			31,606,715			3,009,771			9.52			28,556,290			2,636,601			9.23
Total loans		66,136,383			4,845,362			7.32			60,365,143			4,326,282			7.17			59,279,391			4,043,629			6.82
Allowance for loan losses		(2,225,595	)		—			—			(2,035,040	)		—			—			(1,745,257	)		—			—
Net loans(1)(2)		63,910,788			4,845,362			7.58			58,330,103			4,326,282			7.42			57,534,134			4,043,629			7.03
Total interest-earning assets		80,520,255			5,300,431			6.58			73,578,526			4,839,245			6.58			71,862,698			4,481,322			6.24
Non-interest-earning assets		11,557,793									11,264,845									10,486,084
Total assets	$	92,078,048								$	84,843,371								$	82,348,782
Interest-bearing liabilities:
Deposits:
Retail and commercial deposits	$	33,508,568		$	226,928			0.68	%	$	30,070,825		$	201,094			0.67	%	$	33,161,719		$	545,766			1.65	%
Wholesale deposits		2,134,268			9,653			0.45			1,066,009			16,327			1.53			4,108,495			76,992			1.87
Government deposits		2,211,050			8,185			0.37			2,195,651			7,355			0.33			2,080,676			12,244			0.59
Customer repurchase agreements		1,308,672			3,945			0.30			1,659,640			3,857			0.23			1,675,575			5,547			0.33
Total deposits		39,162,558			248,711			0.64			34,992,125			228,633			0.65			41,026,465			640,549			1.56
Total borrowings and other debt obligations		30,851,894			1,139,488			3.69			30,164,757			1,157,217			3.84			24,193,790			1,139,533			4.71
Total interest bearing liabilities		70,014,452			1,388,199			1.98			65,156,882			1,385,850			2.13			65,220,255			1,780,082			2.73
Non-interest-bearing DDA		7,623,390									7,097,506									6,809,303
Non-interest-bearing liabilities		2,495,305									2,119,883									2,170,858
Total liabilities		80,133,147									74,374,271									74,200,416
Stockholders’ equity		11,944,901									10,469,100									8,148,366
Total liabilities and stockholders’ equity	$	92,078,048								$	84,843,371								$	82,348,782		$
Net interest spread(3)								4.60	%								4.45	%								3.51	%
Taxable equivalent interest income/net interest margin					3,912,232			4.86	%					3,453,395			4.69	%					2,701,240			3.76	%
Tax equivalent basis adjustment					(47,418	)								(54,756	)								(57,736	)
Net interest income				$	3,864,814								$	3,398,639								$	2,643,504
Ratio of interest-earning assets to interest-bearing liabilities								1.15	x								1.13	x								1.10x

(1) The average balance of the non-taxable investment securities for the year-ended December 31, 2011, 2010 and 2009 were $1.5 billion, $1.8 billion and $1.7 billion, respectively. Tax equivalent adjustments to interest on investment securities available for sale for the years ended December 31, 2011, 2010 and 2009 were $36.1 million, $42.3 million and $43.9 million, respectively. Tax equivalent adjustments to loans for the years ended December 31, 2011, 2010 and 2009, were $11.3 million, $12.5 million and $13.8 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 $561 thousand, $1.2 million and $1.6 million for the years ended December 31, 2011, 2010 and 2009, 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.

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Santander Holdings USA, Inc. and Subsidiaries

Table 2 presents, on a tax equivalent basis, the relative contribution of changes in volumes and in rates to changes in net interest income for the periods indicated. The change in interest income not solely due to changes in volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each (in thousands):

Table 2: Volume/Rate Analysis

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011 VS. 2010									2010 VS. 2009
	INCREASE/(DECREASE)									INCREASE/(DECREASE)
	Volume			Rate			Total			Volume			Rate			Total
Interest-earning assets:
Interest-earning deposits	$	3,195		$	(471	)	$	2,724		$	(4,061	)	$	(390	)	$	(4,451	)
Investment securities available for sale		4,197			(63,697	)		(59,500	)		95,054			(14,807	)		80,247
Investment securities other		(174	)		(944	)		(1,118	)		(97	)		(429	)		(526	)
Net loans(1)		421,368			97,712			519,080			56,561			226,092			282,653
Total interest-earning assets		428,586			32,600			461,186			147,457			210,466			357,923
Interest-bearing liabilities:
Deposits		26,630			(6,552	)		20,078			(83,154	)		(328,762	)		(411,916	)
Borrowings		25,988			(43,717	)		(17,729	)		251,450			(233,766	)		17,684
Total interest-bearing liabilities		52,618			(50,269	)		2,349			168,296			(562,528	)		(394,232	)
Net change in net interest income	$	375,968		$	82,869		$	458,837		$	(20,839	)	$	772,994		$	752,155

(1) Includes non-accrual loans and loans held for sale.

Provision for Credit Losses

The provision for credit losses is based upon actual credit loss experience, growth or contraction of specific segments of the loan portfolio, and the estimation of losses inherent in the current loan portfolio. The provision for credit losses for 2011 was $1.3 billion compared to $1.6 billion for 2010.

While showing signs of stabilizing, the challenging economy and high unemployment levels has required the Company to continue to maintain elevated loan loss reserve levels. The allowance for credit losses as a percentage of total loans held for investment has decreased to 2.61% from 3.84% at December 31, 2010, primarily as a result of the effects of the SCUSA Transaction. SCUSA primarily holds sub-prime loans which require higher loan loss reserves. Although, management believes current levels of reserves are adequate to cover the incurred losses for these loans, changes in housing values, interest rates and economic conditions could require additional provision for credit losses for the loan portfolio in future periods.

Net charge-offs increased in 2011 to $1.3 billion, compared to $1.2 billion in 2010. The ratio of net loan charge-offs to average loans, including loans held for sale, was 1.92% for 2011, compared to 2.01% for 2010. Commercial loan net charge-offs as a percentage of average commercial loans was 1.73% for 2011 compared to 2.07% for 2010. The consumer loans net charge-off rate was 2.07% for 2011 and 1.95% for 2010. Excluding SCUSA, net-charge-offs increased to $818.2 million in 2011 from $780.2 million in 2010. This increase is primarily a result from charge-offs of certain mortgage loans with Specific Valuation Allowances (SVAs). In certain circumstances, the Company’s former regulator, the Office of Thrift Supervision (“OTS”), permitted the use of SVAs on mortgage loans instead of partially charging-off the loan balance. To conform to OCC policies, the Bank charged-off $103.7 million of mortgage loans against their related SVAs during 2011 which were previously reserved by SVAs. As these loans were previously reserved, the charge-off of these loans did not have an impact to the results of operations.

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Santander Holdings USA, Inc. and Subsidiaries

Table 3 presents the activity in the allowance for credit losses for the years indicated.

Table 3: Rollforward of the Allowance for Credit Losses

		September 30,			September 30,			September 30,			September 30,			September 30,
	2011			2010			2009			2008			2007
	(in thousands)
Allowance for loan losses, beginning of period	$	2,197,450		$	1,818,224		$	1,102,753		$	709,444		$	471,030
Allowance established in connection with reconsolidation of previously unconsolidated securitized assets		—			5,991			—			—			—
Adjustments to the allowance for loan losses due to SCUSA		—			—			347,302			—			—
Effects of the SCUSA Transaction		(1,208,474	)		—			—			—			—
Provision for loan losses(1)		1,364,087			1,585,545			1,790,559			874,140			394,646
Allowance released in connection with loan sales or securitizations		—			—			—			(3,745	)		(12,409	)
Charge-offs:
Commercial		545,028			650,888			518,468			238,470			65,670
Consumer		1,069,009			861,269			1,232,070			353,244			153,194
Total charge-offs		1,614,037			1,512,157			1,750,538			591,714			218,864
Recoveries:
Commercial		42,059			54,768			11,288			13,378			15,187
Consumer		302,407			245,079			316,860			101,250			59,854
Total recoveries		344,466			299,847			328,148			114,628			75,041
Charge-offs, net of recoveries		1,269,571			1,212,310			1,422,390			477,086			143,823
Allowance for loan losses, end of period	$	1,083,492		$	2,197,450		$	1,818,224		$	1,102,753		$	709,444
Reserve for unfunded lending commitments, beginning of period		300,621			259,140			65,162			28,302			15,256
Provision for unfunded lending commitments(1)		(44,136	)		41,481			193,978			36,860			13,046
Reserve for unfunded lending commitments, end of period(2)		256,485			300,621			259,140			65,162			28,302
Total allowance for credit losses	$	1,339,977		$	2,498,071		$	2,077,364		$	1,167,915		$	737,746
Net charge-offs to average loans		1.92	%		2.01	%		2.40	%		0.83	%		0.25	%

(1) 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.

(2) The reserve for unfunded commitments is classified in other liabilities on the Consolidated Balance Sheet.

See Note 1 to the Consolidated Financial Statements for the Company’s charge-off policy with respect to its various loan types. See Note 1 and Note 6 to the Consolidated Financial Statements for further discussion of the allowance for credit losses.

Non-interest Income/ (Loss)

Total non-interest income was $2.0 billion for 2011 compared to $1.0 billion for 2010. The increase in non-interest income is primarily a result from the gain related to the SCUSA Transaction. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information.

Consumer banking fees were $637.5 million for 2011 compared to $531.3 million in 2010. This increase was primarily due to an increase of $116.3 million in consumer loan fees at SCUSA from acquisition volume principally due to higher servicing fees. Excluding the increase of consumer loan fees from SCUSA, the consumer banking fees decreased $5.3 million compared to 2010, as a result of the impact of reduced overdraft fee revenues due to regulatory restrictions established as a result of the Dodd Frank Act that became effective during 2011.

Commercial banking fees were $175.0 million for 2011 compared to $180.3 million in 2010. The Company has been able to maintain the commercial fee levels due to pricing changes on the commercial deposit and loan portfolio fees.

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Santander Holdings USA, Inc. and Subsidiaries

Mortgage banking results consist of fees associated with servicing loans not held by the Company, as well as amortization and changes in the fair value of mortgage servicing rights. Mortgage banking results also include gains or losses on the sales of mortgage, home equity loans and lines of credit and multi-family loans and mortgage-backed securities that were related to loans originated or purchased and held by the Company, as well as gains or losses on mortgage banking derivative and hedging transactions.

The table below summarizes the components of net mortgage banking revenues:

		September 30,			September 30,
	Twelve-months ended December 31,
	2011			2010
	(in thousands)
(Impairments to)/recoveries of mortgage servicing rights	$	(42,515	)	$	24,564
Recoveries of multi-family servicing rights		4,726			100
Residential mortgage and multi-family servicing fees		51,175			54,355
Amortization of residential mortgage and multi-family servicing rights		(43,783	)		(57,350	)
Net gains on hedging activities		6,579			619
Gain on sales of mortgages		22,891			35,909
Loss on sales of multi-family loans		(1,881	)		(10,242	)
Total	$	(2,808	)	$	47,955

At December 31, 2011 and 2010, the Company serviced residential real estate loans for the benefit of others totaling $13.7 billion and $14.7 billion, respectively. The carrying value of the related mortgage servicing rights at December 31, 2011and 2010 was $91.3 million and $146.0 million, respectively. For 2011, the Company recorded impairment charges of $42.5 million on the mortgage servicing rights, resulting primarily from changes in anticipated loan prepayment rates (CPR) and, to a lesser extent, changes in the anticipated earnings rate on escrow and similar balances. Significant assumptions in the valuation of mortgage servicing rights are anticipated loan prepayment rates (CPR), the anticipated earnings rate on escrow and similar balances held by the Company in the normal course of mortgage servicing activities and the discount rate reflective of a market participant’s required return on investment for similar assets. Increases to prepayment speeds, which are generally driven by lower long term interest rates, result in lower valuations of mortgage servicing rights, while lower prepayment speeds result in higher valuations. The escrow related credit spread is the estimated reinvestment yield earned on the serviced loan escrow deposits. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of mortgage servicing rights while increased spreads result in higher valuations. For each of these items, the Company must make market assumptions based on future expectations. All of the assumptions are based on standards that management believes would be utilized by market participants in valuing mortgage servicing rights and are derived and/or benchmarked against independent public sources. Additionally, an independent appraisal of the fair value of the mortgage servicing rights is obtained annually and is used by management to evaluate the reasonableness of the discounted cash flow model. Future changes to prepayment speeds may cause significant future charges or recoveries of previous impairments in future periods.

The Company periodically sells qualifying mortgage loans to Freddie Mac (“FHLMC) and Fannie Mae (“FNMA”) in return for mortgage-backed securities issued by those agencies. The Company reclassifies the net book balance of the loans sold from loans to investment securities available for sale. For those loans sold to the agencies in which the Company retains servicing rights, the Company allocates the net book balance transferred between servicing rights and investment securities based on the relative fair values.

The Company previously sold multi-family loans in the secondary market to Fannie Mae while retaining servicing. In September 2009, the Bank elected to stop selling multi-family loans to Fannie Mae. Under the terms of the multi-family sales program with Fannie Mae, the Company retained a portion of the credit risk associated with the loans sold. As a result of the sales program with Fannie Mae, SHUSA retains a 100% first loss position on each multi-family loan sold to Fannie Mae under such program until the earlier to occur of (i) the aggregate approved losses on the multi-family loans sold to Fannie Mae reaching the maximum loss exposure for the portfolio as a whole or (ii) until all of the loans sold to Fannie Mae under this program are fully paid off. At December 31, 2011 and 2010, the Company serviced $9.3 billion and $11.2 billion, respectively, of loans for Fannie Mae that had been sold to Fannie Mae pursuant to this program with a maximum potential loss exposure of $167.4 million and $217.9 million, respectively. As a result of retaining servicing, the Company had net loan servicing assets of $0.4 million and $3.7 thousand at December 31, 2011 and 2010, respectively.

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Santander Holdings USA, Inc. and Subsidiaries

The Company established a liability related to the fair value of the retained credit exposure for loans sold to Fannie Mae. This liability represents the amount that the Company estimates that it would have to pay a third party to assume the retained recourse obligation. The estimated liability represents the present value of the estimated losses that the portfolio is projected to incur based upon internal specific information and an industry based default curve with a range of estimated losses. At December 31, 2011 and 2010, SHUSA had a $135.5 million and $171.7 million liability related to the fair value of the retained credit exposure for loans sold to Fannie Mae under this sales program. The Company recorded servicing asset amortization of $4.3 million and $9.4 million related to the multi-family loans sold to Fannie Mae for 2011 and 2010, respectively. The Company recorded multi-family servicing recoveries of $4.8 million and $0.1 million as of December 31, 2011 and 2010.

Income related to bank owned life insurance increased to $58.6 million for 2011 compared to $54.1 million in 2010. This $4.5 million, or 8.4% increase, was due to increased death benefits in 2011.

Net gains on investment securities were $74.6 million for 2011, compared to $200.6 million for 2010. The decrease in gains on the sale of investments was primarily due to the sale of the non-agency mortgage backed securities during 2011 which resulted in a net loss of $103.3 million. The year ended December 31, 2011 included other-than-temporary impairment charges of $0.3 million on certain non-agency mortgage backed securities. The year ended December 31, 2010 results included other-than-temporary impairment charges of $4.8 million on non-agency mortgage backed securities and FNMA/FHLMC preferred stock as well as a pre-tax gain of $14.0 million on the sale of VISA shares.

General and Administrative Expenses

Total general and administrative expenses were $1.8 billion and $1.6 billion for 2011 and 2010, respectively, or an increase of 17.1%. The increase in general and administrative expense from 2010 to 2011 was due primarily to increased compensation and benefit expenses and increased loan servicing expenses at SCUSA. Loan servicing expense in 2011 was $215.1 million compared to $144.5 in 2010. Excluding SCUSA, general and administrative expenses were $1.3 billion and $1.2 billion for 2011 and 2010, respectively. The $121.5 million increase in general and administrative expenses in 2011 were primarily due to increases in compensation and benefit expenses of $26.8 million, occupancy and equipment expenses of $30.4 million, outside services expenses of $20.5 million and legal services of $17.8 million.

Other Expenses

Total other expenses were $532.8 million for 2011 compared to $209.0 million for 2010. The increase in other expenses primarily related to the accruals of $344.2 million for the Trust PIERS litigation. See further discussion on the litigation in Note 22 to the Consolidated Financial Statements. Other expenses also included amortization expense of core deposit intangibles of $55.5 million for 2011 compared to $63.4 million for 2010. This decrease is due to decreased core deposit intangible amortization expense on previous acquisitions.

Deposit insurance expense and other costs decreased to $79.5 million in 2011 from $93.2 million in 2010, principally due to the change in the calculation of FDIC insurance premiums during April 2011 from a calculation based on the level of insured deposits to a calculation based on average total assets less average tangible equity. FDIC insurance premiums decreased $13.7 million in 2011 from 2010, largely due to this change.

Income Tax Provision/ (Benefit)

SHUSA recorded a provision of $908.3 for 2011 compared to a benefit of $40.4 million for 2010. The effective tax rate for 2011 was 42.0% compared to (4.0) % for 2010. The effective rate for 2011 was impacted by the non deductible accretion of discounts on debt related to the Trust PIERS litigation and the gain recognized related to the SCUSA Transaction. The effective rate for 2010 was impacted by reductions to the deferred tax valuation allowance. Excluding the impact of these items, the Company’s effective tax rate for 2011 and 2010 was 36.3% and 33.3% respectively. See Note 19 of the Consolidated Financial Statements for a reconciliation of the Company’s effective tax rate to the statutory federal rate of 35%.

32

Santander Holdings USA, Inc. and Subsidiaries

The Company is subject to the income tax laws of the U.S., its states and municipalities and certain foreign countries. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws.

Line of Business Results

The Company’s segments are focused principally around the customers that the Bank serves. The Retail banking segment is primarily comprised of the branch locations and the residential mortgage business. The branches offer a wide range of products and services to customers and each attracts deposits by offering a variety of deposit instruments including demand and interest bearing demand deposit accounts, money market and savings accounts, certificates of deposits and retirement savings products. The branches also offer consumer loans such as home equity loans and lines of credit. The Retail banking segment also includes business banking loans and small business loans to individuals. The Specialized Business segment is primarily comprised of non-strategic lending groups which include indirect automobile, aviation and continuing care retirement communities. The Corporate banking segment provides the majority of the Company’s commercial lending platforms such as commercial real estate loans, multi-family loans, commercial and industrial loans and the Company’s related commercial deposits. The Global Banking and Markets segment includes businesses with large corporate domestic and foreign clients. The Other category includes investment portfolio activity, intangibles and certain unallocated corporate income and expenses.

The SCUSA segment is comprised of a specialized consumer finance company engaged in the purchase, securitization and servicing of retail installment contracts originated by automobile dealers and direct origination of retail installment contracts over the internet. In July 2009, Santander contributed SCUSA, a majority owned subsidiary, into the Company. SCUSA’s results of operations were consolidated from January 2009 until December 31, 2011. As of December 31, 2011, SCUSA is accounted for as an equity method investment. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information. SCUSA was managed as a separate segment throughout 2011 and SHUSA’s 2011 statement of operations includes a full year of SCUSA results. Therefore, SCUSA continues to be reported as a separate segment as of December 31, 2011.

For segment reporting purposes, SCUSA continues to be managed as a separate business unit with its own systems and processes.

With the exception of this segment, the Company’s segment results are derived from the Company’s business unit profitability reporting system by specifically attributing managed balance sheet assets, deposits and other liabilities and their related interest income or expense to each of the segments. Funds transfer pricing methodologies are utilized to allocate a cost for funds used or a credit for funds provided to business line deposits, loans and selected other assets using a matched funding concept.

The provision for credit losses recorded by each segment is based on the net charge-offs of each line of business and changes in specific reserve levels for loans in the segment except for changes in SVAs made during the third quarter of 2011 and the difference between the provision for credit losses recognized by the Company on a consolidated basis and the provision recorded by the business line is recorded in the Other category.

Other income and expenses directly managed by each business line, including fees, service charges, salaries and benefits, and other direct expenses as well as certain allocated corporate expenses are accounted for within each segment’s financial results. Accounting policies for the lines of business are the same as those used in preparation of the consolidated financial statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses and other financial elements to each line of business. Expenses are allocated to the business segments in accordance with the management reporting system, which includes the allocation of the majority of expenses including overhead costs which is not necessarily comparable with similar information published by other financial institutions. Where practical, the results are adjusted to present consistent methodologies for the segments.

During 2011, the multi-family and large corporate commercial specialty groups were merged into the Corporate banking segment from the Specialized Business segment, which, for 2010, resulted in approximately $8.9 billion of average assets and $30.0 million of pretax income allocated to the Corporate banking segment that had previously been allocated to the Specialized Business segment. Since the Specialized Business segment had no goodwill allocated to it, this reporting structure change had no impact on the amount of goodwill assigned to other segments. Prior period results were recast to conform to current methodologies for the segments.

33

Santander Holdings USA, Inc. and Subsidiaries

The Retail banking segment’s net interest income increased $57.2 million to $776.9 million in 2011, primarily due to lower structural funding costs and pricing discipline in loans and customer deposits. The net spread on a match funded basis for this segment was 1.28% in 2011 compared to 1.25% in 2010. The average balance of Retail Banking segment’s loans was $24.3 billion and $22.3 billion during 2011 and 2010, respectively. The average balance of deposits was $36.2 billion in 2011 compared to $34.4 billion in 2010. Average assets for the Retail segment were $24.5 billion in 2011, an increase of $1.5 billion from 2010. Fees and other income for this segment decreased $70.9 million during 2011 to $380.4 million, primarily due to residential servicing rights impairments taken during 2011. The provision for credit losses remained relatively flat in 2011, increasing only $3.5 million from 2010. Provisions have been at elevated levels since the third quarter of 2008 and will continue to be impacted by weak economic conditions and high levels of unemployment. General and administrative expenses, including allocated corporate and direct support costs, increased from $1.0 billion for 2010 to $1.1 billion for 2011. The increase in general and administrative expenses is due to increased headcount within the retail banking segment.

The Specialized Business segment net interest income decreased $37.0 million to $77.2 million in 2011. The net spread on a match funded basis for this segment was 2.73% in 2011 compared to 2.46% in 2010. The average balance of loans was $2.7 billion and $4.5 billion during 2011 and 2010, respectively. The average balance of deposits was $106.3 million in 2011 compared to $115.2 million in 2010. Average assets for the Specialized Business segment decreased $1.5 billion during 2011 to $3.8 billion, due to this segment being comprised of portfolios that are in a run-off position. Fees and other income decreased $14.0 million to $16.5 million in 2011, which is primarily due to the decrease of the average loan balance. The provision for credit losses decreased $39.8 million in 2011 to $189.7 million, which is also attributable to the decrease in the average balance of loans. General and administrative expenses, including allocated corporate and direct support costs, increased $1.7 million to $41.5 million for 2011.

The Corporate segment net interest income increased $30.2 million to $489.7 million for 2011 compared to 2010. The average balance of loans was $21.2 billion in 2011 versus $20.9 billion during 2010. The net spread on a match funded basis for this segment was 1.69% in both 2011 and 2010. The provision for credit losses decreased by $39.3 million in 2011 to $190.2 million, due to an improvement in commercial loan credit quality during the year. General and administrative expenses, including allocated corporate and direct support costs, increased $1.8 million to $144.6 million in 2011.

The Global Banking and Markets segment net interest income increased $35.1 million to $61.3 million for 2011 compared to 2010, primarily due to average loans for this segment increasing during 2011. The average balance of loans was $2.6 billion in 2011 versus $1.1 billion during 2010. The net spread on a match funded basis for this segment was 1.73% in 2011 compared to 1.90% in 2010. Average assets for the Global Banking and Markets segment increased $1.3 billion during 2011 to $3.1 billion. Fees and other income for this segment increased $17.8 million to $29.2 million during 2011 due to the increase in the average balance of loans. The provision for credit losses increased $14.6 million to $21.3 million during 2011, also due to the increase in the average balance of loans in this segment. General and administrative expenses, including allocated corporate and direct support costs, increased $1.7 million to $16.6 million in 2011.

The SCUSA segment net interest income increased $429.9 million to $2.2 billion in 2011 compared to 2010 due to increased earnings resulting from late 2010 loan acquisitions. The average balance of loans was $15.2 billion in 2011 versus $11.2 billion in 2010. Average borrowings in 2011 were $14.1 billion with an average cost of 2.96% compared to $10.7 billion with an average cost of 2.97% in 2010. Average assets in this segment increased $3.9 billion during 2011 to $15.8 billion, due to the portfolio acquisitions in late 2010. The increase in fees and other income of $194.9 million to $440.5 million for 2011 was primarily due to higher servicing fees at SCUSA from acquisition volume. The provision for credit losses decreased in 2011 to $819.2 million from $888.2 million in 2010. General and administrative expenses increased from $391.8 million in 2010 to $550.1 million in 2011. SCUSA continues to remain profitable due to strong pricing on its loan portfolio, favorable financing costs and adequate sources of liquidity which in part is attributable to its relationship with Santander. Additionally, SCUSA’s successful servicing and collection practices have enabled them to maximize cash collections on their portfolio and generate servicing fee income. Future profitability levels will depend on controlling credit losses and continuing to be able to effectively price new volume. SCUSA’s business has also been favorably impacted by the fact that certain competitors have exited the subprime auto market.

The net income before taxes for the Other category increased $610.7 million from 2010 to $1.1 billion in 2011, primarily due to the $987.7 million gain from the SCUSA Transaction. See further discussion regarding the SCUSA Transaction in Note 3 to the Consolidated Financial Statements. Net interest income decreased from $323.5 million in 2010 to $274.3 million for 2011.

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Santander Holdings USA, Inc. and Subsidiaries

Results of Operations for the Years Ended December 31, 2010 and 2009

		September 30,			September 30,
	YEAR ENDED DECEMBER 31,
(Dollars in thousands)	2010			2009
Net interest income	$	3,398,639		$	2,643,504
Provision for credit losses		(1,627,026	)		(1,984,537	)
Total non-interest income		1,029,469			342,297
General and administrative expenses		(1,573,100	)		(1,520,460	)
Other expenses		(208,997	)		(603,703	)
Income tax benefit		40,390			1,284,464
Net income	$	1,059,375		$	161,565

The major factors affecting comparison of earnings and diluted earnings per share between 2010 and 2009 were:

• Net interest income increased $755.1 million or 28.6% during 2010. Net interest income increased $277.1 million excluding the impact of SCUSA as net interest margin increased from 2.18% in 2009 to 2.71% in 2010.

• The decrease in provision for credit losses in 2010 is related to the improvement in credit metrics as compared to 2009 when the Company saw deterioration across the loan portfolio which led to elevated provisioning levels.

• An increase in fees and other income of $687.2 million. Included in fees and other income:

(1) Net gains/ (losses) on investment securities of $200.6 million and $(157.8) million in 2010 and 2009, respectively. 2010 and 2009 results included OTTI charges of $4.8 million and $143.3 million, respectively, on non-agency mortgage backed securities. 2009 results also included OTTI charges of $36.9 million on FNMA and FHLMC preferred stock and a gain of $20.3 million from the subsequent sale of those securities.

(2) An increase in mortgage banking revenues in 2010 of $177.5 million. Current year results include a $24.6 million mortgage servicing recovery, as compared to a $3.3 million mortgage servicing impairment in the prior year. Prior year results included charges of $188.9 million to increase the recourse reserves associated with the sales of multi-family loans to Fannie Mae due to worsening credit conditions for these loans.

• Increases in general and administrative expenses in 2010 were due primarily to an increase in loan expenses which was related to additional servicing fees from SCUSA acquisition activity. Excluding SCUSA, the Company’s general and administrative expenses declined $78.2 million. This reduction has been primarily due to cost management initiatives put in place by Santander since the acquisition. Additionally, the Bank reduced its employee base from December 2009 to December 2010.

• Other expenses were $209.0 million in 2010, as compared to $603.7 million in 2009. Prior year results included $299.1 million of transaction related and other restructuring charges and a $35.3 million FDIC one-time special assessment charge recorded in deposit insurance premiums.

• The Company recorded an income tax benefit of $40.4 million in 2010 compared to an income tax benefit of $1.3 billion in 2009. As previously discussed, the Company reversed $309.0 million in 2010 and $1.3 billion in 2009 of deferred tax valuation allowances. See “income tax expense/ (benefit)” below.

Net Interest Income

Net interest income for 2010 was $3.4 billion compared to $2.6 billion for 2009, or an increase of 28.6%. The increase in net interest income in 2010 was primarily due to increased earnings at SCUSA resulting from 2010 acquisitions.

Interest on investment securities and interest-earning deposits was $470.7 million for 2010 compared to $393.8 million for 2009. The average investment portfolio increased by $919.9 million during 2010 to 18.0% of the total average assets in 2010 compared to 17.4% in 2009. The average life of the investment portfolio has increased to 6.06 years at December 31, 2010 compared to 3.86 years at December 31, 2009. Increasing the average life of the investment portfolio positively impacted the overall yield as the yield increased to 3.36% in 2010 from 3.05% in 2009.

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Santander Holdings USA, Inc. and Subsidiaries

Interest on loans was $4.3 billion and $4.0 billion for 2010 and 2009, respectively. The average balance of loans was $60.4 billion with an average yield of 7.17% for 2010 compared to an average balance of $59.3 billion with an average yield of 6.82% for 2009. At December 31, 2010, approximately 34% of the Bank’s total loan portfolio reprices monthly or more frequently.

Interest on total deposits was $228.6 million for 2010 compared to $640.5 million for 2009. The average balance of deposits was $35.0 billion with an average cost of 0.65% for 2010 compared to an average balance of $41.0 billion with an average cost of 1.56% for 2009. Additionally, the average balance of non-interest bearing deposits increased to $7.1 billion in 2010 from $6.8 billion in 2009. The decrease in interest expense was due to the lower interest rate environment in 2010, as well as repricing efforts on promotional money market and time deposit accounts during 2010.

Interest on borrowings and other debt obligations was $1.2 billion and $1.1 billion for 2010 and 2009, respectively. The average balance of total borrowings and other debt obligations was $30.2 billion with an average cost of 3.84% for 2010 compared to an average balance of $24.2 billion with an average cost of 4.71% for 2009.

Provision for Credit Losses

The provision for credit losses for 2010 was $1.6 billion compared to $2.0 billion for 2009. SCUSA’s provision for credit losses was $888.2 million for 2010. Credit losses, while showing signs of stabilizing, remain elevated given the current challenging economy and high unemployment levels which has negatively impacted the credit quality of the loan portfolios.

The reserve for credit losses as a percentage of total loans held for investment increased to 3.84% from 3.61% at December 31, 2009.

Net charge-offs decreased in 2010 to $1.2 billion, compared to $1.4 billion for the corresponding period in the prior year. Excluding the impact of charge-offs from SCUSA’s loan portfolio of $432.0 million for the twelve-month period ended December 31, 2010, losses on the Bank’s loan portfolio increased.

Non-performing assets were $2.9 billion or 3.29% of total assets at December 31, 2010, compared to $3.2 billion or 3.92% of total assets at December 31, 2009. The decrease was primarily driven by the commercial real estate, multi-family and commercial and industrial loan portfolios.

The ratio of net loan charge-offs to average loans, including loans held for sale, was 2.01% for 2010, compared to 2.40% for 2009. The consumer loans net charge-off rate was 1.95% for 2010 and 3.20% for 2009. Commercial loan net charge-offs as a percentage of average commercial loans were 2.07% for 2010 compared to 1.65% for 2009.

Non-interest Income/ (Loss)

Total non-interest income was $1.0 billion for 2010 compared to $342.3 million for 2009. Several factors contributed to this change as discussed below.

Consumer banking fees were $531.3 million for 2010 compared to $369.8 million in 2009. This increase was primarily due to an increase of $183.7 million in consumer loan fees principally due to higher servicing fees at SCUSA from acquisition volume. Commercial banking fees were $180.3 million for 2010 compared to $187.3 million in 2009.

Mortgage banking revenues had a net gain of $48.0 million for 2010 compared to a net loss of $129.5 million for 2009. The 2009 net loss was driven by an increase in recourse reserves on multi-family loans that were sold to Fannie Mae. The increase in the recourse reserves in 2009 were related to deterioration particularly in multi-family loans sold to Fannie Mae that were originated outside of the geographic footprint.

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Santander Holdings USA, Inc. and Subsidiaries

The table below summarizes the components of net mortgage banking revenues:

		September 30,			September 30,
	Twelve-months ended December 31,
	2010			2009
	(in thousands)
Recoveries / (Impairments) to mortgage servicing rights	$	24,564		$	(3,274	)
Recoveries of multi-family servicing rights		100			596
Residential mortgage and multi-family servicing fees		54,355			53,943
Amortization of residential mortgage and multi-family servicing rights		(57,350	)		(64,897	)
Net gains on hedging activities		619			(3,863	)
Gain on sales of mortgages		35,909			71,120
Loss on sales of multi-family loans		(10,242	)		(183,129	)
Total	$	47,955		$	(129,504	)

The Company previously sold multi-family loans in the secondary market to Fannie Mae while retaining servicing. In September 2009, the Bank elected to stop selling multi-family loans to Fannie Mae and since that time has retained all production for the loan portfolio. During 2009, the Company sold $566.0 million of multi-family loans and recorded gains of $5.8 million. These gains were reduced by increases to recourse reserve levels of $188.9 million in 2009. In 2009, SHUSA sold $5.7 billion of mortgage loans and recorded gains of $71.1 million. The increase in mortgage sales and related gains was due to the low interest rate environment which led to higher mortgage refinancings and improved execution of sales to Fannie Mae and Freddie Mac.

Under the terms of the multi-family sales program with Fannie Mae, the Company retains a portion of the credit risk associated with such loans. As a result of this agreement with Fannie Mae, the Bank retains a 100% first loss position on each multi-family loan sold to Fannie Mae under such program until the earlier to occur of (i) the aggregate approved losses on the multi-family loans sold to Fannie Mae reaching the maximum loss exposure for the portfolio as a whole ($217.9 million as of December 31, 2010) or (ii) until all of the loans sold to Fannie Mae under this program are fully paid off.

At December 31, 2010 and December 31, 2009, SHUSA serviced $11.2 billion and $12.3 billion in loans for Fannie Mae that had been sold to Fannie Mae pursuant to this program with a maximum potential loss exposure of $217.9 million and $245.7 million, respectively. As a result of retaining servicing, the Company had net loan servicing assets of $3.7 thousand at December 31, 2010. The Company recorded servicing asset amortization of $9.4 million and $9.0 million related to the multi-family loans sold to Fannie Mae for 2010 and 2009, respectively, and recognized servicing assets of $3.0 million during 2009.

The Company has established a liability related to the fair value of the retained credit exposure for loans sold to Fannie Mae. This liability represents the amount that the Company estimates that it would have to pay a third party to assume the retained recourse obligation. The estimated liability represents the present value of the estimated losses that the portfolio is projected to incur based upon internal specific information and industry-based default curve with a range of estimated losses. At December 31, 2010 and December 31, 2009, the Company had a $171.7 million and $184.2 million liability related to the fair value of the retained credit exposure for loans sold to Fannie Mae under this sales program.

At December 31, 2010, the Company serviced approximately $14.7 billion of residential mortgage loans for others, and the fair value of the net mortgage servicing asset was $148.7 million. This compares to $14.8 billion of residential mortgage loans serviced for others with a fair value residential mortgage servicing asset of $127.9 million at December 31, 2009. Due to a decrease in prepayment speed assumptions and changes in interest rates, the Company recorded mortgage servicing right recoveries of $24.6 million in 2010 compared to impairment charges of $3.3 million in 2009.

Income related to bank owned life insurance decreased to $54.1 million for 2010 compared to $58.8 million in 2009. This $4.7 million, or 8.0% decrease, was due to decreased death benefits in 2010.

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Santander Holdings USA, Inc. and Subsidiaries

Net gains/ (losses) on investment securities and sale of VISA shares were $200.6 million for 2010, compared to $(157.8) million for 2009. The year ended December 31, 2010 included other-than-temporary impairment charges of $4.8 million on certain non-agency mortgage backed securities. The year ended December 31, 2009 results included other-than-temporary impairment charges of $180.2 million on non-agency mortgage backed securities and FNMA/FHLMC preferred stock as well as a gain of $20.3 million on the sale of the entire FNMA/FHLMC preferred stock portfolio.

General and Administrative Expenses

Total general and administrative expenses were $1.6 billion and $1.5 billion for 2010 and for 2009, respectively, or an increase of 3.5%. The increase in 2010 is primarily related to increased loan expense which was related to additional servicing fees from SCUSA portfolio acquisition activity.

Other Expenses

Total other expenses were $209.0 million for 2010 compared to $603.7 million for 2009. Other expenses included amortization expense of core deposit intangibles of $63.4 million for 2010 compared to $75.7 million for 2009. This decrease is due to decreased core deposit intangible amortization expense on previous acquisitions. In 2009, the Company recorded merger-related and restructuring charges of $299.1 million for costs associated with the Santander acquisition. The majority of these costs related to change in control payments to certain executives and severance charges of $152.2 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 and incurred branch consolidation charges of $32.2 million, write-offs of fixed assets and information technology platforms of $28.5 million. During the first quarter of 2009, SHUSA redeemed $1.4 billion of high cost FHLB advances incurring a debt extinguishment charge of $68.7 million. This decision was made to reduce interest expense since the advances were at above market interest rates due to the current low rate environment.

Deposit insurance expense and other costs decreased to $93.2 million in 2010 from $138.7 million in 2009, primarily due to the FDIC special assessment charge in 2009. The FDIC charges financial institutions deposit premium assessments to ensure it has reserves to cover deposits that are under FDIC insured limits. The FDIC Board of Directors has established a reserve ratio target percentage of 1.25%. Due to recent bank failures, the reserve ratio is currently below its target balance. In December 2008, the FDIC published a final rule that raised the current deposit assessment rates uniformly for all institutions by 7 basis points, effective in the first quarter of 2009. In 2009, the FDIC announced additional fees would be assessed to institutions who have secured borrowings in excess of 15% of their deposits. The FDIC approved a special assessment charge of 5 cents per $100 of an institution’s assets minus its Tier 1 capital at June 30, 2009 to help bolster the reserve fund, which was payable on September 30, 2009. This special assessment charge for the Bank was $35.3 million.

Income Tax Benefit

The Company recorded a benefit of $40.4 million for 2010 compared to a benefit of $1.3 billion for 2009. The effective tax rate for 2010 was (4.0) % compared to (114.3) % for 2009. During 2009, Santander contributed the operation of SCUSA into the Company. As a result of this contribution, the Company updated its deferred tax realizability analysis in 2009 by incorporating future projections of taxable income that would be generated by SCUSA and reduced its deferred tax valuation allowance by $1.3 billion for the year ended December 31, 2009. Due to the profitability of the Company in 2010 and expected future growth in profits of the Company by the end of 2010, the Company considered the projected taxable income of the Company and all subsidiaries in its 2010 realizability analysis. As a result, the Company reduced its deferred tax valuation allowance by $309.0 million for the year ended December 31, 2010. As of December 31, 2010, the valuation allowance was $99.3 million which related to deferred tax assets subject to carry forward periods where management believed it is more likely than not that these deferred tax assets would remain unused after the carry forward periods have expired. See Note 19 to the Consolidated Financial Statements for a reconciliation of the effective tax rate to the statutory federal rate of 35%.

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Santander Holdings USA, Inc. and Subsidiaries

Line of Business Results

During 2011, the multi-family and large corporate commercial specialty groups were merged into the Corporate segment from the Specialized Business segment, which, for 2010, resulted in approximately $8.9 billion of average assets and $30.0 million of pretax income allocated to the Corporate segment that had previously been allocated to the Specialized Business segment. For 2009, approximately $10.1 billion of average assets and $256.8 million of pretax loss were allocated to the Corporate segment that had previously been allocated to the Specialized Business segment. Since the Specialized Business segment had no goodwill allocated to it, this reporting structure change had no impact on the amount of goodwill assigned to other segments. Prior period results were recast to conform to current methodologies for the segments.

The Retail Banking segment’s net interest income increased $79.7 million to $719.7 million in 2010, primarily due to lower structural funding costs and pricing discipline in loans and customer deposits. The net spread on a match funded basis for this segment was 1.25% in 2010 compared to 1.07% in 2009. The average balance of Retail Banking segment’s loans was $22.3 billion and $22.8 billion during 2010 and 2009, respectively. The average balance of deposits was $34.4 billion in 2010 compared to $38.2 billion in 2009. The provision for credit losses increased in 2010 to $250.7 million from $201.5 million in 2009, as early 2010 charge-off levels continued to increase from 2009 levels before signs of stabilization later in 2010. Provisions have been at elevated levels since the third quarter of 2008 and will continue to be impacted by weak economic conditions and high levels of unemployment. General and administrative expenses, including allocated corporate and direct support costs, decreased from $1.1 billion for 2009 to $1.0 billion for 2010. The decrease in general and administrative expenses is due to tighter cost controls and a lower headcount within the retail banking segment.

The Specialized Business segment net interest income decreased $46.0 million to $114.3 million in 2010. The net spread on a match funded basis for this segment was 2.46% in 2010 compared to 2.31% in 2009. The average balance of loans was $4.5 billion and $6.9 billion during 2010 and 2009, respectively. The average balance of deposits was $115.2 million in 2010 compared to $136.1 million in 2009. Average assets for the Specialized Business segment decreased $2.2 billion during 2010 to $5.3 billion due to the segment being comprised primarily of run-off portfolios. Fees and other income remained relatively flat, decreasing $0.9 million to $30.5 million for 2010. The provision for credit losses decreased $240.2 million in 2010 to $229.6 million due primarily to a lower level of specific reserves. In 2009 credit losses in this segment were much higher than anticipated due primarily to auto loans that were originated by the Southeast and Southwest production offices. General and administrative expenses, including allocated corporate and direct support costs, increased from $14.7 million for 2009 to $39.9 million for 2010.

The Corporate segment net interest income increased $24.4 million to $459.5 million for 2010 compared to 2009. The average balance of loans was $20.9 billion in 2010 versus $22.5 billion during 2009. The net spread on a match funded basis for this segment was 1.69% in 2010 compared to 1.58% in 2009. Fees and other income increased $183.3 million to $68.9 million in 2010, primarily due to a $188.9 million charge taken during 2009. This charge was associated with increasing multi-family recourse reserves for loans sold to Fannie Mae. The provision for credit losses decreased by $185.7 million in 2010 to $229.4 million, due to a decrease in specific reserve allocations on certain segments within the commercial loan portfolio. The 2009 provisions included an increase in specific reserve levels due to conforming to Santander’s reserve allocation methodology. General and administrative expenses, including allocated corporate and direct support costs, decreased from $225.6 million for 2009 to $142.8 million in 2010 due to tighter expense management controls and lower headcount levels due to staff reductions.

The Global Banking and Markets segment net interest income increased $15.1 million to $26.2 million for 2010 compared to 2009 due to an increase in the commercial loan portfolio. The average balance of loans was $1.1 billion in 2010 versus $426.4 million during 2009. Average assets for the Global Banking and Markets segment increased $808.1 million to $1.7 billion during 2010. The net spread on a match funded basis for this segment was 1.90% in 2010 compared to 2.21% in 2009. General and administrative expenses, including allocated corporate and direct support costs, increased from $6.2 million for 2009 to $14.9 million in 2010.

The SCUSA segment net interest income increased $478.1 million to $1.8 billion in 2010, primarily due to portfolio acquisitions during 2010. The average balance of loans was $11.2 billion in 2010 versus $6.6 billion during 2009. Average borrowings were $10.7 billion in 2010 with an average cost of 2.97%, compared to $6.1 billion with an average cost of 3.84% in 2009. Average assets for this segment increased $5.0 billion to $12.0 billion during 2010 due to the portfolio acquisitions. Fees and other income increased $193.7 million to $245.6 million during 2010, the provision for credit losses increased $167.3 million and general and administrative expenses increased $138.8 million, all attributable to the increases in average assets and the average loan balance.

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Santander Holdings USA, Inc. and Subsidiaries

The net loss before income taxes for the Other category decreased from $573.6 million in 2009 to income of $439.7 million in 2010. Net interest income increased from $119.7 million in 2009 to $323.5 million for 2010. The 2009 results included charges of $36.9 million and $143.3 million related to the OTTI charges on FNMA and FHLMC preferred stock and the non-agency mortgage backed securities portfolio, respectively. Additionally, 2009 results included charges of $299.1 million related to certain restructuring and merger charges. Finally, the Other category included deferred tax valuation allowance reversals of $309.0 million in 2010 and $1.3 billion in 2009.

SCUSA Transaction

Table 4 presents the pro-forma financial results of the Company for the years ended December 31, 2011, 2010 and 2009, assuming that the SCUSA Transaction occurred on January 1, 2009. Refer to Note 3 to the Consolidated Financial Statements for additional information.

Table 4: Pro-forma Presentation

		September 30,		September 30,			September 30,
	FOR THE YEAR ENDED DECEMBER 31,
	2011		2010			2009
	(in thousands)
Total interest income	$	2,649,914	$	2,713,109		$	2,913,346
Total interest expense		970,414		1,069,909			1,547,200
Net interest income		1,679,500		1,643,200			1,366,146
Provision for credit losses		500,730		738,801			1,263,600
Net interest income after provision for credit losses		1,178,770		904,399			102,546
Total non-interest income		608,280		812,978			311,584
Equity investment income		799,102		438,822			194,515
Total general and administrative expenses		1,331,900		1,210,392			1,267,429
Total other expenses		513,658		177,441			580,384
Income/ (loss) before income taxes		740,594		768,366			(1,239,168	)
Income tax provision/ (benefit)		347,483		(155,432	)		(1,352,724	)
Net income/(loss)	$	393,111	$	923,798		$	113,556

Critical Accounting Policies

MD&A is based on the consolidated financial statements and accompanying notes that have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The significant accounting policies of the Company are described in Note 1 to the Consolidated Financial Statements. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments, and, as such, have a greater possibility of producing results that could be materially different than originally reported. However, the Company is not currently aware of any reasonably likely events or circumstances that would result in materially different results. Management identified consolidation, accounting for the allowance for loan losses and reserve for unfunded lending commitments, goodwill, derivatives and hedging activities and income taxes as the most critical accounting policies and estimates in that they are important to the portrayal of the financial condition and results, and they require management’s most difficult, subjective or complex judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain.

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Santander Holdings USA, Inc. and Subsidiaries

The Company’s senior management has reviewed these critical accounting policies and estimates with its Audit Committee. Information concerning the Company’s implementation and impact of new accounting standards issued by the Financial Accounting Standards Board (FASB) is discussed in Note 2,”Recent Accounting Pronouncements”, to the Consolidated Financial Statements.

Consolidation

The purpose of consolidated financial statements is to present the results of operations and the financial position of the Company and its subsidiaries as if the consolidated group were a single economic entity. There is a presumption that consolidated financial statements are more meaningful than separate financial statements and that they are usually necessary for a fair presentation when one of the entities in the consolidated group directly or indirectly has a controlling financial interest in the other entities.

The Company’s consolidated financial statements include the assets, liabilities, revenues and expenses of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

In accordance with the applicable accounting guidance for consolidations, the consolidated financial statements include any voting rights entities (“VIE”) in which the Company has a controlling financial interest and any variable interest entities (VIEs) where the Company is deemed to be the primary beneficiary. The Company consolidates its VIEs if the Company has: (i) a variable interest in the entity; (ii) the power to direct activities of the VIE that most significantly impact the entity’s economic performance; and (iii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE (i.e., the Company is considered to be the primary beneficiary). VIEs can include equity interests, subordinated debt, derivative contracts, leases, service agreements, guarantees, standby letters of credit, loan commitments, and other contracts, agreements and financial instruments.

On a regular basis, the Company reassesses whether it has a controlling financial interest and is the primary beneficiary of a VIE. The reassessment process considers whether the Company has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The reassessment also considers whether the Company has acquired or disposed of a financial interest that could be significant to the VIE, or whether an interest in the VIE has become significant or is no longer significant. The consolidation status of the VIEs with which the Company is involved may change as a result of such reassessments. Changes in consolidation status are applied prospectively, with assets and liabilities of a newly consolidated VIE initially recorded at fair value. A gain or loss may be recognized upon deconsolidation of a VIE depending on the carrying amounts of deconsolidated assets and liabilities compared to the fair value of retained interests and ongoing contractual arrangements.

The Company uses the equity method to account for unconsolidated investments in voting rights entities or VIEs if the Company has significant influence over the entity’s operating and financing decisions but does not maintain control. Unconsolidated investments in voting rights entities or VIEs in which the Company has a voting or economic interest of less than 20% generally are carried at cost. These investments are included in Equity method Investments on the Consolidated Balance Sheet, and the Company’s proportionate share of income or loss is included in other expenses.

In July 2009, Santander contributed SCUSA, a majority owned subsidiary, into the Company. SCUSA’s results of operations were consolidated from January 2009 until December 31, 2011. As of December 31, 2011, SCUSA is accounted for as an equity method investment. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information.

In accordance with ASC 810-10, Consolidation, the Company performed an analysis of each variable interest to determine if the Company is considered the primary beneficiary of the variable interest. Those entities, in which the Company is considered the primary beneficiary, are consolidated, and accordingly, the entity’s assets, liabilities, revenues and expenses are included in the Company’s consolidated financial statements. As of December 31, 2011, there are no VIEs where the Company was considered the primary beneficiary. See further discussion in Note 8 to the Consolidated Financial Statements.

Investments in nonconsolidated affiliates, including SCUSA and variable interest entities, are generally accounted for using the equity method.

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Santander Holdings USA, Inc. and Subsidiaries

Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

The allowance for loan losses and reserve for unfunded lending commitments represent management’s best estimate of probable losses inherent in the loan portfolio. The adequacy of SHUSA’s allowance for loan losses and reserve for unfunded lending commitments is regularly evaluated. This evaluation process is subject to numerous estimates and applications of judgment. Management’s evaluation of the adequacy of the allowance to absorb loan losses takes into consideration the risks inherent in the loan portfolio, past loan loss experience, specific loans which have loss potential, geographic and industry concentrations, delinquency trends, economic conditions, the level of originations and other relevant factors. Management also considers loan quality, changes in the size and character of the loan portfolio, amount of non-performing loans, and industry trends. Changes in these estimates could have a direct material impact on the provision for credit losses recorded in the Consolidated Statements of Operations and could result in a change in the recorded allowance and reserve for unfunded lending commitments. For example, a change in the estimate resulting in a 5% to 10% difference in the allowance for loan losses and reserve for unfunded lending commitments would have resulted in an additional provision for credit losses of $67.0 million to $134.0 million as of December 31, 2011. The loan portfolio also represents the largest asset on the Consolidated Balance Sheet. Note 1 to the Consolidated Financial Statements describes the methodology used to determine the allowance for loan losses and reserve for unfunded lending commitments. A discussion of the factors driving changes in the amount of the allowance for loan losses and reserve for unfunded lending commitments are included in the Credit Risk Management section of this MD&A.

Goodwill

The acquisition method of accounting for business combinations requires the Company to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets acquired and liabilities assumed. The excess of the purchase price of an acquired business over the fair value of the identifiable assets and liabilities represents goodwill. Goodwill totaled $3.4 billion at December 31, 2011.

Goodwill and other indefinite lived intangible assets are not amortized on a recurring basis, but rather are subject to periodic impairment testing. Goodwill is tested for impairment at the reporting unit level. Reporting units are operating segments or one level below an operating segment.

The impairment test for goodwill is performed annually or more frequently if changes in circumstances or the occurrence of events indicate impairment potentially exists. Goodwill is reviewed for impairment utilizing a two-step process. The first step requires SHUSA to identify the reporting units and compare the fair value of each reporting unit to its respective carrying amount, including its allocated goodwill. If the carrying value is higher than the fair value, an indication that impairment exists and a second step must be performed. The second step entails calculating the implied fair value of goodwill as if a reporting unit is purchased at its step 1 fair value. This is determined in the same manner as goodwill in a business combination. If the implied fair value of goodwill is in excess of the reporting units allocated goodwill amount then no impairment charge is required.

Determining the fair value of its reporting units requires management to allocate assets and liabilities to such units and make certain judgments and assumptions related to various items, including discount rates, future estimates of operating results, etc. If alternative assumptions or estimates had been used, the fair value of each reporting unit determined by the Company may have been different. However, management believes that the estimates or assumptions used in the goodwill impairment analysis for its business units were reasonable. The Company utilized income and market approaches to estimate the fair value of its reporting units.

Derivatives and Hedging Activities

SHUSA uses derivative instruments as part of its risk management process to manage risk associated with its financial assets and liabilities, its mortgage banking activities, and to assist its commercial banking customers with their risk management strategies and for certain other market exposures.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. The Company formally documents the relationships of qualifying hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking each hedge transaction.

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Santander Holdings USA, Inc. and Subsidiaries

Fair value hedges are accounted for by recording the change in the fair value of the derivative instrument and the related hedged asset, liability or firm commitment on the Consolidated Balance Sheet with the corresponding income or expense recorded in the Consolidated Statement of Operations. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as an other asset or other liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense associated with the hedged asset or liability.

Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the Consolidated Balance Sheet as an asset or liability, with a corresponding charge or credit, net of tax, recorded in accumulated other comprehensive income within stockholders’ equity, in the accompanying Consolidated Balance Sheet. Amounts are reclassified from accumulated other comprehensive income to the Statement of Operations in the period or periods the hedged transaction affects earnings. In the case where certain cash flow hedging relationships have been terminated, the Company continues to defer the net gain or loss in accumulated other comprehensive income and reclassifies it into interest expense as the future cash flows occur, unless it becomes probable that the future cash flows will not occur.

The portion of gains and losses on derivative instruments not considered highly effective in hedging the change in fair value or expected cash flows of the hedged item, or derivatives not designated in hedging relationships, are recognized immediately in the consolidated statement of operations.

During 2011 and 2010, the Company had cash flow and fair value hedges recorded in the Consolidated Balance Sheet as “other assets” or “other liabilities” as applicable. For both fair value and cash flow hedges, certain assumptions and forecasts related to the impact of changes in interest rates, foreign exchange and credit risk on the fair value of the derivative and the item being hedged must be documented at the inception of the hedging relationship to demonstrate that the derivative instrument will be effective in hedging the designated risk. If these assumptions or forecasts do not accurately reflect subsequent changes in the fair value of the derivative instrument or the designated item being hedged, SHUSA might be required to discontinue the use of hedge accounting for that derivative instrument. Once hedge accounting is terminated, all subsequent changes in the fair market value of the derivative instrument must be recorded in earnings, possibly resulting in greater volatility in SHUSA’s earnings. If SHUSA’s outstanding derivative positions that qualified for hedge accounting at December 31, 2011, were no longer considered effective, and thus did not qualify for hedge accounting, the impact in 2011 would have been to lower pre-tax earnings by approximately $158.2 million.

Income Taxes

Deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. See Note 19 of the Consolidated Financial Statements for details on the Company’s income taxes.

The Company periodically reviews the carrying amount of its deferred tax assets to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.

In evaluating this available evidence, management considers historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. The Company’s evaluation is based on current tax laws as well as management’s expectations of future performance.

SHUSA is subject to the income tax laws of the U.S., its states and municipalities as well as certain foreign countries. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant Governmental taxing authorities. Tax positions are recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws.

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Santander Holdings USA, Inc. and Subsidiaries

Financial Condition

Loan Portfolio

Table 5 presents the composition of the Company’s loan portfolio by type of loan and by fixed and variable rates at the dates indicated (in thousands):

Table 5: Composition of Loan Portfolio

		XXXXX		XXXXX			XXXXX		XXXXX			XXXXX		XXXXX			XXXXX		XXXXX			XXXXX		XXXXX
	AT DECEMBER 31,
	2011					2010					2009					2008					2007
	BALANCE		PERCENT			BALANCE		PERCENT			BALANCE		PERCENT			BALANCE		PERCENT			BALANCE		PERCENT
Commercial real estate loans	$	10,553,174		20.4	%	$	11,311,167		17.4	%	$	12,453,575		21.6	%	$	13,181,624		23.6	%	$	12,306,914		21.2	%
Commercial and industrial loans		12,235,399		23.7			11,101,187		17.0			12,071,896		20.9			14,078,893		25.2			14,359,688		24.8
Multi-family		7,100,620		13.7			6,746,558		10.3			4,588,403		8.0			4,526,111		8.1			4,246,370		7.3
Total Commercial Loans		29,889,193		57.8			29,158,912		44.7			29,113,874		50.5			31,786,628		56.9			30,912,972		53.3
Residential mortgages		11,638,021		22.5			11,179,713		17.2			10,726,620		18.6			11,417,108		20.5			13,341,193		23.0
Home equity loans and lines of credit		6,868,939		13.3			7,005,539		10.7			7,069,491		12.2			6,891,918		12.3			6,197,148		10.7
Total Consumer Loans secured by real estate		18,506,960		35.8			18,185,252		27.9			17,796,111		30.8			18,309,026		32.8			19,538,341		33.7
Auto loans		958,345		1.9			16,714,124		25.7			10,496,510		18.2			5,482,852		9.8			7,236,301		12.5
Other		2,305,353		4.5			1,109,659		1.7			264,676		0.5			290,725		0.5			299,572		0.5
Total Consumer Loans		21,770,658		42.2			36,009,035		55.3			28,557,297		49.5			24,082,603		43.1			27,074,214		46.7
Total Loans	$	51,659,851		100.0	%	$	65,167,947		100.0	%	$	57,671,171		100.0	%	$	55,869,231		100.0	%	$	57,987,186		100.0	%
Total Loans with:
Fixed rates	$	26,632,842		51.6	%	$	41,555,482		63.8	%	$	33,786,934		58.6	%	$	29,895,105		53.5	%	$	33,658,174		58.0	%
Variable rates		25,027,009		48.4			23,612,465		36.2			23,884,237		41.4			25,974,126		46.5			24,329,012		42.0
Total Loans	$	51,659,851		100.0	%	$	65,167,947		100.0	%	$	57,671,171		100.0	%	$	55,869,231		100.0	%	$	57,987,186		100.0	%

In 2011, the loan balance decreased $13.5 billion from $65.2 billion primarily due to the SCUSA Transaction. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information.

The Company’s loan portfolio at December 31, 2011 was $51.7 billion and was comprised of $29.9 billion of commercial loans (includes $7.1 billion of multi-family loans), $18.5 billion of consumer loans secured by real estate and $3.3 billion of consumer loans not secured by real estate. This compares to $29.2 billion of commercial loans (including $6.7 billion of multi-family loans), $18.2 billion of consumer loans secured by real estate, and $17.8 billion of consumer loans not secured by real estate at December 31, 2010.

At December 31, 2011, commercial loans (excluding multi-family loans) totaled $22.8 billion representing 44.1% of the Company’s loan portfolio, compared to $22.4 billion, or 34.4% of the loan portfolio at December 31, 2010. The ability for the Company to originate commercial loans to credit worthy customers in recent quarters has been limited due to challenging economic conditions which has resulted in reduced loan demand.

At December 31, 2011, multi-family loans totaled $7.1 billion representing 13.7% of the Company’s total loan portfolio, compared to $6.7 billion, or 10.3% of the loan portfolio at December 31, 2010. The increase in the percentage of multifamily loans of total loans is due to the SCUSA Transaction. The increase in multi-family loans from 2009 to 2010 is due to the Company’s decision not to sell any multi-family loan production during 2010 in order to increase the percentage of the Company’s assets in this lower risk asset class.

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Santander Holdings USA, Inc. and Subsidiaries

Table 6 presents the contractual maturity of the Company’s commercial loans at December 31, 2011 (in thousands):

Table 6: Commercial Loan Maturity Schedule

		September 30,		September 30,		September 30,		September 30,
	AT DECEMBER 31, 2011, MATURING
	In One Year Or Less		One to Five Years		After Five Years		Total
Commercial real estate loans	$	1,853,445	$	4,849,878	$	3,849,851	$	10,553,174
Commercial and industrial loans		2,925,356		7,616,428		1,693,615		12,235,399
Multi-family loans		374,641		3,596,090		3,129,889		7,100,620
Total	$	5,153,442	$	16,062,396	$	8,673,355	$	29,889,193
Loans with:
Fixed rates	$	1,624,048	$	6,605,396	$	5,065,808	$	13,295,252
Variable rates		3,529,394		9,457,000		3,607,547		16,593,941
Total	$	5,153,442	$	16,062,396	$	8,673,355	$	29,889,193

The consumer loan portfolio, including held for sale, secured by real estate, consisting of home equity loans and lines of credit and residential loans, totaled $18.5 billion at December 31, 2011, representing 35.8% of the Company’s loan portfolio, compared to $18.2 billion, or 27.9%, of the loan portfolio at December 31, 2010. The Company entered into a credit default swap in 2006 on a portion of the residential real estate loan portfolio through a synthetic securitization structure.

The consumer loan portfolio not secured by real estate, consisting of automobile loans and other consumer loans, totaled $3.3 billion at December 31, 2011, representing 6.4% of the Company’s loan portfolio, compared to $17.8 billion, or 27.4%, of the loan portfolio at December 31, 2010. Excluding SCUSA, auto loans have declined to $958.3 million at December 31, 2011 compared to $1.9 billion at December 31, 2010 due to run-off in the Bank’s indirect auto loan portfolio. The Bank ceased originating all indirect auto loans as of January 2009.

Credit Risk Management

Extending credit to customers exposes the Company to credit risk, which is the risk that contractual principal and interest due on loans will not be collected due to the inability or unwillingness of the borrower to repay the loan. The Company manages credit risk in the loan portfolio through adherence to consistent standards, guidelines and limitations established by the Company’s credit risk organization and approved by the Board of Directors or a subcommittee of the Board of Directors. Written loan policies establish underwriting standards, lending limits and other standards or limits as deemed necessary and prudent. Various approval levels, based on the amount of the loan and other key credit attributes, have also been established. In order to ensure consistency and quality in accordance with the Company’s credit standards, the authority to approve loans resides in the credit risk organization, and loans over a certain dollar size require the approval of the credit approval committee. The largest loans require approval by the Executive Risk Management Committee and by Corporate Risk Management.

The Internal Audit Group conducts ongoing, independent reviews of the credit quality Company’s loan portfolios and the credit management processes to ensure the accuracy of the risk ratings and adherence to established policies and procedures, monitor compliance with applicable laws and regulations, provide objective measurement of the risk inherent in the loan portfolio, and ensure that proper documentation exists. The results of these periodic reviews are reported to line management, and to the Audit Committee of both the Company and the Bank. The Company also maintains a classification system for loans that identifies those requiring a higher level of monitoring by management because of one or more factors, borrower performance, business conditions, industry trends, nature of collateral, collateral margin, economic conditions, or other factors. Loan credit quality is always subject to scrutiny by line management, credit professionals (loan review area) and the independent Internal Audit Group.

The following discussion summarizes the underwriting policies and procedures for the major categories within the loan portfolio and addresses SHUSA’s strategies for managing the related credit risk.

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Santander Holdings USA, Inc. and Subsidiaries

Commercial Loans

Commercial loans principally represent commercial real estate loans (including multi-family loans), loans to commercial and industrial customers, automotive dealer floor plan loans and loans to auto lessors. Credit risk associated with commercial loans is primarily influenced by prevailing and expected economic conditions and the level of underwriting risk SHUSA is willing to assume. To manage credit risk when extending commercial credit, the Company focuses on assessing the borrower’s capacity and willingness to repay and on obtaining sufficient collateral. Commercial and industrial loans are generally secured by the borrower’s assets and by personal guarantees. Commercial real estate loans are originated primarily within the Mid-Atlantic, New York and New England market areas and are secured by real estate at specified loan-to-values and often by a guarantee of the borrower.

Management closely monitors the composition and quality of the total commercial loan portfolio to ensure that significant credit concentrations by borrowers or industries do not exist. At December 31, 2011 and 2010, 18% and 13% of the commercial loan portfolio, excluding multi-family, was unsecured, respectively.

The Company originates multi-family (five or more units) residential mortgage loans, which are secured primarily by apartment buildings, cooperative apartment buildings and mixed-use (combined residential and commercial) properties. Credit risk associated with multi-family loans is primarily influenced by prevailing and expected economic conditions and the level of underwriting risk the Company is willing to assume. To manage credit risk when extending credit, the Company follows a set of underwriting standards which generally require a maximum loan-to-value ratio of 80% based on an appraisal performed by either one of the Company’s in-house licensed and certified appraisers or by a Company-approved licensed and certified independent appraiser (whose appraisal is reviewed by a Company licensed and certified appraiser), and sufficient cash flow from the underlying property to adequately service the debt. A minimum debt service ratio of 1.25 generally is required on multi-family residential mortgage loans. The Company also considers the financial resources of the borrower, the borrower’s experience in owning or managing similar properties, the market value of the property and the Company’s lending experience with the borrower. For loans sold in the secondary market to Fannie Mae, the maximum loan-to-value ratio is 80% and the minimum debt service ratio is 1.25.

Consumer Loans Secured by Real Estate

Credit risk in the direct and indirect consumer loan portfolio is controlled by strict adherence to underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and, if secured, collateral values. In the home equity loan portfolio, combined loan-to-value ratios are generally limited to 90%, or credit insurance is purchased to limit exposure. SHUSA originates and purchases fixed rate and adjustable rate residential mortgage loans that are secured by the underlying 1-4 family residential property. Credit risk exposure in this area of lending is minimized by the evaluation of the creditworthiness of the borrower, including debt-to-equity ratios, credit scores, and adherence to underwriting policies that emphasize conservative loan-to-value ratios of generally no more than 80%. Residential mortgage loans originated or purchased in excess of an 80% loan-to-value ratio are generally insured by private mortgage insurance, unless otherwise guaranteed or insured by the Federal, state or local government. SHUSA also utilizes underwriting standards which comply with those of the FHLMC or the FNMA. Credit risk is further reduced since a portion of the Company’s fixed rate mortgage loan production is sold to investors in the secondary market without recourse. Additionally, SHUSA entered into a credit default swap in 2006 on a portion of its residential real estate loan portfolio through a synthetic securitization structure. Under the terms of the credit default swap, the Company fulfilled the first loss exposure of $5.2 million as the Protected Party to the transaction. The Company will be reimbursed for losses up to $40.5 million on the loans within the portion of the loan portfolio, which totaled $1.4 billion at December 31, 2011. Any losses sustained after the $40.5 million are the responsibility of the Company. This credit default swap term is equal to the term of the loan portfolio.

Consumer Loans Not Secured by Real Estate

The Company’s consumer loans not secured by real estate includes acquired retail installment contracts from manufacturer franchised dealers in connection with their sale of used and new automobiles and trucks as well as acquired consumer marine and recreational vehicle and credit card loans. Credit risk is mitigated to the extent possible through early and aggressive collection practices, which includes the repossession of vehicles.

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Santander Holdings USA, Inc. and Subsidiaries

Collections

The Company closely monitors delinquencies as another means of maintaining high asset quality. Collection efforts begin within 15 days after a loan payment is missed by attempting to contact all borrowers and to offer a variety of loss mitigation alternatives. If these attempts fail, the Company will proceed to gain control of any and all collateral in a timely manner in order to minimize losses. While liquidation and recovery efforts continue, officers continue to work with the borrowers, if appropriate, to recover all monies owed to the Company. The Company monitors delinquency trends at 30, 60 and 90 days past due. These trends are discussed at monthly Management Asset Review Committee and the Company and the Bank Board of Directors meetings.

Non-performing Assets

At December 31, 2011, the Company’s non-performing assets were $1.5 billion, compared to $2.9 billion at December 31, 2010. Non-performing assets as a percentage of total assets (excluding loans held for sale) improved to 1.83% at December 31, 2011 from the prior year level of 3.29%. Non-performing commercial loans decreased in 2011 by $606.2 million to $800.0 million. The remaining decrease in the non-performing assets was due to the SCUSA Transaction as well as the improvement in the overall credit quality of the loan portfolio. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information. Future credit performance of the loan portfolios is dependent upon the strength of the underwriting practices as well as the regions of the U.S. economy where the loans were originated. Future changes to delinquency and non-performing assets levels will have a significant impact on the financial results.

The Company places all commercial and residential mortgage loans on non-performing status at 90 days delinquent or sooner if management believes the loan has become impaired unless return to current status is expected imminently. A loan is considered to be impaired when, based upon current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay (e.g. less than 90 days) or insignificant shortfall in amount of payments does not necessarily result in the loan being identified as impaired.

For the majority of auto loans, the accrual of interest is discontinued and reversed once an account becomes past due 60 days or more. All other consumer loans, excluding credit cards, continue to accrue interest until they are 90 days delinquent, at which point they are either charged-off or placed on non-accrual status and anticipated losses are reserved. Credit cards remain accruing interest until they are 180 days delinquent, at which point they are charged-off and all interest is removed from interest income. At 180 days delinquent, anticipated losses on residential real estate loans are fully reserved for or charged off.

Generally loans that have been classified as non-accrual remain classified as non-accrual until the loan is able to sustain a period of repayment which makes the loan less than 90 days delinquent for a monthly amortizing loan at which time, accrual of interest resumes.

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Santander Holdings USA, Inc. and Subsidiaries

Table 7 presents the composition of non-performing assets at the dates indicated (in thousands):

Table 7: Non-performing assets

		September 30,			September 30,			September 30,			September 30,			September 30,
	AT DECEMBER 31,
	2011			2010			2009			2008			2007
Non-accrual loans:
Commercial:
Commercial real estate	$	459,692		$	653,221		$	823,766		$	319,565		$	61,750
Commercial and industrial		213,617			528,333			654,322			244,847			85,406
Multi-family		126,738			224,728			381,999			42,795			6,336
Total commercial loans		800,047			1,406,282			1,860,087			607,207			153,492
Consumer:
Residential mortgages		438,461			602,027			617,918			233,176			90,881
Consumer loans secured by real estate		108,075			125,310			117,390			69,247			56,099
Consumer not secured by real estate		12,883			592,650			535,902			4,045			3,816
Total consumer loans		559,419			1,319,987			1,271,210			306,468			150,796
Total non-accrual loans		1,359,466			2,726,269			3,131,297			913,675			304,288
Real estate owned		103,026			143,149			99,364			49,900			43,226
Other repossessed assets		5,671			79,854			18,716			21,836			14,062
Total other real estate owned and other repossessed assets		108,697			223,003			118,080			71,736			57,288
Total non-performing assets	$	1,468,163		$	2,949,272		$	3,249,377		$	985,411		$	361,576
Past due 90 days or more as to interest or principal and accruing interest	$	1,211		$	169		$	27,321		$	123,301		$	68,770
Net loan charge-off rate to average loans		1.92	%		2.01	%		2.40	%		0.83	%		0.25	%
Non-performing assets as a percentage of total assets, excluding loans held for sale(2)		1.83	%		3.29	%		3.92	%		1.28	%		0.43	%
Non-performing loans as a percentage of total loans(2)		2.63	%		4.18	%		5.43	%		1.64	%		0.53	%
Non-performing assets as a percentage of total loans, real estate owned and repossessed assets(2)		2.84	%		4.51	%		5.62	%		1.77	%		0.63	%
Allowance for credit losses as a percentage of total non-performing assets (1)(2)		91.3	%		84.7	%		63.9	%		118.5	%		204.0	%
Allowance for credit losses as a percentage of total non-performing loans (1)(2)		98.6	%		91.6	%		66.3	%		127.8	%		242.4	%

(1) Allowance for credit losses is comprised of the allowance for loan losses and the reserve for unfunded commitments, which is included in other liabilities.

(2) These calculations exclude accruing loans greater than 90 days past due.

Troubled Debt Restructurings

Troubled debt restructurings (“TDRs”) are loans that have been modified whereby the Company has agreed to make certain concessions to customers to both meet the needs of the customers and to maximize the ultimate recovery of a loan. TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted are generally interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal

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Santander Holdings USA, Inc. and Subsidiaries

Table 8 summarizes TDRs at the dates indicated (in thousands):

Table 8: Troubled Debt Restructuring

		September 30,		September 30,
	DECEMBER 31,		DECEMBER 31,
	2011		2010
Performing:
Commercial	$	102,934	$	35,629
Residential mortgages		385,863		220,382
Consumer		38,849		200,033
Total performing		527,646		456,044
Non-performing:
Commercial		93,420		68,517
Residential mortgages		105,476		131,807
Consumer		18,359		44,790
Total non-performing		217,255		245,114
Total	$	744,901	$	701,158

Potential Problem Loans

Potential problem loans are loans not currently classified as non-performing loans, for which management has doubts as to the borrowers’ ability to comply with present repayment terms. These assets are principally commercial loans delinquent more than 30 days but less than 90 days. Potential problem commercial loans amounted to $88.1 million and $268.4 million at December 31, 2011 and 2010, respectively. Management has evaluated these loans and reserved for these loans during the current year.

Delinquencies

The Company’s loan delinquencies (all performing loans held for investment 30 or more days delinquent and excluding nonaccrual loans) at December 31, 2011 were $640.0 million compared to $2.3 billion at December 31, 2010. As a percentage of total loans, performing delinquencies were 1.25% at December 31, 2011, a decrease from 3.55% at December 31, 2010. Consumer secured by real estate performing loan delinquencies decreased from $376.9 million to $370.3 million during the same time periods, and decreased as a percentage of total consumer secured by real estate loans from 2.09% to 2.04%. Consumer not secured by real estate performing loan delinquencies decreased from $1.5 billion to $106.0 million during the same time periods and decreased as a percentage of total consumer not secured by real estate loans from 8.61% to 3.25%. Commercial performing loan delinquencies decreased from $396.9 million to $163.8 million and decreased as a percentage of total commercial loans from 1.36% to 0.55%. The reason for the decreases in loan delinquencies is primarily due to the SCUSA Transaction as well as due to improvements in performance of the underlying loans. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information.

Allowance for Credit Losses

The allowance for loan losses and reserve for unfunded lending commitments collectively the “allowance for credit losses” are maintained at levels that management considers adequate to provide for losses based upon an evaluation of known and inherent risks in the loan portfolio. Management’s evaluation takes into consideration the risks inherent in the loan portfolio, past loan loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic conditions and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the allowance for credit losses may be necessary if conditions differ substantially from the assumptions used in making the evaluations.

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Table 9 summarizes the Company’s allowance for credit losses for allocated and unallocated allowances by loan type and the percentage of each loan type of total portfolio loans (in thousands):

Table 9: Allocation of the Allowance for Credit Losses by Product Type

		XXXX		XXXX			XXXX		XXXX			XXXX		XXXX			XXXX		XXXX			XXXX		XXXX
	AT DECEMBER 31,
	2011					2010					2009					2008					2007
			% of					% of					% of					% of					% of
			Loans to					Loans to					Loans to					Loans to					Loans to
			Total					Total					Total					Total					Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
Allocated allowances:
Commercial loans	$	766,865		58	%	$	905,786		45	%	$	989,192		50	%	$	752,835		57	%	$	433,951		53	%
Consumer loans		292,816		42			1,275,982		55			824,529		50			342,529		43			267,148		47
Unallocated allowance		23,811		n/a			15,682		n/a			4,503		n/a			7,389		n/a			8,345		n/a
Total allowance for loan losses	$	1,083,492		100	%	$	2,197,450		100	%	$	1,818,224		100	%	$	1,102,753		100	%	$	709,444		100	%
Reserve for unfunded lending commitments		256,485					300,621					259,140					65,162					28,302
Total allowance for credit losses	$	1,339,977				$	2,498,071				$	2,077,364				$	1,167,915				$	737,746

Allowance for Loan Losses

The Company maintains an allowance for loan losses that management believes is sufficient to absorb inherent losses in the loan portfolio. The adequacy of the Company’s allowance for loan losses is regularly evaluated. In addition to past loss experience, management’s evaluation of the adequacy of the allowance to absorb loan losses takes into consideration the risks inherent in the loan portfolio, specific loans which have loss potential, geographic and industry concentrations, delinquency trends, economic conditions, the level of originations and other relevant factors. Management also considers loan quality, changes in the size and character of the loan portfolio, amount of non-performing loans, and industry trends. At December 31, 2011, the Company’s total allowance for loan losses was $1.1 billion.

The allowance for loan losses consists of two elements: (i) an allocated allowance, which is comprised of allowances established on specific loans, and class allowances based on historical loan loss experience adjusted for current trends and adjusted for both general economic conditions and other risk factors in the Company’s loan portfolios, and (ii) an unallocated allowance to account for a level of imprecision in management’s estimation process.

Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated, considering factors such as historical loss experience, trends in delinquency and non-performing loans, changes in risk composition and underwriting standards, experience and ability of staff and regional and national economic conditions and trends.

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Santander Holdings USA, Inc. and Subsidiaries

For the commercial loan portfolios excluding small business loans (businesses with sales of up to $3.0 million), the Company has specialized credit officers, a monitoring unit and workout units that identify and manage potential problem loans. Changes in management factors, financial and operating performance, company behavior, industry factors and external events and circumstances are evaluated on an ongoing basis to determine whether potential impairment is evident and additional analysis is needed. For the commercial loan portfolios, risk ratings are assigned to each individual loan to differentiate risk within the portfolio and are reviewed on an ongoing basis by credit risk management and revised, if needed, to reflect the borrowers’ current risk profiles and the related collateral positions. The risk ratings consider factors such as financial condition, debt capacity and coverage ratios, market presence and quality of management. Generally, credit officers reassess a borrower’s risk rating on not less than an annual basis, and more frequently if warranted. This reassessment process is managed on a continual basis by the Credit Monitoring group to ensure consistency and accuracy in risk rating as well as appropriate frequency of risk rating review by the Bank’s credit officers. The Company’s Internal Audit group regularly performs loan reviews and assesses the appropriateness of assigned risk ratings. When credits are downgraded beyond a certain level, the Company’s workout department becomes responsible for managing the credit risk. Risk rating actions are generally reviewed formally by one or more Credit Committees depending on the size of the loan and the type of risk rating action being taken. Detailed analyses are completed that support the risk rating and management’s strategies for the customer relationship going forward.

If a loan is identified as impaired and is collateral dependent, an initial appraisal is obtained to provide a baseline in determining the property’s fair market value. The frequency of appraisals depends on the type of collateral being appraised. If the collateral value is subject to significant volatility (due to location of asset, obsolescence, etc.) an appraisal is obtained more frequently. At a minimum, updated appraisals are obtained within a 12 month period, if the loan remains outstanding for that period of time.

When the Bank determines that the value of an impaired loan is less than its carrying amount, the Bank recognizes impairment through a provision estimate or a charge-off to the allowance. Management performs these assessments on at least a quarterly basis. For commercial loans, a charge-off is recorded when a loan, or portion thereof, is considered uncollectable and of such little value that its continuance on the Bank’s books as an asset is not warranted, as outlined in accounting and regulatory guidance. Charge-offs are recorded on a monthly basis and partially charged-off loans continue to be evaluated on not less than a quarterly basis, with additional charge-offs or loan loss provisions taken on the remaining loan balance, if warranted, utilizing the same criteria.

The portion of the allowance for loan losses related to the commercial portfolio decreased from $905.8 million at December 31, 2010, or 3.11% of commercial loans, to $766.9 million at December 31, 2011, or 2.57% of commercial loans.

The consumer loan and small business loan portfolios are monitored for credit risk and deterioration with statistical tools considering factors such as delinquency, loan to value, and credit scores. Management evaluates the consumer portfolios throughout their life cycle on a portfolio basis. When problem loans are identified that are secured with collateral, management examines the loan files to evaluate the nature and type of collateral supporting the loans. Management documents the collateral type, date of the most recent valuation, and whether any liens exist, to determine the value to compare against the committed loan amount.

The Company places residential mortgage loans on non-performing status at 90 days delinquent or sooner if management believes the loan has become impaired unless return to current status is expected imminently. A loan is considered to be impaired when, based upon current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay (e.g. less than 90 days) or insignificant shortfall in amount of payments does not necessarily result in the loan being identified as impaired.

Consumer loans (excluding auto loans and credit cards) and any portion of a consumer loan secured by real estate mortgage loans not adequately secured are generally charged-off when deemed to be uncollectible or delinquent 180 days or more (120 days for closed-end consumer loans not secured by real estate), whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Examples that would demonstrate repayment include; a loan that is secured by collateral and is in the process of collection; a loan supported by a valid guarantee or insurance; or a loan supported by a valid claim against a solvent estate. Auto loans are charged off when an account becomes 121 days delinquent if the Company has not repossessed the related vehicle. The Company charges off accounts in repossession when the automobile is repossessed and legally available for disposition. Credit cards that are 180 days delinquent are charged-off and all interest is removed from interest income.

For both residential and home equity loans, loss severity assumptions are incorporated into the loan loss reserve models to estimate loan balances that will ultimately charge-off. These assumptions are based on recent loss experience for six loan-to-value bands within the portfolios. Current loan-to-value ratios are updated based on movements in the state level Federal Housing Finance Agency House Pricing Indexes.

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Santander Holdings USA, Inc. and Subsidiaries

The allowance for the consumer loans was $292.8 million at December 31, 2011 and $1.3 billion at December 31, 2010. The allowance as a percentage of consumer loans was 1.35% at December 31, 2011 and 3.54% at December 31, 2010. This decrease is due primarily to the effects of the SCUSA Transaction during 2011. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information.

Additionally, the Company reserves for certain incurred, but undetected, losses that are probable within the loan portfolio. This is due to several factors, such as, but not limited to, inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions and the interpretation of economic trends. While this analysis is conducted at least quarterly, the Company has the ability to revise the allowance factors whenever necessary in order to address improving or deteriorating credit quality trends or specific risks associated with a given loan pool classification.

Regardless of the extent of the Company’s analysis of customer performance, portfolio evaluations, trends or risk management processes established, a level of imprecision will always exist due to the judgmental nature of loan portfolio and/or individual loan evaluations. The Company maintains an unallocated allowance to recognize the existence of these exposures. The unallocated allowance for loan losses was $23.8 million at December 31, 2011 and $15.7 million at December 31, 2010. Management continuously evaluates its allowance methodology; however the unallocated allowance is subject to changes each reporting period due to certain inherent but undetected losses; which are probable of being realized within the loan portfolio.

Reserve for Unfunded Lending Commitments

In addition to the allowance for loan losses, the Bank also estimates probable losses related to unfunded lending commitments. Unfunded lending commitments for commercial customers are analyzed and segregated by risk according to the Company’s internal risk rating scale. These risk classifications, in conjunction with an analysis of historical loss experience, current economic conditions and performance trends within specific portfolio segments, and any other pertinent information result in the estimation of the reserve for unfunded lending commitments. Additions to the reserve for unfunded lending commitments are made by charges to the provision for credit losses and this reserve is classified within other liabilities on the Company’s Consolidated Balance Sheet.

The reserve for unfunded lending commitments of $256.5 million at December 31, 2011 is a decrease of $44.1 million from $300.6 million at December 31, 2010. The decrease is mainly due to the disposition of non-performing unfunded commitments.

Risk factors are continuously reviewed by management when conditions warrant. A comprehensive analysis of the allowance for loan losses and reserve for unfunded lending commitments is performed by the company on a quarterly basis. In addition, a review of allowance levels based on nationally published statistics is conducted on at least an annual basis.

The factors supporting the allowance for loan losses and the reserve for unfunded lending commitments do not diminish the fact that the entire allowance for loan losses and the reserve for unfunded lending commitments are available to absorb losses in the loan portfolio and related commitment portfolio, respectively. The Company’s principal focus, therefore, is on the adequacy of the total allowance for loan losses and reserve for unfunded lending commitments.

The allowance for loan losses and the reserve for unfunded lending commitments are subject to review by banking regulators. The Company’s primary bank regulators conduct examinations of the allowance for loan losses and reserve for unfunded lending commitments and make assessments regarding their adequacy and the methodology employed in their determination.

As mentioned previously, prior to the effects of the SCUSA Transaction, SCUSA, on behalf of the Company, acquired loans at a substantial discount from certain companies. Part of this discount is attributable in part to future expected credit losses. Upon acquisition of a portfolio of loans, SCUSA will project future credit losses on the pool and will not amortize this discount to interest income in accordance with Accounting Standard Codification 310-30. The amount of nonaccretable loan discount at December 31, 2010 totaled $966.5 million. As a result of the effects of the SCUSA Transaction, acquired loans purchased by SCUSA are no longer consolidated on the Company’s financial statements. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information.

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Santander Holdings USA, Inc. and Subsidiaries

Investment Securities

The Company’s investment portfolio is concentrated in mortgage-backed securities and collateralized mortgage obligations issued by federal agencies or private institutions as well as highly rated corporate-backed and asset-backed securities. The Company’s available-for-sale investment strategy is to purchase liquid investments (fixed rate and floating rate) so that the average duration of the portfolio is 3-5 years. This strategy helps ensure that the Company’s overall interest rate risk position stays within policy requirements. The average effective duration of the investment portfolio at December 31, 2011 was 3.33 years. The actual maturities of mortgage-backed securities available for sale will differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.

In determining if and when a decline in market value below amortized cost is other-than-temporary (“OTTI”), the Company considers the duration and severity of the unrealized loss, the financial condition and near-term prospects of the issuers, and the Company’s intent and ability to hold the investments to allow for a recovery in market value in a reasonable period of time. When such a decline in value is deemed to be OTTI, an impairment loss is recognized in current period operating results to the extent of the decline. See Note 5 to the Consolidated Financial Statements for further discussion and analysis of management’s determination that the unrealized losses in the investment portfolio at December 31, 2011 and 2010 were considered temporary.

The 2011 and 2010 results included OTTI charges of $0.3 million and $4.8 million, respectively, on non-agency mortgage backed securities. Economic conditions have significantly impacted the fair value of certain non-agency mortgage backed securities. The collateral for these securities consisted of residential loans originated by a diverse group of private label issuers. During 2011, the Company sold the entire non-agency mortgage backed securities portfolio resulting in the recognition of $103.3 million in unrealized losses. The sale was the result of management’s strategic decision to exit certain asset classes in light of new capital and liquidity requirements expected in 2012. The 2009 results included OTTI charges of $36.9 million on FNMA and FHLMC preferred stock. In 2009, the Company sold its FHLMC/FNMA preferred stock portfolio and recorded a gain of $20.3 million.

Table 10 presents the book value of investment securities by obligor and Table 11 presents the securities of single issuers (other than obligations of the United States and its political subdivisions, agencies and corporations) having an aggregate book value in excess of 10% of the Company’s stockholders’ equity that were held by the Company at December 31, 2011 (dollars in thousands):

Table 10: Investment Securities by Obligor

		September 30,		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010		2009
Investment securities available-for-sale:
U.S. Treasury and government agencies	$	3,995,050	$	377,393	$	365,727
FNMA, FHLMC, and FHLB securities		5,108,646		4,324,002		2,812,139
State and municipal securities		1,784,778		1,882,280		1,802,426
Other securities		4,690,102		6,788,173		8,629,106
Total investment securities available-for-sale	$	15,578,576	$	13,371,848	$	13,609,398
FHLB stock		555,370		614,241		669,998
Other investments		—		—		22,242
Total investment portfolio	$	16,133,946	$	13,986,089	$	14,301,638

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Santander Holdings USA, Inc. and Subsidiaries

Table 11: Investment Securities of Single Issuers

		September 30,		September 30,
	AT DECEMBER 31, 2011
	Amortized		Fair
	Cost		Value
FNMA	$	2,764,049	$	2,799,979
FHLMC		2,248,534		2,288,665
GNMA		3,904,933		3,950,960
Total	$	8,917,516	$	9,039,604

Investment Securities Available-for-Sale

Securities expected to be held for an indefinite period of time are classified as available-for-sale and are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity, net of estimated income taxes, unless a decline in value is deemed to be other-than-temporary in which case the decline is recorded in current period operating results. The majority of the securities have readily determinable market prices that are derived from secondary institutional markets with an exit price that is predominantly reflective of bid level pricing in these markets. Decisions to purchase or sell these securities are based on economic conditions, including changes in interest rates, and asset/liability management strategies. For additional information with respect to the amortized cost and estimated fair value of the Company’s investment securities available-for-sale, see Note 5 to the Consolidated Financial Statements.

Other Investments

Other investments include the Company’s investment in the stock of the Federal Home Loan Bank (FHLB) of Pittsburgh. Although FHLB stock is an equity interest in a FHLB, it does not have a readily determinable fair value, because its ownership is restricted and it lacks a market. FHLB stock can be sold back only at its par value of $100 per share and only to the FHLBs or to another member institution. Accordingly, FHLB stock is carried at cost. The Company evaluates this investment for impairment on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

Goodwill and Intangible Assets

Goodwill and other intangible assets decreased to $3.5 billion at December 31, 2011 from $4.3 billion in 2010 due to 2011 amortization expense of $55.5 million and the effects of the SCUSA Transaction. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information. Goodwill and other intangibles represented 4.4% of total assets and 28% of stockholders’ equity at December 31, 2011, and are comprised of goodwill of $3.4 billion, core deposit intangible assets of $79.4 million and other intangibles of $19.8 million.

Other Assets

Other assets at December 31, 2011 were $2.3 billion compared to $3.4 billion at December 31, 2010. Included in other assets at December 31, 2011 and 2010 were net deferred tax assets of $695.6 million and $1.7 billion, respectively, $108.7 million and $223.0 million, respectively, of total other real estate owned and other repossessed assets, $349.2 million and $308.0 million, respectively, of derivative assets and $700.6 million and $436.8 million, respectively of accounts receivable. The majority of the activity in other assets is a result of the effects of the SCUSA Transaction. See further discussion in Note 3 to the Consolidated Financial Statements for additional information on the SCUSA Transaction. Accounts receivable from 2010 to 2011 increased due to the timing of payments. Derivative assets increased from 2010 to 2011 due to increased market rates and increase in volume of contracts.

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Santander Holdings USA, Inc. and Subsidiaries

Premises and Equipment

Total premises and equipment, net was $669. 1 million at December 31, 2011 compared to $596.0 at December 31, 2010. The increase in total premises and equipment is due to significant computer software implementation as the Company began integrating Santander’s information technology and operation systems offset by the effects of the SCUSA Transaction. Refer to Note 3 of the Notes to Consolidated Financial Statements for additional information on the SCUSA Transaction.

Deposits and Other Customer Accounts

The Bank attracts deposits within its primary market area by offering a variety of deposit instruments, including demand and interest bearing demand deposit accounts, money market accounts, savings accounts, customer repurchase agreements, certificates of deposit and retirement savings plans. The Bank also issues wholesale deposit products such as brokered deposits and government deposits on a periodic basis which serve as an additional source of liquidity for the Company. Total deposits and other customer accounts at December 31, 2011 were $47.8 billion compared to $42.7 billion at December 31, 2010. The fluctuation is due to increased deposits in money market accounts and certificates of deposits.

Borrowings and Other Debt Obligations

The Bank utilizes borrowings and other debt obligations as a source of funds for its asset growth and its asset/liability management. Collateralized advances are available from the Federal Home Loan Bank of Pittsburgh (“FHLB”) provided certain standards related to creditworthiness have been met. The Bank also utilizes repurchase agreements, which are short-term obligations collateralized by securities. SHUSA also has term loans and lines of credit with Santander. Total borrowings and other debt obligations at December 31, 2011 were $18.3 billion compared to $33.6 billion at December 31, 2010. The decrease is due to the effects of the SCUSA Transaction. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information.

Table 12 summarizes information regarding borrowings and other debt obligations (in thousands):

Table 12: Details of Borrowings

		September 30,			September 30,			September 30,
	DECEMBER 31,
	2011			2010			2009
Sovereign Bank borrowings and other debt obligations
REIT preferred:
Balance	$	148,966		$	147,530		$	146,115
Weighted average interest rate at year-end		14.08	%		14.20	%		14.34	%
Maximum amount outstanding at any month-end during the year	$	148,966		$	147,530		$	149,059
Average amount outstanding during the year	$	148,201		$	146,783		$	148,195
Weighted average interest rate during the year		14.09	%		14.20	%		14.08	%
Sovereign Bank Senior Notes:
Balance	$	1,349,920		$	1,348,111		$	1,346,373
Weighted average interest rate at year-end		3.92	%		3.92	%		3.92	%
Maximum amount outstanding at any month-end during the year	$	1,349,920		$	1,348,111		$	1,346,373
Average amount outstanding during the year	$	1,348,964		$	1,347,201		$	1,345,482
Weighted average interest rate during the year		3.95	%		3.91	%		3.87	%
Sovereign Bank Subordinated Notes:
Balance	$	756,831		$	1,472,921		$	1,663,399
Weighted average interest rate at year-end		7.57	%		6.08	%		5.84	%
Maximum amount outstanding at any month-end during the year	$	1,253,975		$	1,606,643		$	1,663,398
Average amount outstanding during the year	$	995,384		$	1,535,701		$	1,658,375
Weighted average interest rate during the year		7.69	%		5.90	%		5.98	%
Securities sold under repurchase agreements:
Balance	$	1,030,300		$	1,389,382		$	—
Weighted average interest rate at year-end		0.38	%		0.31	%		0.00	%
Maximum amount outstanding at any month-end during the year	$	3,567,568		$	1,572,187		$	—
Average amount outstanding during the year	$	523,557		$	781,938		$	—
Weighted average interest rate during the year		0.32	%		0.29	%		0.00	%

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Santander Holdings USA, Inc. and Subsidiaries

		September 30,			September 30,			September 30,
	DECEMBER 31,
	2011			2010			2009
Federal Funds Purchased:
Balance	$	1,166,000		$	954,000		$	1,000,000
Weighted average interest rate at year-end		0.08	%		0.19	%		0.25	%
Maximum amount outstanding at any month-end during the year	$	2,003,000		$	2,010,000		$	3,187,000
Average amount outstanding during the year	$	1,025,536		$	1,198,827		$	1,501,027
Weighted average interest rate during the year		0.10	%		0.21	%		0.27	%
FHLB advances:
Balance	$	11,076,773		$	9,849,041		$	12,056,294
Weighted average interest rate at year-end		3.40	%		4.10	%		4.13	%
Maximum amount outstanding at any month-end during the year	$	11,076,773		$	12,307,909		$	12,991,887
Average amount outstanding during the year	$	9,890,849		$	11,170,385		$	11,069,069
Weighted average interest rate during the year		4.25	%		4.50	%		5.43	%
Holding Company Borrowings and other debt obligations
Commercial paper:
Balance	$	18,082		$	968,355		$	—
Weighted average interest rate at year-end		0.87	%		0.98	%		0.00	%
Maximum amount outstanding at any month-end during the year	$	732,317		$	1,089,609		$	—
Average amount outstanding during the year	$	355,548		$	369,156		$	—
Weighted average interest rate during the year		0.91	%		0.97	%		0.00	%
SHUSA Senior Notes:
Balance	$	746,547		$	249,332		$	1,347,032
Weighted average interest rate at year-end		4.35	%		3.73	%		2.89	%
Maximum amount outstanding at any month-end during the year	$	746,547		$	1,347,557		$	1,347,031
Average amount outstanding during the year	$	599,140		$	745,978		$	1,129,817
Weighted average interest rate during the year		4.37	%		4.07	%		3.80	%
SHUSA subordinated notes:
Balance	$	753,072		$	751,355		$	—
Weighted average interest rate at year-end		5.96	%		5.96	%		0.00	%
Maximum amount outstanding at any month-end during the year	$	753,072		$	751,355		$	—
Average amount outstanding during the year	$	752,162		$	625,152		$	—
Weighted average interest rate during the year		5.96	%		5.88	%		0.00	%
Junior Subordinated Debentures to Capital Trusts:
Balance	$	1,231,942		$	1,173,174		$	1,259,832
Weighted average interest rate at year-end		6.85	%		6.50	%		6.46	%
Maximum amount outstanding at any month-end during the year	$	1,231,942		$	1,214,085		$	1,259,833
Average amount outstanding during the year	$	1,056,490		$	1,190,492		$	1,257,854
Weighted average interest rate during the year		6.81	%		6.95	%		6.85	%
SCUSA borrowings and other debt obligations
SCUSA Asset-Backed Floating Rate Notes:
Balance	$	—		$	8,246,611		$	2,249,839
Weighted average interest rate at year-end		0.00	%		2.35	%		4.15	%
Maximum amount outstanding at any month-end during the year	$	7,518,448		$	8,246,611		$	2,249,839
Average amount outstanding during the year	$	5,872,617		$	4,601,331		$	1,499,884
Weighted average interest rate during the year		2.87	%		2.43	%		4.79	%
Credit Facilities:
Balance	$	—		$	7,080,305		$	6,166,267
Weighted average interest rate at year-end		0.00	%		1.79	%		1.79	%
Maximum amount outstanding at any month-end during the year	$	8,644,578		$	7,359,911		$	6,166,267
Average amount outstanding during the year	$	8,283,444		$	6,205,218		$	4,584,087
Weighted average interest rate during the year		3.03	%		3.34	%		3.51	%

The Company recorded debt extinguishment charges in 2011 of $38.7 million primarily comprised of $22.8 million on the termination of $330.0 million of FHLB advances, $4.8 million on the redemption of Capital Trust V at a par value of $175.0 million and $8.4 million on the repurchase of $242.6 million of subordinated notes. In 2010 there were debt extinguishment charges of $25.8 million mainly comprised of $17.0 million on the termination of $920 million of FHLB advances. Refer to Note 13, “Borrowings and Other Debt Obligations” in the Notes to Consolidated Financial Statements for more information related to SHUSA’s borrowings.

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Santander Holdings USA, Inc. and Subsidiaries

Off-Balance Sheet Arrangements

Securitization transactions contribute to the Company’s overall funding and regulatory capital management. These transactions involve periodic transfers of loans or other financial assets to special purpose entities (“SPE’s”). The vast majority of the Company’s SPE’s are consolidated on the Company’s balance sheet at December 31, 2011. The balance of loans in unconsolidated SPE’s totaled $55.1 million at December 31, 2011.

The Company enters into partnerships, which are variable interest entities, with real estate developers for the construction and development of low-income housing. The partnerships are structured with the real estate developer as the general partner and the Company as the limited partner. The Company is not the primary beneficiary of these variable interest entities. The Company’s risk of loss is limited to its investment in the partnerships, which totaled $165.5 million at December 31, 2011 and any future cash obligations that the Company has committed to the partnerships. Future contractually required cash obligations related to these partnerships totaled $167 thousand at December 31, 2011. The Company’s investments in these partnerships are accounted for under the equity method.

Preferred Stock

On May 15, 2006, the Company issued 8.0 million shares of Series C non-cumulative perpetual preferred stock and received net proceeds of $195.4 million. The perpetual preferred stock ranks senior to the common stock. The perpetual preferred stockholders are entitled to receive dividends when and if declared by the Company’s board of directors at a rate of 7.30% per annum, payable quarterly, before the board of directors may declare or pay any dividend on the common stock. The dividends on the perpetual preferred stock are non-cumulative. The Series C preferred stock became redeemable on May 15, 2011. As of December 31, 2011, no preferred stocks have been redeemed.

Bank Regulatory Capital

For a detailed discussion on regulatory capital requirements, see Note 24 in the Notes to Consolidated Financial Statements.

Table 13 presents bank regulatory capital requirements and the capital ratios of the Bank and SHUSA at December 31, 2011.

Table 13: Regulatory Capital Ratios

		September 30,			September 30,			September 30,
	December 31, 2011			Sovereign Bank Minimum Requirement			Well Capitalized Requirement(1)
Tier 1 leverage capital ratio		11.15	%		4.00	%		5.00	%
Tier 1 risk-based capital ratio		14.24			4.00			6.00
Total risk-based capital ratio		16.45			8.00			10.00
Tier 1 common capital ratio		14.07			n/a			n/a

		September 30,
	SHUSA
	December 31,
	2011
Tier 1 leverage capital ratio		10.88	%
Tier 1 risk-based capital ratio		13.75
Total risk-based capital ratio		16.69
Tier 1 common capital ratio		12.61

57

Santander Holdings USA, Inc. and Subsidiaries

Liquidity and Capital Resources

Liquidity represents the ability of the Company to obtain cost effective funding to meet the needs of customers, as well as the Company’s financial obligations. Factors that impact the liquidity position of the Company include loan origination volumes, loan prepayment rates, maturity structure of existing loans, core deposit growth levels, certificate of deposit maturity structure and retention, the Company’s credit ratings, investment portfolio cash flows, maturity structure of wholesale funding, etc. These risks are monitored and centrally managed. This process includes reviewing all available wholesale liquidity sources. The Company also forecasts future liquidity needs and develops strategies to ensure adequate liquidity is available at all times.

The Bank has several sources of funding to meet its liquidity requirements, including the liquid investment securities portfolio, the core deposit base, the ability to acquire large deposits, FHLB borrowings, Federal Reserve borrowings, wholesale deposit purchases, and federal funds purchased.

SHUSA has the following major sources of funding to meet its liquidity requirements: dividends and returns of investment from its subsidiaries, short-term investments held by nonbank affiliates and access to the capital markets. Santander and subsidiaries of Santander have provided liquidity to SHUSA in 2010 and 2009. During March 2010, SHUSA issued 3.0 million shares of common stock to raise $750.0 million. During December 2010, SHUSA issued 3.0 million shares of common stock to Santander resulting in payment of $750.0 million and at the same time, declared dividends of $750.0 million in 2010 to Santander. The December 2010 transaction was reported as a non-cash transaction. During December 2011, SHUSA issued 3.2 million shares of common stock to Santander resulting in payment of $800.0 million and at the same time, declared dividends of $800.0 million in 2011 to Santander. The December 2011 transaction was reported as a non-cash transaction.

Additionally, in 2010 SHUSA issued subordinated notes of $750.0 million to Santander. In March 2009, SHUSA raised proceeds of $1.8 billion by issuing 72 thousand shares of preferred stock, which were converted to common stock in July 2009.

The Bank may pay dividends to its parent subject to approval. In December 2011, the Bank issued a $150 million dividend to SHUSA. No Bank common stock dividends were paid in 2010 and 2009. At December 31, 2011, the holding company’s liquidity to meet debt payments, debt service and debt maturities was in excess of 12 months.

As of December 31, 2011, SHUSA, through the Bank, had over $21.7 billion in committed liquidity from the FHLB and the Federal Reserve Bank. Of this amount, $11.1 billion is unused and therefore provides additional borrowing capacity and liquidity for the Company. At December 31, 2011, liquid assets (defined as cash and cash equivalents, loans held for sale, and securities available for sale exclusive of securities pledged as collateral) totaled approximately $14.9 billion or 31.2% of total deposits. This compares to $9.5 billion, or 22.3%, of total deposits, at December 31, 2010. In addition to the liquid assets, the Company also has available liquidity from unencumbered security collateral and federal funds of $10.8 billion. Management believes that the Company has ample liquidity to fund its operations.

On July 15, 2010, SHUSA entered into a commercial paper program under which SHUSA may issue unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $2.0 billion. The proceeds of the commercial paper issuances will be used for general corporate purposes. Amounts available under the program may be re-borrowed. At December 31, 2011 and 2010, the outstanding balance of unsecured commercial paper notes was $18.1 million and $968.4 million, respectively.

58

Santander Holdings USA, Inc. and Subsidiaries

Contractual Obligations and Other Commitments

The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and its asset/liability management, to fund acquisitions, and to meet its capital needs. These obligations require the Company to make cash payments over time as detailed in the Table 14 below. For further information regarding the Company’s contractual obligations, refer to Notes 13 and 22 of the Consolidated Financial Statements.

Table 14: Contractual Obligations

		September 30,		September 30,		September 30,		September 30,		September 30,
	PAYMENTS DUE BY PERIOD
			Less Than						After
(Dollars in thousands)	Total		1 Year		1-3 Years		3-5 Years		5 Years
FHLB advances(1)	$	12,478,888	$	2,106,126	$	3,470,764	$	5,424,615	$	1,477,383
Commercial Paper		18,082		18,082		—		—		—
Securities sold under repurchase agreements(1)		1,030,641		1,030,641		—		—
Fed Funds(1)		1,166,000		1,166,000		—		—		—
Other debt obligations(1)(2)		4,501,718		1,764,588		530,153		1,432,207		774,770
Junior subordinated debentures to Capital Trusts(1)		1,933,800		236,573		162,172		404,746		1,130,309
Certificates of deposit(1)		10,142,937		5,909,473		2,634,500		1,596,850		2,114
Investment partnership commitments(3)		167		74		26		26		41
Operating leases		686,669		104,181		184,169		147,710		250,609
Total contractual cash obligations	$	31,958,902	$	12,335,738	$	6,981,784	$	9,006,154	$	3,635,226

(1) Includes interest on both fixed and variable rate obligations, as well as hedge basis adjustments for FHLB advances. The interest associated with variable rate obligations is based upon interest rates in effect at December 31, 2011. 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.

Excluded from the above table are deposits of $37.9 billion that are due on demand by customers. Additionally, $112.7 million of tax liabilities associated with unrecognized tax benefits have been excluded due to the high degree of uncertainty regarding the timing of future cash outflows associated with such obligations.

59

Santander Holdings USA, Inc. and Subsidiaries

SHUSA is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to manage its own exposure to fluctuations in interest rates. These financial instruments may include commitments to extend credit, standby letters of credit, loans sold with recourse, forward contracts and interest rate swaps, caps and floors. These financial instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheet. The contract or notional amounts of these financial instruments reflect the extent of involvement SHUSA has in particular classes of financial instruments. Commitments to extend credit, including standby letters of credit, do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.

SHUSA’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and loans sold with recourse is represented by the contractual amount of those instruments. SHUSA uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For interest rate swaps, caps and floors and forward contracts, the contract or notional amounts do not represent exposure to credit loss. SHUSA controls the credit risk of its interest rate swaps, caps and floors and forward contracts through credit approvals, limits and monitoring procedures.

Other Commercial Commitments

		September 30,		September 30,		September 30,		September 30,		September 30,
	AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
(Dollars in thousands)	Total Amounts Committed		Less Than 1 Year		1-3 Years		3-5 Years		Over 5 Years
Commitments to extend credit	$	20,108,165	$	6,270,296	$	2,881,044	$	5,662,736	$	5,294,089	(1)
Standby letters of credit		2,199,489		1,267,984		581,597		240,374		109,534
Loans sold with recourse		230,107		14,198		63,135		48,872		103,902
Forward buy commitments		505,905		485,286		20,619		—		—
Total commercial commitments	$	23,043,666	$	8,037,764	$	3,546,395	$	5,951,982	$	5,507,525

(1) Of this amount, $5.1 billion represents the unused portion of home equity lines of credit.

For further information regarding the Company’s commitments, refer to Note 22 to the Notes to the Consolidated Financial Statements.

Asset and Liability Management

Interest rate risk arises primarily through the Company’s traditional business activities of extending loans and accepting deposits. Many factors, including economic and financial conditions, movements in market interest rates and consumer preferences, affect the spread between interest earned on assets and interest paid on liabilities. Interest rate risk is managed centrally by the treasury group with oversight by the Asset and Liability Committee. In managing its interest rate risk, the Company seeks to minimize the variability of net interest income across various likely scenarios while at the same time maximizing its net interest income and net interest margin. To achieve these objectives, the treasury group works closely with each business line in the Company and guides new business. The treasury group also uses various other tools to manage interest rate risk including wholesale funding maturity targeting, investment portfolio purchase strategies, asset securitization/sale, and financial derivatives.

Interest rate risk focuses on managing four elements of risk associated with interest rates: basis risk, repricing risk, yield curve risk and option risk. Basis risk stems from rate index timing differences with rate changes, such as differences in the extent of changes in fed funds compared with three month LIBOR. Repricing risk stems from the different timing of contractual repricing such as, one month versus three month reset dates. Yield curve risk stems from the impact on earnings and market value due to different shapes and levels of yield curves. Optionality risk stems from prepayment or early withdrawal risk embedded in various products. These four elements of risk are analyzed through a combination of net interest income simulations, shocks to the net interest income simulations, scenarios and market value analysis and the subsequent results are reviewed by management. Numerous assumptions are made to produce these analyses including, but not limited to, assumptions on new business volumes, loan and investment prepayment rates, deposit flows, interest rate curves, economic conditions, and competitor pricing.

60

Santander Holdings USA, Inc. and Subsidiaries

The Company simulates the impact of changing interest rates on its expected future interest income and interest expense (net interest income sensitivity). This simulation is run monthly and it includes various scenarios that help management understand the potential risks in net interest income sensitivity. These scenarios include both parallel and non-parallel rate shocks as well as other scenarios that are consistent with quantifying the four elements of risk. This information is then used to develop proactive strategies to ensure that the Company’s risk position remains close to neutral so that future earnings are not significantly adversely affected by future interest rates.

The table below discloses the estimated sensitivity to the Company’s net interest income based on interest rate changes:

		September 30,
If interest rates changed in parallel by the amounts below at December 31, 2011	The following estimated percentage increase/(decrease) to net interest income would result
Up 100 basis points		4.61	%
Up 200 basis points		8.27	%
Down 100 basis points		(5.79	)%

Because the assumptions used are inherently uncertain, the Company cannot precisely predict the effect of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes, the difference between actual experience and the assumed volume and characteristics of new business and behavior of existing positions, and changes in market conditions and management strategies, among other factors.

The Company also focuses on calculating the market value of equity (“MVE”). This analysis measures the present value of all estimated future interest income and interest expense cash flows of the Company over the estimated remaining life of the balance sheet. MVE is calculated as the difference between the market value of assets and liabilities. The MVE calculation utilizes only the current balance sheet and therefore does not factor in any future changes in balance sheet size, balance sheet mix, yield curve relationships, and product spreads which may mitigate the impact of any interest rate changes.

Management looks at the effect of interest rate changes on MVE. The sensitivity of MVE to changes in interest rates is a measure of longer-term interest rate risk and also highlights the potential capital at risk due to adverse changes in market interest rates. The following table discloses the estimated sensitivity to the Company’s MVE at December 31, 2011 and 2010:

		September 30,			September 30,
	The following estimated percentage
	increase/(decrease) to MVE would result
If interest rates changed in parallel by	December 31, 2011			December 31, 2010
Base (in millions)	$	8,777		$	6,910
Up 200 basis points		(5.91	)%		(8.43	)%
Up 100 basis points		(1.85	)%		(3.86	)%

Neither the net interest income sensitivity analysis or the MVE analysis contemplate changes in credit risk of the loan and investment portfolio from changes in interest rates. The amounts above are the estimated impact due solely to a parallel change in interest rates.

Pursuant to its interest rate risk management strategy, the Company enters into derivative transactions such as interest rate exchange agreements (swaps, caps, and floors) and forward sale or purchase commitments. The Company’s objective in managing its interest rate risk is to provide sustainable levels of net interest income while limiting the impact that changes in interest rates have on net interest income.

Interest rate swaps are generally used to convert fixed rate assets and liabilities to variable rate assets and liabilities and vice versa. the Company utilizes interest rate swaps that have a high degree of correlation to the related financial instrument.

As part of its overall business strategy, the Company originates fixed rate residential mortgages. It sells a portion of this production to FHLMC, FNMA, and private investors. The loans are exchanged for cash or marketable fixed rate mortgage-backed securities which are generally sold. This helps insulate the Company from the interest rate risk associated with these fixed rate assets. The Company uses forward sales, cash sales and options on mortgage-backed securities as a means of hedging against changes in interest rate on the mortgages that are originated for sale and on interest rate lock commitments.

61

Santander Holdings USA, Inc. and Subsidiaries

To accommodate customer needs, the Company enters into customer-related financial derivative transactions primarily consisting of interest rate swaps, caps, floors and foreign exchange contracts. Risk exposure from customer positions is managed through transactions with other dealers.

Through the Company’s capital markets and mortgage-banking activities, it is subject to trading risk. The Company employs various tools to measure and manage price risk in its trading portfolios. In addition, the Board of Directors has established certain limits relative to positions and activities. The level of price risk exposure at any given point in time depends on the market environment and expectations of future price and market movements, and will vary from period to period.

Table 15 presents selected quarterly consolidated financial data (in thousands):

Table 15: Selected Quarterly Consolidated Financial Data

		Septem			Septem		Septem		Septem		Septem			Septem		Septem		Septem
	THREE MONTHS ENDED
	Dec. 31, 2011			Sept. 30, 2011		June 30, 2011		Mar. 31, 2011		Dec. 31, 2010			Sept. 30, 2010		June 30, 2010		Mar. 31, 2010
Total interest income	$	1,354,890		$	1,278,133	$	1,300,367	$	1,319,623	$	1,289,618		$	1,211,761	$	1,156,849	$	1,126,261
Total interest expense		376,798			323,565		350,640		337,196		337,306			333,292		346,749		368,503
Net interest income		978,092			954,568		949,727		982,427		952,312			878,469		810,100		757,758
Provision for credit losses		370,322			368,713		273,144		307,772		321,376			455,639		437,304		412,707
Net interest income/(loss) after provision for credit loss		607,770			585,855		676,583		674,655		630,936			422,830		372,796		345,051
Gain/(loss) on investment securities, net		(49,270	)		41,943		20,062		61,862		222			131,113		42,894		26,327
Total fees and other income		1,245,237			196,474		230,048		250,316		245,121			196,265		211,267		176,260
General and administrative and other expenses		866,502			513,229		502,223		493,056		509,889			442,627		416,784		412,797
Income before income taxes		937,235			311,043		424,470		493,777		366,390			307,581		210,173		134,841
Income tax (benefit)/provision		481,439			104,707		145,419		176,714		(235,619	)		87,419		66,130		41,680
Net income/(loss)	$	455,796		$	206,336	$	279,051	$	317,063	$	602,009		$	220,162	$	144,043	$	93,161

2011 Fourth Quarter Results

SHUSA reported net income for the fourth quarter of 2011 of $455.8 million compared to income of $206.3 million for the third quarter of 2011 and $602.0 million for the fourth quarter of 2010.

Net interest margin for the fourth quarter of 2011 was 4.88%, compared to 4.79% for the third quarter of 2011 and 4.94% for the fourth quarter of 2010. The decrease in margin in the fourth quarter of 2010 compared to the prior year was primarily a result of the continuing changing interest rate environment. The 2012 net interest margin will continue to be influenced by the interest rate yield environment, levels of non-performing loans, the Company’s ability to originate high quality loans and organically grow low cost deposits and the SCUSA Transaction. Refer to the SCUSA Transaction section of this MD&A and Note 3 of the Notes to Consolidated Financial Statements for additional information.

Total Fees and other income for the fourth quarter of 2011 were $1.2 billion compared to $245.1 million in the fourth quarter of 2010. The increase is primarily due to the pre-tax gain recognized of $987.7 million related to the SCUSA Transaction. General and administrative and other expenses for the fourth quarter of 2011 were $866.5 million, compared to $513.2 million in the third quarter of 2011 and $509.9 million in the fourth quarter of 2010. The increase is primarily a result of accruals for litigation matters of $344.2 million recorded in December 2011.

Recent Accounting Pronouncements

See Note 2 in the Consolidated Financial Statements for a discussion on this topic.

62

Item 7A Quantitative and Qualitative Disclosures About Market Risk.

Incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Asset and Liability Management” hereof.

Item 8 Financial Statements and Supplementary Data

Index to Financial Statements and Supplementary Data	Page
Report of Management’s Assessment of Internal Control Over Financial Reporting		64
Reports of Independent Registered Public Accounting Firms		65-66
Consolidated Balance Sheet		67
Consolidated Statements of Operations		68-69
Consolidated Statements of Stockholders’ Equity		70-71
Consolidated Statements of Cash Flow		72-73
Notes to Consolidated Financial Statements		74-147

63

Report of Management’s Assessment of Internal Control Over Financial Reporting

Santander Holdings USA, Inc. (“SHUSA”) is responsible for the preparation, integrity, and fair presentation of its published financial statements as of December 31, 2011, and the year then ended. The consolidated financial statements and notes included in this annual report have been prepared in accordance with United States generally accepted accounting principles and, as such, include some amounts that are based on management’s best judgments and estimates.

Management is responsible for establishing and maintaining effective internal control over financial reporting. The system of internal control over financial reporting, as it relates to the financial statements, is evaluated for effectiveness by management and tested for reliability through a program of internal audits and management testing and review. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed SHUSA’s system of internal control over financial reporting as of December 31, 2011, in relation to criteria for effective internal control over financial reporting as described in “Internal Control – Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2011, its system of internal control over financial reporting is effective and meets the criteria of the “Internal Control – Integrated Framework”. Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has issued an attestation report on the effectiveness of internal control over financial reporting.

/s/ Jorge Morán	/s/ Guillermo Sabater
Jorge Morán	Guillermo Sabater
President and	Chief Financial Officer and
Chief Executive Officer	Senior Executive Vice President

March 16, 2012

64

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholder of

Santander Holding USA, Inc.

We have audited the accompanying consolidated balance sheets of Santander Holdings USA, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Santander Holdings USA, Inc. and subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on criteria established in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

March 16, 2012

65

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholder of

Santander Holding USA, Inc.

We have audited the internal control over financial reporting of Santander Holdings USA, Inc. and subsidiaries (the “Company”) as of December 31, 2011 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2011 of the Company and our report dated March 16, 2012 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

March 16, 2012

66

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		September 30,			September 30,
	December 31,			December 31,
	2011			2010
	(in thousands)
ASSETS
Cash and amounts due from depository institutions	$	2,623,963		$	1,705,895
Investment securities:
Available-for-sale at fair value		15,578,576			13,371,848
Other investments		555,370			614,241
Loans held for investment		51,307,380			65,017,884
Allowance for loan losses		(1,083,492	)		(2,197,450	)
Net loans held for investment		50,223,888			62,820,434
Loans held for sale at fair value (1)		352,471			150,063
Premises and equipment, net		669,143			595,951
Accrued interest receivable		209,010			406,617
Equity method investments		2,884,008			185,357
Goodwill		3,431,481			4,124,351
Core deposit intangibles and other intangibles, net		99,171			188,940
Bank owned life insurance		1,560,675			1,519,462
Restricted cash		36,660			583,637
Other assets		2,340,783			3,385,019
TOTAL ASSETS	$	80,565,199		$	89,651,815
LIABILITIES
Deposits and other customer accounts	$	47,797,515		$	42,673,293
Borrowings and other debt obligations		18,278,433			33,630,117
Advance payments by borrowers for taxes and insurance		150,397			104,125
Other liabilities		1,742,691			1,983,610
TOTAL LIABILITIES		67,969,036			78,391,145
STOCKHOLDER’S EQUITY
Preferred stock (no par value; $25,000 liquidation preference; 7,500,000 shares authorized; 8,000 shares outstanding at December 31, 2011 and 2010)		195,445			195,445
Common stock (no par value; 800,000,000 shares authorized; 520,307,043 and 517,107,043 shares issued at December 31, 2011 and 2010, respectively)		12,213,484			11,117,328
Warrants		—			285,435
Accumulated other comprehensive loss		(46,718	)		(234,190	)
Retained earnings/(deficit)		233,952			(128,984	)
TOTAL SHUSA STOCKHOLDER’S EQUITY		12,596,163			11,235,034
Noncontrolling interest		—			25,636
TOTAL STOCKHOLDER’S EQUITY		12,596,163			11,260,670
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	80,565,199		$	89,651,815

(1) Amounts represent items for which the Company has elected the fair value option.

See accompanying notes to the consolidated financial statements

67

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

		September 30,			September 30,			September 30,
	FOR THE YEAR ENDED DECEMBER 31,
	2011			2010			2009
	(in thousands)
INTEREST INCOME:
Interest on loans	$	4,834,039		$	4,313,793		$	4,029,785
Interest-earning deposits		6,044			3,320			8,114
Investment securities:
Available-for-sale		412,813			466,141			383,926
Other		117			1,235			1,761
TOTAL INTEREST INCOME		5,253,013			4,784,489			4,423,586
INTEREST EXPENSE:
Deposits and other customer accounts		248,711			228,633			640,549
Borrowings and other debt obligations		1,139,488			1,157,217			1,139,533
TOTAL INTEREST EXPENSE		1,388,199			1,385,850			1,780,082
Net interest income		3,864,814			3,398,639			2,643,504
Provision for credit losses		1,319,951			1,627,026			1,984,537
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		2,544,863			1,771,613			658,967
NON-INTEREST INCOME:
Consumer banking fees		637,482			531,337			369,845
Commercial banking fees		174,972			180,295			187,276
Mortgage banking revenue/(expense), net		(2,808	)		47,955			(129,504	)
Bank-owned life insurance		58,644			54,112			58,829
SCUSA Transaction		987,650			—			—
Miscellaneous income		66,135			15,214			13,698
TOTAL FEES AND OTHER INCOME		1,922,075			828,913			500,144
Total other-than-temporary impairment (“OTTI”) losses		(325	)		(58,526	)		(604,489	)
Portion of OTTI recognized in other comprehensive income (before taxes)		—			53,763			424,293
OTTI recognized in earnings		(325	)		(4,763	)		(180,196	)
Net gain on the sale of investment securities		74,922			205,319			22,349
Net gain/(loss) on investment securities recognized in earnings		74,597			200,556			(157,847	)
TOTAL NON-INTEREST INCOME		1,996,672			1,029,469			342,297
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and benefits		796,110			707,593			716,418
Occupancy and equipment		347,790			312,295			318,706
Technology expense		123,135			112,058			107,100
Outside services		151,731			123,958			119,238
Marketing expense		39,394			37,177			36,318
Loan expense		215,144			144,512			93,485
Other administrative		168,920			135,507			129,195
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES		1,842,224			1,573,100			1,520,460

68

CONSOLIDATED STATEMENTS OF OPERATIONS

(Continued)

		September 30,		September 30,			September 30,
	FOR THE YEAR ENDED DECEMBER 31,
	2011		2010			2009
	(in thousands)
OTHER EXPENSES:
Amortization of intangibles		55,542		63,401			75,692
Deposit insurance premiums and other costs		79,537		93,225			138,747
Equity method investments		14,849		26,613			21,412
Transaction related and integration charges and other restructuring costs		—		—			299,119
PIERS litigation accrual		344,163		—			—
Loss on debt extinguishment		38,695		25,758			68,733
TOTAL OTHER EXPENSES		532,786		208,997			603,703
INCOME/ (LOSS) BEFORE INCOME TAXES		2,166,525		1,018,985			(1,122,899	)
Income tax provision/ (benefit)		908,279		(40,390	)		(1,284,464	)
NET INCOME		1,258,246		1,059,375			161,565
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		85,604		37,239			17,809
NET INCOME ATTRIBUTABLE TO SHUSA	$	1,172,642	$	1,022,136		$	143,756

See accompanying notes to the consolidated financial statements.

69

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY

(in thousands)

		Septe			Septe			Septe			Septe			Septe			Septe			Septe			Septe			Septe
	Common Shares Outstanding			Preferred Stock			Common Stock			Warrants			Accumulated Other Comprehensive Loss			Retained Earnings (Deficit)			Treasury Stock			Non- controlling Interest			Total Stock- holder’s Equity
Balance, December 31, 2008		663,946		$	195,445		$	7,718,771		$	350,572		$	(785,814	)	$	(1,872,881	)	$	(9,379	)	$	—		$	5,596,714
Cumulative effect from change in accounting principle		—			—			—			—			(157,894	)		246,084			—			—			88,190
Balance, January 1, 2009		663,946		$	195,445		$	7,718,771		$	350,572		$	(943,708	)	$	(1,626,797	)	$	(9,379	)	$	—		$	5,684,904
Comprehensive income:
Net income		—			—			—			—			—			143,756			—			17,809			161,565
Change in unrealized gain/loss, net of tax:
Investment securities available-for-sale		—			—			—			—			487,461			—			—			—			487,461
Pension liabilities		—			—			—			—			5,140			—			—			—			5,140
Cash flow hedges		—			—			—			—			141,234			—			—			—			141,234
Total comprehensive income		—			—			—			—			633,835			143,756			—			17,809			795,400
Contribution of SCUSA from Santander		—			—			773,830			—			(39,996	)		350,268			—			5,512			1,089,614
Issuance of preferred stock		—			1,800,000			—			—			—			—			—			—			1,800,000
Conversion of preferred stock to common stock		7,200			(1,800,000	)		1,800,000			—			—			—			—			—			—
Paydown of noncontrolling interest		—			—			—			—			—			—			—			(924	)		(924	)
Stock issued in connection with employee benefit and incentive compensation plans		4			—			46,800			346			—			—			47			—			47,193
Employee stock options issued		—			—			42,099			(65,483	)		—			—			9,342			—			(14,042	)
Stock repurchased		(5	)		—			—			—			—			—			(10	)		—			(10	)
Shares cancelled by Santander		(160,038	)		—			—			—			—			—			—			—			—
Dividends paid on preferred stock		—			—			—			—			—			(14,600	)		—			—			(14,600	)
Balance, December 31, 2009		511,107		$	195,445		$	10,381,500		$	285,435		$	(349,869	)	$	(1,147,373	)	$	—		$	22,397		$	9,387,535
Cumulative effect from change in accounting principle		—			—			—			—			—			(3,747	)		—			—			(3,747	)
Balance, January 1, 2010		511,107		$	195,445		$	10,381,500		$	285,435		$	(349,869	)	$	(1,151,120	)	$	—		$	22,397		$	9,383,788
Comprehensive income:
Net income		—			—			—			—			—			1,022,136			—			37,239			1,059,375
Change in unrealized gain/loss, net of tax:
Investment securities available-for-sale		—			—			—			—			83,624			—			—			—			83,624
Pension liabilities		—			—			—			—			(581	)		—			—			—			(581	)
Cash flow hedges		—			—			—			—			32,636			—			—			—			32,636
Total comprehensive income		—			—			—			—			115,679			1,022,136			—			37,239			1,175,054
Issuance of common stock		6,000			—			1,500,000			—			—			—			—			—			1,500,000
Stock issued in connection with employee benefit and incentive compensation plans		—			—			428			—			—			—			—			—			428
Dividends paid to Santander		—			—			(750,000	)		—			—			—			—			—			(750,000	)
Dividends paid to noncontrolling interest		—						—			—			—			—			—			(34,000	)		(34,000	)
Dividends paid on preferred stock		—			—			(14,600	)		—			—			—			—			—			(14,600	)
Balance, December 31, 2010		517,107		$	195,445		$	11,117,328		$	285,435		$	(234,190	)	$	(128,984	)	$	—		$	25,636		$	11,260,670

70

CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY

(in thousands)

(Continued)

		Septe		Septe		Septe			Septe			Septe			Septe			Septe		Septe			Septe
	Common Shares Outstanding		Preferred Stock		Common Stock			Warrants			Accumulated Other Comprehensive Loss			Retained Earnings (Deficit)			Treasury Stock		Non- controlling Interest			Total Stock- holder’s Equity
Comprehensive income:
Net income		—		—		—			—			—			1,172,642			—		85,604			1,258,246
Change in unrealized gain/loss, net of tax:
Investment securities available-for-sale		—		—		—			—			188,720			—			—		—			188,720
Pension liabilities		—		—		—			—			(10,000	)		—			—		—			(10,000	)
Cash flow hedges		—		—		—			—			(2,744	)		—			—		—			(2,744	)
Total comprehensive income		—		—		—			—			175,976			1,172,642			—		85,604			1,434,222
Issuance of common stock		3,200		—		800,000			—			—			—			—		—			800,000
Capital contribution from Santander		—		—		11,000			—			—			—			—		—			11,000
Stock issued in connection with employee benefit and incentive compensation plans		—		—		(279	)		—			—			—			—		—			(279	)
Dividends paid to Santander		—		—		—			—			—			(800,000	)		—		—			(800,000	)
Dividends paid to noncontrolling interest		—		—		—			—			—			—			—		(39,552	)		(39,552	)
Dividends paid on preferred stock		—		—		—			—			—			(14,600	)		—		—			(14,600	)
Termination of warrants		—		—		285,435			(285,435	)		—			—			—		—			—
SCUSA Transaction		—		—		—			—			11,496			4,894			—		(71,688	)		(55,298	)
Balance, December 31, 2011		520,307	$	195,445	$	12,213,484		$	—		$	(46,718	)	$	233,952		$	—	$	—		$	12,596,163

See accompanying notes to the consolidated financial statements.

71

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		September 30,			September 30,			September 30,
	FOR THE YEAR ENDED DECEMBER 31
	2011			2010			2009
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,258,246		$	1,059,375		$	161,565
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		1,319,951			1,627,026			1,984,537
Deferred taxes		497,346			(369,427	)		(1,462,852	)
Depreciation and amortization		208,055			320,713			246,861
Net amortization/accretion of investment securities and loan premiums and discounts		82,964			(189,029	)		(311,201	)
Net gain on sale of loans		(22,911	)		(39,983	)		(76,765	)
Net gain on sale of investment securities		(74,922	)		(205,319	)		(22,349	)
OTTI recognized in earnings		325			4,763			180,196
Loss on debt extinguishments		38,695			25,758			66,584
Net loss on real estate owned and premises and equipment		13,788			13,502			37,844
Stock-based compensation		4,054			2,164			47,534
Remittance to Santander for stock-based compensation		(4,333	)		(1,800	)		—
Origination of loans held for sale, net of repayments		(1,587,753	)		(1,696,782	)		(5,971,514	)
Proceeds from sales of loans held for sale		1,410,387			1,701,534			6,236,879
Gain recognized due to SCUSA Transaction		(987,650	)		—			—
Net change in:
Accrued interest receivable		(16,937	)		11,902			10,951
Other assets and bank owned life insurance		(24,131	)		505,094			442,864
Other liabilities		97,379			(20,226	)		(320,619	)
Net cash provided by operating activities	$	2,212,553		$	2,749,265		$	1,250,515
CASH FLOWS FROM INVESTING ACTIVITIES:
Adjustments to reconcile net cash used in investing activities:
Proceeds from sales of available-for-sale investment securities	$	6,892,337		$	5,075,900		$	2,673,370
Proceeds from prepayments and maturities of available-for-sale investment securities		3,179,391			4,244,740			8,248,589
Purchases of available-for-sale investment securities		(11,344,659	)		(7,030,167	)		(14,653,872	)
Net change in other investments		58,871			77,999			26,531
Net change in restricted cash		47,011			(41,678	)		—
Proceeds from sales of loans held for investment		8,467			7,941			55,269
Purchase of loans held for investment		(2,840,465	)		(8,458,298	)		(2,765,449	)
Net change in loans other than purchases and sales		(3,670,677	)		(727,365	)		8,173,134
Purchase of other assets from third party		—			(121,715	)		—
Proceeds from sales of real estate owned and premises and equipment		159,943			55,448			61,626
Purchases of premises and equipment		(194,502	)		(196,775	)		(37,716	)
SCUSA Transaction (1)		(64,409	)		—			—
Net cash paid from acquisitions		—			—			(193,386	)
Net cash (used in) / provided by investing activities	$	(7,768,692	)	$	(7,113,970	)	$	1,588,096

(1) Represents the cash paid as part of the SCUSA Transaction and the deconsolidation of SCUSA’s cash also related to the SCUSA Transaction. See discussion on the SCUSA Transaction in Note 3 to the Consolidated Financial Statements.

72

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

		September 30,			September 30,			September 30,
	FOR THE YEAR ENDED DECEMBER 31
	2011			2010			2009
	(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Adjustments to reconcile net cash provided by financing activities:
Net change in deposits and other customer accounts	$	5,124,222		$	(1,754,772	)	$	(4,010,508	)
Net change in borrowings		371,611			93,980			(2,915,106	)
Net proceeds from senior notes, subordinated notes and credit facility		17,359,371			11,852,208			4,376,726
Repayments of borrowings and other debt obligations		(16,339,117	)		(7,196,186	)		(3,500,576	)
Net change in advance payments by borrowers for taxes and insurance		46,272			16,680			(5,780	)
Cash dividends paid to preferred stockholders		(14,600	)		(14,600	)		(14,600	)
Cash dividends paid to noncontrolling interest		(73,552	)		—			—
Proceeds from the issuance of common stock		—			750,000			1,800,000
Net cash provided by/(used in) financing activities	$	6,474,207		$	3,747,310		$	(4,269,844	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		918,068			(617,395	)		(1,431,233	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,705,895			2,323,290			3,754,523
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,623,963		$	1,705,895		$	2,323,290
SUPPLEMENTAL DISCLOSURE
Net income taxes paid	$	621,438		$	528,151		$	350,910
Interest paid	$	1,312,403		$	1,389,937		$	1,790,303
SCUSA Transaction—expenses paid by Santander on behalf of SHUSA	$	11,000		$	—		$	—
NON-CASH TRANSACTIONS
Consolidation of dealer floor plan securitization due to early amortization event	$	—		$	—		$	(855,000	)
Assumption of securitized debt	$	—		$	—		$	855,000
Foreclosed real estate	$	122,912		$	134,830		$	79,730
Other repossessed assets	$	1,745,984		$	1,486,457		$	1,212,676
Receipt of available for sale mortgage-backed securities in exchange for mortgage loans held for investment	$	814,193		$	1,796,925		$	—
Consolidation of commercial mortgage-backed securitization portfolio	$	—		$	(860,486	)	$	—
Sale of previously consolidated commercial mortgage backed securitization portfolio	$	—		$	860,486		$	—
Dividends declared	$	800,000		$	784,000		$	—

See accompanying notes to the consolidated financial statements

73

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

Organization and Nature of Operations

Santander Holdings USA, Inc. (“SHUSA” or “the Company”), formerly Sovereign Bancorp Inc., is a Virginia corporation and is the holding company of Sovereign Bank (the “Bank”). SHUSA is headquartered in Boston, Massachusetts and the Bank has a home office in Wilmington, Delaware. On January 30, 2009, SHUSA was acquired by Banco Santander, S.A. (“Santander”) and as such, is a wholly owned subsidiary of Santander. SHUSA shareholders received .3206 shares of Santander ADS for each share of the Company’s stock.

Effective on January 26, 2012, the Bank converted from a federal savings bank to a national banking association. In connection with the charter conversion, the Bank has changed its name to Sovereign Bank, National Association. Also effective on January 26, 2012, the Company has become a bank holding company.

The Bank’s primary business consists of attracting deposits from its network of community banking offices, located throughout eastern Pennsylvania, New Jersey, New York, New Hampshire, Massachusetts, Connecticut, Rhode Island, Delaware and Maryland, and originating commercial, home equity loans and residential mortgage loans in those communities.

Significant Accounting Policies

The following is a description of the significant accounting policies of the Company. Such accounting policies are in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”).

Certain prior period amounts have been reclassified to conform to the current period presentation.

In the second quarter of 2011, the Company reclassified amounts presented in the December 31, 2010 Consolidated Balance Sheet of $583.6 million from “Other Assets” to “Restricted Cash”. The Company believes that this presentation provides a more meaningful presentation of cash available for general operations. This reclassification had no effect on the consolidated statement of operations.

In the fourth quarter of 2011, the Company reclassified amounts presented in the December 31, 2010 Consolidated Balance Sheet of $185.4 million from “Other Assets” to “Equity Method Investments”. This reclassification had no effect on the consolidated statement of operations.

Basis of Presentation

The accompanying financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In July 2009, Santander contributed Santander Consumer USA Inc (“SCUSA”), a majority owned subsidiary, into the Company. SCUSA’s results of operations were consolidated from January 2009 until December 31, 2011. On December 31, 2011, the Company deconsolidated SCUSA as a result of certain agreements with investors entered into during the fourth quarter 2011 (“SCUSA Transaction”). The SCUSA Transaction reduced the Company’s ownership interest and its power to direct the activities that most significantly impact SCUSA’s economic performance so that SHUSA no longer has a controlling interest in SCUSA. Accordingly, as of December 31, 2011, SCUSA is accounted for as an equity method investment. Refer to Note 3 to for additional information.

The consolidated financial statements include any voting rights entities in which the Company has a controlling financial interest. In accordance with the applicable accounting guidance for consolidations, the Company consolidates a variable interest entity (“VIE”) if the Company is considered to be the primary beneficiary where it has: (i) a variable interest in the entity; (ii) the power to direct activities of the VIE that most significantly impact the entity’s economic performance; and (iii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. Variable interests can include equity interests, subordinated debt, derivative contracts, leases, service agreements, guarantees, standby letters of credit, loan commitments, and other contracts, agreements and financial instruments. See Note 8 for information on the Company’s involvement with VIEs.

74

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies (continued)

The Company uses the equity method to account for unconsolidated investments in voting rights entities or VIEs if the Company has influence over the entity’s operating and financing decisions but does not maintain a controlling financial interest. Unconsolidated investments in voting rights entities or VIEs in which the Company has a voting or economic interest of less than 20% generally are carried at cost. These investments are included in Equity Method Investments on the Consolidated Balance Sheet, and the Company’s proportionate share of income or loss is included in other expenses.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates pertain to the consolidation, allowance for loan losses and reserve for unfunded lending commitments, goodwill, derivatives and hedge activities and income taxes. Actual results could differ from those estimates.

Subsequent Events

All material events that occurred after the date of the consolidated financial statements and before the consolidated financial statements were issued have been either recognized in the consolidated financial statements or disclosed in the Notes to the Consolidated Financial Statements.

The Company evaluated events from the date of the consolidated financial statements on December 31, 2011 through the issuance of those consolidated financial statements included in this Annual Report on Form 10-K.

Fair Value Measurements

The Company values assets and liabilities based on the principal market where each would be sold (in the case of assets) or transferred (in the case of liabilities) at the measurement date (i.e. exit price). The principal market is the forum with the greatest volume and level of activity.

In the absence of a principal market, valuation is based on the most advantageous market. In the absence of observable market transactions, the Company considers liquidity valuation adjustments to reflect the uncertainty in pricing the instruments. In measuring the fair value of an asset, the Company assumes the highest and best use of the asset by a market participant—not just the intended use—to maximize the value of the asset. The Company also considers whether any credit valuation adjustments are necessary based on the counterparty’s credit quality.

When measuring the fair value of a liability, the Company assumes that the transfer will not affect the nonperformance risk associated with the liability. The Company considers the effect of the credit risk on the fair value for any period in which fair value is measured. There are three acceptable techniques for measuring fair value: the market approach, the income approach and the cost approach. Selecting the appropriate technique for valuing a particular asset or liability depends on the exit price of the asset or liability being valued, and how a market participant would value the same asset or liability. Ultimately, selecting the appropriate valuation method requires significant judgment.

Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability. Inputs can be observable or unobservable. Observable inputs are assumptions based on market data obtained from an independent source. Unobservable inputs are assumptions based on the Company’s own information or assessment of assumptions used by other market participants in pricing the asset or liability. The unobservable inputs are based on the best and most current information available on the measurement date.

The Company applied the following fair value hierarchy:

• Level 1 – Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts.

• Level 2 – Assets and liabilities valued based on observable market data for similar instruments.

• Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

75

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies (continued)

Typically, assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly. However, assets and liabilities are considered to be fair valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. This generally occurs when the entity applies accounting guidance that requires assets and liabilities to be recorded at the lower of cost or fair value, or assessed for impairment. At a minimum, the Company conducts the valuations of assets and liabilities on a quarterly basis.

Additional information regarding fair value measurements and disclosures is provided in Note 23, “Fair Value Measurements”.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits in other banks, federal funds sold, and securities purchased under agreements to resell. Cash and cash equivalents have maturities of three months or less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.

Investment Securities and Other Investments

Investment securities that the Company has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Securities expected to be held for an indefinite period of time are classified as available-for-sale and are carried at fair value with temporary unrealized gains and losses reported as a component of accumulated other comprehensive income within stockholder’s equity, net of estimated income taxes.

Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment (“OTTI”). For debt securities with market values below amortized cost, if the Company has the intent to sell or it is more likely than not that the Company will be required to sell the debt security before recovery of the entire amortized cost basis, then OTTI has occurred. If the Company does not intend to sell the debt security and will more likely than not be required to sell the debt security before recovery of its entire amortized cost basis, the Company evaluates expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, the credit component of the impairment is recognized within non-interest income, and the non-credit component is recognized through accumulated other comprehensive income.

Other investments include the Company’s investment in the stock of the Federal Home Loan Bank (FHLB) of New York and Pittsburgh. Although FHLB stock is an equity interest in a FHLB, it does not have a readily determinable fair value, because its ownership is restricted and is not readily marketable. FHLB stock can be sold back only at its par value of $100 per share and only to the FHLBs or to another member institution. Accordingly, FHLB stock is carried at cost. The Company evaluates this investment for impairment on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

Loans held for investment

Loans are reported net of loan origination fees, direct origination costs and discounts and premiums associated with purchased loans and unearned income. Interest on loans is credited to income as it is earned. Loan origination fees and certain direct loan origination costs are deferred and recognized as adjustments to interest income in the Consolidated Statements of Operations over the contractual life of the loan utilizing the effective interest rate method. Premiums and discounts associated with purchased loans by the Bank are deferred and amortized as adjustments to interest income utilizing the effective interest rate method using estimated prepayment speeds, which are updated on a quarterly basis. Interest income is not recognized on loans when the loan payment is 90 days or more delinquent for commercial loans and consumer loans, excluding auto loans and credit cards, or sooner if management believes the loan has become impaired. Generally, interest income is not recognized on auto loans that are 60 days or more delinquent. Credit Cards continue to accrue interest until it is 180 days delinquent at which point it is charged-off and interest is removed from interest income.

Certain loans acquired that result in recognition of a discount attributable, at least in part, to credit quality; and are not subsequently accounted for at fair value, are accounted for under the receivable topic of the FASB Accounting Standards Codification Section 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The excess of the estimated undiscounted principal, interest and other cash flows expected to be collected over the initial investment in the acquired loans is amortized to interest income over the expected life of the loans via the effective interest rate method. The amount amortized for the acquired loan pool is adjusted when there is an increase or decrease in the expected cash flows. Further, the Company assesses impairment on these acquired loan pools for which there has been a decrease in the expected cash flows. Impairment is measured based on the present value of the expected cash flows from the loan (including the estimated fair value of the underlying collateral) discounted using the loan’s effective interest rate.

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Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies (continued)

A loan is determined to be non-accrual when it is probable that scheduled payments of principal and interest will not be received when due according to the contractual terms of the loan agreement. When a loan is placed on non-accrual status, all accrued yet uncollected interest is reversed from income. Payments received on non-accrual loans are generally applied to the outstanding principal balance.

Troubled debt restructurings (“TDRs”) are loans that have been modified whereby the Company has agreed to make certain concessions to customers to both meet the needs of the customers and to maximize the ultimate recovery of a loan. TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. TDRs are generally placed on non-accrual status until the Company believes repayment under the revised terms are reasonably assured and a sustained period of repayment performance has been achieved (typically defined as six months for a monthly amortizing loan). All costs incurred by the Company in connection with a TDR are expensed as incurred. The TDR classification will remain on the loan until it is paid in full or liquidated. Impaired loans are defined as all TDRs plus commercial non-accrual loans in excess of $1 million. The Company measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company may measure impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is a collateral-dependent loan.

Loans Held for Sale

Loans held for sale (LHFS) are carried at lower of cost or market (“LOCOM”) or at fair value. Generally, residential loans are valued on an aggregate portfolio basis, and commercial loans are valued on an individual loan basis. Gains and losses on LHFS which are accounted for at fair value are recorded in other non-interest income. For LHFS recorded at LOCOM, direct loan origination costs and fees are deferred at origination and are recognized in other non-interest income at time of sale. For loans recorded at fair value, direct loan origination costs and fees are recorded in other non-interest income at origination. The fair value of LHFS is based on what secondary markets are currently offering for portfolios with similar characteristics, and related gains and losses are recorded in non-interest income.

Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

The allowance for loan losses and reserve for unfunded lending commitments, collectively referred to as the “allowance for credit losses” are maintained at levels that management considers adequate to provide for losses based upon an evaluation of known and inherent risks in the loan portfolio. Management’s evaluation takes into consideration the risks inherent in the loan portfolio, past loan loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic conditions and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the allowance for credit losses may be necessary if conditions differ substantially from the assumptions used in making the evaluations.

The allowance for loan losses consists of two elements: (i) an allocated allowance, which is comprised of allowances established on specific loans, and classes of loans based on historical loan loss experience adjusted for current trends and adjusted for both general economic conditions and other risk factors in the Company’s loan portfolios, and (ii) an unallocated allowance to account for a level of imprecision in management’s estimation process.

Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated, considering factors such as historical loss experience, trends in delinquency and non-performing loans, changes in risk composition and underwriting standards, experience and ability of staff and regional and national economic conditions and trends.

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Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies (continued)

For the commercial loan portfolios, the Bank has specialized credit officers and workout units that identify and manage potential problem loans. Changes in management factors, financial and operating performance, company behavior, industry factors and external events and circumstances are evaluated on an ongoing basis to determine whether potential impairment is evident and additional analysis is needed. For the commercial loan portfolios, risk ratings are assigned to each individual loan to differentiate risk within the portfolio and are reviewed on an ongoing basis by credit risk management and revised, if needed, to reflect the borrowers’ current risk profiles and the related collateral positions. The risk ratings consider factors such as financial condition, debt capacity and coverage ratios, market presence and quality of management. Generally, credit officers reassess a borrower’s risk rating on no less than an annual basis, and more frequently if warranted. This reassessment process is managed on a continual basis by the Credit Monitoring group to ensure consistency and accuracy in risk rating as well as appropriate frequency of risk rating review by the Bank’s credit officers. The Company’s Internal Audit group regularly performs loan reviews and assesses the appropriateness of assigned risk ratings. When a loan’s risk ratings are downgraded beyond a certain level, the Company’s workout department becomes responsible for managing the credit risk. Risk rating actions are generally reviewed formally by one or more Credit Committees depending on the size of the loan and the type of risk rating action being taken. Detailed analyses are completed that support the risk rating and management’s strategies for the customer relationship going forward.

The consumer loans and small business loan portfolios are monitored for credit risk and deterioration with statistical tools considering factors such as delinquency, loan to value, and credit scores. The Bank evaluates the consumer portfolios throughout their life cycle on a portfolio basis. When problem loans are identified that are secured with collateral, management examines the loan files to evaluate the nature and type of collateral supporting the loans. Management documents the collateral type, date of the most recent valuation, and whether any liens exist, to determine the value to compare against the committed loan amount. When the Bank determines that the value of an impaired loan is less than its carrying amount, the Bank recognizes impairment through a provision estimate or a charge-off to the allowance. Management performs these assessments on at least a quarterly basis.

For commercial loans, a charge-off is recorded when a loan, or portion thereof, is considered uncollectable and of such little value that its continuance on the Company’s books as an asset is not warranted, as outlined in accounting and regulatory guidance. Charge-offs are recorded on a monthly basis and partially charged-off loans continue to be evaluated on not less than a quarterly basis, with additional charge-offs or loan loss provisions taken on the remaining loan balance, if warranted, utilizing the same criteria.

The Company places residential mortgage loans on non-performing status at 90 days delinquent or sooner if management believes the loan has become impaired unless return to current status is expected imminently. A loan is considered to be impaired when, based upon current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay (e.g. less than 90 days) or insignificant shortfall in amount of payments does not necessarily result in the loan being identified as impaired.

Consumer loans (excluding auto loans and credit cards) and any portion of a consumer loan secured by real estate mortgage loans not adequately secured are generally charged-off when deemed to be uncollectible or delinquent 180 days or more (120 days for closed-end consumer loans not secured by real estate), whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Examples that would demonstrate repayment include; a loan that is secured by collateral and is in the process of collection; a loan supported by a valid guarantee or insurance; or a loan supported by a valid claim against a solvent estate. Auto loans are charged off when an account becomes 121 days delinquent if the Company has not repossessed the related vehicle. The Company charges off accounts in repossession when the automobile is repossessed and legally available for disposition. Credit cards that are 180 days delinquent are charged-off and all interest is removed from interest income.

For both residential and home equity loans, loss severity assumptions are incorporated into the loan loss reserve models to estimate loan balances that will ultimately charge-off. These assumptions are based on recent loss experience for six loan-to-value bands within the portfolios. Current loan-to-value ratios are updated based on movements in the state level Federal Housing Finance Agency House Pricing Indexes.

Additionally, the Company reserves for certain incurred, but undetected, losses within the loan portfolio. This is due to several factors, such as, but not limited to, inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions and the interpretation of economic trends. While this analysis is conducted at least quarterly, the Company has the ability to revise the allowance factors whenever necessary in order to address improving or deteriorating credit quality trends or specific risks associated with a loan pool classification.

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Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies (continued)

Regardless of the extent of the Company’s analysis of customer performance, portfolio evaluations, trends or risk management processes established, a level of imprecision will always exist due to the judgmental nature of loan portfolio and/or individual loan evaluations. The Company maintains an unallocated allowance to recognize the existence of these exposures.

In addition to the allowance for loan losses, management also estimates probable losses related to unfunded lending commitments. Unfunded lending commitments for commercial customers are analyzed and segregated by risk according to the Company’s internal risk rating scale. These risk classifications, in conjunction with an analysis of historical loss experience, current economic conditions and performance trends within specific portfolio segments, and any other pertinent information result in the estimation of the reserve for unfunded lending commitments. Additions to the reserve for unfunded lending commitments are made by charges to the provision for credit losses and this reserve is classified within other liabilities on the Company’s Consolidated Balance Sheets.

Risk factors are continuously reviewed and revised by management when conditions warrant. A comprehensive analysis of the allowance for loan losses and reserve for unfunded lending commitments is performed by the Company on a quarterly basis. In addition, a review of allowance levels based on nationally published statistics is conducted on at least an annual basis.

The factors supporting the allowance for loan losses and the reserve for unfunded lending commitments do not diminish the fact that the entire allowance for loan losses and the reserve for unfunded lending commitments are available to absorb losses in the loan portfolio and related commitment portfolio, respectively. The Company’s principal focus, therefore, is on the adequacy of the total allowance for loan losses and reserve for unfunded lending commitments.

The allowance for loan losses and the reserve for unfunded lending commitments are subject to review by banking regulators. The Company’s primary bank regulators conduct examinations of the allowance for loan losses and reserve for unfunded lending commitments and make assessments regarding their adequacy and the methodology employed in their determination.

Premises and Equipment

Premises and equipment are carried at cost, less accumulated depreciation. Depreciation is calculated utilizing the straight-line method. Estimated useful lives are as follows:

	September 30,
Office buildings	10 to 30 years
Leasehold improvements	10 to 30  years(1)
Furniture, fixtures and equipment	3 to 10 years
Automobiles	5 years

Expenditures for maintenance and repairs are charged to expense as incurred.

⁽¹⁾  Leasehold improvements are depreciated over the shorter of the useful lives of the assets or the remaining term of the leases. The useful life of the leasehold improvements maybe extended beyond the base term of the lease contract when the lease contract includes renewal option period(s) that are reasonably assured of being exercised at the date the leasehold improvements are purchased. At no point does the depreciable life exceed the economic useful life of the leasehold improvement or the expected term of the lease contract.

Goodwill and Core Deposit Intangibles

Goodwill is the excess of the purchase price over the fair value of the tangible and identifiable intangible assets and liabilities of companies acquired through business combinations accounted for under the acquisition method. Core deposit intangibles are a measure of the value of checking, savings and other-low cost deposits acquired in business combinations accounted for under the acquisition method. Core deposit intangibles are amortized over the estimated useful lives of the existing deposit relationships acquired, but not exceeding 10 years. The Company evaluates the identifiable intangibles for impairment when an indicator of impairment exists, but not less than annually. Separable intangible assets that are not deemed to have an indefinite life continue to be amortized over their useful lives.

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Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies (continued)

Goodwill and other indefinite lived intangible assets are not amortized on a recurring basis, but rather are subject to periodic impairment testing. Management performs an annual goodwill impairment test as of December 31 and whenever events occur or circumstances change that indicate the fair value of a reporting unit may be below its carrying value. The Company performed goodwill impairment testing as of December 31, 2011and December 31, 2010 and concluded goodwill was not impaired. See Note 9, “Goodwill and Other Intangible Assets”, for additional discussion. The Company does not have any indefinite lived intangible assets as of December 31, 2011.

Mortgage Servicing Rights

The Company sells mortgage loans in the secondary market and typically retains the right to service the loans sold. Upon the sale of the loan, a mortgage servicing right (“MSR”) asset is established, which represents the current fair value of future net cash flows expected to be realized for performing the servicing activities. MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization, or fair value. The carrying values of MSRs are amortized in proportion to, and over the period of, estimated net servicing income.

MSRs are evaluated for impairment by stratifying by certain risk characteristics and underlying loan strata that include, but are not limited to, interest rate bands, and further into residential real estate 30-year and 15-year fixed rate mortgage loans, adjustable rate mortgage loans and balloon loans. A valuation reserve is recorded in the period in which the impairment occurs through a charge to income equal to the amount by which the carrying value of the strata exceeds the fair value. If it is determined that all or a portion of the temporary impairment no longer exists for a particular strata, the valuation allowance is reduced with an offsetting credit to income.

MSRs are also reviewed for permanent impairment. Permanent impairment exists when the recoverability of a recorded valuation allowance is determined to be remote, taking into consideration historical and projected interest rates and loan pay-off activity. When this situation occurs, the unrecoverable portion of the valuation reserve is applied as a direct write-down to the carrying value of the MSR. Unlike a valuation allowance, a direct write-down permanently reduces the carrying value of the mortgage servicing asset and the valuation allowance, precluding subsequent recoveries. MSRs are classified in other assets on the Consolidated Balance Sheets. See Note 10 for additional discussion.

On January 1, 2012, the Bank elected to carry its class of MSRs consisting of residential MSRs established on or before December 31, 2011 at fair value. The implementation of this election is not expected to have a significant impact on the Company’s financial position or results of operations.

Bank Owned Life Insurance

Bank owned life insurance (“BOLI”) represents the cash surrender value for life insurance policies for current and former certain employees who have provided positive consent allowing the Bank to be the beneficiary of such policies. Increases in the net cash surrender value of the policies, as well as insurance proceeds received, are recorded in non-interest income, and are not subject to income taxes.

Other Real Estate Owned and Other Repossessed Assets

Other real estate owned (“OREO”) and other repossessed assets consist of properties and other assets acquired by, or in lieu of, foreclosure in partial or total satisfaction of non-performing loans. Assets obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value minus estimated costs to sell based upon the property’s appraisal value at the date of transfer. The excess of the carrying value of the loan over the fair value of the property minus estimated costs to sell are charged to the allowance for loan losses. Any decline in the estimated fair value of asset that occurs after the initial transfer from the loan portfolio and costs of holding the property are recorded as operating expenses, except for significant property improvements that are capitalized to the extent that carrying value does not exceed estimated fair value. OREO and other repossessed assets are classified within Other Assets on the Consolidated Balance Sheets and totaled $108.7 million and $223.2 million at December 31, 2011 and 2010, respectively.

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Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies (continued)

Derivative Instruments and Hedging Activity

The Company uses derivative instruments as part of the interest rate risk management process to manage risk associated with financial assets and liabilities, mortgage banking activities, and to assist commercial banking customers with their risk management strategies and other market exposures. The Company also uses cross currency swaps in order to hedge foreign currency exchange risk on certain Euro denominated investments.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. The Company formally documents the relationships of certain qualifying hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking each hedge transaction.

Fair value hedges are accounted for by recording the change in the fair value of the derivative instrument and the related hedged asset, liability or firm commitment on the Consolidated Balance Sheet with the corresponding income or expense recorded in the consolidated statement of operations. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as an other asset or other liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense associated with the hedged asset or liability.

Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the Consolidated Balance Sheet as an asset or liability, with a corresponding charge or credit, net of tax, recorded in accumulated other comprehensive income within stockholders’ equity, in the accompanying Consolidated Balance Sheet. Amounts are reclassified from accumulated other comprehensive income to the consolidated statement of operations in the period or periods the hedged transaction affects earnings. In the case where certain cash flow hedging relationships have been terminated, the Company continues to defer the net gain or loss in accumulated other comprehensive income and reclassifies it into interest expense as the future cash flows occur, unless it becomes probable that the future cash flows will not occur.

The portion of gains and losses on derivative instruments not considered highly effective in hedging the change in fair value or expected cash flows of the hedged item, or derivatives not designated in hedging relationships, are recognized immediately in the consolidated statement of operations. See Note 16, “Derivative Instruments and Hedging Activities”, for further discussion.

Revenue Recognition

The Company earns interest and non-interest income from various sources, including:

• Lending,

• Investment securities,

• Customer deposit fees,

• BOLI,

• Loan sales and servicing,

• Securities and derivatives trading activities, including foreign exchange.

The principal source of revenue is interest income from loans and investment securities. Interest income is recognized on an accrual basis primarily according to non-discretionary formulas in written contracts, such as loan agreements or securities contracts. Revenue earned on interest-earning assets including unearned income and the accretion of discounts recognized on acquired or purchased loans is recognized based on the constant effective yield of the financial instrument.

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Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies (continued)

Gains or losses on sales of investment securities are recognized on the trade date.

The Company recognizes revenue from servicing commercial mortgages and other consumer loans as earned. Mortgage banking results include fees associated with servicing loans for third parties based on the specific contractual terms, as well as amortization and changes in the fair value of mortgage servicing rights. Gains or losses on sales of mortgage, multi-family and home equity loans are included within mortgage banking revenues and are recognized when the sale is complete.

Service charges on deposit accounts are recognized when earned.

Income from BOLI represents increases in the cash surrender value of the policies, as well as insurance proceeds.

The Company recognizes revenue from securities, derivatives and foreign exchange trading, as well as securities underwriting activities as these transactions occur or as services are provided.

When appropriate, revenue is reported net of associated expenses, in accordance with U.S. GAAP.

Income Taxes

Deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

Periodic reviews of the carrying amount of deferred tax assets are made to determine if the establishment of a valuation allowance is necessary. If based on the available evidence in future periods, it is more likely that not that all or a portion of the Company’s deferred tax assets will not be realized, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. Items considered in this evaluation include historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. The evaluation is based on current tax laws, as well as expectations of future performance.

The Company is subject to the income tax laws of the U.S., its states and municipalities, as well as certain foreign countries. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws. Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. The Company reviews its tax balances quarterly and as new information becomes available, the balances are adjusted, as appropriate. The Company is subject to ongoing tax examinations and assessments in various jurisdictions.

Tax positions shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws. See Note 19, “Income Taxes”, for detail on the Company’s income taxes.

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Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies (continued)

Asset Securitizations

The Company has historically securitized multi-family and commercial real estate loans, mortgage loans, home equity and other consumer loans, as well as automotive floor plan receivables that it originated and/or purchased from certain other financial institutions. After receivables or loans are securitized, the Company continues to maintain account relationships with its customers. The Company may provide administrative, liquidity facilities and/or other services to the resulting securitization entities, and may continue to service the financial assets sold to the securitization entity.

If the securitization transaction meets the accounting requirements for deconsolidation and sale treatment, the securitized receivables or loans are removed from the balance sheet and a net gain or loss is recognized in income at the time of initial sale and each subsequent sale. Net gains or losses resulting from securitizations are recorded in non-interest income. See further discussion on the Company’s securitizations in Note 17.

Stock Based Compensation

The Company, through Santander sponsors stock plans under which incentive and nonqualified stock options and restricted stock may be granted periodically to certain employees. The Company accounts for stock-based compensation under the fair value recognition provisions whereby the fair value of the award at grant date is expensed over the award’s vesting period. Additionally, the Company estimates the number of awards for which it is probable that service will be rendered and adjusts compensation cost accordingly. Estimated forfeitures are subsequently adjusted to reflect actual forfeitures. The required disclosures related to the Company’s stock based employee compensation plan are included in Note 20.

Note 2 — Recent Accounting Pronouncements

In December 2010, the FASB issued ASU 2010-28, an update to Topic 350, “Intangibles – Goodwill and Other: When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The amendments to Topic 350 modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining this, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. These amendments were effective for the Company on January 1, 2011. The implementation of this guidance did not have an impact on the Company’s financial position or results of operations.

In September 2011, the FASB issued ASU 2011-08, an update to ASC 350, “Intangibles – Goodwill and Other”, which requires companies to perform goodwill and indefinite-life intangible asset impairment testing using a two-step process. The amendments to the ASU permits companies to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as basis for determining whether it is necessary to perform the two-step impairment test. The amendments to ASC 350 are effective for interim and annual periods beginning after December 15, 2011 for the Company. The implementation of this guidance is not expected to have a significant impact on the Company’s financial position or results of operations.

In April 2011, the FASB issued ASU 2011-02, an update to ASC 310-40, “Receivables – Troubled Debt Restructurings by Creditors.” The amendments to Topic 310 were effective on July 1, 2011 for the Company, and should be applied retrospectively to the beginning of the annual period of adoption. In evaluating whether a restructuring constitutes a troubled debt restructuring, the Company must separately conclude that the restructuring constitutes a concession as well as the debtor must be experiencing financial difficulties. The amendments to Topic 310 clarify the guidance on a creditor’s evaluation of whether it has granted a concession and the debtor is experiencing financial difficulties. The implementation of this guidance did not have a significant impact on the Company’s financial position or results of operations.

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Notes to Consolidated Financial Statements

Note 2 — Recent Accounting Pronouncements (continued)

In April 2011, the FASB issued ASU 2011-03, an update to ASC 860, “Transfers and Servicing” to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments in this update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments to ASC 860 are effective for the Company beginning January 1, 2012. The implementation of this guidance is not expected to have an impact on the Company’s financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04, an update to ASC 820, “Fair Value Measurement” to provide guidance about how fair value should be determined where it is already required or permitted under U.S. GAAP. The guidance clarifies how a principal market is determined, addresses the fair value measurement of instruments with offsetting market or counterparty credit risks and the concept of valuation premise and highest and best use, extends the prohibition on blockage factors to all three levels of the fair value hierarchy, and requires additional disclosures. The amendments to ASC 820 are effective for the first interim and annual periods beginning January 1, 2012 for the Company, and should be applied prospectively. The implementation of this guidance is not expected to have a significant impact on the Company’s financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, an update to ASC 220, “Comprehensive Income”, which requires comprehensive income to be reported in either a single statement or in two consecutive statements reporting net income and other comprehensive income. The amendments do not change what items are reported in other comprehensive income or the requirement to report classification of items from other comprehensive income to net income. The amendments to ASC 220 are effective for the first interim and annual period beginning January 1, 2012 for the Company, and should be applied retrospectively to the beginning of the first annual period presented. The implementation of this guidance is not expected to have a significant impact on the Company’s financial position or results of operations. In December 2011, FASB issued ASU 2011-12 which deferred certain aspects of ASC 2011-05. These deferred aspects did not include the requirement to report comprehensive income in either a single statement or in two consecutive statements reporting net income and other comprehensive income. The deferral period will begin for the Company on January 1, 2012 and would remain in effect indefinitely.

In December 2011, the FASB issued ASU 2011-11, an update to ASC 210, “Balance Sheet”, which requires entities to disclose both gross information and net information about both financial instruments and transactions eligible for offset in the statement of financial position (“Balance Sheet”) and transactions subject to an agreement similar to a master netting arrangement. The amendment is designed to enhance disclosures about the financial instruments and derivatives, which will allow the users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The scope includes derivatives, repurchase agreements and security borrowings. The amendments to ASC 210 are effective for interim and annual periods beginning January 1, 2013 for the Company, and should be applied retrospectively to the beginning of the first annual period presented. The Company has not yet determined the impact of this guidance on the Company’s financial position or results of operations.

Note 3 — SCUSA Transaction

On October 20, 2011, the Company and SCUSA entered into an investment agreement with Sponsor Auto Finance Holdings Series LP, a Delaware limited partnership (“Auto Finance Holdings”). Auto Finance Holdings is jointly owned by investment funds affiliated with Warburg Pincus LLC, Kohlberg Kravis Roberts & Co. L.P. and Centerbridge Partners L.P. (collectively, the “New Investors”), as well as DFS Sponsor Investments LLC, a Delaware limited liability company affiliated with Thomas G. Dundon, the Chief Executive Officer of SCUSA and a Director of SHUSA, and Jason Kulas, Chief Financial Officer of SCUSA. On October 20, 2011, SCUSA also entered into an investment agreement with DDFS LLC (f/k/a, Dundon DFS LLC), (“DDFS”), a Delaware limited liability company affiliated with Thomas G. Dundon. Auto Finance Holdings is an unrelated third party of the Company.

On December 31, 2011, SCUSA completed the sale to Auto Finance Holdings of an aggregate number of 32,438,127.19 shares of common stock for an aggregate purchase price of $1.0 billion. On December 31, 2011, SCUSA also completed the sale to DDFS of 5,140,468.58 additional shares of common stock for aggregate consideration of $158.2 million. In addition, on December 31, 2011, SCUSA completed the sale to certain members of SCUSA’s management of 67,373.99 shares of common stock for an aggregate consideration of approximately $2.1 million.

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Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 3 — CUSA Transaction (continued)

The Company, the New Investors (indirectly through Auto Finance Holdings) and Mr. Dundon (indirectly through DDFS and DFS Sponsor Investments LLC) own approximately 65%, 24% and 11% of SCUSA, respectively, as of December 31, 2011. The consideration paid by DDFS and SCUSA management was determined by the share price negotiated by SCUSA and Auto Finance Holdings.

On December 31, 2011, the Company, SCUSA, Auto Financing Holdings, DDFS, Thomas G. Dundon and Banco Santander, S.A. entered into a shareholders’ agreement (the “Shareholders Agreement”). The Shareholders Agreement established certain board representation, governance, registration and other rights for each investor with respect to their ownership interests in SCUSA. The Shareholders Agreement also requires unanimous approval of all shareholders for certain board reserved matters. These board reserved matters represent the activities that most significantly impact SCUSA’s economic performance.

Pursuant to the Shareholders Agreement, depending on SCUSA’s performance during 2014 and 2015, if SCUSA exceeds certain performance targets, SCUSA may be required to make a payment of up to $595.0 million in favor of SHUSA. If SCUSA does not meet such performance targets during 2014 and 2015, SCUSA may be required to make a payment to Auto Finance Holdings of up to the same amount.

The Shareholders Agreement also provides that each of Auto Finance Holdings and DDFS will have the right to sell, and SHUSA will be required to purchase, their respective shares of SCUSA common stock, at its then fair market value, and Auto Finance Holdings and DDFS, if applicable, will receive the payment referred to above at that time (i) at the fourth, fifth and seventh anniversaries of the closing of the investments, unless an initial public offering of SCUSA common stock has been previously consummated or (ii) in the event there is a deadlock with respect to certain specified matters which require the approval of the board of directors or shareholders of SCUSA.

The Company is required to consolidate any entity in which it has a controlling financial interest. Determining whether the Company has a controlling financial interest is dependent on factors including voting rights, and the power to direct the entity’s most significant economic activities. The SCUSA Transaction reduced the Company’s ownership interest in SCUSA and resulted in shared control with the New Investors such that no one party has the power to direct activities that most significantly impact SCUSA’s economic performance.

As a result, the Company no longer has a controlling interest in SCUSA. This required the Company to account for SCUSA as an equity investment and deconsolidate SCUSA by removing SCUSA’s assets, liabilities and its non-controlling interest in SCUSA from its consolidated financial statements as of December 31, 2011. The difference between the fair value of the Company’s retained non-controlling interest in SCUSA and the carrying amount of its former controlling interest SCUSA’s net assets was recognized as a gain in the Company’s Consolidated Statements of Operations for the year ended December 31, 2011.

As of December 31, 2011, the fair value of the Company’s equity investment in SCUSA was determined to be $2.7 billion. The fair value of the Company’s equity investment in SCUSA was determined through the use of market comparables, review of precedent transactions, dividend discount analysis and consideration of the contingent payment. The carrying value of SCUSA’s net assets was $1.7 billion prior to the transaction. As a result of the deconsolidation of SCUSA, the Company measured its retained equity investment at fair value and recognized a pre-tax gain of $987.7 million, net of expenses of $21 million, in the consolidated statement of operations for the year ended December 31, 2011.

The following table illustrates the calculation of the gain on the SCUSA Transaction (amounts in thousands):

		September 30,
Fair value of retained noncontrolling investment	$	2,650,651
Less: Carrying value of SCUSA’s net assets		1,663,001
Gain on SCUSA Transaction	$	987,650

See further discussion on other transactions with SCUSA in Note 27.

85

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 4 — Restrictions on Cash and Amounts Due From Depository Institutions

The Bank is required to maintain certain average reserve balances as established by the Federal Reserve Board. The amounts of those reserve balances at December 31, 2011 and 2010 were $214.8 million and $152.9 million, respectively.

As of December 31, 2011 and 2010, the Company had $36.7 million and $583.6 million of restricted cash. Restricted cash at December 31, 2011 primarily related to cash restricted for investment purposes. Restricted cash at December 31, 2010 was primarily related to SCUSA securitization transactions and lockbox collections and cash restricted for investment purposes. Excess cash flows generated by the securitization trusts are added to restricted cash, creating additional over-collateralization until the contractual securitization requirement has been reached. Once the targeted reserve requirement is satisfied, additional excess cash flows generated by the Trusts are released to SCUSA as distributions from the trusts. Lockbox collections are added to restricted cash and released when transferred to the appropriate warehouse line of credit or trust. Certain cash is restricted for investment only and is not available for normal operational purposes.

Note 5 — Investment Securities

The amortized cost and estimated fair value of the Company’s investment securities are as follows:

		September 30,		September 30,		September 30,			September 30,
	December 31, 2011
	Amortized		Gross Unrealized		Gross Unrealized			Fair
	Cost		Gains		Loss			Value
	(in thousands)
Investment securities:
U.S. Treasury and government agency securities	$	44,070	$	20	$	—		$	44,090
Debentures of FHLB, FNMA, and FHLMC		19,482		518		—			20,000
Corporate debt securities		2,070,255		16,249		(36,984	)		2,049,520
Asset-backed securities		2,639,397		8,191		(7,298	)		2,640,290
State and municipal securities		1,735,465		53,013		(3,700	)		1,784,778
Mortgage-backed securities:
U.S. government agencies		3,904,933		50,049		(4,022	)		3,950,960
FHLMC and FNMA debt securities		5,012,584		77,822		(1,760	)		5,088,646
Non-agency securities		290		2		—			292
Total investment securities available-for-sale	$	15,426,476	$	205,864	$	(53,764	)	$	15,578,576

		September 30,		September 30,		September 30,			September 30,
	December 31, 2010
	Amortized		Gross Unrealized		Gross Unrealized			Fair
	Cost		Gains		Loss			Value
	(in thousands)
Investment securities:
U.S. Treasury and government agency securities	$	12,997	$	—	$	—		$	12,997
Debentures of FHLB, FNMA, and FHLMC		24,291		708		—			24,999
Corporate debt securities		2,148,919		66,924		(13,056	)		2,202,787
Asset-backed securities		3,097,959		37,849		(11,205	)		3,124,603
State and municipal securities		2,000,974		1,609		(120,303	)		1,882,280
Mortgage-backed securities:
U.S. government agencies		364,331		75		(10	)		364,396
FHLMC and FNMA debt securities		4,254,734		51,473		(7,204	)		4,299,003
Non-agency securities		1,607,514		260		(146,991	)		1,460,783
Total investment securities available-for-sale	$	13,511,719	$	158,898	$	(298,769	)	$	13,371,848

Investment securities with an estimated fair value of $3.6 billion and $5.7 billion were pledged as collateral for borrowings, standby letters of credit, interest rate agreements and public deposits at December 31, 2011 and 2010.

At December 31, 2011 and 2010, there was $72.4 million and $82.9 million of investment securities accrued interest.

86

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 5 — Investment Securities (continued)

The state and municipal bond portfolio consists of primarily general obligation bonds of states, cities, counties and school districts. The portfolio has a weighted average underlying credit risk rating of AA. These bonds are insured with various companies and as such, carry additional credit protection. The largest geographic concentrations of the state and local municipal bonds are in California, which represented 23% of the total portfolio. No other state had more than 20% of the total portfolio.

Contractual maturities and yields of the Company’s investment securities available-for-sale at December 31, 2011 are as follows (in thousands):

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Due Within One Year			Due After 1 Within 5 Yrs			Due After 5 Within 10 Yrs			Due After 10 Years/No Maturity			Total(1)			Weighted Average Yield (2)
U.S. Treasury and government agency	$	44,090		$	—		$	—		$	—		$	44,090			0.15	%
Debentures of FHLB, FNMA and FHLMC		—			20,000			—			—			20,000			5.66	%
Corporate debt securities		245,762			1,629,012			174,746			—			2,049,520			2.80	%
Asset backed securities		196,705			1,302,923			417,244			723,418			2,640,290			1.40	%
State and municipal securities		360			10			20,673			1,763,735			1,784,778			4.25	%
Mortgage-backed securities:
U.S. government agencies		—			—			4,186			3,946,774			3,950,960			1.99	%
FHLMC and FNMA securities		—			14,706			129,457			4,944,483			5,088,646			2.20	%
Non-agencies		—			17			275			—			292			4.48	%
Total fair value	$	486,917		$	2,966,668		$	746,581		$	11,378,410		$	15,578,576			2.34	%
Weighted average yield		1.86	%		2.02	%		2.69	%		2.42	%		2.34	%
Total amortized cost	$	487,079		$	2,970,413		$	755,400		$	11,213,584		$	15,426,476

(1) The maturities above do not represent the effective duration of the Company’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) Yields on tax-exempt securities are calculated on a tax equivalent basis and are based on an effective tax rate of 35%.

The following table discloses the age of gross unrealized losses in the portfolio as of December 31, 2011 and 2010:

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
	AT DECEMBER 31, 2011
	Less than 12 months					12 months or longer					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
	(in thousands)
U.S. Treasury and government agency securities	$	13,099	$	—		$	—	$	—		$	13,099	$	—
Corporate debt securities		1,129,751		(23,499	)		108,931		(13,485	)		1,238,682		(36,984	)
Asset-backed securities		602,183		(2,754	)		219,016		(4,544	)		821,199		(7,298	)
State and municipal securities		26,910		(204	)		191,597		(3,496	)		218,507		(3,700	)
Mortgage-backed securities:
U.S. government agencies		856,687		(4,022	)		—		—			856,687		(4,022	)
FHLMC and FNMA securities		590,740		(1,667	)		6,847		(93	)		597,587		(1,760	)
Total investment securities	$	3,219,370	$	(32,146	)	$	526,391	$	(21,618	)	$	3,745,761	$	(53,764	)

87

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 5 — Investment Securities (continued)

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
	AT DECEMBER 31, 2010
	Less than 12 months					12 months or longer					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
	(in thousands)
Corporate debt securities		535,892		(12,356	)		9,426		(700	)		545,318		(13,056	)
Asset-backed securities		660,683		(4,498	)		96,005		(6,707	)		756,688		(11,205	)
State and municipal securities		1,420,899		(83,641	)		245,067		(36,662	)		1,665,966		(120,303	)
Mortgage-backed securities:
U.S. government agencies		5,380		(10	)		—		—			5,380		(10	)
FHLMC and FNMA securities		947,311		(7,078	)		13,537		(126	)		960,848		(7,204	)
Non-agencies		62,744		(3,879	)		1,358,715		(143,112	)		1,421,459		(146,991	)
Total investment securities	$	3,632,909	$	(111,462	)	$	1,722,750	$	(187,307	)	$	5,355,659	$	(298,769	)

On November 16, 2011, the Company sold the majority of its non-agency mortgage backed securities portfolio resulting in the recognition of $103.3 million in realized losses. Prior to the sale, the Company held investments in these non-agency mortgage backed securities with an ending book value of $613.3 million for which the Company did not expect to collect the entire scheduled principal. At December 31, 2010, the book value of this class of investments securities was $874.3 million. The Company used the specific identification method to determine the cost of the securities sold and the loss recognized. The sale was the result of management’s strategic decision in the fourth quarter of 2011 to exit certain asset classes in light of changing capital and liquidity requirements expected. In addition, economic conditions have significantly impacted the fair value of certain non-agency mortgage backed securities. The Company is continuously evaluating its investment strategies in light of changes in the regulatory environment that could have an impact on capital and liquidity. Based on this evaluation, it is reasonably possible the Company may elect to pursue other strategies relative to the remaining investment securities portfolio.

The following table displays changes in credit losses for debt securities recognized in earnings for the year ended December 31, 2011 and 2010, and expected to be recognized in earnings over the remaining life of the securities.

		September 30,			September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011			2010			2009
	(in thousands)
Cumulative credit loss recognized on non-agency securities at the beginning of the period	$	210,919		$	206,156		$	62,834
Cumulative reduction as of the beginning of the period for accretion into interest income for the expected increase in cash flow on certain non-agency securities		(9,631	)		—			—
Current period accretion into interest income for the expected increase in cash flow on certain non-agency securities		(8,375	)		(9,631	)		—
Additions for amount related to credit loss for which an other-than-temporary-impairment was not previously recognized		325			4,763			143,322
Reductions for securities sold during the period		(193,238	)		—			—
Net cumulative credit loss recognized on non-agency securities as of the end of the period		—			201,288			206,156
Reductions for increases in cash flows expected to be collected and recognized over the remaining life of security		—			(70,762	)		—
Projected ending balance of the amount related to credit losses on debt securities at the end of the period for which a portion of an other-than-temporary impairment was recognized in other comprehensive income	$	—		$	130,525		$	206,156

88

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 5 — Investment Securities (continued)

Based upon the analysis performed above, the Company recognized other-than-temporary impairment losses of $0.3 million and $4.8 million in earnings during the year ended December 31, 2011 and 2010, respectively. Excluding the securities above, management has concluded that the unrealized losses on the remaining investment securities (which totaled 120 individual securities) are temporary in nature since (1) they are not related to the underlying credit quality of the issuers, (2) the principal and interest on these securities are from investment grade issuers, (3) the Company does not intend to sell these investments, and (4) it is more likely than not that the Company will not be required to sell the investments before recovery of the amortized cost basis, which may be maturity.

Management evaluates all securities for other-than-temporary impairment on at least a quarterly basis. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and (4) the ability to collect the future expected cash flow. Key assumptions utilized to forecast expected cash flows include loss severity, expected cumulative loss percentage, cumulative loss percentage to date, weighted average FICO and weighted average LTV.

Proceeds from sales of investment securities and the realized gross gains and losses from those sales are as follows:

		September 30,			September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011			2010			2009
	(in thousands)
Proceeds from sales	$	6,892,337		$	5,075,900		$	2,673,370
Gross realized gains		178,364			192,161			23,176
Gross realized losses		(103,442	)		(965	)		(827	)
Net realized gains	$	74,922		$	191,196		$	22,349

During 2010, the Company sold its Visa Inc. Class B common shares for proceeds of $19.5 million, resulting in a pre-tax gain of $14.0 million. As part of this transaction, the Company entered into a total return swap in which the Company will make or receive payments based on subsequent changes in the conversion rate of the Class B shares into Class A shares. The swap terminates on the later of the third anniversary of Visa’s IPO or the date on which certain pre-specified litigation is finally settled. As a result of the sale of Class B shares and entering into the swap contract, the Company recognized a free standing derivative liability with an initial fair value of $5.5 million. The sale of the Class B shares, recognition of the derivative liability and reversal of the net litigation reserve liability resulted in a pre-tax benefit of $14.0 million ($9.6 million after-tax) recognized by the Company in 2010.

Nontaxable interest and dividend income earned on investment securities was $67.0 million, $78.5 million and $81.5 million for years ended December 31, 2011, 2010 and 2009, respectively. Tax expenses related to net realized gains and losses from sales of investment securities for the years ended 2011, 2010 and 2009 were $29.4 million, $69.6 million and $8.1 million, respectively.

89

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans

The following table presents the composition of the loans held for investment portfolio by type of loan and by fixed and variable rates at the dates indicated:

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Commercial real estate loans	$	10,553,174	$	11,311,167
Commercial and industrial loans		11,084,292		9,931,143
Multi-family loans		7,100,620		6,746,558
Other		1,151,107		1,170,044
Total commercial loans held for investment		29,889,193		29,158,912
Residential mortgages		11,285,550		11,029,650
Home equity loans and lines of credit		6,868,939		7,005,539
Total consumer loans secured by real estate		18,154,489		18,035,189
Auto loans		958,345		16,714,124
Other		2,305,353		1,109,659
Total consumer loans held for investment		21,418,187		35,858,972
Total loans held for investment (1)	$	51,307,380	$	65,017,884
Total loans held for investment with:
Fixed rate	$	26,280,371	$	41,405,419
Variable rate		25,027,009		23,612,465
Total loans held for investment(1)	$	51,307,380	$	65,017,884

(1) Total loans held for investment includes deferred loan origination costs, net of deferred loan fees and unamortized purchase premiums, net of discounts as well as purchase accounting adjustments. These items resulted in a net increase in loan balances of $106.0 million and a net decrease of $920.7 million at December 31, 2011 and 2010, respectively.

Loans pledged as collateral for borrowings totaled $32.5 billion and $47.7 billion at December 31, 2011 and 2010, respectively.

At December 31, 2011 and 2010, there was $136.6 million and $323.7 million of loan accrued interest.

The entire loans held for sale portfolio at December 31, 2011 and 2010 consists of fixed rate residential mortgages. The balance at December 31, 2011 was $352.5 million compared to $150.1 million at December 31, 2010.

On January 5, 2011, the Bank purchased $1.7 billion of marine and recreational vehicle loans. On June 30, 2011, the Bank purchased a $181.9 million credit card receivable portfolio. On September 12, 2011, the Bank purchased $393.4 million of marine and recreational vehicle loans.

90

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

The following table presents the activity in the allowance for credit losses for the periods indicated:

		September 30,			September 30,		September 30,
	YEAR ENDED DECEMBER 31,
	2011			2010		2009
	(in thousands)
Allowance for loan losses balance, beginning of period	$	2,197,450		$	1,818,224	$	1,102,753
Allowance established in connection with reconsolidation of previously unconsolidated securitized assets		—			5,991		—
Acquired allowance for loan losses due to SCUSA contribution from Santander		—			—		347,302
Allowance change due to SCUSA Transaction		(1,208,474	)		—		—
Provision for loan losses (1)		1,364,087			1,585,545		1,790,559
Charge-offs:
Commercial		545,028			650,888		518,468
Consumer secured by real estate		250,992			108,253		110,732
Consumer not secured by real estate		818,017			753,016		1,121,338
Total charge-offs		1,614,037			1,512,157		1,750,538
Recoveries:
Commercial		42,059			54,768		11,288
Consumer secured by real estate		8,419			2,297		12,283
Consumer not secured by real estate		293,988			242,782		304,577
Total recoveries		344,466			299,847		328,148
Charge-offs, net of recoveries		1,269,571			1,212,310		1,422,390
Allowance for loan losses balance, end of period		1,083,492			2,197,450		1,818,224
Reserve for unfunded lending commitments, beginning of period		300,621			259,140		65,162
Provision for unfunded lending commitments (1)		(44,136	)		41,481		193,978
Reserve for unfunded lending commitments, end of period		256,485			300,621		259,140
Total allowance for credit losses	$	1,339,977		$	2,498,071	$	2,077,364

(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.

91

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

The following table presents the composition of non-performing assets at the dates indicated:

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Non-accrual loans:
Commercial:
Commercial real estate	$	459,692	$	653,221
Commercial and industrial		213,617		528,333
Multi-family		126,738		224,728
Total commercial loans		800,047		1,406,282
Consumer:
Residential mortgages		438,461		602,027
Consumer loans secured by real estate		108,075		125,310
Consumer not secured by real estate		12,883		592,650
Total consumer loans		559,419		1,319,987
Total non-accrual loans		1,359,466		2,726,269
Other real estate owned		103,026		143,149
Other repossessed assets		5,671		79,854
Total other real estate owned and other repossessed assets		108,697		223,003
Total non-performing assets	$	1,468,163	$	2,949,272

. Impaired loans are summarized as follows:

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Impaired loans with a related allowance	$	1,118,591	$	1,836,993
Impaired loans without a related allowance		269,677		299,501
Total impaired loans	$	1,388,268	$	2,136,494
Allowance for loan losses reserved for impaired loans	$	252,556	$	417,873

92

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

Prior to December 31, 2011, the Company, through the SCUSA subsidiary, acquired certain auto loans at a substantial discount from par from manufacturer-franchised dealers or other companies engaged in non-prime lending activities. Part of this discount is attributable to the expectation that not all contractual cash flows will be received from the borrowers. These loans are accounted for under the Receivable topic of the FASB Accounting Standards Codification (Section 310-30) “Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The excess of cash flows expected over the estimated fair value at acquisition is referred to as the accretable yield and is recognized in interest income over the remaining life of the loans using the constant effective yield method. The difference between contractually required payments and the undiscounted cash flows expected to be collected at acquisition is referred to as the nonaccretable difference.

Changes in the actual or expected cash flows of purchased impaired loans from the date of acquisition will either impact the accretable yield or result in an impairment charge to the provision for credit losses in the period in which the changes are deemed probable. Subsequent decreases to the net present value of expected cash flows will generally result in an impairment charge to the provision for credit losses, resulting in an increase to the Allowance for Loan Losses (“ALLL”), and a reclassification from accretable yield to nonaccretable difference. Subsequent increases in the net present value of cash flows will result in a recovery of any previously recorded provision, to the extent applicable, and a reclassification from nonaccretable difference to accretable yield, which is recognized prospectively over the remaining lives of the loans. Prepayments are treated as a reduction of cash flows expected to be collected and a reduction of projections of contractual cash flows such that the nonaccretable difference is not affected. Accordingly, for decreases in cash flows expected to be collected resulting from prepayments, the effect will be to reduce the yield prospectively.

A rollforward of SHUSA’s consolidation of SCUSA’s nonaccretable and accretable yield on loans accounted for under Section 310-30 is shown below for the year ended December 31, 2011 and 2010 (amounts in thousands):

		September 30,			September 30,			September 30,			September 30,
	Contractual Receivable  Amount			Nonaccretable Yield			Accretable Premium/(Yield)			Carrying Amount(1)
Balance at January 1, 2011	$	9,147,004		$	(966,463	)	$	210,459		$	8,391,000
Additions (loans acquired during the period)		4,082,745			(396,463	)		139,599			3,825,881
Principal reductions		(3,965,789	)		—			—			(3,965,789	)
Charge-offs, net		(573,788	)		573,788			—			—
Accretion of loan discount		—			—			(189,341	)		(189,341	)
Transfers between nonaccretable and accretable yield		—			(14,092	)		14,092			—
Settlement adjustments		10,288			(2,279	)		(263	)		7,746
Reduction due to SCUSA Transaction		(8,700,460	)		805,509			(174,546	)		(8,069,497	)
Balance at December 31, 2011	$	—		$	—		$	—		$	—

		September 30,			September 30,			September 30,			September 30,
	Contractual Receivable  Amount			Nonaccretable Yield			Accretable (Yield)/Premium			Carrying Amount
Balance at January 1, 2010	$	2,042,594		$	(225,949	)	$	(35,207	)	$	1,781,438
Additions (loans acquired during the period)		9,469,913			(989,010	)		291,309			8,772,212
Principal reductions		(2,088,158	)		—			—			(2,088,158	)
Charge-offs, net		(277,345	)		277,345			—			—
Accretion of loan discount		—			—			(74,492	)		(74,492	)
Transfers between nonaccretable and accretable yield		—			(28,849	)		28,849			—
Balance at December 31, 2010	$	9,147,004		$	(966,463	)	$	210,459		$	8,391,000

(1) Carrying amount includes principal and accrued interest

There is no ending balance in the nonaccretable and accretable yield as of December 31, 2011 as SCUSA is not consolidated as of December 31, 2011. See further discussion in Note 3.

93

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

U.S. GAAP requires that entities disclose information about the credit quality of its financing receivables at disaggregated levels, specifically defined as “portfolio segments” and “classes” based on management’s systematic methodology for determining its allowance for credit losses. As such, compared to the financial statement categorization of loans, the Company utilizes an alternate categorization for purposes of modeling and calculating the allowance for credit losses and for tracking the credit quality, delinquency and impairment status of the underlying commercial and consumer loan populations.

In disaggregating its financing receivables portfolio, the Company’s methodology starts with the commercial and consumer segments. The commercial segmentation reflects line of business distinctions. “Corporate Banking” includes the majority of commercial and industrial loans as well as related owner-occupied real estate. “Middle Market CRE” represents the portfolio of specialized lending for investment real estate. “Continuing care retirement communities” (“CCRC”) is the portfolio of financing for continuing care retirement communities. “Santander Real Estate Capital” (“SREC”) is the real estate portfolio of the specialized lending group in Brooklyn, NY. “Remaining Commercial” represents principally the Commercial Equipment and Vehicle Funding business (“CEVF”).

The consumer segmentation reflects product structure with minor variations from the financial statement categories. “Home mortgages” is generally residential mortgages, “Self-originated home equity” excludes purchased home equity portfolios, and “Indirect auto” excludes self-originated direct auto loans. “Indirect purchased” represents an acquired portfolio of marine and recreational vehicle contracts. Direct auto loans and purchased home equity loans make up the majority of balances in “Remaining consumer”. “Credit cards” includes all unsecured consumer credit cards.

Loans that have been classified as non-accrual generally remain classified as non-accrual until the loan is able to sustain a period of repayment which is typically defined as six months for a monthly amortizing loan at which time, accrual of interest resumes.

The activity in the allowance for loan losses for the years ended December 31, 2011 and 2010 was as follows (in thousands):

		September 30,			September 30,			September 30,		September 30,
2011	Commercial			Consumer			Unallocated		Total
Allowance for loan losses:
Allowance for loan losses balance, beginning of period	$	905,786		$	1,275,982		$	15,682	$	2,197,450
Allowance released due to SCUSA Transaction		—			(1,208,474	)		—		(1,208.474	)
Provision for loan losses		364,048			991,910			8,129		1,364,087
Charge-offs		(545,028	)		(1,069,009	)		—		(1,614,037	)
Recoveries		42,059			302,407			—		344,466
Charge-offs, net of recoveries		(502,969	)		(766,602	)		—		(1,269,571	)
Allowance for loan losses balance, end of period	$	766,865		$	292,816		$	23,811	$	1,083,492
Ending balance, individually evaluated for impairment	$	217,865		$	34,691		$	—	$	252,556
Ending balance, collectively evaluated for impairment		549,000			258,125			23,811		830,936
Financing receivables:
Ending balance	$	29,889,193		$	21,770,658		$	—	$	51,659,851
Ending balance, evaluated at fair value		—			352,471			—		352,471
Ending balance, individually evaluated for impairment		836,580			494,431			—		1,331,011
Ending balance, collectively evaluated for impairment		29,052,613			20,923,756			—		49,976,369
Purchased impaired loans		—			—			—		—

94

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

		September 30,			September 30,			September 30,		September 30,
2010	Commercial			Consumer			Unallocated		Total
Allowance for loan losses:
Allowance for loan losses balance, beginning of period	$	989,192		$	824,529		$	4,503	$	1,818,224
Allowance established in connection with reconsolidation of previously unconsolidated securitized assets		5,991			—			—		5,991
Provision for loan losses		506,723			1,067,643			11,179		1,585,545
Charge-offs		(650,888	)		(861,269	)		—		(1,512,157	)
Recoveries		54,768			245,079			—		299,847
Charge-offs, net of recoveries		(596,120	)		(616,190	)		—		(1,212,310	)
Allowance for loan losses balance, end of period	$	905,786		$	1,275,982		$	15,682	$	2,197,450
Ending balance, individually evaluated for impairment	$	280,219		$	137,654		$	—	$	417,873
Ending balance, collectively evaluated for impairment		625,567			1,016,410			—		1,641,977
Purchased impaired loans		—			137,600			—		137,600
Financing receivables:
Ending balance	$	29,158,912		$	36,009,035		$	—	$	65,167,947
Ending balance, individually evaluated for impairment		1,183,563			949,156			—		2,132,719
Ending balance, collectively evaluated for impairment		27,975,349			26,668,879			—		54,644,228
Purchased impaired loans		—			8,391,000			—		8,391,000

Non-accrual loans disaggregated by class of financing receivables are summarized as follows:

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Non-accrual loans:
Commercial:
Corporate banking	$	304,309	$	653,943
Middle market commercial real estate		167,446		379,898
Continuing care retirement communities		198,131		126,704
Santander real estate capital		127,537		203,802
Remaining commercial		2,624		41,935
Total commercial loans		800,047		1,406,282
Consumer:
Home mortgages		438,461		602,027
Self-originated home equity		64,481		63,686
Indirect auto		3,062		563,002
Indirect purchased		2,005		—
Remaining consumer		51,410		91,272
Total consumer loans		559,419		1,319,987
Total non-accrual loans	$	1,359,466	$	2,726,269

95

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

Delinquencies disaggregated by class of financing receivables are summarized as follows:

		Septe		Septe		Septe		Septe		Septe		Septe		Septe
December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables(1)		Recorded Investment >90 Days and Accruing
	(in thousands)
Commercial:
Corporate banking	$	38,347	$	36,498	$	180,017	$	254,862	$	14,989,498	$	15,244,360	$	1,211
Middle market commercial real estate		14,862		16,508		79,160		110,530		3,743,790		3,854,320		—
Continuing care retirement communities		4,632		2,812		6,491		13,935		216,010		229,945		—
Santander real estate capital		8,383		24,214		89,885		122,482		9,175,480		9,297,962		—
Remaining commercial		2,568		13,765		132,741		149,074		1,113,532		1,262,606		—
Consumer:
Home mortgages		224,957		110,007		438,461		773,425		10,863,152		11,636,577		—
Self-originated home equity		22,026		13,272		64,482		99,780		6,404,702		6,504,482		—
Indirect auto		43,386		10,624		3,062		57,072		704,518		761,590		—
Indirect purchased		11,101		4,683		2,005		17,789		1,814,509		1,832,298		—
Credit cards		1,867		1,491		3,697		7,055		180,940		187,995		3,697
Remaining consumer		26,879		12,881		51,410		91,170		756,546		847,716		—
Total	$	399,008	$	246,755	$	1,051,411	$	1,697,174	$	49,962,677	$	51,659,851	$	4,908

		Septe		Septe		Septe		Septe		Septe		Septe		Septe
December 31, 2010	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables(1)		Recorded Investment >90 Days and Accruing
	(in thousands)
Commercial:
Corporate banking	$	83,039	$	51,675	$	425,824	$	560,538	$	14,192,156	$	14,752,694	$	—
Middle market commercial real estate		37,619		24,980		187,393		249,992		3,530,116		3,780,108		169
Continuing care retirement communities		13,300		—		107,579		120,879		460,168		581,047		—
Santander real estate capital		119,795		27,819		161,583		309,197		8,881,740		9,190,937		—
Remaining commercial		5,491		32,982		8,312		46,785		807,341		854,126		—
Consumer:
Home mortgages		238,829		106,756		602,027		947,612		10,230,512		11,178,124		—
Self-originated home equity		18,540		12,774		63,686		95,000		6,461,605		6,556,605		—
Indirect auto		1,455,595		412,774		140,238		2,008,607		14,762,568		16,771,175		—
Remaining consumer		52,751		26,116		71,492		150,359		1,352,772		1,503,131		—
Total	$	2,024,959	$	695,876	$	1,768,134	$	4,488,969	$	60,678,978	$	65,167,947	$	169

(1) Financing Receivables includes loans held for sale.

96

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

Impaired loans disaggregated by class of financing receivables are summarized as follows:

		September 30,		September 30,		September 30,		September 30,
December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Specific Reserves		Average Recorded Investment
	(in thousands)
With no related allowance recorded:
Commercial:
Corporate banking	$	42,639	$	55,673	$	—	$	88,397
Middle market commercial real estate		82,104		102,788		—		72,053
Continuing care retirement communities		46,897		63,210		—		23,940
Santander real estate capital		23,723		24,731		—		29,164
Remaining commercial		17,057		17,057		—		8,529
Consumer:
Home mortgages		—		—		—		33,879
Self-originated home equity		38,322		38,699		—		19,161
Remaining consumer		18,935		19,684		—		9,468
With an allowance recorded:
Commercial:
Corporate banking		203,430		260,620		100,551		195,363
Middle market commercial real estate		132,115		169,361		27,473		194,877
Continuing care retirement communities		169,554		270,470		60,632		136,819
Santander real estate capital		117,103		125,114		28,494		106,843
Remaining commercial		1,958		2,553		715		13,978
Consumer:
Home mortgages		494,431		507,898		34,691		519,754
Indirect auto		—		—		—		101,222
Total:
Commercial	$	836,580	$	1,091,577	$	217,865	$	869,963
Consumer		551,688		566,281		34,691		683,484
Total	$	1,388,268	$	1,657,858	$	252,556	$	1,553,447

The Company recognized interest income of $ 17.6 million on approximately $527.6 million of TDRs that were returned to performing status as of December 31, 2011.

97

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

		September 30,		September 30,		September 30,
December 31, 2010	Recorded Investment		Unpaid Principal Balance		Related Specific Reserves
	(in thousands)
With no related allowance recorded:
Commercial:
Corporate banking	$	134,154	$	134,154	$	—
Middle market commercial real estate		62,002		62,002		—
Continuing care retirement communities		983		983		—
Santander real estate capital		34,605		34,605		—
Remaining commercial		—		—		—
Consumer:
Home mortgages		67,757		67,757		—
With an allowance recorded:
Commercial:
Corporate banking		187,296		345,322		158,026
Middle market commercial real estate		257,639		317,378		59,739
Continuing care retirement communities		104,084		125,720		21,636
Santander real estate capital		96,583		123,581		26,998
Remaining commercial		25,998		39,818		13,820
Consumer:
Home mortgages		545,077		678,956		133,879
Indirect auto		202,443		206,218		3,775
Total:
Commercial	$	903,344	$	1,183,563	$	280,219
Consumer		815,277		952,931		137,654
Total	$	1,718,621	$	2,136,494	$	417,873

Commercial credit quality disaggregated by class of financing receivables is summarized according to standard regulatory classifications as follows:

PASS. Asset is well protected by the current net worth and paying capacity of the obligor or guarantors, if any, or by the fair value, less costs to acquire and sell any underlying collateral in a timely manner.

SPECIAL MENTION. Asset has potential weaknesses that deserve management’s close attention, which, if left uncorrected, may result in deterioration of the repayment prospects for an asset at some future date. Special Mention assets are not adversely classified.

SUBSTANDARD. Asset is inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Characterized by distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

DOUBTFUL. Exhibits the inherent weaknesses of a substandard credit. Additional characteristics that make collection or liquidation in full highly questionable and improbable, on the basis of currently known facts, conditions and values. Possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the credit, an estimated loss cannot yet be determined.

LOSS. Credit is considered uncollectible and of such little value that it does not warrant consideration as an active asset. There may be some recovery or salvage value, but there is doubt as to whether, how much or when the recovery would occur.

The Company places consumer loans, excluding auto loans and credit card loans, on non-performing status at 90 days delinquent. For the majority of auto loans, the Company places them on non-performing status at 60 days delinquent. Credit cards remain performing until they are 180 days delinquent, at which point they are charged-off and all interest is removed from interest income.

98

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

Regulatory classifications by class of financing receivables are summarized as follows:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
December 31, 2011	Corporate banking		Middle market commercial real estate		Continuing care retirement communities		Santander real estate capital		Remaining commercial		Total
	(in thousands)
Regulatory Rating:
Pass	$	13,907,745	$	2,625,160	$	186,914	$	8,750,869	$	921,325	$	26,392,013
Special Mention		531,205		639,258		29,480		284,757		38,293		1,522,993
Substandard		690,303		485,994		10,460		228,210		104,802		1,519,769
Doubtful		115,107		103,908		3,091		34,126		198,186		454,418
Total commercial loans	$	15,244,360	$	3,854,320	$	229,945	$	9,297,962	$	1,262,606	$	29,889,193

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
December 31, 2010	Corporate banking		Middle market commercial real estate		Continuing care retirement communities		Santander real estate capital		Remaining commercial		Total
	(in thousands)
Regulatory Rating:
Pass	$	12,709,769	$	2,306,926	$	307,890	$	8,482,219	$	765,492	$	24,572,296
Special Mention		796,484		652,330		55,886		320,727		12,488		1,837,915
Substandard		1,043,379		632,901		90,567		312,130		74,629		2,153,606
Doubtful		201,248		187,951		126,704		75,861		1,517		593,281
Loss		1,814		—		—		—		—		1,814
Total commercial loans	$	14,752,694	$	3,780,108	$	581,047	$	9,190,937	$	854,126	$	29,158,912

Consumer credit quality disaggregated by class of financing receivables is summarized as follows:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
December 31, 2011	Home mortgages		Self-originated home equity		Indirect auto		Indirect purchased		Credit cards		Remaining consumer		Total (1)
	(in thousands)
Performing	$	11,198,116	$	6,440,001	$	758,528	$	1,830,293	$	187,995	$	796,306	$	21,211,239
Nonperforming		438,461		64,481		3,062		2,005		—		51,410		559,419
Total consumer loans	$	11,636,577	$	6,504,482	$	761,590	$	1,832,298	$	187,995	$	847,716	$	21,770,658

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
December 31, 2010	Home mortgages		Self-originated home equity		Indirect auto		Indirect purchased		Credit cards		Remaining consumer		Total (1)
	(in thousands)
Performing	$	10,576,097	$	6,492,919	$	15,931,345	$	—	$	—	$	1,688,687	$	34,689,048
Nonperforming		602,027		63,686		563,002		—		—		91,272		1,319,987
Total consumer loans	$	11,178,124	$	6,556,605	$	16,494,347	$	—	$	—	$	1,779,959	$	36,009,035

(1) Financing Receivables includes loans held for sale.

99

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

TROUBLED DEBT RESTRUCTURINGS

Troubled debt restructurings (“TDRs”) are loans that have been modified whereby the Company has agreed to make certain concessions to customers to both meet the needs of the customers and to maximize the ultimate recovery of a loan. TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted are generally interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.

The following table summarizes the Company’s performing and non-performing TDRs at the dates indicated:

		September 30,		September 30,
	December 31,		December 31,
	2011		2010
	(in thousands)
Performing	$	527,646	$	456,044
Non-performing		217,255		245,114
Total	$	744,901	$	701,158

Commercial Loan TDRs

All of the Company’s commercial loan modifications are based on the facts of the individual customer, including their complete relationship with the Company. Loan terms are modified to meet each borrower’s specific circumstances at a point in time. Modifications for commercial loan TDRs generally, though not always, result in bifurcation of the original loan into A and B notes. The A note is restructured to allow for upgraded risk rating and return to accrual status after a sustained period of payment performance has been achieved (typically six months for monthly payment schedules). Any B note is structured as a deficiency note; the balance is charged off but the debt is usually not forgiven. As TDRs, they will be subject to analysis for specific reserves by either calculating the present value of expected future cash flows or, if collateral dependent, calculating the fair value of the collateral less its estimated cost to sell. The TDR classification will remain on the loan until it is paid in full or liquidated.

Consumer Loan TDRs

The primary modification program for the Company’s home mortgage and self-originated home equity portfolios is a proprietary program designed to keep customers in their homes and when appropriate prevent them from entering into foreclosure. The program is available to all customers facing a financial hardship regardless of their delinquency status. The main goal of the modification program is to review the customer’s entire financial condition to ensure that the proposed modified payment solution is affordable according to a specific debt-to-income ratio (“DTI”) range. The main modification benefits of the program allow for a limit on accrued interest charged; term extensions; interest rate reductions; or deferment of principal. The Company will review each customer on a case-by-case basis to determine which benefit or combination of benefits will be offered to achieve the target DTI range.

For the Company’s other consumer portfolios (indirect auto, indirect purchased, and remaining consumer) the terms of the modifications include one or a combination of the following; a reduction of the stated interest rate of the loan at a rate of interest lower than the current market rate for new debt with similar risk; an extension of the maturity date.

Consumer TDRs are generally placed on non-accrual status until the Company believes repayment under the revised terms are reasonably assured and a sustained period of repayment performance has been achieved (typically defined as six months for a monthly amortizing loan). However, any loan that has remained current for the six months immediately prior to modification will remain on accrual status after the modification is enacted. The TDR classification will remain on the loan until it is paid in full or liquidated.

100

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

TDR Impact to Allowance for Loan Losses

Allowance for loan losses are established to recognize losses inherent in funded loans intended to be held-for-investment that are probable and can be reasonable estimated. Prior to a TDR modification, the Company generally measures its allowance under a loss contingency methodology whereby consumer loans with similar risk characteristics are pooled and loss experience information are monitored for credit risk and deterioration with statistical tools considering factors such as delinquency, loan to values, and credit scores.

Upon TDR modification, the Company generally measures impairment based on a present value of expected future cash flows methodology considering all available evidence. The amount of the required valuation allowance is equal to the difference between the loan’s impaired value and the recorded investment.

When a consumer TDR subsequently defaults, the Company generally measures impairment based on the fair value of the collateral less its estimated cost to sell.

Typically, commercial loans whose terms are modified in a TDR will have previously been identified as impaired prior to modification and accounted for generally using a present value of expected future cash flows methodology unless the loan is considered collateral dependent. Loans considered collateral dependent are measured for impairment based on their fair values of collateral less its estimated cost to sell. Accordingly, upon TDR modification, the allowance methodology remains unchanged. When a commercial TDR subsequently defaults, the Company generally measures impairment based on the fair value of the collateral less its estimated cost to sell.

The following tables detail the activity of TDRs for the twelve-month period ended December 31, 2011 (dollars in thousands):

		September 30,		September 30,		September 30,
	Twelve-month period ended December 31, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment (1)		Post-Modification Outstanding Recorded Investment (2)
Commercial:
Middle market commercial real estate		3	$	43,503	$	43,518
Continuing care retirement communities		3		55,204		56,061
Santander real estate capital		2		11,415		11,104
Remaining commercial		10		22,303		22,910
Consumer:
Home mortgages		616		170,083		173,045
Self-originated home equity		199		18,316		18,816
Indirect purchased		1		167		168
Remaining consumer		2		118		121
Total		836	$	321,109	$	325,743

(1) Pre-Modification Outstanding Recorded Investment amount is the month-end balance prior to the month the modification occurred.

(2) Post-Modification Outstanding Recorded Investment amount is the month-end balance for the month that the modification occurred. Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized interest, escrow arrearages and fees.

101

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6 — Loans (continued)

The following table details TDRs that were modified during the past twelve-month period and have subsequently defaulted during the twelve-month periods ended December 31, 2011 (dollars in thousands):

		September 30,		September 30,
	Twelve-month period ended December 31, 2011
	Number of Contracts		Recorded Investment  (1)
Consumer:
Home mortgages		3	$	1,546
Total		3	$	1,546

(1) The recorded investment represents the period-end balance as of December 31, 2011

Note 7 — Premises and Equipment

A summary of premises and equipment, less accumulated depreciation and amortization, follows:

		September 30,			September 30,
	AT DECEMBER 31,
	2011			2010
	(in thousands)
Land	$	56,788		$	57,101
Office buildings		197,912			203,447
Furniture, fixtures, and equipment		195,591			249,639
Leasehold improvements		312,761			310,680
Computer Software		382,582			217,573
Automobiles and other		1,998			2,739
Total premise and equipment		1,147,632			1,041,179
Less accumulated depreciation		(478,489	)		(445,228	)
Total premises and equipment, net	$	669,143		$	595,951

Included in occupancy and equipment expense for 2011, 2010 and 2009 was depreciation expense of $91.0 million, $73.6 million and $87.9 million, respectively.

Note 8 — Equity Method Investments and Variable Interest Entities

Investments in unconsolidated entities as of December 31, 2011 and 2010 include the following:

		September 30,			September 30,		September 30,
	Ownership			December 31,		December 31,
	Interest			2011		2010
				(in thousands)
Santander Consumer, USA (“SCUSA”)		65.0	%	$	2,650,651	$	—
Commercial property partnerships		17.0 – 33.3	%		9,681		—
Community reinvestment projects		2.0 – 99.9	%		156,462		117,516
Other		various			67,214		67,841
Total				$	2,884,008	$	185,357

102

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 8 — Equity Method Investments and Variable Interest Entities (continued)

Net losses related to equity method investments for 2011, 2010 and 2009 were $14.8 million, $26.6 million and $21.4 million, respectively.

Refer to Note 3 of the Notes to Consolidated Financial Statements for additional information on SCUSA.

As part of its lending activities, the Company is involved in several loan participations which involve commercial property. If the loan becomes nonperforming and is subsequently foreclosed, the financial institutions involved in the commercial property may create a partnership to run or sell the commercial property. The Company has an interest in the partnerships, but does not have controlling interest in the entities. The equity investment in the partnership is equal to the fair value of the proportion of the property that is controlled by the partnership. The fair value of the property is reviewed on a regular basis to ensure the value of the equity investment is not impaired. The fair value is determined based on property appraisals and other factors affecting the properties.

Community reinvestment projects are investments into partnerships that are involved in construction and development of low-income housing (“LIH”) and new market investments (“NMTC”). The Company has a significant interest in the partnerships, but does not have a controlling interest in the entities. See further discussion below.

Other equity investments primarily consist of small investments in capital trusts, a commercial real estate finance company and other joint ventures where the Company has an interest in the partnerships, but does not have a controlling interest.

Below is the summarized financial information for significant equity investments presented as a stand-alone entity. Currently, the Company only considers its investment in SCUSA to be a significant equity investment. The Company’s Consolidated Balance Sheet as of December 31, 2010 includes the financial position of SCUSA.

		September 30,		September 30,
	December 31,		December 31,
	2011		2010
	(in thousands)
Cash and amounts due from depository institutions	$	54,409	$	59,001
Investments securities		188,299		313,537
Net loans held for investment		16,715,703		15,032,046
Other assets		2,443,733		1,368,437
Total assets	$	19,402,144	$	16,773,021
Total liabilities	$	17,165,459	$	16,005,404
Stockholders’ equity attributable to SCUSA		2,216,684		767,617
Minority Interest		20,001		—
Total liabilities and stockholders’ equity	$	19,402,144	$	16,773,021

As of December 31, 2011 and 2010, the Company had receivables and prepaid expenses with SCUSA of $99.1 million and $473.9 million, respectively.

103

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 8 — Equity Method Investments and Variable Interest Entities (continued)

The Company’s consolidated statement of operations for the year ended December 31, 2011 includes SCUSA’s results of operations from January 1 through December 31, 2011. The following summary of financial information of SCUSA presented below on as a stand-alone entity for the year ended December 31, 2011, 2010 and 2009, respectively:

		September 30,		September 30,		September 30,
	YEAR ENDED DECEMBER 31,
	2011		2010		2009
	(in thousands)
Interest income	$	2,594,513	$	2,076,578	$	1,510,240
Interest expenses		418,526		316,486		235,031
Net interest income		2,175,987		1,760,092		1,275,209
Provision for credit loss		819,221		888,225		720,938
Other income		452,529		249,028		48,096
Other expenses		557,083		404,840		249,012
Income before income taxes		1,252,212		716,055		353,355
Income tax provision		464,034		277,944		143,834
Net income	$	788,178	$	438,111	$	209,521

During the year ended December 31, 2011, 2010 and 2009, the Company recorded income of $32.4 thousand, $586.6 thousand and $0, respectively, and expenses of $39.8 million, $29.1 million and $21.2 million, respectively, related to transactions with SCUSA. The activity is primarily related to SCUSA’s servicing of certain SHUSA outstanding loan portfolios. As these transactions occurred prior to the deconsolidation of SCUSA on December 31, 2011, they have been eliminated from the consolidated statement of operations as intercompany transactions.

Variable Interest Entities

The Company, through an acquisition in 2005, acquired a 70.0% interest in a real estate title company in Pennsylvania. The real estate title company is determined to be a VIE because the holders of the equity investment at risk do not have the power through voting rights or similar rights to direct the activities of the entity that most significantly impact the entity’s economic performance. The partnership is structured with one investor being the general partner and the Company as limited partner. The Company has determined that it is not the primary beneficiary of real estate title company because it does not have the power to direct the activities of the real estate title company that most significantly impact its economic performance. The entity is recorded as an equity investment on the financial statements. The risk of loss is limited to the investment in the partnerships, which totaled $8.9 million and $4.6 million at December 31, 2011 and 2010, respectively. There are no future cash obligations.

As part of the community reinvestment initiatives, the Company invests into partnerships of construction and development of LIH and NMTC, which are determined to be VIEs because the holders of the equity investment at risk do not have the power through voting rights or similar rights to direct the activities of the entity that most significantly impact the entity’s economic performance. The partnerships are structured with the real estate developer or sponsor as the general partner and the Company as the limited partner. The Company has determined that it is not the primary beneficiary of these partnerships because it does not have the power to direct the activities of the LIH and NMTC that most significantly impact the entity’s economic performance. The entities are recorded as an equity investment on the financial statements. The risk of loss is limited to the investment in the partnerships, which totaled $156.5 million and $117.5 million at December 31, 2011 and 2010, respectively, and any future cash obligations that the Company is committed to the partnerships. Future cash obligations related to these partnerships totaled $167 thousand at December 31, 2011. The Company does not provide financial or other support to the partnerships that is not contractually required. The Company accounts for its limited partner interests in accordance with the accounting guidance for investments in affordable housing projects.

104

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 8 — Equity Method Investments and Variable Interest Entities (continued)

The following table set forth the total assets and liabilities, and sources of maximum exposure of non-consolidated VIEs, including significant variable interests as well as sponsored entities with a variable interest (amounts in thousands):

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Carrying		Carrying		Investment		Commitments		Loans
	Amount of		Amount of		in		and		and
As of December 31, 2011	Assets(1)		Liabilities(1)		Entity		Guarantees		Investments			Total
Real estate title company	$	8,901	$	—	$	8,901	$	—	$	—	$	$	8,901
Low income housing partnerships		88,600		—		88,600		—		—			88,600
New market partnerships		67,802		—		67,802		167		—			67,969
Total	$	165,303	$	—	$	165,303	$	167	$	—	$	$	165,470

⁽¹⁾  Amount represents the carrying value of the VIE’s assets and liabilities on the Company’s consolidated financial statements which are classified within Equity Method Investments on the Consolidated Balance Sheet.

Note 9 — Goodwill and Other Intangible Assets

The Company conducts its evaluation of goodwill impairment as of December 31 each year, and more frequently if events or circumstances indicate that there may be impairment. The Company completed its annual goodwill impairment test as of December 31, 2011 and determined that no impairment existed. The Company evaluates goodwill for impairment at the reporting unit level. The fair value of the reporting units is determined by using discounted cash flow and market comparability methodologies.

Goodwill is assigned to reporting units, which are operating segments or one level below an operating segment, as of the acquisition date. As of December 31, 2011, the reporting units with assigned goodwill were Retail Banking and Corporate.

The following table shows the allocation of goodwill to the operating segments for purposes of goodwill impairment testing:

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Retail Banking		Specialized Business		Corporate		Global Banking and Markets		SCUSA			Total
	(in thousands)
Goodwill at December 31, 2010	$	2,259,179	$	—	$	1,172,302	$	—	$	692,870		$	4,124,351
Effect of SCUSA Transaction		—		—		—		—		(692,870	)		(692,870	)
Goodwill at December 31, 2011	$	2,259,179	$	—	$	1,172,302	$	—	$	—		$	3,431,481

105

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 9 — Goodwill and Other Intangible Assets (continued)

The following table details amounts related to the intangible assets as of December 31, 2011 and 2010:

		September 30,		September 30,		September 30,		September 30,		September 30,
	Weighted		December 31, 2011				December 31, 2010
	Average Life (years)		Net Carrying Amount		Accumulated Amortization		Net Carrying Amount		Accumulated Amortization
			(in thousands)
Core deposit intangibles		4.3	$	79,389	$	159,711	$	124,352	$	466,748
Purchased credit card relationships (“PCCR”)		4.5		9,636		4,568		—		—
Operating lease agreements		12.9		10,146		5,558		11,736		3,827
SCUSA trademarks		—		—		—		39,669		978
SCUSA customer relationships		—		—		—		9,197		3,203
Other		—		—		—		3,986		3,508
Total		5.2	$	99,171	$	169,837	$	188,940	$	478,264

Intangibles decreased as a result of amortization and the effects of the SCUSA Transaction (Refer to Note 3 for additional information on the SCUSA Transaction), which was offset by the recognition of a new PCCR intangible asset in the amount of $14.2 million related to the credit card portfolio acquisition in the second quarter of 2011. Accumulated amortization of core deposit intangibles decreased during the third quarter due to a fully amortized asset being removed from the books. Amortization expense on intangible assets for the years ended December 31, 2011 and 2010 was $55.5 million and $63.4 million, respectively. These amounts include amortization expense related to SCUSA. The estimated aggregate amortization expense related to intangibles for each of the five succeeding calendar years ending December 31 is (in thousands):

		September 30,
YEAR	AMOUNT
2012	$	37,222
2013		27,335
2014		18,177
2015		10,221
2016		2,949
Thereafter		3,267

Note 10 — Mortgage Servicing Rights

At December 31, 2011, 2010 and 2009, the Company serviced residential real estate loans for the benefit of others totaling $13.7 billion, $14.7 billion and $14.8 billion, respectively. The following table presents a summary of the activity of the asset established for the Company’s mortgage servicing rights for the years indicated (in thousands):

		September 30,			September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011			2010			2009
Gross balance, beginning of year	$	173,549		$	179,643		$	161,288
Residential mortgage servicing assets recognized		27,230			41,840			74,240
Amortization of residential mortgage servicing rights		(39,488	)		(47,934	)		(55,885	)
Gross balance, end of year		161,291			173,549			179,643
Valuation allowance		(70,040	)		(27,525	)		(52,089	)
Balance, end of year	$	91,251		$	146,024		$	127,554

See discussion of the Company’s accounting policy for mortgage servicing rights in Note 1. The Company had net gains on the sales of residential mortgage loans and mortgage backed securities that were related to loans originated or purchased and held by the Company of $22.9 million, $35.8 million and $71.3 million in 2011, 2010 and 2009, respectively.

106

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 10 — Mortgage Servicing Rights (continued)

The fair value of the residential mortgage servicing rights is estimated using a discounted cash flow model. This model estimates the present value of the future net cash flows from mortgage servicing activities based on various assumptions. These cash flows include servicing and ancillary revenue offset by the estimated costs of performing servicing activities. Significant assumptions in the valuation of residential mortgage servicing rights are anticipated loan prepayment rates (CPR), the anticipated earnings rate on escrow and similar balances held by the Company in the normal course of mortgage servicing activities and the discount rate reflective of a market participants required return on investment for similar assets. Increases in prepayment speeds, as well as discount rate result in lower valuations of mortgage servicing rights. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of mortgage servicing rights. For each of these items, the Company makes assumptions based on current market information and future expectations. All of the assumptions are based on standards that the Company believes would be utilized by market participants in valuing mortgage servicing rights and are derived and/or benchmarked against independent public sources. Additionally, an independent appraisal of the fair value of the Company’s residential mortgage servicing rights is obtained annually and is used by management to evaluate the reasonableness of the assumptions used in the Company’s discounted cash flow model.

Listed below are the most significant assumptions that were utilized by the Company in its evaluation of residential mortgage servicing rights for the periods presented.

		September 30,			September 30,			September 30,
	December 31, 2011			December 31, 2010			December 31, 2009
CPR speed		24.12	%		16.82	%		24.44	%
Escrow credit spread		1.10	%		2.41	%		3.17	%
Discount Rate		10.01	%		10.21	%		10.22	%

A 10% and 20% increase in the CPR speed would decrease the fair value of the residential servicing asset by $5.2 million and $10.3 million respectively at December 31, 2011. A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $1.9 million and $3.9 million, respectively at December 31, 2011. These sensitivity calculations are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a particular assumption on the fair value of the mortgage servicing rights is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another, which may either magnify or counteract the effect of the change.

A valuation allowance is established for the excess of the cost of each residential mortgage servicing asset stratum over its estimated fair value. Activity in the valuation allowance for residential mortgage servicing rights for the years indicated consisted of the following (in thousands):

		September 30,		September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011		2010			2009
Balance, beginning of year	$	27,525	$	52,089		$	48,815
Net change in valuation allowance for mortgage servicing rights		42,515		(24,564	)		3,274
Balance, end of year	$	70,040	$	27,525		$	52,089

The Company originates and has previously sold multi-family loans in the secondary market to Fannie Mae while retaining servicing. At December 31, 2011 and 2010, the Company serviced $9.3 billion and $11.2 billion of loans for Fannie Mae, respectively, and as a result has recorded servicing assets of $0.4 million and $3.7 thousand, respectively. The Company recorded servicing asset amortization related to the multi-family loans sold to Fannie Mae of $4.3 million and $9.4 million for the year ended December 31, 2011 and 2010, respectively. The Company recorded multi-family servicing recoveries of $4.8 million and $0.1 million for the years ended December 31, 2011 and 2010, respectively.

107

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 10 — Mortgage Servicing Rights (continued)

Historically, the Company originated and sold multi-family loans in the secondary market to Fannie Mae while retaining servicing. In 2009, the Company stopped selling loans to Fannie Mae. Under the terms of the multi-family sales program with Fannie Mae, the Company retained a portion of the credit risk associated with such loans. As a result of this agreement with Fannie Mae, the Company retained a 100% first loss position on each multi-family loan sold to Fannie Mae under such program until the earlier to occur of (i) the aggregate approved losses on the multi-family loans sold to Fannie Mae reaching the maximum loss exposure for the portfolio as a whole ($167.4 million as of December 31, 2011 which includes $24 million in losses yet to be approved by Fannie Mae) or (ii) until all of the loans sold to Fannie Mae under this program are fully paid off.

The Company has established a liability which represents the fair value of the retained credit exposure. This liability represents the amount that the Company estimates that it would have to pay a third party to assume the retained recourse obligation. The estimated liability represents the present value of the estimated losses that the portfolio is projected to incur based upon internal specific information and an industry-based default curve with a range of estimated losses. At December 31, 2011 and 2010, SHUSA had $135.5 million and $171.7 million of reserves classified in other liabilities related to the fair value of the retained credit exposure for loans sold to Fannie Mae under this sales program.

Mortgage servicing fee income was $51.2 million, $54.4 million and $53.9 million in 2011, 2010 and 2009, respectively. The Company had gains/(losses) on the sale of mortgage loans, multi-family loans and home equity loans of $21.0 million for the twelve-month period ended December 31, 2011, $25.7 million for the twelve-month period ended December 31, 2010 and $(112.0) million for the twelve-month period ended December 31, 2009.

Note 11 — Other Assets

The following is a detail of items that comprise other assets at December 31, 2011 and 2010.

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Other real estate owned	$	103,026	$	143,149
Other repossessed assets		5,671		79,854
Deferred tax asset		695,598		1,658,262
Prepaid expenses		452,757		604,578
Accounts receivable		688,694		416,089
Derivative assets at fair value		361,145		328,747
Miscellaneous assets		33,892		154,340
Total other assets	$	2,340,783	$	3,385,019

108

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 12 — Deposits

Deposits are summarized as follows (in thousands):

		September 30,		September 30,			September 30,			September 30,		September 30,			September 30,
	AT DECEMBER 31,
	2011								2010
	Amount		Percent of Total			Weighted Average Rate			Amount		Percent of Total			Weighted Average Rate
Non-interest bearing demand deposit accounts	$	7,822,892		16.4	%		—	%	$	7,141,527		16.7	%		—	%
Interest bearing demand deposit accounts		5,987,766		12.5			0.11			5,689,021		13.3			0.13
Money market accounts		16,630,039		34.8			0.51			14,272,645		33.5			0.66
Savings accounts		3,495,902		7.3			0.13			3,463,061		8.1			0.11
Certificates of deposit		8,454,817		17.7			1.37			7,827,485		18.4			1.25
Total retail and commercial deposits		42,391,416		88.7			0.50			38,393,739		90.0			0.53
Wholesale interest bearing demand deposit accounts		20,000		0.0			0.08			87,000		0.2			0.35
Wholesale money market accounts		607,691		1.3			0.28			—		—			—
Wholesale certificates of deposit		1,440,371		3.0			0.41			537,217		1.3			0.71
Total wholesale deposits		2,068,062		4.3			0.37			624,217		1.5			0.66
Government deposits		2,354,764		4.9			0.32			1,889,397		4.4			0.43
Customer repurchase agreements & Eurodollar deposits		983,273		2.1			0.23			1,765,940		4.1			0.27
Total deposits (1)	$	47,797,515		100.0	%		0.48	%	$	42,673,293		100.0	%		0.52	%

(1) Includes foreign deposits of $0.8 billion and $1.3 billion at December 31, 2011 and 2010, respectively.

Interest expense on deposits is summarized as follows (in thousands):

		September 30,		September 30,		September 30,
	YEAR ENDED DECEMBER 31,
	2011		2010		2009
Interest bearing demand deposit accounts	$	6,877	$	7,979	$	16,632
Money market accounts		98,760		88,375		153,961
Savings accounts		4,503		4,740		9,057
Certificates of deposit		116,787		100,000		366,116
Wholesale interest bearing demand deposit accounts		210		379		521
Wholesale money market accounts		424		228		3,383
Wholesale certificates of deposit		9,020		15,720		73,088
Total government deposits		8,185		7,355		12,244
Customer repurchase agreements & Eurodollar deposits		3,945		3,857		5,547
Total interest expense on deposits	$	248,711	$	228,633	$	640,549

The following table sets forth the maturity of the Company’s certificates of deposit of $100,000 or more at December 31, 2011 as scheduled to mature contractually (in thousands):

		September 30,
Three months or less	$	1,077,646
Over three through six months		531,875
Over six through twelve months		715,415
Over twelve months		1,555,753
Total	$	3,880,689

109

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 12 — Deposits (continued)

The following table sets forth the maturity of all of the Company’s certificates of deposit at December 31, 2011 as scheduled to mature contractually (in thousands):

		September 30,
2012	$	5,806,224
2013		2,359,356
2014		174,045
2015		402,326
2016		1,140,698
Thereafter		12,539
Total	$	9,895,188

Deposits collateralized by investment securities, loans, and other financial instruments totaled $1.9 billion and $2.3 billion at December 31, 2011 and 2010, respectively.

Note 13 — Borrowings and Other Debt Obligations

All the Bank obligations have priority over Holding Company obligations.

The following table presents information regarding the Bank borrowings and other debt obligations at the dates indicated:

		September 30,		September 30,			September 30,		September 30,
	December 31, 2011					December 31, 2010
	Balance		Effective Rate			Balance		Effective Rate
	(in thousands)
Sovereign Bank borrowings and other debt obligations:
Overnight federal funds purchased	$	1,166,000		0.08	%	$	954,000		0.19	%
Federal Home Loan Bank (FHLB) advances, maturing through August 2018 (1)		11,076,773		3.40			9,849,041		4.10
Securities sold under repurchase agreements(2)		1,030,300		0.38			1,389,382		0.31
Reit preferred (3)		148,966		14.08			147,530		14.20
2.75% senior notes, due January 2012 (4)		1,349,920		3.92			1,348,111		3.92
3.750% subordinated debentures, due March 2014 (5)		—		—			219,530		3.75
5.125% subordinated debentures, due March 2013 (5)		260,277		5.21			485,276		5.28
4.375% subordinated debentures, due August 2013 (5)		—		—			271,945		4.38
8.750% subordinated debentures, due May 2018 (5)		496,554		8.81			496,170		8.82
Total Sovereign Bank borrowings and other debt obligations	$	15,528,790		3.30	%	$	15,160,985		3.78	%

⁽¹⁾  During 2011, the Company terminated $330.0 million of FHLB callable advances. As a consequence, the Company incurred costs of $22.8 million through loss on debt extinguishment in 2011. FHLB Advances include the off-setting effect of the value of terminated fair value hedges.

⁽²⁾  Included in borrowings and other debt obligations are sales of securities under repurchase agreements. Repurchase agreements are treated as financings with the obligations to repurchase securities sold reflected as a liability in the balance sheet. The dollar amount of securities underlying the agreements remains recorded as an asset, although the securities underlying the agreements are delivered to the brokers who arranged the transactions. In certain instances, the broker may have sold, loaned, or disposed of the securities to other parties in the normal course of their operations, and have agreed to deliver to SHUSA substantially similar securities at the maturity of the agreements. The broker/dealers who participate with SHUSA in these agreements are primarily broker/dealers reporting to the Federal Reserve Bank of New York.

⁽³⁾  On August 21, 2000, SHUSA received approximately $140 million of net proceeds from the issuance of $161.8 million of 12% Series A Noncumulative Preferred Interests in Sovereign Real Estate Investment Trust (“SREIT”), a subsidiary of the Bank, that holds primarily residential real estate loans. The preferred stock was issued at a discount, and is being amortized over the life of the preferred shares using the effective yield method. The preferred shares may be redeemed at any time on or after May 16, 2020, at the option of SHUSA subject to the approval of the OCC. Under certain circumstances, the preferred shares are automatically exchangeable into preferred stock of the Bank. The offering was made exclusively to institutional investors. The proceeds of this offering were principally used to repay corporate debt.

110

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 13 — Borrowings and Other Debt Obligations (continued)

⁽⁴⁾  In December 2008, the Bank issued $1.4 billion in 3 year fixed rate FDIC-guaranteed senior unsecured notes under the TLG Program. The fixed rate note bears interest at a rate of 2.75% and matures on January 17, 2012.

⁽⁵⁾  The Bank has issued various subordinated notes. Prior to December 31, 2010, the Company received approval from the Company’s primary regulator to repurchase $271.9 million of 4.375% fixed rate/floating rate subordinated bank notes due August 1, 2013 and $219.5 million of 3.75% fixed rate/floating rate subordinated bank notes due April 1, 2014. These notes were subsequently repurchased during the first quarter of 2011. The 4.375% notes were redeemable in whole or in part as of August 1, 2008 and the 3.75% notes were redeemable in whole or in part as of April 1, 2009. In anticipation of this repurchase, the Company wrote off $5.2 million of unamortized discounts, purchase marks and deferred issuance costs through loss on debt extinguishment at December 31, 2010. During 2011, the Company made a fixed price tender offer on its 5.125% subordinated notes and accepted for purchase $234.9 million of the outstanding notes. The aggregate consideration for the notes accepted for purchase, including accrued and unpaid interest was $242.6 million. Consequently, the Company wrote-off a proportionate amount of loss on associated derivative transactions and incurred other expenses totaling $8.4 million through loss on debt extinguishment in 2011. The balance includes the off-setting effect of the value of terminated fair value hedges.

The following table presents information regarding SCUSA borrowings and other debt obligations as of December 31, 2010 (2011 amounts are not presented as SCUSA is not consolidated as of December 31, 2011. See further discussion in Note 3). Amounts are presented in thousands.

		September 30,		September 30,
	December 31, 2010
	Balance		Effective Rate
SCUSA borrowings and other debt obligations:
SCUSA Subordinated revolving credit facility, due December 2011	$	100,000		2.01	%
SCUSA Subordinated revolving credit facility, due December 2011		150,000		2.05
SCUSA Warehouse lines with Santander and related subsidiaries		4,148,355		1.57
SCUSA Warehouse line, due May 2011		475,825		1.62
SCUSA Warehouse line, due October 2011		209,390		5.85
SCUSA Warehouse line, due March 2012		516,000		1.71
SCUSA Warehouse line, due March 2012		—		—
SCUSA Warehouse line, due May 2012		129,600		3.40
SCUSA Warehouse line, due May 2012		—		—
SCUSA Warehouse line, due September 2012		23,660		3.11
SCUSA Warehouse line, due September 2017		1,077,475		1.96
Asset-backed notes		8,050,022		2.35
TALF loan		196,589		2.22
Total SCUSA borrowings and other debt obligations	$	15,076,916		2.11	%

111

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 13 — Borrowings and Other Debt Obligations (continued)

The following table presents information regarding holding company borrowings and other debt obligations at the dates indicated:

		September 30,		September 30,			September 30,		September 30,
	December 31, 2011					December 31, 2010
	Balance		Effective Rate			Balance		Effective Rate
	(in thousands)
Holding company borrowings and other debt obligations:
Commercial paper(1)	$	18,082		0.87	%	$	968,355		0.98	%
Subordinated notes, due March 2020(2)		753,072		5.96			751,355		5.96
2.75% senior notes, due June 2012(3)		249,786		3.73			249,332		3.73
4.625% senior notes, due April 2016 (4)		496,761		4.66			—		—
Santander senior line of credit, due September 2012 (5)		—		—			250,000		0.69
Junior subordinated debentures – Capital Trust IV (6)		824,742		7.41			546,784		6.60
Junior subordinated debentures – Capital Trust V(6)		—		—			180,450		7.75
Junior subordinated debentures – Capital Trust VI (6)		252,560		7.91			291,300		7.91
Junior subordinated debentures – Capital Trust IX		154,640		2.15			154,640		2.04
Total holding company borrowings and other debt obligations	$	2,749,643		5.89	%	$	3,392,216		4.17	%

⁽¹⁾  During 2010, SHUSA initiated a holding company level commercial paper issuance program, which is backed by committed lines from Santander, which at December 31, 2011 had an outstanding balance of $18.1 million and an effective rate of 0.87%. The Company is shifting away from issuing commercial paper as a form of financing and therefore, has decreased the amount of commercial paper outstanding during the year.

⁽²⁾ In March 2010, the Company issued a $750 million subordinated note to Santander, which matures in March 2020. This subordinated note bears interest at 5.75% until March 2015 and then bears interest at 6.25% until maturity. Interest is being recognized at the effective interest rate of 5.96%.

⁽³⁾ In December 2008, SHUSA issued $250 million in 3.5 year fixed rate senior unsecured notes with the FDIC-guarantee under the TLG Program at a rate of 2.50% which mature on June 15, 2012.

⁽⁴⁾  During April 2011, the Company issued $500.0 million in 5 year fixed rate senior unsecured notes at a rate of 4.625% which mature on April 19, 2016.

⁽⁵⁾ The Company has a line of credit agreement with Banco Santander with a total borrowing capacity of up to $1.5 billion maturing in September 2012. As of December 31, 2011, there was no outstanding balance on this line. During 2011, the Company terminated a $1.0 billion line with Banco Santander originally maturing in September 2011. The Company is in compliance with all covenants of the credit agreements with Santander.

⁽⁶⁾ On June 15, 2011, the Company redeemed Sovereign Capital Trust V at a par value of $175.0 million. As a consequence, the Company wrote off unamortized deferred issuance costs and incurred other expense totaling $4.8 million related to the redemption of the Capital Trust V through loss on debt extinguishment in 2011.

In 2011, the Company redeemed Sovereign Capital Trust VI at a par value of $35.8 million. As a consequence, the Company wrote off unamortized deferred issuance costs and incurred other expenses totaling $2.0 million related to the redemption of the Capital Trust VI through loss on debt extinguishment in 2011.

The total balance of junior subordinated debentures due to Capital Trust Entities at December 31, 2011 was $1.2 billion. Included in this balance is the Trust PIERS. On February 26, 2004, SHUSA completed the offering of $700 million of Trust PIERS, and in March 2004, the Company raised an additional $100 million of Trust PIERS under this offering. The offering was completed through Sovereign Capital Trust IV (the “Trust”), a special purpose entity established to issue the Trust PIERS. Each Trust PIERS had an issue price of $50 and represents an undivided beneficial ownership interest in the assets of the Trust, which consist of:

• Junior subordinated debentures issued by SHUSA, each of which will have a principal amount at maturity of $50, and which have a stated maturity of March 1, 2034; and

• Warrants to purchase shares of common stock from SHUSA at any time prior to the close of business on March 1, 2034, by delivering junior subordinated debentures (or, in the case of warrant exercises before March 5, 2007, cash equal to the accreted principal amount of a junior subordinated debenture).

112

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 13 — Borrowings and Other Debt Obligations (continued)

The proceeds from the Trust PIERS of $800 million, net of transaction costs of approximately $16.3 million, were allocated pro rata between “Junior Subordinated debentures due Capital Trust Entities” in the amount of $498.3 million and “Warrants and employee stock options issued” in the amount of $285.4 million based on estimated fair values. Prior to December 31, 2011, the difference between the carrying amount of the subordinated debentures and the principal amount due at maturity was being accreted into interest expense using the effective interest method over the period to maturity of the Trust PIERS which is March 2, 2034. The effective interest rate of the subordinated debentures is 7.41% for December 31, 2011.

On December 17, 2010, The Bank of New York Mellon Trust Company, National Association (the “Trustee”) filed a complaint in the U.S. District Court for the Southern District of New York solely as the Trustee for the Trust PIERS under an Indenture dated September 1, 1999, as amended, against SHUSA. The complaint asks the Court to declare that the acquisition of the Company was a “change of control” under the Indenture and seeks damages equal to the interest that the complaint alleges should have been paid by the Company for the benefit of holders of Trust PIERS. On December 13, 2011, the Court issued its decision granting the Trustee’s motion for summary judgment and denying Sovereign’s cross-motion. The Court ruled that the term “common stock” used in the Indenture’s “change of control” provision does not include ADSs and, therefore, a Change of Control has occurred.

As a result of the December 13, 2011 decision by the Court, SHUSA recorded a reduction of pre-tax income of $344.2 million for the Trust PIERS litigation. Of the total, $70.8 million represents the liability for accrued interest at the rate of 7.410% from January 31, 2009, the date Santander completed the acquisition of 100% of the Company, to December 31, 2011. The remaining $273.4 million was recorded as a credit to liability to accrete the Trust PIERS to PAR ($50).

Please refer to Note 22 for further discussion on the Trust PIERS matter.

The following table sets forth the maturities of the Company’s borrowings and debt obligations (including the impact of expected cash flows on interest rate swaps) at December 31, 2011 (in thousands):

		September 30,
2012	$	6,309,981
2013		1,548,158
2014		1,257,930
2015		3,139,833
2016		1,994,297
Thereafter		4,028,234
Total	$	18,278,433

Note 14 — Stockholder’s Equity

In March 2010, the Company issued 3.0 million shares of common stock to Santander which raised proceeds of $750.0 million.

In December 2010, the Company issued 3.0 million shares of common stock to Santander which raised proceeds of $750.0 million and declared a $750.0 million dividend to Santander during December 2010. This was a non-cash transaction.

In December 2011, the Company issued 3.2 million shares of common stock to Santander, which raised proceeds of $800.0 million, and declared an $800.0 million dividend to Santander. This was a non-cash transaction.

Following the acquisition of SHUSA by Santander, Santander contributed $3.3 billion to SHUSA through December 31, 2010, and Sovereign Bank’s capital has been increased by capital contributions from SHUSA of $3.7 billion through December 31, 2010.

Retained earnings at December 31, 2011 included $112.1 million in bad debt reserves, for which no deferred taxes have been provided due to the indefinite nature of the recapture provisions.

113

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 14 — Stockholder’s Equity (continued)

In March 2009, the Company issued to Santander, parent company of SHUSA, 72,000 shares of the Company’s Series D Non-Cumulative Perpetual Convertible Preferred Stock, without par value (the “Series D Preferred Stock”), having a liquidation amount per share equal to $25,000, for a total price of $1.8 billion. The Series D Preferred Stock pays non-cumulative dividends at a rate of 10% per year. SHUSA may not redeem the Series D Preferred Stock during the first five years. The Series D Preferred Stock is generally non-voting. Each share of Series D Preferred Stock is convertible into 100 shares of common stock, without par value, of SHUSA. SHUSA contributed the proceeds from this offering to the Bank in order to increase the Bank’s regulatory capital ratios. On July 20, 2009, Santander converted all of its investment in the Series D preferred stock of $1.8 billion into 7.2 million shares of SHUSA common stock.

On May 15, 2006, the Company issued 8,000 shares of Series C non-cumulative perpetual preferred stock and received net proceeds of $195.4 million. The perpetual preferred stock ranks senior to the common stock. The perpetual preferred stockholders are entitled to receive dividends when and if declared by the board of directors at the rate of 7.30% per annum, payable quarterly, before the board may declare or pay any dividend on the common stock. The dividends on the perpetual preferred stock are non-cumulative. The Series C preferred stock was not redeemable prior to May 15, 2011. On or after May 15, 2011, the Series C preferred stock is redeemable at par.

The Company’s debt agreements impose certain limitations on dividends, other payments and transactions. The Company is currently in compliance with these limitations.

At December 31, 2011, capital contribution from Santander includes $11.0 million of expenses paid by Santander on behalf of the Company in regards to the SCUSA Transaction. See Note 3 for further information related to this transaction.

In December 2011, the Capital Trust IV PIERS warrants were cancelled by SHUSA as a result of the Trust PIERS litigation decision. This balance was transferred from warrants to additional paid-in-capital in stockholder’s equity. See Note 22 for further discussion of the litigation.

Note 15 — Other Comprehensive Income/ (Loss)

The following table presents the components of comprehensive income/ (loss), net of related tax, for the years indicated (in thousands):

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Total Other Comprehensive Income									Total Accumulated Other Comprehensive Income
2011	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity			Ending Balance
Change in accumulated (losses)/gains on cash flow hedge derivative financial instruments (1)	$	(66,196	)	$	25,514		$	(40,682	)
Reclassification adjustment for net gains on cash flow hedge derivative financial instruments (1)		61,311			(23,373	)		37,938
SCUSA Transaction		31,703			(12,015	)		19,688
Net unrealized losses on cash flow hedge derivative financial instruments		26,818			(9,874	)		16,944		$	(124,940	)	$	16,944		$	(107,996	)
Change in unrealized gains/(losses) on investment securities available-for-sale		231,531			(88,091	)		143,440
Reclassification adjustment for net gains included in net income		74,597			(29,317	)		45,280
SCUSA Transaction		(13,212	)		5,020			(8,192	)
Net unrealized gains/(losses) on investment securities available-for-sale		292,916			(112,388	)		180,528			(92,775	)		180,528			87,753
Amortization of defined benefit plans		(16,473	)		6,473			(10,000	)		(16,475	)		(10,000	)		(26,475	)
Total as of December 31, 2011	$	303,261		$	(115,789	)	$	187,472		$	(234,190	)	$	187,472		$	(46,718	)

(1) Amounts exclude interest payments of $139 million and the corresponding tax effect related to cash flow hedges in 2011.

114

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 15 — Other Comprehensive Income/ (Loss) (continued)

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Total Other Comprehensive Income									Total Accumulated Other Comprehensive Income
2010	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity			Ending Balance
Change in accumulated losses/(gains) on cash flow hedge derivative financial instruments	$	63,141		$	(20,779	)	$	42,362
Reclassification adjustment for net gains on cash flow hedge derivative financial instruments		(14,963	)		5,237			(9,726	)
Net unrealized losses on cash flow hedge derivative financial instruments		48,178			(15,542	)		32,636		$	(157,576	)	$	32,636		$	(124,940	)
Change in unrealized gains/(losses) on investment securities available-for-sale		(68,488	)		25,122			(43,366	)
Reclassification adjustment for net gains included in net income		200,556			(73,566	)		126,990
Net unrealized gains/(losses) on investment securities available-for-sale		132,068			(48,444	)		83,624			(176,399	)		83,624			(92,775	)
Amortization of defined benefit plans		(916	)		335			(581	)		(15,894	)		(581	)		(16,475	)
Total as of December 31, 2010	$	179,330		$	(63,651	)	$	115,679		$	(349,869	)	$	115,679		$	(234,190	)

(1) Amounts exclude interest payments of $242.4 million and the corresponding tax effect related to cash flow hedges in 2011.

		September 30,			September 30,			September 30,			September 30,			September 30,		September 30,
	Total Other Comprehensive Income									Total Accumulated Other Comprehensive Income
2009	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity		Ending Balance
Change in accumulated losses/(gains) on cash flow hedge derivative financial instruments	$	190,962		$	(68,964	)	$	121,998
Reclassification adjustment for net gains on cash flow hedge derivative financial instruments		(31,939	)		11,179			(20,760	)
Net unrealized losses on cash flow hedge derivative financial instruments		159,023			(57,785	)		101,238		$	(258,814	)	$	101,238	$	(157,576	)
Change in unrealized gains/(losses) on investment securities available-for-sale		928,639			(341,353	)		587,286
Cumulative effect of change in accounting principle		(249,668	)		91,774			(157,894	)
Reclassification adjustment for net gains included in net income		(157,847	)		58,022			(99,825	)
Net unrealized gains/(losses) on investment securities available-for-sale		521,124			(191,557	)		329,567			(505,966	)		329,567		(176,399	)
Amortization of defined benefit plans		7,444			(2,304	)		5,140			(21,034	)		5,140		(15,894	)
Total as of December 31, 2009	$	687,591		$	(251,646	)	$	435,945		$	(785,814	)	$	435,945	$	(349,869	)

Note 16 — Derivative Instruments and Hedging Activities

See additional discussion regarding the derivative accounting policy in Note 1.

SHUSA uses derivative instruments as part of its interest rate risk management process to manage risk associated with its financial assets and liabilities, its mortgage banking activities, and to assist its commercial banking customers with their risk management strategies and for certain other market exposures. The Company also uses cross currency swaps in order to hedge foreign currency exchange risk on certain Euro denominated investments.

115

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 16 — Derivative Instruments and Hedging Activities (continued)

One of SHUSA’s primary market risks is interest rate risk. Management uses derivative instruments to mitigate the impact of interest rate movements on the value of certain liabilities, assets and on probable forecasted cash flows. These instruments primarily include interest rate swaps that have underlying interest rates based on key benchmark indices and forward sale or purchase commitments. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated interest rate environment.

Interest rate swaps are generally used to convert fixed rate assets and liabilities to variable rate assets and liabilities and vice versa. SHUSA utilizes interest rate swaps that have a high degree of correlation to the related financial instrument.

As part of its overall business strategy, the Bank originates fixed rate residential mortgages. It sells a portion of this production to Federal Home Loan Mortgage Corporation (“FHLMC”), Fannie National Mortgage Association (“FNMA”), and private investors. The loans are exchanged for cash or marketable fixed rate mortgage-backed securities which are generally sold. This helps insulate SHUSA from the interest rate risk associated with these fixed rate assets. SHUSA uses forward sales, cash sales and options on mortgage-backed securities as a means of hedging against changes in interest rate on the mortgages that are originated for sale and on interest rate lock commitments.

To accommodate customer needs, SHUSA enters into customer-related financial derivative transactions primarily consisting of interest rate swaps, caps, floors and foreign exchange contracts. Risk exposure from customer positions is managed through transactions with other dealers including Santander.

The Company has entered into risk participation agreements that provide for the assumption of credit and market risk by the Company for the benefit of one party in a derivative transaction upon the occurrence of an event of default by the other party to the transaction. The Company’s participation in risk participation agreements has been in conjunction with its participation in an underlying credit agreement led by another financial institution. The term of the performance guarantee will typically match the term of the underlying credit and derivative agreements, which range from 2 to 10 years for transactions outstanding as of December 31, 2011. The Company estimates the maximum undiscounted exposure on these agreements at $35.2 million and the total carrying value of liabilities associated with these commitments was $0.7 million at December 31, 2011.

Through the Company’s capital markets, mortgage-banking and prior year precious metals activities, it is subject to trading risk. The Company employs various tools to measure and manage price risk in its trading portfolios. In addition, the Board of Directors has established certain limits relative to positions and activities. The level of price risk exposure at any given point in time depends on the market environment and expectations of future price and market movements, and will vary from period to period.

The fair value of all derivative balances are recorded within Other Assets and Other Liabilities on the Consolidated Balance Sheet.

Fair Value Hedges

During 2011, SHUSA entered into cross currency swaps in order to hedge the Company’s foreign currency exchange risk on certain Euro denominated investments. SHUSA includes all components of each derivatives gain or loss in the assessment of hedge effectiveness. The earnings impact of the ineffective portion of these hedges was not material for the year-end December 31, 2011.

SHUSA has in the past entered into pay-variable, receive-fixed interest rate swaps to hedge changes in fair values of certain brokered certificate of deposits and certain debt obligations. For the year ended December 31, 2009, hedge ineffectiveness of $4.2 million was recorded in deposit insurance and other costs within other expenses associated with fair value hedges. SHUSA has $22.1 million of deferred net after tax losses on terminated derivative instruments that were hedging fair value changes. These losses will continue to be deferred in other liabilities and will be reclassified into interest expense over the remaining lives of the hedged assets and liabilities. In 2011, $12.1 million of the losses were recognized in the Consolidated Statement of Operations.

116

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 16 — Derivative Instruments and Hedging Activities (continued)

Cash Flow Hedges

SHUSA hedges exposure to changes in cash flows associated with forecasted interest payments on variable-rate liabilities through the use of pay-fixed, receive variable interest rate swaps. The last of the hedges is scheduled to expire in January 2016. SHUSA includes all components of each derivatives gain or loss in the assessment of hedge effectiveness. For the years ended December 31, 2011 and 2010, no hedge ineffectiveness was recognized in earnings associated with cash flow hedges. SHUSA has $6.6 million of deferred net losses on terminated derivative instruments that were hedging the future cash flows on certain borrowings. These losses will continue to be deferred in accumulated other comprehensive income (“AOCI”) and will be reclassified into interest expense as the future cash flows occur, unless it becomes probable that the forecasted interest payments will not occur, in which case, the losses in AOCI will be recognized immediately. In 2011, $12.7 million of the losses were recognized within Interest Expense on the Consolidated Statement of Operations. As of December 31, 2011, SHUSA expects approximately $4.0 million of the deferred net after-tax loss on derivative instruments included in accumulated other comprehensive income will be reclassified to earnings during the next 12 months.

See Note 15 for discussion of the activity related to cash flow hedges in accumulated other comprehensive income.

Other Derivative Activities

SHUSA’s derivative portfolio also includes mortgage banking interest rate lock commitments and forward sale commitments used for risk management purposes, and derivatives executed with commercial banking customers, primarily interest rate swaps and foreign exchange futures, to facilitate customer risk management strategies. Prior to 2011, the Company entered into precious metals customer forward agreements and forward sale agreements.

In June 2010, the Company sold the Visa Inc. Class B common shares. In conjunction with the sale of the Visa, Inc. Class B shares, the Company entered into a total return swap in which the Company will make or receive payments based on subsequent changes in the conversion rate of the Class B shares into Class A shares. This total return swap is accounted for as a free standing derivative. The fair value of the total return swap was calculated using a discounted cash flow model based on unobservable inputs consisting of management’s estimate of the probability of certain litigation scenarios, timing of litigation settlements and payments related to the swap.

SCUSA has entered into interest rate swap agreements to hedge variable rate liabilities associated with securitization trust agreements.

Additionally, the Bank had derivative positions with the notional amounts totaling $13.5 billion and $13.3 billion at December 31, 2011 and 2010, respectively and SCUSA had derivative positions with notional amounts totaling $1.7 billion at December 31, 2010 which were not designated to obtain hedge accounting treatment.

All derivative contracts are valued using either cash flow projection models or observable market prices. Pricing models used for valuing derivative instruments are regularly validated by testing through comparison with third parties.

117

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 16 — Derivative Instruments and Hedging Activities (continued)

Following is a summary of the derivatives designated as accounting hedges at December 31, 2011 and 2010 (in thousands):

		September 30,		September 30,		September 30,		September 30,			September 30,			September 30,
							Weighted Average
	Notional Amount		Asset		Liability		Receive Rate			Pay Rate			Life (Years)
December 31, 2011
Fair value hedges:
Cross currency swaps	$	33,367	$	3,888	$	3,346		3.93	%		3.90	%		4.8
Cash flow hedges:
Pay fixed—receive floating interest rate swaps		3,900,000		—		158,174		0.46	%		2.68	%		2.3
Total derivatives designated as accounting hedges	$	3,933,367	$	3,888	$	161,520		0.49	%		2.69			2.3
December 31, 2010
Cash flow hedges:
Pay fixed—receive floating interest rate swaps	$	9,892,675	$	—	$	174,362		0.22	%		2.38	%		3.0

Summary information regarding other derivative activities at December 31, 2011 and 2010 follows:

		September 30,		September 30,		September 30,		September 30,
	Asset derivatives Fair value				Liability derivatives Fair value
	December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
	(in thousands)
Mortgage banking derivatives:
Forward commitments to sell loans	$	—	$	3,488	$	8,574	$	—
Interest rate lock commitments		7,323		734		—		—
Total mortgage banking risk management		7,323		4,222		8,574		—
Customer related derivatives:
Swaps receive fixed		357,062		297,637		95		2,803
Swaps pay fixed		126		4,750		379,423		300,485
Other		4,161		4,905		4,014		4,841
Total customer related derivatives		361,349		307,292		383,532		308,129
Other derivative activities
Risk participations		—		—		720		—
VISA total return swap		—		—		5,460		4,081
Foreign exchange contracts		11,950		20,707		11,930		13,349
Trading		12,098		21,149		11,655		43,345
Total derivatives not designated as hedging instruments	$	392,720	$	353,370	$	421,871	$	368,904

118

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 16 — Derivative Instruments and Hedging Activities (continued)

The following Statements of Operations line items were impacted by SHUSA’s open derivative activity for the twelve months ended, December 31, 2011 and 2010:

	Statements of Operations Effect For the Twelve-Month Period Ended
Derivative Activity	December 31, 2011	December 31, 2010
Fair value hedges:
Cross currency swaps	Increase in net interest income of $29 thousand.	No effect on income.
Cash flow hedges:
Pay fixed-receive variable interest rate swaps	Decrease in net interest income of $137.7 million.	Decrease in net interest income of $272.6 million.
Other derivative activities:
Forward commitments to sell loans	Decrease in mortgage banking revenues of $12.1 million.	Increase in mortgage banking revenues of $1.5 million.
Interest rate lock commitments	Increase in mortgage banking revenues of $6.6 million.	Increase in mortgage banking revenues of $0.4 million.
Customer related derivatives	Decrease in miscellaneous income of $21.3 million.	Decrease in miscellaneous income of $1.3 million.
Risk participations	Decrease to miscellaneous other income of $0.7 million.	No effect on income.
Total return swap associated with sale of Visa, Inc. Class B shares	Decrease in other non-interest income of $1.4 million	Decrease in other non-interest income of $4.1 million.
Foreign exchange	Decrease in commercial banking fees of $7.3 million.	Increase in commercial banking fees of $1.5 million.
Trading	Decrease to net interest income of $38.7 million.	Decrease to net interest income of $0.4 million.

Note 17 — Asset securitizations

Asset Securitizations

During 2010, the Company sold the controlling class certificates in commercial mortgage backed securitization (“CMBS”) and as such no longer has the risks and rewards of owning the subordinated certificates. Additionally, the Company no longer had the ability to decide which party should service problem loans in order to maximize cash flows of the underlying trust. As such, the Company was no longer considered the primary beneficiary of the CMBS securitization trust and as a result, deconsolidated the net assets and liabilities of this vehicle which totaled $860.5 million in 2010.

As part of previously reported mergers, the Company inherited several home equity loans securitizations. These home equity securitizations are determined to be a variable interest entities (“VIE”) because the holders of the equity investment at risk do not have any obligation to absorb credit losses on the loans within the home equity securitizations. The Company has determined that it is not the primary beneficiary of home equity securitization because it does not have any obligation to absorb credit losses on the loans within the home equity securitizations. The Company does not hold any assets or liabilities related to the home equity loans securitizations. The total principal amount of securitized home equity loans was $55.1 million and $64.0 million for the year-ended December 31, 2011 and 2010, respectively. As of December 31, 2011, the portion of principal 90 days past due was $3.1 million and net credit losses were $1.2 million. As of December 31, 2010, the portion of principal 90 days past due was $582 thousand and net credit losses were $1.5 million.

119

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 18 — Transaction Related, Integration Charges and Other Restructuring Costs

The Company recognized $299.1 million of amounts charged to earnings related to the transaction with Santander which closed on January 30, 2009. No further amounts were recognized in 2010 or 2011.

During 2009, the Company recorded change in control and severance charges associated with executive officers, as well as severance charges associated with multiple reductions in force of $152.2 million and charges associated with the acceleration of vesting on employees restricted stock awards of $45.0 million. In connection with the branch consolidations, the Company recorded a charge of $32.2 million related to the estimated fair value of the remaining lease contract obligations. The Bank also recorded charges of $28.5 million on the write-off of fixed assets and information technology platforms. Finally, the Company paid fees of $26.4 million to third parties in connection with the transaction of Santander in 2009.

In 2009 there were debt extinguishment charges of $68.7 million on the termination of $1.4 billion of high cost FHLB advances related to the transaction with Santander.

A rollforward of the transaction related and integration charges and other restructuring cost accruals is summarized below:

		September 30,			September 30,			September 30,
	Contract Termination			Severance			Total
	(in thousands)
Accrued at December 31, 2009	$	27,805		$	46,900		$	74,705
Payments		(10,566	)		(31,695	)		(42,261	)
Charges recorded in earnings		—			—			—
Accrued at December 31, 2010	$	17,239		$	15,205		$	32,444
Payments		(4,367	)		(8,905	)		(13,272	)
Accrual reversal		—			(6,300	)		(6,300	)
Accrued at December 31, 2011	$	12,872		$	—		$	12,872

During 2011, management revised its estimate of severance costs related to the 2009 restructuring. This resulted in the Company recognizing the reversal of the accrual of $6.3 million as of December 31, 2011 which is included in the “Compensation and Benefit” line item of the consolidated statement of operations.

120

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 19 — Income Taxes

The provision (benefit) for income taxes in the consolidated statement of operations is comprised of the following components (in thousands):

		September 30,		September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011		2010			2009
Current:
Foreign	$	80	$	93		$	108
Federal		269,797		287,169			160,844
State		141,056		41,775			17,436
Total current		410,933		329,037			178,388
Deferred:
Federal		453,456		(280,280	)		(1,434,236	)
State		43,890		(89,147	)		(28,616	)
Total deferred		497,346		(369,427	)		(1,462,852	)
Total income tax provision (benefit)	$	908,279	$	(40,390	)	$	(1,284,464	)

The following is a reconciliation of the United States federal statutory rate of 35.0% to the company’s effective tax rate for each of the years indicated:

		September 30,			September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011			2010			2009
Federal income tax at statutory rate		35.0	%		35.0	%		(35.0	)%
Increase/(decrease) in taxes resulting from:
Valuation allowance		0.3			(37.3	)		(83.2	)
Tax-exempt income		(1.0	)		(2.6	)		(2.6	)
Bank owned life insurance		(0.9	)		(1.9	)		0.4
State income taxes, net of federal tax benefit		5.2			2.9			0.3
Low income housing credits		(1.4	)		(3.9	)		(3.7	)
Accelerated discount accretion		4.5			—			—
Disallowed interest deductions		—			—			6.7
Other		0.3			3.8			2.8
Effective tax rate		42.0	%		(4.0	)%		(114.3	)%

121

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 19 — Income Taxes (continued)

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below (in thousands):

		September 30,			September 30,
	AT DECEMBER 31,
	2011			2010
Deferred tax assets:
Allowance for loan losses	$	325,380		$	614,323
Unrealized loss on available for sale portfolio		—			55,536
Unrealized loss on derivatives		57,878			73,242
Net operating loss carry forwards		477,774			175,845
Non-solicitation payments		30,247			39,188
Employee benefits		26,760			52,012
General business credit carry forwards		209,982			266,317
Foreign tax credit carry forwards		60,688			60,688
Broker commissions paid on originated mortgage loans		29,668			34,227
Minimum tax credit carry forward		134,806			167,452
IRC Section 382 recognized built in losses		30,583			330,323
Other-than-temporary impairment on investments and equity method investments		12,084			94,943
Deferred interest expense		117,601			111,330
Other		242,011			318,991
Total gross deferred tax assets		1,755,462			2,394,417
Deferred tax liabilities:
Purchase accounting adjustments		1,661			22,427
Deferred income		27,516			132,320
Originated mortgage servicing rights		49,464			69,186
Unrealized gain on available for sale portfolio		61,153			—
SCUSA Transaction Deferred Gain		381,645			—
Depreciation and amortization		179,059			166,950
Other		252,790			245,976
Total gross deferred tax liabilities		953,288			636,859
Valuation allowance		(106,576	)		(99,296	)
Net deferred tax asset	$	695,598		$	1,658,262

Periodic reviews of the carrying amount of deferred tax assets are made to determine if the establishment of a valuation allowance is necessary. If based on the available evidence in future periods, it is more likely that not that all or a portion of the Company’s deferred tax assets will not be realized, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.

Items considered in this evaluation include historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. The evaluation is based on current tax laws as well as expectations of future performance.

122

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 19 — Income Taxes (continued)

During 2009, Santander contributed the operation of SCUSA into the Company. As a result of this contribution, the Company updated its deferred tax realizability analysis in 2009 by incorporating future projections of taxable income that would be generated by SCUSA and reduced its deferred tax valuation allowance by $1.3 billion for the year ended December 31, 2009. Due to the profitability of the Company in 2010 and expected future growth in profits of the Company by the end of 2010, the Company considered the projected taxable income of the Company and all subsidiaries in its 2010 realizability analysis. As a result, the Company reduced its deferred tax valuation allowance by $309.0 million for the year ended December 31, 2010. As of December 31, 2011, the Company demonstrated further positive evidence because the Company does not have a cumulative pre-tax loss for the three years ended December 31, 2011. Due to additional deferred tax assets that were created during the quarter ended September 30, 2011, which will remain unused after the carry forward periods have expired, the Company increased its deferred tax allowance by $7.3 million. As of December 31, 2011, the Company continues to maintain a valuation allowance of $106.6 million related to deferred tax assets subject to carry forward periods where Management has determined it is more likely than not these deferred tax assets will remain unused after the carry forward periods have expired.

At December 31, 2011, the Company had net unrecognized tax benefit reserves related to uncertain tax positions of $112.7 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

		September 30,			September 30,			September 30,
	Federal State and Local Tax			Accrued Interest and Penalties			Unrecognized Income Tax Benefits
	(in thousands)
Gross unrecognized tax benefits at January 1, 2009	$	90,801		$	14,904		$	105,705
Additions based on tax positions related to 2009		—			1,448			1,448
Additions for tax positions of prior years		—			1,664			1,664
Reductions for tax positions of prior years		(731	)		(1,745	)		(2,476	)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations		(6,671	)		(1,722	)		(8,393	)
Settlement		(669	)		(231	)		(900	)
Gross unrecognized tax benefits at January 1, 2010		82,730			14,318			97,048
Additions based on tax positions related to the current year		2,370			5,882			8,252
Additions for tax positions of prior years		34,580			8,621			43,201
Reductions for tax positions of prior years		(4,150	)		(163	)		(4,313	)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations		(4,752	)		(1,899	)		(6,651	)
Settlements		(415	)		(171	)		(586	)
Gross unrecognized tax benefits at January 1, 2011		110,363			26,588			136,951
SCUSA Transaction		—			(5,998	)		(5,998	)
Additions based on tax positions related to the current year		12,275			—			12,275
Additions for tax positions of prior years		2,079			2,099			4,178
Reductions for tax positions of prior years		—			(842	)		(842	)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations		(3,343	)		(441	)		(3,784	)
Settlements		(13,691	)		(1,861	)		(15,552	)
Gross unrecognized tax benefits at December 31, 2011	$	107,683		$	19,545			127,228
Less: Federal, state and local income tax benefits								(14,487	)
Net unrecognized tax benefits that if recognized would impact the effective tax rate at December 31, 2011							$	112,741

123

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 19 — Income Taxes (continued)

The Company recognizes penalties and interest accrued related to unrecognized tax benefits within income tax expense on the Consolidated Statement of Operations.

At December 31, 2011, the Company has recorded a deferred tax asset of $416.2 million related to federal net operating loss carry-forwards, which may be offset against future taxable income. If not utilized in future years, these will expire in varying amounts through 2029. The Company has recorded a deferred tax asset of $61.6 million related to state net operating loss carry-forwards, which may be used against future taxable income. If not utilized in future years, these will expire in varying amounts through 2031. The Company also has recorded a deferred tax asset of $210.0 million related to tax credit carry forwards and a deferred tax asset of $60.7 million related to foreign tax credit carry-forwards, which may be offset against future taxable income. If not utilized in future years, these will expire in varying amounts through 2031 and 2017 respectively. The Company has concluded that it is more likely than not that $12.8 million of the deferred tax asset related to the state net operating loss carry-forwards, $7.3 million of the deferred tax asset related to tax credit carry-forwards and the entire deferred tax asset related to the foreign tax credit carry-forwards will not be realized. The Company has not recognized a deferred tax liability of $46.4 million related to earnings that are considered permanently reinvested in a consolidated foreign entity.

The Company is subject to the income tax laws of the U.S., its states and municipalities and certain foreign countries. These tax laws are complex and are potentially subject to different interpretations by the taxpayer and the relevant Governmental taxing authorities. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws.

Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. The Company reviews the tax balances quarterly and as new information becomes available, the balances are adjusted, as appropriate. The Company is subject to ongoing tax examinations and assessments in various jurisdictions. On June 17, 2009, the Company filed a lawsuit against the United States in Federal District Court seeking a refund of assessed taxes paid for tax years 2003-2005 related to two separate financing transactions with an international bank totaling $1.2 billion. As a result of these two financing transactions, the Company was subject to foreign taxes of $154.0 million during the years 2003 through 2005 and claimed a corresponding foreign tax credit for foreign taxes paid during those years, which the IRS disallowed. The IRS also disallowed the Company’s deductions for interest expense and transaction costs, totaling $24.9 million in tax liability, and assessed interest and penalties totaling approximately $69.6 million. In 2006 and 2007, the Company was subject to an additional $87.6 million and $22.5 million of foreign taxes, respectively, as a result of the two financing transactions, and the Company’s entitlement to foreign tax credits in these amounts will be determined by the outcome of the 2003-2005 litigation. In addition, the outcome of the litigation will determine whether the Company is subject to an additional tax liability of $49.8 million related to interest expense and transaction cost deductions, and whether the Company will be subject to $12.1 million in interest and $12.5 million in penalties for 2006 and 2007. The Company continues to believe that it is entitled to claim these foreign tax credits taken with respect to the transactions and also continues to believe the Company is entitled to tax deductions for the related issuance costs and interest deductions based on tax law. The Company maintains a tax reserve of $96.9 million as of December 31, 2011 for this matter. The Company believes this reserve amount adequately provides for potential exposure to the IRS related to these items. However, as the Company continues to go through the litigation process, management will continue to evaluate the appropriate tax reserve levels for this position and any changes made to the tax reserves may materially affect the Company’s income tax provision, net income and regulatory capital in future periods.

The IRS recently concluded the exam of the Company’s 2006 and 2007 tax returns. In addition to the adjustments for items related to the two financing transactions discussed above, the IRS has proposed to recharacterize ordinary losses related to the sale of certain assets as capital losses. The Company has paid the tax assessment resulting from the recharacterization from capital to ordinary losses, and will contest the adjustment through the administrative appeals process. The Company is confident that its position related to its ordinary tax treatment of the losses will ultimately be upheld, therefore no amounts have been accrued related to this matter. If the Company is not successful in defending its position, the maximum potential tax liability resulting from this IRS adjustment would be approximately $95.0 million. Additionally, with respect to the 2006-2007 tax periods, the Company faces potential interest and penalties resulting from the recharacterization adjustment and other unrelated adjustments of approximately $11.1 million in interest and $14.5 million in penalties.

124

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 20 — Stock-Based Compensation

Effective January 30, 2009, all stock compensation awarded to employees will be paid in Santander ADS. All shares vest within three years of the authorization date by the Banco Santander Board of Directors. If an employee terminates prior to the end of the vesting period, shares granted are forfeited. The weighted-average period over which the total compensation cost related to non-vested awards not yet recognized is expected to be recognized is approximately one year.

The table below summarizes the changes in the Bank’s non-vested restricted stock during the past year.

		September 30,			September 30,
	Shares			Weighted average grant  date fair value
Total non-vested restricted stock at December 31, 2010		829,410		$	13.48
Santander performance shares granted in 2011		845,593			11.99
Non-vested shares forfeited during 2011		(100,245	)		12.86
Total non-vested restricted stock at December 31, 2011		1,574,758		$	12.72

Pre-tax compensation expense associated with restricted shares totaled $4.8 million, $2.1 million and $46.8 million in 2011, 2010 and 2009, respectively. The weighted average grant date fair value of restricted stock granted in 2011, 2010 and 2009 was $11.99 per share, $13.48 per share and $3.04 per share, respectively. All unvested restricted stock vested on January 30, 2009 in connection with the acquisition of the Company by Santander which resulted in a higher level of expense in 2009 compared to prior periods.

The Bank had plans, which were shareholder approved, that granted restricted stock and stock options for a fixed number of shares to key officers, certain employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. The Bank’s stock options expired not more than 10 years and one month after the date of grant and generally become fully vested and exercisable within a five year period after the date of grant and, in certain limited cases, based on the attainment of specified targets. Restricted stock awards vest over a period of three to five years. All of the Bank’s stock option and restricted stock awards vested upon acquisition of the Company by Santander.

The Bank estimated the fair value of option grants using a Black-Scholes option pricing model and expenses this value over the vesting period. Reductions in compensation expense associated with forfeited options were estimated at the date of grant, and this estimated forfeiture rate was adjusted quarterly based on actual forfeiture experience.

The fair value for the stock option grants were estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

		September 30,
	GRANT DATE YEAR
	2009
Expected volatility		.492
Expected life in years		6.00
Stock price on date of grant	$	3.04
Exercise price	$	3.04
Weighted average exercise price	$	3.04
Weighted average fair value	$	3.04
Expected dividend yield		N/A
Risk-free interest rate		2.32	%
Vesting period in years		3

Expected volatility is based on the historical volatility of the Company’s stock price. The Bank utilizes historical data to predict options’ expected lives. The risk-free interest rate is based on the yield on a U.S. treasury bond with a similar maturity of the expected life of the option.

In connection with the acquisition of the Company by Santander on January 30, 2009, all unvested stock options vested but were not exercised given the Company’s stock price was lower than the options’ exercise price at the acquisition date.

125

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 20 — Stock-Based Compensation (continued)

The following table provides a summary of SHUSA’s stock option activity for the year ended December 31, 2009 and stock options exercisable at the end of each year:

		September 30,			September 30,
	Shares			Price per share
Options outstanding December 31, 2008 (6,468,629 exercisable)		8,980,483		$	2.95 – 25.77
Granted		1,000,000		$	3.04 – 3.04
Forfeited		(9,978,848	)	$	2.95 – 25.77
Expired		(1,635	)	$	12.48 – 22.32
Options outstanding December 31, 2009		—			n/a

The weighted average grant date fair value of options granted during the year ended December 31, 2009 was $3.04. There were no options exercised during the year ended December 31, 2009. In connection with the transaction with Santander on January 30, 2009, any option holders whose awards had intrinsic value on January 30^th would have received cash proceeds equal to their intrinsic value. However, the Company’s stock price on the transaction date was $2.47, and as such, none of the awards had any intrinsic value and all expired unexercised.

Note 21 — Employee Benefit Plans

Substantially, all employees of the Bank are eligible to participate in the 401(k) portion of the Retirement Plan following their completion of 30 days of service. There is no age requirement to join the 401(k) portion of the Retirement Plan. The Bank recognized expense for contributions to the 401(k) portion of the Retirement Plan of $12.6 million, $6.6 million and $5.7 million during 2011, 2010, and 2009, respectively. From June 2009 to June 2010, the Bank ceased matching employee contributions. In July 2010, the Bank resumed matching 100% of employee contributions up to 3% of their compensation and then 50% of employee contributions between 3% and 5%. The Company match is immediately vested and is allocated to the employee’s various 401(k) investment options in the same percentages of the employee’s own contributions.

SCUSA sponsors a defined contribution plan offered to qualifying employees. Employees participating in the plan may contribute up to 15% of their base salary, subject to federal limitations on absolute amounts contributed. SCUSA will match up to 6% of their base salary, with matching contributions of 100% of employee contributions. The total amount contributed by SCUSA in 2011 and 2010 was $3.9 million and $3.0 million, respectively.

The Company sponsors a supplemental executive retirement plan (“SERP”) for certain retired executives of SHUSA. The Company’s benefit obligation related to its SERP plan was $64.5 million and $51.0 million at December 31, 2011 and 2010, respectively. The primary reason for the increase in the SERP obligations from the prior year is due to market decreases in the investments underlying certain plans in 2011.

The Company’s benefit obligation related to its post-employment plans was $5.9 million and $4.6 million at December 31, 2011 and 2010, respectively. The SERP and the post-employment plans are unfunded plans and are reflected as liabilities on the Consolidated Balance Sheet.

The Company also acquired a pension plan from its acquisition of Independence (“the plan”). The plan is closed to new entrants. Effective July 1, 2007, the plan was frozen. Upon the plan being frozen, all participants became fully vested in their normal retirement benefits and ceased accruing benefits under the plan. Additionally, disability benefits were eliminated for disabilities occurring after the freeze date. Service cost includes administrative expenses of the plan which are paid from plan assets. The Company does not expect any plan assets to be returned in 2012. The Company expects to make contributions of $7.1 million to the plan in 2012.

126

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 21 — Employee Benefit Plans (continued)

The following tables summarizes the benefit obligation, change in plan assets and components of net periodic pension expense for the plan as of December 31, 2011 and 2010 (in thousands):

		September 30,			September 30,
	Year ended December 31,
	2011			2010
Change in benefit obligation:
Benefit obligation at beginning of year	$	87,377		$	82,207
Service cost		289			291
Interest cost		4,467			4,568
Actuarial gain		12,417			5,115
Annuity payments		(5,139	)		(4,804	)
Projected benefit obligation at year end	$	99,411		$	87,377
Change in plan assets:
Fair value at beginning of year	$	65,975		$	65,525
Actual return on plan assets		805			5,254
Annuity payments		(5,139	)		(4,804	)
Fair value at year end	$	61,641		$	65,975
Components of net periodic pension expense:
Service cost	$	289		$	291
Interest cost		4,467			4,568
Expected Return on plan assets		(4,439	)		(4,411	)
Amortization of unrecognized actuarial loss		2,583			2,113
Net periodic pension expense	$	2,900		$	2,561

The funded status of the plans was $(37.8) million and $(21.4) million at December 31, 2011 and 2010, respectively, which was recorded within Other Liabilities. The accumulated benefit obligation was $99.4 million and $87.4 million at December 31, 2011 and 2010, respectively.

Pension plan assets are required to be reported and disclosed at fair value in the financial statements. See Note 1 for discussion on the Company’s fair value policy. The assets are comprised of equity mutual funds, fixed income mutual funds and money market funds. The shares of the underlying mutual funds are fair valued using quoted market prices in an active market and therefore all of the assets are considered Level 1 within the fair value hierarchy as of December 31, 2011 and 2010. There have been no changes in the valuation methodologies used at December 31, 2011 and 2010.

Specific investments are made in accordance with the plan’s investment policy. The investment policy of the plan is to maintain full funding without creating an undue risk of increasing any unfunded liability. A secondary investment objective is, where possible, to reduce the contribution rate in future years. The plan’s allocation of assets is subject to periodic adjustment and rebalancing depending upon market conditions. In accordance with the Plan’s investment policy, the Plan’s assets were invested in the following allocation as of the end of the Plan year: 34% equity mutual funds, 32% fixed income mutual funds and 34% money market funds.

The assumptions utilized to calculate the projected benefit obligation and net periodic pension expense at December 31, 2011 and 2010 were:

		September 30,			September 30,
	2011			2010
Discount rate		4.25	%		5.25	%
Expected long-term return on plan assets		7.00	%		7.00	%
Salary increase rate		0.00	%		0.00	%

127

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 21 — Employee Benefit Plans (continued)

The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the project benefit obligation. The selected rate considers the historical and expected future investment trends of the present and expected assets in the plan.

The following table sets forth the expected benefit payments to be paid in future years:

		September 30,
2012	$	4,748,210
2013		4,800,215
2014		5,071,818
2015		5,134,741
2016		5,212,705
2017 to 2021		27,668,137
Total	$	52,635,826

Included in accumulated other comprehensive income at December 31, 2011 and 2010 are unrecognized actuarial losses of $26.5 million and $16.5 million that had not yet been recognized in net periodic pension cost. The actuarial loss included in accumulated other comprehensive income and expected to be recognized in net periodic pension cost during the fiscal year-ended December 31, 2012 is $2.3 million.

Note 22 — Commitments and Contingencies

Financial Instruments

The Company is a party to financial instruments in the normal course of business, including instruments with off-balance sheet exposure, to meet the financing needs of customers and to manage its exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, loans sold with recourse, forward contracts and interest rate swaps, caps and floors. These financial instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheet. The contract or notional amounts of these financial instruments reflect the extent of involvement SHUSA has in particular classes of financial instruments.

The following schedule summarizes the Company’s off-balance sheet financial instruments (in thousands):

		September 30,		September 30,
	CONTRACT OR NOTIONAL AMOUNT AT DECEMBER 31,
	2011		2010
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	20,108,165	$	16,443,257
Standby letters of credit		2,199,489		3,280,899
Loans sold with recourse		230,107		268,195
Forward buy commitments		505,905		2,930,265

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral required is based on management’s evaluation of the credit of the counterparty. Collateral usually consists of real estate but may include securities, accounts receivable, inventory and property, plant and equipment.

128

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 22 — Commitments and Contingencies (continued)

The Company’s standby letters of credit meet the definition of a guarantee under the FASB Accounting Standards Codification. These transactions are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The guarantees are primarily issued to support public and private borrowing arrangements. The weighted average term of these commitments is 1.5 years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending a loan to customers. In the event of a draw by the beneficiary that complies with the terms of the letter of credit, The Company would be required to honor the commitment. The Company has various forms of collateral, such as real estate assets and customers’ business assets. The maximum undiscounted exposure related to these commitments at December 31, 2011 was $2.2 billion, and the approximate value of the underlying collateral upon liquidation that would be expected to cover this maximum potential exposure was $1.6 billion. Substantially all the fees related to standby letters of credits are deferred and are immaterial to the Company’s financial position. Management believes that the utilization rate of these standby letters of credit will continue to be substantially less than the amount of these commitments, as has been the experience to date.

Loans sold with recourse primarily represent single-family residential loans and multi-family loans. See further discussion regarding these loans in Note 10.

The Company’s forward buy commitments primarily represent commitments to purchase loans, investment securities and derivative instruments for customers.

Litigation

In the ordinary course of business, the Company and its subsidiaries are routinely defendants in or parties to pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of consumer protection, securities, environmental, banking, employment and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company and its subsidiaries. In the ordinary course of business, the Company and its subsidiaries are also subject to regulatory examinations, information gathering requests, inquiries and investigations.

In view of the inherent difficulty of predicting the outcome of such litigation and regulatory matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable at which time an accrued liability is established with respect to such loss contingency. The Company continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. For certain legal matters in which the Company is involved, the Company is able to estimate a range of reasonably possible losses. For other matters for which a loss is probable or reasonably possible, such an estimate is not possible. Excluding the matters discussed below, management currently estimates that it is reasonably possible that the Company could incur losses in an aggregate amount up to approximately $60.0 million in excess of the accrued liability, if any, with it also being reasonably possible that the Company could incur no such losses at all in these matters. This estimated range of reasonably possible losses represents the estimate of possible losses over the life of such legal matters, which may span an indeterminable number of years, and is based on information available as of December 31, 2011.

129

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 22 — Commitments and Contingencies (continued)

Trust PIERS

On December 17, 2010, The Bank of New York Mellon Trust Company, National Association (the “Trustee”) filed a complaint in the U.S. District Court for the Southern District of New York solely as the Trustee for the Trust PIERS under an Indenture dated September 1, 1999, as amended, against SHUSA. The complaint asserts that the acquisition by Santander of SHUSA on January 31, 2009, constituted a “change of control” under the Trust PIERS.

If the acquisition constituted a “change of control” under the definitions applicable to the Trust PIERS, SHUSA would be required to pay a significantly higher rate of interest on subordinated debentures of SHUSA held in trust for the holders of Trust PIERS and the principal amount of the debentures would accrete to $50 per debenture as of the effective date of the “change of control”. There is no “change in control” under the Trust PIERS, among other reasons, if the consideration in the acquisition consisted of shares of common stock traded on a national securities exchange. Santander issued American Depositary Shares in connection with the acquisition which were and are listed on the New York Stock Exchange.

The complaint asks the Court to declare that the acquisition of the Company was a “change of control” under the Indenture and seeks damages equal to the interest that the complaint alleges should have been paid by the Company for the benefit of holders of Trust PIERS. On December 13, 2011, the Court issued its decision granting the Trustee’s motion for summary judgment and denying the Bank’s cross-motion. The Court ruled that the term “common stock” used in the Indenture’s “change of control” provision does not include ADSs and, therefore, a Change of Control has occurred. The Court referred the matter of damages to a magistrate judge for an inquest. The damages inquest is unlikely to be completed before June 2012. A final appealable judgment will not enter until damages are determined.

As a result of the December 13, 2011 decision by the Court, at December 31, 2011, SHUSA recorded a reduction of pre-tax income of $344.2 million for the Trust PIERS litigation. Of that total, $70.8 million represents the liability for accrued interest at the rate of 7.410% from January 31, 2009 to December 31, 2011. The remaining $273.4 million was recorded as Other Expense on Statement of Operations and a credit to the debt obligation to accrete the principal amount of each Trust PIERS security to $50. The trustee has argued that the reset rate should be 12.77% or higher, which if accepted by the Court, would increase the impact of the unfavorable outcome noted above.

The Company continues to believe the acquisition by Santander was not a “change of control” and that the Trustee’s damages are overstated. The Company intends to appeal the Court’s finding that the acquisition was a “change of control” and the damages assessment, upon completion of the inquest and entry of final judgment against the Company.

Fabrikant & Sons Bankruptcy Adversary Proceeding

In October 2007, the official committee of unsecured creditors of the debtors, M. Fabrikant & Sons (“MFS”) and a related company, Fabrikant-Leer International, Ltd. (“FLI”), filed an adversary proceeding against Sovereign Precious Metals, LLC (“SPM”), a wholly owned subsidiary of the Bank, and the Bank in the United States Bankruptcy Court for the Southern District of New York. The proceeding seeks to avoid $22.0 million in obligations otherwise due to the Bank (and formerly SPM) with respect to gold previously consigned to debtor by the Bank. In addition, the adversary proceeding seeks to recover over $9.8 million in payments made to the Bank by an affiliate of the debtors. Several other financial institutions were named as defendants based upon other alleged fraudulent transfers. Defendants’ motions to dismiss were denied in part and allowed in part. Claims remain against the Bank for approximately $33.0 million.

The plaintiff has appealed the court’s dismissal of its claims, including those claims based on “actual fraud”. The appeal has been fully briefed. Discovery has been stayed in the case pending a ruling on the appeal. The disposition of the appeal will not affect the Bank’s exposure in the case.

Overdraft Litigation

The putative class action litigation filed against the Bank by Diane Lewis, on behalf of herself and others similarly situated, in the United States District Court for the District of Maryland has been transferred to and consolidated for pre-trial proceedings in the United States District Court for the Southern District of Florida (the “MDL Court”) under the caption In re Checking Account Overdraft Litigation. The complaint alleges violations of law in connection with the Bank’s overdraft/transaction ordering and fees practices. The Bank has filed a motion seeking dismissal of the complaint. The complaint seeks unspecified damages.

130

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 22 — Commitments and Contingencies (continued)

Foreclosure Matters

On April 13, 2011, the Bank consented to the issuance of a consent order by the Bank’s previous primary federal banking regulator, the Office of Thrift Supervision (“OTS”), as part of an interagency horizontal review of foreclosure practices at 14 mortgage servicers. The Bank, upon its conversion to a national bank on January 26, 2012, entered into a stipulation consenting to the issuance of a Consent Order (the “Order”) issued by the Office of the Comptroller of the Currency, which contains the same terms as the OTS consent order. The Order requires the Bank to take a number of actions, including designating a Board committee to monitor and coordinate the Bank’s compliance with the provisions of the Order, developing and implementing plans to improve the Bank’s mortgage servicing and foreclosure practices, designating a single point of contact for borrowers throughout the loss mitigation and foreclosure processes and taking certain other remedial actions. Under the Consent Order, the Bank has retained an independent consultant to conduct a review of certain foreclosure actions or proceedings for loans serviced by the Bank.

The Company incurred $24.7 million of costs in 2011 relating to compliance with the Order. The estimated costs for 2012 include $12 million of costs related to files review that were previously expected to be incurred in 2011. Recurring legal and operational expenses to comply with the Order are estimated to be approximately $7.0 million annually. The Company and the Bank may incur further expenses related to compliance with the Order. The Order and any other proceedings and investigations could adversely affect the Company’s reputation.

In addition, the Company incurred $196 thousand of costs in 2011 related to compensatory fees as a result of foreclosure delays. The Company expects to incur additional compensatory fees in 2012.

The Order will remain in effect until modified or terminated by the OCC. Any material failure to comply with the provisions of the Order could result in enforcement actions by the OCC. While the Bank intends to take such actions as may be necessary to enable the Bank to comply fully with the provisions of the Order, and management is not aware of any impediments that may prevent the Bank from achieving full compliance with the Order, there can be no assurance that the Bank will be able to comply fully with the provisions of the Order, or to do so within the timeframes required, or that compliance with the Order will not be more time consuming, more expensive, or require more managerial time than anticipated. The Bank may also be subject to remediation costs and civil money penalties under the Order or it could be subject to other proceedings or investigations with respect to its foreclosure activities, however, management is unable to determine at this time the likelihood or amount of such costs or penalties under the Order or with respect to any other such events and accordingly, no accrual has been recorded.

Other

Reference should be made to Note 19 for disclosure regarding the lawsuit filed by SHUSA against the Internal Revenue Service/United States. In addition to the proceeding described above and the litigation described in Note 19 above, SHUSA in the normal course of business is subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. The Company does not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material effect on the Company’s financial position. However, the Company cannot now determine whether or not any claims asserted against the Company, whether in the proceeding specifically described above, the matter described in Note 19 above, or otherwise, will have a material effect on the Company’s results of operations in any future reporting period, which will depend on, among other things, the amount of any loss resulting from the claim and the amount of income otherwise reported for the reporting period.

131

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 22 — Commitments and Contingencies (continued)

Leases

The Company is committed under various non-cancelable operating leases relating to branch facilities having initial or remaining terms in excess of one year. Renewal options exist for the majority of the lease agreements.

Future minimum annual rentals under non-cancelable operating leases and sale-leaseback leases, net of expected sublease income, at December 31, 2011, are summarized as follows (in thousands):

		September 30,		September 30,			September 30,
	AT DECEMBER 31, 2011
	Lease Payments		Future Minimum Expected  Sublease Income			Net Payments
2012	$	104,181	$	(10,772	)	$	93,409
2013		97,009		(6,105	)		90,904
2014		87,160		(4,560	)		82,600
2015		78,166		(3,544	)		74,622
2016		69,544		(2,529	)		67,015
Thereafter		250,609		(5,226	)		245,383
Total	$	686,669	$	(32,736	)	$	653,933

The Company recorded rental expense of $132.3 million, $126.6 million and $117.7 million, net of $13.7 million, $12.5 million and $12.2 million of sublease income, in 2011, 2010 and 2009, respectively. These expenses are included in occupancy and equipment expense.

Note 23 — Fair Value Disclosures

The following tables present the assets and liabilities that are measured at fair value on a recurring basis by major product category and fair value hierarchy.

		September 30,		September 30,		September 30,		September 30,
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2011
	(in thousands)
Financial assets:
US Treasury and government agency securities	$	—	$	44,090	$	—	$	44,090
Debentures of FHLB, FNMA and FHLMC		—		20,000		—		20,000
Corporate debt		—		2,049,520		—		2,049,520
Asset-backed securities		—		2,587,993		52,297		2,640,290
State and municipal securities		—		1,784,778		—		1,784,778
Mortgage backed securities		—		9,039,880		18		9,039,898
Total investment securities available-for-sale		—		15,526,261		52,315		15,578,576
Loans held for sale		—		352,471		—		352,471
Derivatives:
Fair value		—		3,888		—		3,888
Mortgage banking		—		—		7,323		7,323
Customer related		—		361,349		—		361,349
Foreign exchange		—		11,950		—		11,950
Trading		—		12,098		—		12,098
Total financial assets	$	—	$	16,268,017	$	59,638	$	16,327,655

132

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 23 — Fair Value Disclosures (continued)

		September 30,		September 30,		September 30,		September 30,
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2011
	(in thousands)
Financial liabilities:
Derivatives:
Fair value	$	—	$	3,346	$	—	$	3,346
Cash flow		—		158,174		—		158,174
Mortgage banking		—		8,574		—		8,574
Customer related		—		383,532		—		383,532
Risk participations		—		—		720		720
Total return swap		—		—		5,460		5,460
Foreign exchange		—		11,930		—		11,930
Trading		—		11,655		—		11,655
Total financial liabilities	$	—	$	577,211	$	6,180	$	583,391
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2010
	(in thousands)
Financial assets:
US Treasury and government agency securities	$	—	$	12,997	$	—	$	12,997
Debentures of FHLB, FNMA and FHLMC		—		24,999		—		24,999
Corporate debt		—		2,202,787		—		2,202,787
Asset-backed securities		—		3,073,194		51,409		3,124,603
State and municipal securities		—		1,882,280		—		1,882,280
Mortgage backed securities		—		4,663,744		1,460,438		6,124,182
Total investment securities available-for-sale		—		11,860,001		1,511,847		13,371,848
Loans held for sale		—		150,063		—		150,063
Derivatives:
Mortgage banking		—		3,488		734		4,222
Customer related		—		307,292		—		307,292
Foreign exchange		—		20,707		—		20,707
Trading		—		21,149		—		21,149
Total financial assets	$	—	$	12,362,700	$	1,512,581	$	13,875,281
Financial liabilities:
Derivatives:
Cash flow	$	—	$	169,758	$	4,604	$	174,362
Customer related		—		308,130		—		308,130
Total return swap		—		—		4,081		4,081
Foreign exchange		—		13,349		—		13,349
Trading		—		43,345		—		43,345
Total financial liabilities	$	—	$	534,582	$	8,685	$	543,267

There were no transfers between Level 1 and Level 2 or Level 2 and Level 3 of the fair value hierarchy during the year ended December 31, 2011 and 2010.

As of December 31, 2011, approximately $16.3 billion of the Company’s total assets consisted of financial instruments measured at fair value on a recurring basis, including financial instruments for which the Company elected the fair value option. Approximately $16.3 billion of these financial instruments, net of counterparty and cash collateral balances, were measured using valuation methodologies involving market-based or market-derived information. Approximately $59.6 million of these financial instruments were measured using model-based techniques, or using Level 3 inputs, and represented approximately 0.4% of the total assets measured at fair value and approximately 0.1% of the total consolidated assets.

133

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 23 — Fair Value Disclosures (continued)

The valuation technique to measure the fair values for the items in the tables above are as follows:

Investments securities available-for-sale

Quoted market prices for the investments in securities available for sale held at the Company, such as government agency bonds, corporate debt, state and municipal securities, etc, are not readily available. The Company’s principal markets for its investment securities are the secondary institutional markets with an exit price that is predominantly reflective of bid level pricing in these markets.

Loans held for sale

The Company adopted the fair value option on residential mortgage loans classified as held for sale which allows the Company to record the mortgage loan held for sale portfolio at fair market value versus the lower of cost or market. The Company economically hedges its residential loans held for sale portfolio with forward sale agreements which are reported at fair value. A lower of cost or market accounting treatment would not allow the Company to record the excess of the fair market value over book value but would require the Company to record the corresponding reduction in value on the hedges. Both the loans and related hedges are carried at fair value which reduces earnings volatility as the amounts more closely offset, particularly in environments when interest rates are declining.

The Company’s residential loan held for sale portfolio had an aggregate fair value of $352.5 million at December 31, 2011. The contractual principal amount of these loans totaled $340.0 million at December 31, 2011. The difference in fair value compared to principal balance of $12.5 million was recorded in mortgage banking revenues during the year ended December 31, 2011. Substantially all of these loans are current and none are in non-accrual status. Interest income on these loans is credited to interest income as earned. The fair value of these loans is estimated based upon the anticipated exit price for these loans in the secondary market to agency buyers such as Fannie Mae and Freddie Mac. The majority of the residential loan held for sale portfolio is sold to these two agencies.

Derivatives

Currently, the Company uses derivative instruments to manage its interest rate risk, equity risk and foreign exchange currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable and unobservable market-based inputs.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurement of its derivatives. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations are primarily classified in Level 2 of the fair value hierarchy.

The Company’s Level 3 assets are primarily comprised of certain sale-lease back securities. These investments are thinly traded and the Company determined the estimated fair values for these securities by evaluating pricing information from a combination of sources such as third party pricing services, third party broker quotes for certain securities and from other independent third party valuation sources. These quotes are benchmarked against similar securities that are more actively traded in order to assess the reasonableness of the estimated fair values. The fair market value estimates assigned to these securities assume liquidation in an orderly fashion and not under distressed circumstances. Due to the continued illiquidity and credit risk of certain securities, the market value of these securities is highly sensitive to assumption changes and market volatility.

Gains and losses on investments and mortgage servicing rights are recognized on the Consolidated Statements of Operations through the “Net gain on sale of investment securities” and “Mortgage banking income, net”, respectively. Gains and losses related derivatives affect various line items on the Consolidated Statements of Operations. See Note 16 for the discussion of derivatives activity on the Consolidated Statements of Operations.

134

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 23 — Fair Value Disclosures (continued)

The tables below present the changes in the Level 3 balances for the year ended December 31, 2011 and 2010. All balances are presented in thousands.

		September 30,			September 30,			September 30,			September 30,
For the year ended December 31, 2011:
	Investments Available-for-Sale			Mortgage Servicing  Rights			Derivatives			Total
Balance at December 31, 2010	$	1,511,847		$	146,028		$	(7,951	)	$	1,649,924
Gains/(losses) in other comprehensive income		55,187			—			(216	)		54,971
Loss reclassified from OCI to earnings		93,934			—			—			93,934
Gains /(losses) recognized in earnings		—			(37,789	)		5,606			(32,183	)
Purchases		—			—			—			—
Issuances		—			27,230			—			27,230
Sales		(1,312,648	)		—			—			(1,312,648	)
Settlements		(296,005	)		—			3,704			(292,301	)
Amortization		—			(43,783	)		—			(43,783	)
Transfers into/out of level 3		—			—			—			—
Balance at December 31, 2011	$	52,315		$	91,686		$	1,143		$	145,144

		September 30,			September 30,			September 30,			September 30,
For the year ended December 31, 2010:
	Investments Available-for-Sale			Mortgage Servicing  Rights			Derivatives			Total
Balance at December 31, 2009	$	1,928,343		$	136,874		$	(24,625	)	$	2,040,592
Gains/(losses) in other comprehensive income		203,972			—			3,156			207,128
Loss reclassified from OCI to earnings		3,480			—			—			3,480
Gains/(losses) recognized in earnings		—			24,664			(5,250	)		19,414
Purchases		—			—			(5,240	)		(5,240	)
Issuances		—			41,840			—			41,840
Sales		—			—			—			—
Settlements		(623,948	)		—			24,008			(599,940	)
Amortization		—			(57,350	)		—			(57,350	)
Transfers into/out of level 3		—			—			—			—
Balance at December 31, 2010	$	1,511,847		$	146,028		$	(7,951	)	$	1,649,924

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at year-end, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios at quarter end.

135

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 23 — Fair Value Disclosures (continued)

		September 30,		September 30,		September 30,		September 30,
	Quoted Prices in  Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
December 31, 2011
Loans (1)	$	—	$	1,388,268	$	—	$	1,388,268
Foreclosed assets (2)		—		74,031		—		74,031
Mortgage servicing rights (3)		—		—		91,686		91,686
December 31, 2010
Loans (1)	$	—	$	2,148,261	$	—	$	2,148,261
Foreclosed assets (2)		—		114,198		—		114,198
Mortgage servicing rights (3)		—		—		146,028		146,028

(1) These balances are measured at fair value on a non-recurring basis using the fair value of the underlying collateral.

(2) Assets taken in foreclosure of defaulted loans are primarily comprised of commercial and residential real property and are generally measured at the lower of cost or fair value less costs to sell. The fair value of the real property is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2.

(3) These balances are measured at fair value on a non-recurring basis. Mortgage servicing rights are stratified for purposes of the impairment testing.

The following table presents the increases and decrease in value of certain assets that are measured at fair value on a nonrecurring basis for which a fair value adjustment has been included in the Statements of Operations, relating to assets held at period end. All balances are presented in thousands.

		September 30,		September 30,			September 30,
	Statements of Operations		For the Year Ended December 31,
	Location		2011			2010
Loans		Provision for credit losses	$	165,317		$	(52,947	)
Foreclosed assets		Other administrative expense		(14,657	)		(10,869	)
Mortgage servicing rights		Mortgage banking income		(37,789	)		24,665
			$	112,871		$	(39,151	)

136

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 23 — Fair Value Disclosures (continued)

The following table presents disclosures about the fair value of financial instruments. These fair values for certain instruments are presented based upon subjective estimates of relevant market conditions at a specific point in time and information about each financial instrument. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties resulting in variability in estimates affected by changes in assumptions and risks of the financial instruments at a certain point in time. Therefore, the derived fair value estimates presented below for certain instruments cannot be substantiated by comparison to independent markets. In addition, the fair values do not reflect any premium or discount that could result from offering for sale at one time an entity’s entire holdings of a particular financial instrument nor does it reflect potential taxes and the expenses that would be incurred in an actual sale or settlement. Accordingly, the aggregate fair value amounts presented below do not represent the underlying value to the Company:

		September 30,		September 30,		September 30,		September 30,
	December 31, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Financial assets:
Cash and amounts due from depository institutions	$	2,623,963	$	2,623,963	$	1,705,895	$	1,705,895
Available-for-sale investment securities		15,578,576		15,578,576		13,371,848		13,371,848
Loans held for investment, net		50,223,888		49,286,606		62,820,434		61,453,371
Loans held for sale		352,471		352,471		150,063		150,063
Mortgage servicing rights		91,686		99,556		146,028		148,746
Derivatives:
Fair value		3,888		3,888		—		—
Mortgage banking		7,323		7,323		4,222		4,222
Customer related		361,349		361,349		307,292		307,292
Foreign exchange		11,950		11,950		20,707		20,707
Trading		12,098		12,098		21,149		21,149
Financial liabilities:
Deposits		47,797,515		47,330,243		42,673,293		42,592,642
Borrowings and other debt obligations		18,278,433		19,372,350		33,630,117		34,764,709
Derivatives:
Fair value		3,346		3,346		—		—
Cash flow		158,174		158,174		174,362		174,362
Mortgage banking		8,574		8,574		—		—
Customer related		383,532		383,532		308,130		308,130
Risk participations		720		720		—		—
Total return swap		5,460		5,460		4,081		4,081
Foreign exchange		11,930		11,930		13,349		13,349
Trading		11,655		11,655		43,345		43,345

137

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 23 — Fair Value Disclosures (continued)

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and amounts due from depository institutions

Cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits in other banks, federal funds sold, and securities purchased under agreements to resell. Cash and cash equivalents have maturities of three months or less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.

Investment securities available for sale

Generally, the fair value of investment securities available-for-sale is based on a third party pricing service which utilizes matrix pricing on securities that actively trade in the marketplace. For investment securities that do not actively trade in the marketplace, fair value is obtained from third party broker quotes. For certain non-agency mortgage backed securities, SHUSA determines the estimated fair value for these securities by evaluating pricing information from a combination of sources such as third party pricing services, third party broker quotes for certain securities and from another independent third party valuation source. These quotes are benchmarked against similar securities that are more actively traded in order to assess the reasonableness of the estimated fair values. The fair market value estimates the Company assigns to these securities assume liquidation in an orderly fashion and not under distressed circumstances. Changes in fair value are reflected in the carrying value of the asset and are shown as a separate component of stockholders’ equity.

Loans held for investment

Fair value is estimated by discounting cash flows using estimated market discount rates, reflecting the credit risk and interest rate risk for loans of similar maturities.

Loans held for sale

The Company has mortgage loans held for sale on its balance sheet which are recorded at fair market value estimated using security prices for similar product types.

Mortgage servicing rights

The fair value of mortgage servicing rights are estimated using a discounted cash flow model. For additional discussion see Note 10.

Mortgage interest rate lock commitment

Fair value is estimated based on a net present value analysis of the anticipated cash flows associated with the rate lock commitments.

Deposits

The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, interest bearing demand deposit accounts, savings accounts and certain money market accounts, is equal to the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated by discounting cash flows using currently offered rates for deposits of similar remaining maturities.

Borrowings and other debt obligations

Fair value is estimated by discounting cash flows using rates currently available to SHUSA for other borrowings with similar terms and remaining maturities. Certain other debt obligations instruments are valued using available market quotes which contemplates issuer default risk.

138

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 23 — Fair Value Disclosures (continued)

Derivative Instruments

The Company generally determines the fair value of its derivative instruments using pricing models based on market observable inputs, non-observable inputs, and the current creditworthiness of the counterparties to calculate the price to terminate the contracts or agreement. For interest rate lock commitments, fair value is generally estimated based on a net present value analysis of the anticipated cash flows associated with the product.

Note 24 — Regulatory Matters

The minimum U.S. regulatory capital ratios for banks under Basel I are 4% for Tier 1 Risk-Based Capital Ratio and 4% for Tier 1 Leverage Capital Ratio. To qualify as “well-capitalized”, regulators require banks to maintain capital ratios of at least 6% for Tier 1 Risk-Based Capital Ratio, 10% for Total Risk-based Capital Ratio, and 5% for Tier 1 Leverage Capital Ratio. At December 31, 2011 and 2010, Sovereign Bank met the well-capitalized capital ratio requirements.

All bank holding companies are required to maintain Tier 1 Risk-Based Capital Ratios of at least 4%, Total Risk-Based Capital Ratios of 8%, and Tier 1 Leverage Capital Ratios of at least 3%. While the Company was not subject to these minimum requirements as of December 31, 2011, the Company’s capital levels exceeded the ratios required for bank holding companies.

The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) established five capital tiers: well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. A depository institution’s capital tier depends upon its capital levels in relation to various relevant capital measures, which include leverage and risk-based capital measures and certain other factors. Depository institutions that are not classified as well-capitalized or adequately-capitalized are subject to various restrictions regarding capital distributions, payment of management fees, acceptance of brokered deposits and other operating activities.

Federal banking laws, regulations and policies also limit the Bank’s ability to pay dividends and make other distributions to SHUSA. The Bank must obtain prior OCC approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the Bank’s total distributions to the holding company within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years; (2) the Bank would not meet capital levels imposed by the OCC in connection with any order, or (3) if the Bank is not adequately capitalized at the time. In addition, OCC prior approval would be required if the Bank’s examination or CRA ratings fall below certain levels or the Bank is notified by the OCC that it is a problem association or an association in troubled condition. During the three years following the period-ended September 30, 2010, the Bank must obtain the written non-objection of the OCC to declare a dividend or make any other capital distribution.

Any dividends declared and paid have the effect of reducing the Bank’s Tier 1 leverage capital to tangible assets and Tier 1 risk-based capital ratios. There were no dividends paid by the Bank during the years ended December 31, 2011 and 2010.

139

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 24 — Regulatory Matters (continued)

The following schedule summarizes the actual capital balances of the Bank and SHUSA at December 31, 2011 and 2010:

		September 30,			September 30,			September 30,			September 30,
	REGULATORY CAPITAL (IN THOUSANDS)
	Tier 1 Leverage Capital Ratio			Tier 1 Risk-Based Capital Ratio			Total Risk-Based Capital Ratio			Tier 1 Common Capital Ratio
Sovereign Bank at December 31, 2011:
Regulatory capital	$	8,216,477		$	8,158,889		$	9,430,050		$	8,066,237
Capital ratio		11.15	%		14.24	%		16.45	%		14.07	%
SHUSA at December 31, 2011:
Regulatory Capital	$	8,233,662		$	8,176,074		$	9,925,524		$	7,496,691
Capital ratio		10.88	%		13.75	%		16.69	%		12.61	%
Sovereign Bank at December 31, 2010:
Regulatory capital	$	7,736,164		$	7,680,472		$	9,092,918		$	7,587,241
Capital ratio		11.43	%		13.45	%		15.93	%		13.29	%
SHUSA at December 31, 2010
Regulatory Capital	$	6,907,153		$	6,851,461		$	9,215,914		$	5,435,855
Capital ratio		8.22	%		9.31	%		12.52	%		7.39	%

(1) As defined by OCC Regulations.

140

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 25 — Parent Company Financial Information

BALANCE SHEET

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Assets
Cash and due from banks	$	283,251	$	304,786
Available for sale investment securities		39,382		44,832
Loans to non-bank subsidiaries		2,000		10,000
Investment in subsidiaries:
Bank subsidiary		8,410,362		6,206,852
Non-bank subsidiaries(1)		4,252,195		7,486,648
Other assets(1)		2,986,789		799,713
Total assets	$	15,973,979	$	14,852,831
Liabilities and stockholder’s equity
Borrowings and other debt obligations	$	2,749,643	$	3,392,216
Borrowings from non-bank subsidiaries		136,605		136,039
Other liabilities		491,568		63,906
Total liabilities		3,377,816		3,592,161
Stockholder’s equity		12,596,163		11,260,670
Total liabilities and stockholder’s equity	$	15,973,979	$	14,852,831

⁽¹⁾  The activity in these accounts is due to the effects of the SCUSA Transaction. See further discussion in Note 3. A pre-tax gain of $987.7 million was recognized in Other Income related to the SCUSA Transaction and an equity method investment of $2.65 billion was recognized in Other Assets.

141

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 25 — Parent Company Financial Information (continued)

STATEMENT OF OPERATIONS

		September 30,		September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011		2010			2009
	(in thousands)
Dividends from bank subsidiary	$	—	$	—		$	—
Dividends from non-bank subsidiaries		425,762		366,000			—
Interest income		3,676		8,256			6,971
Other income(1)		988,327		268			517
Total income		1,417,765		374,524			7,488
Interest expense		148,937		147,548			116,308
Other expense		380,829		1,605			45,555
Total expense		529,766		149,153			161,863
Income/(loss) before income taxes and equity in earnings of subsidiaries		887,999		225,371			(154,375	)
Income tax (benefit)/provision		307,412		(11,717	)		6,152
Income/(loss) before equity in earnings of subsidiaries		580,587		237,088			(160,527	)
Equity in undistributed earnings of:
Bank subsidiary		316,934		677,997			48,644
Non-bank subsidiaries		360,725		144,290			273,448
Net income	$	1,258,246	$	1,059,375		$	161,565

⁽¹⁾  The activity in these accounts is due to the effects of the SCUSA Transaction. See further discussion in Note 3. A pre-tax gain of $987.7 million was recognized in Other Income related to the SCUSA Transaction and an equity method investment of $2.65 billion was recognized in Other Assets.

142

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 25 — Parent Company Financial Information (continued)

STATEMENT OF CASH FLOWS

		September 30,			September 30,			September 30,
	FOR THE YEAR ENDED DECEMBER 31
	2011			2010			2009
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,258,246		$	1,059,375		$	161,565
Adjustments to reconcile net income to net cash provided by / (paid in) operating activities:
Undistributed earnings of:
Bank subsidiary		(316,934	)		(677,997	)		(48,644	)
Non-bank subsidiaries		(360,725	)		(144,290	)		(273,448	)
Stock based compensation expense		4,054			2,227			47,181
Remittance to Santander for stock based compensation		(4,333	)		(1,800	)		—
SCUSA Transaction		(987,650	)		—			—
Other, net		550, 541			(361,253	)		(281,690	)
Net cash provided by / (paid in) operating activities		143,199			(123,738	)		(395,036	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Adjustments to reconcile net cash provided by / (used in) investing activities:
Net capital returned from/(contributed to) subsidiaries		806,094			(1,961,634	)		(1,683,629	)
Net (increase)/decrease in loans to subsidiaries		8,000			1,404,300			(1,138,787	)
Cash paid related to the SCUSA Transaction		(10,000	)		—			—
Net cash provided by / (used in) investing activities		804,094			(557,334	)		(2,822,416	)
CASH FLOWS FROM FINANCIAL ACTIVITIES:
Adjustments to reconcile net cash provided by / (used in) financing activities:
Repayment of other debt obligations		(463,740	)		(2,203,700	)		(200,000	)
Net proceeds received from senior notes and senior credit facility		500,000			1,375,000			1,140,000
Net change in commercial paper		(951,502	)		968,355			—
Net change in borrowings from non-bank subsidiaries		566			1,330			1,800
Dividends to preferred stockholders		(14,600	)		(14,600	)		(14,600	)
Dividends to non-controlling interest		(39,552	)		—			—
Net proceeds from the issuance of preferred stock		—			750,000			1,800,000
Net cash provided by/(used in) financing activities		(968,828	)		876,385			2,727,200
(Decrease)/Increase in cash and cash equivalents		(21,535	)		195,313			(490,252	)
Cash and cash equivalents at beginning of period		304,786			109,473			599,725
Cash and cash equivalents at end of period	$	283,251		$	304,786		$	109,473

143

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 26 — Business Segment Information

The Company’s segments are focused principally around the customers that the Bank serves. The Retail banking segment is primarily comprised of the branch locations and the residential mortgage business. The branches offer a wide range of products and services to customers and each attracts deposits by offering a variety of deposit instruments including demand and interest bearing demand deposit accounts, money market and savings accounts, certificates of deposits and retirement savings products. The branches also offer consumer loans such as home equity loans and lines of credit. The Retail banking segment also includes business banking loans and small business loans to individuals. The Specialized Business segment is primarily comprised of non-strategic lending groups which include indirect automobile, aviation and continuing care retirement communities. The Corporate banking segment provides the majority of the Company’s commercial lending platforms such as commercial real estate loans, multi-family loans, commercial and industrial loans and the Company’s related commercial deposits. The Global Banking and Markets (“Global Banking”) segment includes businesses with large corporate domestic and foreign clients. The Other category includes investment portfolio activity, intangibles and certain unallocated corporate income and expenses.

SCUSA is a specialized consumer finance company engaged in the purchase, securitization and servicing of retail installment contracts originated by automobile dealers and direct origination of retail installment contracts over the internet. In July 2009, Santander contributed SCUSA, a majority owned subsidiary, into the Company. SCUSA’s results of operations were consolidated from January 1, 2009 until December 31, 2011. SCUSA will subsequently be accounted for as an equity method investment. Refer to Note 3 of the Notes to Consolidated Financial Statements for additional information. SCUSA was managed as a separate segment throughout 2011 and SHUSA’s 2011 statement of operations includes a full year of SCUSA’s results. Therefore, SCUSA continues to be reported as a separate segment as of December 31, 2011.

For segment reporting purposes, SCUSA continues to be managed as a separate business unit with its own systems and processes. With the exception of this segment, the Company’s segment results are derived from the Company’s business unit profitability reporting system by specifically attributing managed balance sheet assets, deposits and other liabilities and their related interest income or expense to each of the segments. Funds transfer pricing methodologies are utilized to allocate a cost for funds used or a credit for funds provided to business line deposits, loans and selected other assets using a matched funding concept.

The provision for credit losses recorded by each segment is based on the net charge-offs of each line of business and changes in specific reserve levels for loans in the segment (except for changes in Specific Valuation Allowances made during the third quarter of 2011– see (4) in the following table) and the difference between the provision for credit losses recognized by the Company on a consolidated basis and the provision recorded by the business line is recorded in the Other category.

Other income and expenses directly managed by each business line, including fees, service charges, salaries and benefits, and other direct expenses as well as certain allocated corporate expenses are accounted for within each segment’s financial results. Accounting policies for the lines of business are the same as those used in preparation of the consolidated financial statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses and other financial elements to each line of business. Expenses are allocated to the business segments in accordance with the management reporting system, which includes the allocation of the majority of expenses including overhead costs which is not necessarily comparable with similar information published by other financial institutions. Where practical, the results are adjusted to present consistent methodologies for the segments.

During 2011, the multi-family and large corporate commercial specialty groups were merged into the Corporate banking segment from the Specialized Business segment, which, for 2010, resulted in approximately $8.9 billion of average assets and $30.0 million of pretax income allocated to the Corporate banking segment that had previously been allocated to the Specialized Business segment. For 2009, approximately $10.1 billion of average assets and $256.8 million of pretax loss were allocated to the Corporate banking segment that had previously been allocated to the Specialized Business segment. Since the Specialized Business segment had no goodwill allocated to it, this reporting structure change had no impact on the amount of goodwill assigned to other segments. Prior period results were recast to conform to current methodologies for the segments.

144

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 26 — Business Segment Information (continued)

The following tables present certain information regarding the Company’s segments (in thousands):

		xxxxxx			xxxxxx			xxxxxx			xxxxxx			xxxxxx		xxxxxx			xxxxxx
For the year ended December 31, 2011	Retail(1)			Specialized Business			Corporate			Global Banking			SCUSA		Other(3)			Total
Net interest income/(expense)	$	776,915		$	77,230		$	489,714		$	61,315		$	2,185,315	$	274,325		$	3,864,814
Fees and other income		380,363			16,546			77,225			29,213			440,525		978,203			1,922,075
Provision for credit losses (4)		254,159			189,713			190,168			21,264			819,221		(154,574	)		1,319,951
General and administrative expenses		1,139,238			41,524			144,583			16,572			550,108		(49,801	)		1,842,224
Income/(loss) before income taxes		(271,662	)		(137,665	)		221,163			52,127			1,252,232		1,050,330			2,166,525
Intersegment revenue/(expense) (5)		(153,113	)		(87,741	)		(390,315	)		(5,261	)		—		636,430			—
Total average assets(6)	$	24,544,236		$	3,755,590		$	20,274,100		$	3,074,731		$	15,815,394	$	24,613,997		$	92,078,048
For the year ended December 31, 2010	Retail(1)			Specialized Business			Corporate			Global Banking			SCUSA		Other(3)			Total
Net interest income/(expense)	$	719,678		$	114,272		$	459,536		$	26,209		$	1,755,440	$	323,504		$	3,398,639
Fees and other income		451,300			30,518			68,912			11,388			245,598		21,197			828,913
Provision for credit losses		250,681			229,561			229,429			6,675			888,225		22,455			1,627,026
General and administrative expenses		1,030,022			39,872			142,773			14,916			391,815		(46,298	)		1,573,100
Income/(loss) before income taxes		(172,386	)		(124,927	)		144,635			15,932			716,055		439,676			1,018,985
Intersegment revenue/(expense) (5)		(181,645	)		(155,585	)		(424,629	)		(4,714	)		—		766,573			—
Total average assets	$	22,994,886		$	5,288,736		$	19,894,648			1,725,628		$	11,959,260	$	22,980,213		$	84,843,371
For the year ended December 31, 2009	Retail			Specialized Business			Corporate(2)			Global Banking			SCUSA		Other(3)			Total
Net interest income/(expense)	$	639,956		$	160,274		$	435,146		$	11,096		$	1,277,358	$	119,674		$	2,643,504
Fees and other income		456,540			31,379			(114,348	)		17,265			51,873		57,435			500,144
Provision for credit losses		201,464			469,719			415,145			9,825			720,937		167,447			1,984,537
General and administrative expenses		1,069,404			14,652			225,597			6,181			253,031		(48,405	)		1,520,460
Income/(loss) before income taxes		(284,316	)		(293,939	)		(336,716	)		12,354			353,355		(573,637	)		(1,122,899	)
Intersegment revenue/(expense) (5)		24,876			(264,309	)		(487,253	)		(2,128	)		—		728,814			—
Total average assets	$	22,863,020		$	7,470,550		$	22,729,303			917,563		$	6,911,119	$	21,457,227		$	82,348,782

(1) The Retail segment fees and other income includes residential servicing rights impairments of $42.5 million for 2011 compared to a decrease in impairments of $24.6 million for 2010. See Note 10 for further discussion on these items.

(2) The Corporate segment fees and other income includes charges of $188.9 million associated with increasing multi-family recourse reserves for loans sold to Fannie Mae for the twelve months ended December 31, 2009.

145

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 26 — Business Segment Information (continued)

(3) The Other category includes earnings from the investment portfolio (excluding any investments purchased by SCUSA), interest expense on the Bank’s borrowings and other debt obligations (excluding any borrowings held by SCUSA), amortization of intangible assets and certain unallocated corporate income and expenses. In 2011, fees and other income in the Other category also includes a $987.7 million gain related to the SCUSA Transaction. Included in Other in 2009 were OTTI charges of $36.9 million on FNMA and FHLMC preferred stock, OTTI charges of $143.3 million on non-agency mortgage backed securities, net transaction related, integration charges and other restructuring costs of $299.1 million and a deferred tax valuation allowance reversal of $1.3 billion.

(4) In certain circumstances Specific Valuation Allowances (SVAs) were permitted to be used instead of partial charge-offs by the OTS, the Company’s former regulator. The OCC does not permit the establishment of SVAs. Accordingly, the Bank charged-off $103.7 million of mortgage loans during the third quarter 2011. These charge-offs did not have an impact on the results of operations for the segment or in consolidation.

(5) 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).

(6) Average assets for the Other category include a $2.7 billion equity investment in SCUSA, which was effective 12/31/11.

Note 27 — Related Party Transactions

See Note 13 for a description of the various debt agreements SHUSA has with Santander.

In March 2009, SHUSA, issued to Santander, parent company of SHUSA, 72,000 shares of SHUSA’s Series D Non-Cumulative Perpetual Convertible Preferred Stock, without par value (the “Series D Preferred Stock”), having a liquidation amount per share equal to $25,000, for a total price of $1.8 billion. The Series D Preferred Stock pays non-cumulative dividends at a rate of 10% per year. SHUSA may not redeem the Series D Preferred Stock during the first five years. The Series D Preferred Stock is generally non-voting. Each share of Series D Preferred Stock is convertible into 100 shares of common stock, without par value, of SHUSA. The Company contributed the proceeds from this offering to the Bank in order to increase the Bank’s regulatory capital ratios. On July 20, 2009, Santander converted all of its investment in the Series D preferred stock of $1.8 billion into 7.2 million shares of SHUSA common stock. This action further demonstrates the support of Santander to SHUSA and reduces the cash obligations of the Company with respect to Series D 10% preferred stock dividend.

In March 2010, the Company issued 3.0 million shares of common stock to Santander, raising proceeds of $750.0 million.

In December 2010, the Company issued 3.0 million shares of common stock to Santander, which raised proceeds of $750.0 million, and declared a $750.0 million dividend to Santander. This was a non-cash transaction.

In December 2011, the Company issued 3.2 million shares of common stock to Santander, which raised proceeds of $800.0 million, and declared a $800.0 million dividend to Santander. This was a non-cash transaction.

The Company has $2.1 billion of public securities that consists of various senior note obligations, trust preferred security obligations and preferred stock issuances. Santander owns approximately 34.8% of these securities as of December 31, 2011.

The Company has entered into derivative agreements with Santander with a notional value of $4.5 billion, which consists primarily of interest rate swap agreements to hedge interest rate risk and foreign currency exposure.

In 2006, Santander extended a total of $425.0 million in unsecured lines of credit to the Bank for federal funds and Eurodollar borrowings and for the confirmation of standby letters of credit issued by the Bank. This line is at a market rate and in the ordinary course of business and can be cancelled by either the Bank or Santander at any time and can be replaced by the Bank at any time. In the first quarter of 2009, this line was increased to $2.5 billion, during the third quarter of 2011 this line was decreased to $1.5 billion and during the fourth quarter of 2011 this line was further decreased to $1.0 billion. During the year ended December 31, 2011 and 2010, respectively, the average unfunded balance outstanding under these commitments was $1.4 billion and $1.6 billion. The Bank paid approximately $10.5 million in fees to Santander for the year ended December 31, 2011 in connection with these commitments compared to $12.4 million in fees in the corresponding period in the prior year. Santander also extended a line of credit to SHUSA in the amount of $1.5 billion, which matures in September 2012. There was no outstanding balance on this line at December 31, 2011 and 2010.

During the ordinary course of business, certain directors and executive officers of the Company became indebted to the Company in the form of loans for various business and personal interests. The outstanding balance of these loans was $6.2 million and $4.2 million at December 31, 2011 and 2010, respectively.

146

Santander Holdings USA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 27 — Related Party Transactions (continued)

The Company and its affiliates have entered into various service agreements with Santander and its affiliates. Each of the agreements was done in the ordinary course of business and on market terms. The agreements are as follows:

• Nw Services Co., a Santander affiliate doing business as Aquanima, is under contract with the Bank to provide procurement services, with fees paid in 2011 in the amount of $3.4 million, $2.2 million in 2010 and $2.0 million in 2009.

• Geoban, S.A., a Santander affiliate, is under contract with the Bank to provide administrative services, consulting and professional services, application support and back-office services, including debit card disputes and claims support, and consumer and mortgage loan set-up and review, with fees paid in 2011 in the amount of $15.3 million. Fees in the amount of $9.8 million were paid under this agreement in 2010. There were no fees paid related to this agreement in 2009.

• Ingenieria De Software Bancario S.L., a Santander affiliate, is under contract with the Bank to provide information technology development, support and administration, with fees paid in 2011 in the amount of $113.7 million, $121.0 million in 2010 and $5.7 million in 2009.

• Produban Servicios Informaticos Generales S.L., a Santander affiliate, is under contract with the Bank to provide professional services, and administration and support of information technology production systems, telecommunications and internal/external applications, with fees paid in 2011 in the amount of $82.6 million, $58.1 million in 2010 and $3.4 million in 2009.

• Santander Back-Offices Globales Mayoristas S.A., a Santander affiliate, is under contract with the Bank to provide administrative services and back-office support for the Bank’s derivative, foreign exchange and hedging transactions and programs, with fees paid in 2011 in the amount of $0.4 million. Fees in the amount of $0.1 million were paid in 2010 with respect to this agreement. There were no fees paid in 2009 related to this agreement.

• Santander Global Facilities (“SGF”), a Santander affiliate, is under contract with the Bank to provide: (i) administration and management of employee benefits and payroll functions for the Bank and other affiliates, including employee benefits and payroll processing services provided by third party sponsorship by SGF: and (ii) property management and related services; with fees paid in 2011 in the amount of $10.8 million, $10.0 million in 2010 and $0.5 million in 2009.

In 2010, the Company extended a $10.0 million unsecured loan to Servicios de Cobranza, Recuperacion y Seguimiento, S.A. DE C.V. At December 31, 2011 and 2010, the principal balance was $2.0 million and $10.0 million, respectively.

During the year ended December 31, 2011, 2010 and 2009, the Company recorded income of $32.4 thousand, $586.6 thousand and $0, respectively, and expenses of $39.8 million, $29.1 million and $21.2 million, respectively, related to transactions with SCUSA. In addition, as of December 31, 2011 and 2010, the Company had receivables and prepaid expenses with SCUSA of $99.1 million and $473.9 million, respectively. The activity is primarily related to SCUSA’s servicing of certain SHUSA outstanding loan portfolios and dividends paid by SCUSA to SHUSA. As these transactions occurred prior to the deconsolidation of SCUSA on December 31, 2011, they have been eliminated from the consolidated statement of operations as intercompany transactions.

147

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A Controls and Procedures

Evaluation of Disclosure Control and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2011. Based on that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2011.

Management’s Report on Internal Control over Financial Reporting

Information required by this item is set forth in Report of Management’s Assessment of Internal Control Over Financial Reporting which is incorporated by reference into this item.

Attestation Report of Independent Registered Public Accounting Firm

Information required by this item is set forth in Report of Independent Registered Public Accounting Firm which is incorporated by reference into this item.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. During the second quarter of 2011, the Company implemented a new General Ledger system which will provide a flexible architecture to interface with Santander’s global systems. The implementation of this new system was determined to have a material impact to the Company’s internal control over financial reporting.

Item 9B Other Information

None.

148

PART III

Item 10 Directors, Executive Officers and Corporate Governance.

Directors of SHUSA

Jerry Grundhofer — Age 67. Mr. Grundhofer was appointed as Chairman of the Boards of SHUSA and Sovereign Bank on July 1, 2011 and is the Chairman of the Executive Committees. Mr. Grundhofer served as Chairman of the Board of Directors of Citibank, N.A., as well as a member of the Board of the Directors of Citigroup, New York, New York from March 2009 to June 2011. He is Chairman Emeritus of U.S. Bancorp, retired as Chairman of the Board of U.S. Bancorp in December 2008 and served as Chairman of the organization since December 2002. He also served as President and Chief Executive Officer of U.S. Bancorp from the time of the merger of Firstar Corporation and U.S. Bancorp from February 2001 until October, 2004, and continued as Chief Executive Officer until December 2006. Mr. Grundhofer serves on the Board of Directors of Ecolab in Minneapolis, Minnesota.

Gonzalo de Las Heras — Age 72. Mr. de Las Heras was appointed to the SHUSA and Sovereign Boards on October 6, 2006 and is a member of Sovereign’s CRA Committee. Mr. de Las Heras joined Santander in 1990. He served as Executive Vice President supervising Santander business in the US until October 2009 when he retired. He is Chairman of Santander Bancorp, Puerto Rico; Banco Santander International, Miami; Santander Trust & Bank (Bahamas) Limited; Banco Santander (Suisse) and Santander Consumer USA, Inc. Prior to joining Santander Mr. de Las Heras held various positions at J.P. Morgan, lastly as Senior Vice President and Managing Director heading its Latin American division. He served as a Director of First Fidelity Bancorporation until its merger with First Union. From 1993 to 1997, Mr. de Las Heras served on the New York State Banking Board. He is a director and past chairman of the Foreign Policy Association and a Trustee and past chairman of the Institute of International Bankers. Mr. de Las Heras has a law degree from the University of Madrid and as a Del Amo Scholar pursued postgraduate studies in Business Administration and Economics at the University of Southern California.

Thomas Dundon — Age 40. Mr. Dundon was appointed to the SHUSA Board on April 14, 2011 and he served on the Sovereign Bank Board from April 14, 2011 through January 2012. He is the Chief Executive Officer of Santander Consumer USA, Inc. (“SCUSA”) and has served in this role since 2006 and is a member of SCUSA’s Board of Directors. He is also chairman of the non-profit Santander Consumer USA Inc. Foundation. Mr. Dundon previously served as the Executive Vice President of Servicing for Drive Financial Services (now SCUSA) from 2000 to 2005.

Stephen A. Ferris — Age 66. Mr. Ferris was appointed to the SHUSA and Sovereign Boards effective January 25, 2012, and serves as the Chairman of the SHUSA and Sovereign Bank Audit Committees. He is a board member of Management Consulting Group PLC, London, a publicly traded company on the London Stock Exchanges and has served as chairman of its Audit and Nominations Committee from 2006 to present. He has served as a Board member of Iberchem in Madrid Spain from 2007 to present. He served as a Board member of Santander Bancorp and Banco Santander Puerto Rico from 2002 to 2010 and was a member of the Audit Committee. He served as member of the Board of Seda Cereales and Seda Solubles, privately owned Spanish companies, from 2004 to 2010. He is the former President and CEO of Santander Central Hispano Investment Services, Inc. (from 1999-2002) and previously held various roles at Bankers Trust (now Deutsche Bank Alex. Brown) including managing director and partner of the Bankers Trust Global Investment Bank in London and New York.

Carlos Garcia — Age 40. Mr. Garcia was appointed to the SHUSA and Sovereign Boards on January 26, 2012. He is the Chief of Staff, Chief of Corporate Affairs and Communications Officer for SHUSA and Sovereign Bank and is a member of the SHUSA Management Executive Committee. Mr. Garcia also serves on the Bank’s CRA Committee. Prior to joining the Company in 2011, he was appointed by the Governor of Puerto Rico as Chairman of the Board, President and CEO of the Government Development Bank for Puerto Rico and served in this capacity from 2009-2011. Mr. Garcia joined the Santander Group in 1997 and for 11 years held a series of executive roles, including President of Banco Santander Puerto Rico and Senior Executive Vice President and Chief Operating Officer of Santander BanCorp. Prior to that, he served as President, CEO and Vice Chairman of the Board of Directors of Santander Securities Corporation, the second largest wealth and asset management firm in Puerto Rico.

John P. Hamill — Age 71. Mr. Hamill was appointed to the SHUSA and Sovereign Boards on January 20, 2010 and currently serves as Chairman of Sovereign’s CRA Committee and is on its Oversight Committee. Mr. Hamill joined Sovereign in 2000 as Chairman and CEO of the New England division and served as Chairman of Sovereign Bank in New England until January of 2010. Prior to that, he was President of Fleet National Bank Massachusetts, President of Shawmut Bank and President and CEO of Banc One Trust Company. Mr. Hamill has served as a director of Liberty Mutual Holding Company, Inc., a holding company for the family of Liberty Mutual Group insurance companies since 2001. He is Chairman of the Board of Advisors to the Carroll School of Management at Boston College, Chairman of the Board of Advisors at the College of Holy Cross, Overseer of the Boston Symphony Orchestra, and a Member of the Advisory Board for the Salvation Army of Massachusetts.

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Marian Heard — Age 71. Mrs. Heard was elected to the SHUSA and Sovereign Boards in 2005. Mrs. Heard currently serves as Chairperson of the Compensation Committees and as a member of the Audit Committees of SHUSA and Sovereign Bank. Mrs. Heard is currently the President and Chief Executive Officer of Oxen Hill Partners, which specializes in leadership development programs. Mrs. Heard has served as a director of CVS Caremark, a publicly held corporation listed on the NYSE and the largest retail pharmacy in the United States, since 1999 and has served on the Audit and the Nominating and Corporate Governance Committees of CVS Caremark Corporation since 2000 and is a member of the Management and Planning Committee. Mrs. Heard served on the board of BioSphere Medical, Inc., which specializes in certain bioengineering applications from 2006-2010, and served on its Compensation Committee. She has served as a director of Liberty Mutual Holding Company, Inc., a holding company for the family of Liberty Mutual Group insurance companies since 1994 and serves on the Audit Committee and is Chair of the Nominating and Corporate Governance Committee. Mrs. Heard served as a director of Blue Cross and Blue Shield of Massachusetts from 1992 to November, 2011 and chaired its Compensation Committee and served on the Finance Committee. Mrs. Heard served as a director of Fleet Bank of Massachusetts from 1992 to 1998 and subsequently Fleet Financial Corporation from 1998 until it was acquired by Bank of America in 2004. Mrs. Heard was appointed President and Chief Executive Officer of the United Way of Massachusetts Bay and Chief Executive Officer of the United Way of New England in February 1992. Mrs. Heard retired from the United Way in July 2004. Mrs. Heard also serves as a Director of MENTOR/National, Director of the Points of Lights Institute, Director of the FFawn Foundation and Trustee of the Dana Farber Cancer Institute.

Alberto Sánchez — Age 48. Mr. Sánchez was reappointed to the SHUSA and Sovereign Boards on January 30, 2009. Mr. Sánchez previously served on the Boards from March 16, 2007 to October 12, 2008. Mr. Sánchez is Head of Strategy and Specialty Finance of the U.S. for Banco Santander, S.A. Since 1997, Mr. Sánchez has held the following positions within the Santander organization: Head of Equity Research; Head of Latin American Equities; and Head of Spanish Equities and Macroeconomics Research. Mr. Sánchez serves as a Director and Vice Chairman of Santander Consumer USA. He also serves as a Director of the Greenwich Village Orchestra and as a Director of the Brooklyn Academy of Music.

Wolfgang Schoellkopf — Age 79. Mr. Schoellkopf was appointed to the SHUSA and Sovereign Boards on January 30, 2009, and currently serves as Chairman of the Board Enterprise Risk Committees and as a member of each of the Executive, Compensation, and Audit Committees of the SHUSA and Sovereign Boards and a member of the Oversight Committee of Sovereign Bank. From 2004 to 2008, Mr. Schoellkopf served as the Managing Partner of Lykos Capital Management, LLC, a private equity management company. From 2000 to 2002, he served as the General Manager of Bank Austria Group’s U.S. operations. On July 31, 1997, Mr. Schoellfkopf was elected as a director of SLM Corporation, commonly known as Sallie Mae, a leading provider of student loans and currently serves as Lead Independent Director. Since April 26, 2010, Mr. Schoellkopf has served on the Board of The Bank of N.T. Butterfield & Sons, Ltd. in Bermuda.

Juan Andres Yanes — Age 50. Mr. Yanes was appointed to SHUSA and Sovereign Boards on September 29, 2009 and currently serves as a member of the Executive and Board Enterprise Risk Management Committees of SHUSA and Sovereign Bank and as member of Sovereign’s CRA and Oversight Committee. Mr. Yanes is the Chief Compliance and Internal Controls Officer for SHUSA and Sovereign Bank and previously served as the Chief Corporate Officer of Santander USA. He is a member of the SHUSA Management Executive Committee. He joined the Santander organization in 1991 and was involved in Investment Banking, Corporate Finance and Financial Markets until 1999. He was the Global Head of Market Risk from 1999 through 2003. In 2003 he was appointed Deputy CRO for the Grupo Santander Risk Division.

Jorge Morán — Age 47. Mr. Morán was appointed President and Chief Executive Officer of the Company effective February 1, 2011 and serves on the SHUSA and Sovereign Bank Boards. He also is the Chairman of the Sovereign Oversight Committee and is a member of the SHUSA and Sovereign Executive, Board Enterprise Risk, and Compensation Committees and is a member of the Sovereign CRA Committee. He is also Chairman of the SHUSA Management Executive Committee. He was appointed as a member of the Board of Directors of Santander Consumer USA, Inc. on December 31, 2011.Mr. Morán joined the Santander Group in 2002. Prior to joining SHUSA, Mr. Morán was a Senior Executive Vice President of Banco Santander, head of its Global Insurance Division and a member of the Group’s management committee. Previously he held a number of executive management positions, including Chief Operating Officer of Abbey, Santander’s business in the U.K. and, from 2005 until 2008, a member of its Board of Directors. Before joining Santander, Mr. Morán was Chief Executive Officer of Morgan Stanley for Spain and Portugal and a partner of AB Asesores, a brokerage and asset management company. Mr. Morán also served as a director of marketing for Natwest (now a unit of the Royal Bank of Scotland) and with Citibank in Spain.

José Antonio Alvarez – Age 52 – Mr. Alvarez was appointed to the SHUSA Board on January 26, 2012. He is the Executive Vice President of Financial and Investor Relations for Banco Santander. He started at Banco Santander in Spain in 2002 as the Head of Finance Management. He served as Financial Management Manager/ Financial Director at BBVA from 1999 to 2002 and as Financial Director of Corporacion Bancaria de España, S.A. (Argentina) from 1995 to 1999. Mr. Alvarez is a member of the Board of Directors of Bolsas y Mercados Españoles (BME), the operator of all stock markets and financial systems in Spain.

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Jose Maria Fuster — Age 53. Mr. Fuster was appointed to the SHUSA Board on January 26, 2012. He is the Managing Director of Technology and Operations for Banco Santander and a Group Executive Committee member. Additionally, he serves on the board of directors for several companies in the Santander Group. Mr. Fuster previously worked for IBM and Arthur Andersen. He joined Banesto as a Product Manager in 1988 and joined the Santander Group in 1994.

Executive Officers of SHUSA

Certain information, including principal occupation during the past five years, relating to the executive officers of SHUSA, as of the date of this filing is set forth below:

Jorge Morán — Age 47. Mr. Morán was appointed President and Chief Executive Officer of the Company effective February 1, 2011 and serves on the SHUSA and Sovereign Bank Boards. He also is the Chairman of the Sovereign Oversight Committee and is a member of the SHUSA and Sovereign Executive, Board Enterprise Risk, and Compensation Committees and is a member of the Sovereign CRA Committee. He is also Chairman of the SHUSA Management Executive Committee. He was appointed as a member of the Board of Directors of Santander Consumer USA, Inc. on December 31, 2011. Mr. Morán joined the Santander Group in 2002. Prior to joining SHUSA, Mr. Morán was a Senior Executive Vice President of Banco Santander, head of its Global Insurance Division and a member of the Group’s management committee. Previously he held a number of executive management positions, including Chief Operating Officer of Abbey, Santander’s business in the U.K. and, from 2005 until 2008, a member of its Board of Directors. Before joining Santander, Mr. Morán was Chief Executive Officer of Morgan Stanley for Spain and Portugal and a partner of AB Asesores, a brokerage and asset management company. Mr. Morán also served as a director of marketing for Natwest (now a unit of the Royal Bank of Scotland) and with Citibank in Spain.

Juan Carlos Alvarez - Age 41, is the Corporate Treasurer of Sovereign Bank (since 2009) and is a member of the SHUSA Management Executive Committee. Mr. Alvarez was appointed as a member of the Board of Directors of Santander Consumer USA, Inc. on December 31, 2011. He served as Global Head of Treasury and Investments for Santander International Private Banking Unit from 2006 to 2009 and Head of Treasury and Investments for Santander Suisse since 2000. Juan Carlos Alvarez is a CFA charterholder.

Edvaldo Morata — Age 48. Mr. Morata was appointed Managing Director of Corporate Banking in 2010 and previously served as Chief of Staff from 2009-2011. He is a member of the SHUSA Management Executive Committee. Mr. Morata has more than 20 years experience in financial services. He joined the Santander Group in 1996. Most recently, he was Santander’s Chief Executive for Asia in Hong Kong. Previously, he held a number of executive management positions, including head of Asset Management and Private Banking in Brazil and head of Banespa’s International Department when it was acquired by Santander in 2001. Mr. Morata was also a member of the Executive Committee of Santander Brazil. Before joining Santander, Mr. Morata worked for a number of financial institutions including American Express, ING and Citibank. Mr. Morata serves as a member of the Board of Directors of the Greater Boston Chamber of Commerce and the Private Industry Council and as a member of the Board of Trustees of the Cluff Fund.

Juan Guillermo Sabater — Age 43. Mr. Sabater was appointed Chief Financial Officer of the Company in May of 2009. He is also a member of SHUSA Management Executive Committee. Mr. Sabater has 19 years of experience in the banking industry, all of them with Santander. Prior to joining Sovereign Bank, Mr. Sabater worked as a Chief Financial Officer as well in Grupo Santander Chile since September 2006. From 2003 — 2006 Mr. Sabater was the Controller for Grupo Santander’s Consumer Finance Division in Madrid, Spain.

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Nuno G. Matos — Age 44. Mr. Matos has served as Managing Director of Retail Business Development and SME Banking since 2009 and was appointed as Managing Director of Retail Banking in 2011. He served on the Board of Directors for SHUSA from March of 2009 to January 2012 and has served on the Board of Directors for Sovereign Bank from March 2009 to present and is a member of the Sovereign’s Board Enterprise Risk and CRA Committees. He is also a member of the SHUSA Management Executive Committee. He was appointed as a member of the Board of Directors of Santander Consumer USA, Inc. on February 14, 2012. Prior to joining SHUSA, Mr. Matos held a number of senior executive management positions for Santander in Europe and South America since joining Santander in 1994. Beginning in 2002, Mr. Matos had worked for Grupo Santander Brazil, where he headed operations and control for the wholesale bank and then led the credit and debit card business for both Banco Real and Santander.

Carlos Garcia — Age 40. Mr. Garcia was appointed to the SHUSA and Sovereign Boards on January 26, 2012. He is the Chief of Staff, Chief of Corporate Affairs and Communications Officer for SHUSA and Sovereign Bank and is a member of the SHUSA Management Executive Committee. Mr. Garcia also serves on the Bank’s CRA Committee. Prior to joining the Company in 2011, Carlos was appointed by the Governor of Puerto Rico as Chairman of the Board, President and CEO of the Government Development Bank for Puerto Rico and served in this capacity from 2009-2011. Mr. Garcia joined the Santander Group in 1997 and for 11 years held a series of executive roles, including President of Banco Santander Puerto Rico and Senior Executive Vice President and Chief Operating Officer of Santander BanCorp. Prior to that, he served as President, CEO and Vice Chairman of the Board of Directors of Santander Securities Corporation, the second largest wealth and asset management firm in Puerto Rico.

David Miree — Age 44. Mr. Miree joined Sovereign in April 2011 as the Managing Director of Retail Network and is a member of the SHUSA Management Executive Committee. Prior to joining Sovereign, he worked at Wells Fargo as Executive Vice President and Regional President for Greater Pennsylvania from May 2008 to December 2010 and he worked at Chevy Chase Bank in Bethesda, Maryland as Senior Vice President and State Banking Executive from February 2003 to May 2008.

Juan Dávila — Age 42. Mr. Dávila was appointed Chief Risk Management Officer for Sovereign Bank in 2009. He is also a member of the SHUSA Management Executive Committee. Prior to his appointment as Chief Risk Management Officer, Mr. Dávila held an executive position in the Bank’s Risk Management Group since he joined the Bank in 2007. From 2004 - 2007, Mr. Dávila served as Chief Risk Officer at Banco Santander, Puerto Rico, responsible for all credit and market risk exposure of the holding company and subsidiaries and was head of the Credit Committee and led a team of more than 125 employees comprising areas of credit, monitoring, market risk, credit policy and risk infrastructure. Mr. Dávila has also held various other senior executive management positions with Banesto and Santander, including the role of risk manager for the Andalucia Region and manager of the risk analysis center for small businesses.

Donna Howe — Age 53. Ms. Howe was appointed as the Chief Risk Officer of SHUSA and Sovereign Bank in January, 2012 and is a member of the SHUSA Management Executive Committee. She previously served as the Chief Risk Officer of Investment Risk for the Hartford Financial Group. Prior to that, she was the founder of Windbeam Risk Advisory and has held positions as the Global Hedge Fund Risk Manager/Managing Director with UBS AG in Stamford, CT (2007-2009), Chief Risk Officer at Angelo, Gordon and Co. (2002 to 2007) and at ABN-AMRO Bank (1997-2002). She is a member of the Board of Directors for the Global Association of Risk Professionals and is a Chartered Financial Analyst.

Federico Papa — Age 41. Mr. Papa was appointed as the Managing Director of Global Banking and Markets in July 2011 and is a member of the SHUSA Management Executive Committee He most recently served as Managing Director and Head of Global Transaction Banking in Europe for Banco Santander from 2008 to 2011 and was previously its Head of Trade, Export and Commodity Finance.

Richard Toomey — Age 67. Mr. Toomey was appointed General Counsel of SHUSA and Sovereign Bank in 2006. He is also a member of the SHUSA Management Executive Committee. He served as Assistant General Counsel of Sovereign Bank from 2000 to 2006. Prior to joining Sovereign Bank, Mr. Toomey served as General Counsel of Sovereign Bank and Fleet Bank, N.A. (NY and NJ) and has 35 years experience in the financial services industry. He is a director of the Greater Boston Legal Services and a Member of Council of the Boston Bar Association.

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Juan Andres Yanes — Age 50. Mr. Yanes was appointed to SHUSA and Sovereign Boards on September 29, 2009 and currently serves as a member of the Executive and Board Enterprise Risk Management Committees of the SHUSA and Sovereign Bank and as member of Sovereign’s CRA and Oversight Committee. Mr. Yanes is the Chief Compliance and Internal Controls Officer for SHUSA and Sovereign Bank and previously served as the Chief Corporate Officer of Santander USA. He is a member of the SHUSA Management Executive Committee. He joined the Santander organization in 1991 and was involved in Investment Banking, Corporate Finance and Financial Markets until 1999. He was the Global Head of Market Risk from 1999 through 2003. In 2003 he was appointed Deputy CRO for the Grupo Santander Risk Division.

Eduardo J. Stock — Age 49. Mr. Stock was appointed to the the Sovereign Bank Board effective February 10, 2012. He is currently the managing Director of the Manufacturing Group (since March of 2009) and is a member of the SHUSA Management Executive Committee. Mr. Stock joined Banco Santander in 1993 as head of Treasury and Research for Santander Negócios Portugal. During his tenure at Santander, he held a number of senior executive management positions in the Group’s Portuguese business. Most recently, he served as Chief Financial Officer and head of IT and Operations for Santander Totta, as well as President of Isban Portugal. He is currently a non-executive Board member of Banco Santander Totta.

Francisco J. Simon — Age 40. Mr. Simon was appointed Managing Director of Human Resources in January of 2009. He is also a member of the SHUSA Management Executive Committee. Prior to joining Sovereign Bank, Mr. Simon worked in the human resources areas of other Santander affiliates. From 2000—2003 he served as Coordinator of Human Resources for Santander International Private Banking Groups; from 2003—2008 he was Director of Human Resources for Banco Santander Suisse; and from 2008—2009 he was Director of Human Resources for Banco Santander, New York. Mr. Simon received his law degree from San Pablo University, where he specialized in Finance, Labor Law and Criminology.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires SHUSA’s officers and directors, and any persons owning ten percent or more of SHUSA’s common stock or any class of SHUSA’s preferred stock, to file in their personal capacities initial statements of beneficial ownership, statements of changes in beneficial ownership and annual statements of beneficial ownership with the SEC. Persons filing such beneficial ownership statements are required by SEC regulation to furnish SHUSA with copies of all such statements filed with the SEC. The rules of the SEC regarding the filing of such statements require that “late filings” of such statements be disclosed by SHUSA. Based solely on SHUSA’s review of any copies of such statements received by it, and on written representations from SHUSA’s existing directors and officers that no annual statements of beneficial ownership were required to be filed by such persons, SHUSA believes that all such statements were timely filed in 2011. Since Santander’s acquisition of SHUSA, none of the filers have owned any of SHUSA’s common stock or shares of any class of SHUSA’s preferred stock.

Code of Ethics

SHUSA adopted a Code of Ethics that applies to the Chief Executive Officer and Senior Financial Officers (including, the Chief Financial Officer and Chief Accounting Officer of SHUSA and Sovereign Bank). SHUSA undertakes to provide to any person without charge, upon request, a copy of such Code of Ethics by writing to Investor Relations Department, Santander Holdings USA, Inc., 75 State Street, Boston, Massachusetts 02109.

Procedures for Nominations to the SHUSA Board

As noted elsewhere in this Form 10-K, on January 30, 2009, SHUSA became a wholly-owned subsidiary of Santander as a result of the consummation of the transactions contemplated by the Transaction Agreement. Immediately following the effective time of the Santander transaction, because Santander is the sole shareholder of all of SHUSA’s outstanding voting securities, the SHUSA Board no longer has a procedure for security holders to recommend nominees to the SHUSA Board.

Matters Relating to the Audit Committee of the Board

Mr. Ferriss was appointed as Chairman of the Audit Committee on January 25, 2012. Mr. Schoellkopf served as Chairman of the Audit Committee from 2010 to January 25, 2012. Mr. Schoellkopf and Mrs. Heard are members of the Audit Committee.

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Item 11. Executive Compensation.

Compensation Discussion and Analysis

This Compensation Discussion and Analysis relates to the executive officers included in the Summary Compensation Table, which we refer to collectively as the “named executive officers.” We are a wholly owned subsidiary of Banco Santander, S.A., which we refer to as “Santander.” This Compensation Discussion and Analysis explains our role and the role of Santander in setting the compensation of the named executive officers.

For 2011, our named executive officers were:

• Jorge Morán, President and Chief Executive Officer of Santander Holdings USA, Inc., which we refer to as “SHUSA, commencing on February 1, 2011;

• Guillermo Sabater, Chief Financial Officer of SHUSA;

• Thomas G. Dundon, President and Chief Executive Officer of Santander Consumer USA, Inc., which we refer to as “SCUSA,” a subsidiary of SHUSA;

• Nuno Matos, Managing Director—Retail Banking of SHUSA;

• Juan Yanes, Chief Executive of Compliance and Internal Control, who commencing providing services for SHUSA on July 28, 2011; and

• Gabriel Jaramillo, Chairman, President, and Chief Executive Officer of SHUSA through January 31, 2011.

General Philosophy and Objectives

The fundamental principles that Santander and we follow in designing and implementing compensation programs for the named executive officers are to:

• attract, motivate, and retain highly skilled executives with the business experience and acumen necessary for achieving our long-term business objectives;

• link pay to performance;

• align, to an appropriate extent, the interests of management with those of Santander and its shareholders; and

• use our compensation practices to support our core values and strategic mission and vision.

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Santander aims to provide a total compensation package that is comparable to that of similar financial institutions in the country in which the executive officer is located. Within this framework, Santander considers each component of each named executive officer’s compensation package independently, that is, Santander does not evaluate what percentage each component equals with respect to the total compensation package.

In general, Santander took into account individual performance, level of responsibility, and track record within the organization in setting each of the named executive officer’s compensation for 2011.

In general, we seek to maximize deductibility for tax purposes of all elements of the compensation of the named executive officers. We review compensation plans in light of applicable tax provisions and revise compensation plans and arrangements from time to time to maximize deductibility. We, however, may approve compensation or compensation arrangements for the named executive officers that do not qualify for maximum deductibility when we deem it to be in our best interest.

This section of the Compensation Discussion and Analysis provides information with respect to our named executive officers:

• the general philosophy and objectives behind their compensation,

• the role and involvement of the several 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.

Since we are a wholly owned subsidiary of Santander and do not hold shareholder meetings, we do not conduct shareholder advisory votes.

The Parties Involved in Determining Executive Compensation

The Role of Our Compensation Committee

As of the date of the filing of this Annual Report on Form 10-K, our Compensation Committee included Messrs. Morán and Schoellkopf and Ms. Heard, who is the Committee chair. Our Compensation Committee has the responsibility of, among other things:

• approving the terms of our incentive compensation programs, including the Executive Bonus Program in which our named executive officers participate;

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• reviewing and approving the risk assessment process to be utilized by our Compensation Risk Mitigation Committee (which we describe below) in connection with our incentive compensation programs, including the Executive Bonus Program;

• monitoring the performance and regularly reviewing the design and function of the incentive compensation programs, including the Executive Bonus Program, to assess whether the overall design and performance of such programs are consistent with the Company’s safety and soundness and do not encourage employees, including our named executive officers, to take excessive risk;

• approving amounts paid under the incentive compensation programs, including the Executive Bonus Program;

• overseeing the administration of our qualified retirement plan under which all eligible employees can participate, including the named executive officers, as well as certain deferred compensation plans; and

• approving our affirmative action plan and reviewing, at least annually, the Company’s hiring, termination, compensation and other employment practices as they relate to the Company’s affirmative action plan.

The fundamental authority and responsibilities of our Compensation Committee in 2011 with respect to compensation matters related to the named executive officers was to:

• evaluate the standards of the Executive Bonus Program against the guidance issued by the regulatory authorities applicable to us;

• review the incentive compensation proposed to be granted to our named executive officers; and

• approve any required reports on executive compensation for inclusion in our filings with the SEC, including this Annual Report on Form 10-K.

Our Compensation Committee met five times in 2011.

The Role of Santander’s Evaluation and Bonus Committee

Santander’s Evaluation and Bonus Committee has the authority and responsibility to oversee the performance management reviews, and to prepare the bonus pools for management to present to Santander’s Appointments and Remuneration Committee. Santander’s Evaluation and Bonus Committee also approves individual bonus awards that Santander’s Board does not ultimately approve.

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The Role of Santander’s Appointments and Remuneration Committee

Santander’s Appointments and Remuneration Committee has the authority and responsibility to, among other things, present to Santander’s Board the compensation of Santander’s senior executives, which group includes each of the named executive officers.

The Role of Santander’s Board of Directors

Santander’s Board of Directors approves the compensation of certain of Santander’s management, including our named executive officers. Santander’s Board of Directors has delegated certain of its powers and responsibilities to its Executive Committee.

The Role of Santander Consumer Finance’s Board of Directors

Santander Consumer Finance’s Board of Directors, in consultation with Santander Consumer Finance’s Corporate Rewards and Compensation Committee, proposes Mr. Dundon’s bonus to Santander’s Evaluation and Bonus Committee. Santander Consumer Finance generally runs Santander’s global consumer finance line of business.

The Role of our Management

In 2010, we established a management advisory and consultation committee, which we call the Compensation Risk Mitigation Committee, to among other purposes, oversee our incentive compensation programs and make recommendations to our Compensation Committee with respect to our incentive compensation programs. A key responsibility of our Compensation Risk Mitigation Committee is to review our incentive compensation programs to ensure the programs do not incentivize excessive risk and make recommendations to our Compensation Committee in accordance with applicable law. The Compensation Risk Mitigation Committee is chaired by our Managing Director of Human Resources and met three times in 2011.

Our management also played a role in other parts of the compensation process with respect to the named executive officers in 2011. Mr. Morán generally performed (or delegated to our human resources department) management’s responsibilities (except with respect to his own compensation) in accordance with the rules set forth by Santander. The most significant aspects of management’s role in the compensation process were presenting, and recommending for approval, salary and bonus recommendations for the named executive officers to Santander’s Evaluation and Bonus Committee and, with respect to Messrs. Morán and Yanes, Santander’s Appointments and Remuneration Committee and presented the proposed bonus recommendations to our Compensation Committee for its review.

Management did not have any role in setting Mr. Dundon’s compensation for 2011.

None of the named executive officers determined or approved any portion of their compensation for 2011.

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The Role of Outside Independent Compensation Advisors

Santander’s Appointments and Remuneration Committee engaged Towers Watson to assist in setting fixed and variable compensation for Santander’s worldwide employees. In addition, Santander’s human resource department engaged ORC Worldwide to assist it in determining possible salary adjustments for expatriate employees, including the named executive officers, as we describe below. ORC Worldwide provided data on the compensation of expatriate employees of other global financial institutions.

We did not engage a compensation consultant for 2011.

Components of Executive Compensation

For 2011, the compensation that we paid to our named executive officers consisted primarily of base salary and short- and long-term incentive opportunities, as we describe more fully below. In addition, the named executive officers are eligible for participation in company-wide benefits plans, and we provide the named executive officers with certain benefits and perquisites not available to the general team member population but that are, in the case of our expatriate executives, in accordance with Santander’s International Mobility policy. In general, Santander’s objective in establishing its International Mobility Policy is to permit all expatriate employees, which include the named executive officers, to maintain on an equal basis the same standard of living that they were accustomed to in the employee’s originating country.

Base Salary

Base salary represents the fixed portion of the named executive officers’ compensation and we intend it to provide compensation for expected day-to-day performance. The base salaries of the named executive officers were generally set in accordance with each named executive officer’s employment or letter agreement and Santander’s International Mobility policy for expatriate executives of similar levels. While each of the named executive officer’s employment or letter agreements provide for the possibility of increases in base salary, annual increases are not guaranteed. Our Managing Director of Human Resources consulted with Santander’s Appointments and Remuneration Committee and Santander’s Board of Directors in setting the base salary of Messrs. Morán and Yanes. Santander’s Evaluation and Bonus Committee issued recommendations with respect to Santander’s overall salary policy for 2011 for Santander’s “Top Red” executives, including Messrs. Sabater, Dundon, and Matos. Mr. Morán recommends for approval to Santander’s Head of Corporate Human Resources, the base salaries for these executives, other than Mr. Dundon, based, in part, on these recommendations.

Annual Discretionary Bonuses

In certain cases, we award annual discretionary bonuses to the named executive officers to motivate and reward outstanding performance. These awards permit us to apply discretion in determining awards rather than applying a formulaic approach that may inadvertently reward inappropriate risk-taking. None of the named executive officers received discretionary bonuses for 2011.

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Retention Bonuses

In certain limited cases, we will provide retention bonuses to certain of our executive officers as an inducement for them to stay in active service with us. We made no retention bonuses to the named executive officers in 2011.

Short-Term Incentive Compensation

We provide annual short-term incentive opportunities for the named executive officers to reward achievement of both corporate and individual performance objectives, as well as to reinforce key cultural behaviors used to achieve short-term and long-term success. Our short-term incentive programs are intended to motivate participants to achieve these objectives by providing an opportunity to receive higher compensation if these objectives are met.

Our short-term incentive compensation programs generally establish both financial and non-financial measures for each executive officer, including threshold performance expectations for triggering incentive payout eligibility as well as target and maximum performance benchmarks for determining ongoing incentive awards and final incentive payouts.

On May 17, 2011, based on the recommendation of our Executive Committee/Compensation Risk Mitigation Committee, our Compensation Committee approved the Sovereign Bank Executive Bonus Program for Messrs. Morán, Sabater, and Matos. SCUSA’s Board of Directors approved the SCUSA Executive Bonus Program for Mr. Dundon. Santander approved Mr. Yanes’s Executive Bonus Program. We collectively refer to these programs as the “Executive Bonus Program.” The Executive Bonus Program is aligned directly with Santander’s corporate bonus program for executives of similar levels across the Santander platform. The program provides for significant variance in the amount of potential awards, higher or lower, in order to reinforce our pay for performance philosophy. Each of the named executive officers, except for Mr. Jaramillo, participated in the Executive Bonus Program for 2011.

The Executive Bonus Program incorporate both Santander and subsidiary metrics to ensure that the plan award pool links the pay of its executives to the pay of other executives of similar levels within the Santander platform. Santander’s financial control division set both subsidiary and Santander’s targets. We reviewed the appropriateness of the financial measures used in the Executive Bonus Program with respect to the named executive officers and the degree of difficulty in achieving specific performance targets and determined that there was a sufficient balance.

The quantitative metrics for determining the funding scheme for 2011 included net profit and return on risk-adjusted capital targets as follows:

• for Messrs. Morán, Sabater, and Matos, 60% determined based upon SHUSA’s net attributable profits for 2011 versus its target for 2011

• for Messrs. Morán, Sabater, and Matos, 10% determined based upon SHUSA’s return on risk-adjusted capital for 2011 versus its target for 2011

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• for Messrs. Morán, Sabater, and Matos, 25% determined based upon Santander’s net profits for 2011 versus its target for 2011

• for Messrs. Morán, Sabater, and Matos, 5% determined based upon Santander’s return on risk-adjusted capital for 2011 versus its target for 2011

• for Mr. Dundon, 100% determined based upon Santander Consumer Finance’s net profits for 2011 versus its target for 2011

• for Mr. Yanes, 100% determined based upon Santander’s net profits for 2011 versus its target for 2011

Santander’s Evaluation and Bonus Committee may also adjust the funding scheme based on circumstances, including our risk and liquidity profile, the relevant entity’s degree of compliance with local regulations and Santander policies, and, in general, the quality of results. For 2011, there was no such adjustment.

We assigned each participant in the Executive Bonus Program a base bonus amount at the beginning of 2011, based on grade level, market benchmark for the position, authority, duties, responsibilities, and job type. We determine base bonus amounts, subject to Santander’s Evaluation and Bonus Committee review and approval. If the relevant entity achieves a certain level of net profit or return on risk-adjusted capital target, the plan award pool is funded by a specific percentage of the aggregate base bonus amounts of the participants as set forth below

		September 30,
Achievement of Target	Percentage Payout of Target Bonus Amount
130%		150	%
120%		140	%
110%		130	%
105%		120	%
100%		110	%
95%		100	%
90%		90	%
80%		80	%
75%		65	%
70%		50	%
<70%		0	%

If the actual quantitative metric falls between the above achievement points, the percentage payout will be interpolated.

For purposes of the Sovereign Bank Executive Bonus Program, SHUSA’s net attributable profits, after adjustments for SCUSA, group consolidation, and one-time charges, were $732 million. This amount resulted in the achievement of 94.2% of the internal net profit target under the Sovereign Bank Executive Bonus Program. In addition, SHUSA’s return on risk-adjusted capital, after the same adjustments, was 18.3% which resulted in achievement of 92.9% of the return on risk-adjusted capital target.

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Santander’s attributable net profits were €5,351 million, after extraordinary capital gains and other provisions. As determined by Santander’s Bonus and Evaluation Committee under the bonus program, Santander achieved 82.9% of the internal net profits target. In addition, Santander’s return on risk-adjusted capital was 16.3%, which, as determined by the Evaluation and Bonus Committee under the program, resulted in achievement of 88.1% of the internal return on risk-adjusted capital target.

Santander Consumer Finance’s attributable profits were €1,228 million, before adjustments for one-time charges. Under the SCUSA bonus program, this resulted in the achievement of 135.5% of the internal net profits target.

Based on these results, the percentage payout under the Executive Bonus Program for the named executive officers was as follows:

• 94.1% for Messrs. Moran, Sabater, and Matos 2011

• 140% for Mr. Dundon

• 83.9% for Mr. Yanes

We multiply this percentage by each named executive officer’s target bonus amount to establish a proposed bonus amount for the executive. We disclose the named executive officers’ threshold, target, and maximum bonus amounts in the “Grants of Plan-Based Awards—2011” table. Each named executive officer’s proposed bonus amount is subject to upward or downward adjustment based on the executive’s individual performance evaluation, but in no event will the aggregate total of the actual bonus amounts exceed the aggregate total of the proposed bonus amounts. The results of such individual performance evaluations are distributed normally as follows: 10% of executives will receive a score of “exceptional,” 15% of executives will receive a score of “outstanding,” 50% of executives will receive a score of “expected,” 15% of executives will receive a score of “close to average,” and 10% of executives will receive a score of “improvable.”

We set forth the bonus opportunities for the named executive officers for 2011 for Messrs. Morán, Sabater, Dundon, Matos, and Yanes in the table captioned “Grant of Plan-Based Awards—2011.” Mr. Jaramillo did not have a bonus target for 2011.

We conducted a detailed assessment of each named executive officer’s accomplishments versus pre-established goals for the year with respect to the individual performance evaluation results. These goals included specific goals directly related to the named executive officer’s job responsibilities. These goals are generally not objective, formulaic, or quantifiable.

In January 2012, Mr. Morán recommended to our Compensation Committee the bonus amounts, if any, awarded under the enhanced Executive Bonus Program for 2011 to Messrs. Sabater and Matos. Santander’s Evaluation and Bonus Committee, in consultation with Mr. Morán, approved the final bonus amounts for these named executive officers.

Santander’s Board of Directors approved Messrs. Morán’s, Yanes’s, and Dundon’s bonus for 2011 in consultation with Santander’s Appointments and Remuneration Committee.

The awards under the Executive Bonus Program are paid 50% in cash and 50% in shares of Santander common stock. We made current awards to the named executive officers under the Executive Bonus Program as short-term incentive awards for 2011 in the amounts that we set forth in the Summary Compensation Table under the caption “Non-Equity Incentive Plan Compensation.” These amounts include payments made with respect to each of the named executive officer’s individual performance and the performance of Santander, SHUSA, and Santander Consumer Finance, as applicable. Participants are required to defer a portion of the bonus as we describe below under the caption “Long-Term Incentive Compensation.” Any award made in shares of Santander common stock under the Executive Bonus Program is subject to a one-year holding requirement from the payment date of the award. For 2012, we anticipate that the structure of our short-term incentive compensation program will be substantially the same as it was in 2011 although no final decision has been made as of the date of the filing of this Annual Report on Form 10-K. As of the date of the filing of this Annual Report on Form 10-K, we have not set the target amounts for 2012, nor have we determined the bonus opportunities for the named executive officers for 2012.

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Long-Term Incentive Compensation

For years prior to 2011, each of our named executive officers was eligible to participate in the Performance Shares Plan. The Performance Shares Plan was the main instrument that Santander uses for providing medium- and long-term incentive compensation for selected executives across its global platform. Santander developed the Performance Shares Plan to align the interests of Santander’s executives with those of its shareholders. The named executive officers did not receive any awards under the Performance Shares Plan for 2011, but vested in certain awards that we made in previous years. We describe the Performance Shares Plan and the awards made to the named executive officers under the caption “Our Equity Compensation Plans” in the discussion following the Summary Compensation Table.

Under the Executive Bonus Program, certain Santander executives, including the named executive officers, are required to defer a portion of their bonus. Messrs. Morán and Yanes must each defer 50% of their awards and Messrs. Sabater, Dundon, and Matos each must defer 40% of their awards. The deferred bonus (whether payable in cash or Santander common stock) is payable in three annual installments if the executive officer remains employed at Santander through the applicable payment date and the executive officer meets certain performance conditions. We describe the deferral portion of the Executive Bonus Program more fully under the section entitled “Our Equity Compensation Plans.”

SCUSA has adopted the Santander Consumer USA, Inc. 2011 Management Equity Plan, which we refer to as the “SCUSA Equity Plan.” Under the SCUSA Equity Plan, eligible SCUSA employees and directors, including Mr. Dundon, are eligible to receive options to purchase SCUSA common stock with an exercise price of at least the fair market value of SCUSA common stock on the date of grant. Grants may be in the form of time options, with vesting based on continued provision of services to SCUSA, or in the form of performance options, with vesting based on continued service with SCUSA and the achievement of performance targets relating to SCUSA’s return on equity.

SCUSA did not make any awards under the SCUSA Equity Plan in 2011. We describe the SCUSA Equity Plan more fully under the section entitled “Our Equity Compensation Plans.”

Certain of Santander’s executive management team, including Mr. Morán and Mr. Jaramillo, participated in the Obligatory Investment Plan. Under the Obligatory Investment Plan, participants were required to dedicate 10% of their annual bonus compensation to the purchase of Santander common stock. If the participant held such shares for three years, Santander will provide a 100% match on the shares that the executive purchased. Messrs. Sabater, Dundon, Matos, and Yanes do not participate in the Obligatory Investment Plan. The Obligatory Investment Plan terminated by its terms in 2010 for bonuses earned for 2009 performance. We describe the Obligatory Investment Plan in more detail under the caption “Our Equity Compensation Plans” in the discussion following the Summary Compensation Table.

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Other Compensation

Compensation packages for the named executive officers are modeled to be competitive globally and within the country of assignment, and attractive to each executive in relation to the significant commitment he or she must make in connection with a global posting. In addition to the benefits that all our team members are eligible to participate in, these named executive officers are eligible for certain other benefits and perquisites. The additional benefits and perquisites that were significant when compared to other compensation received by our other executive officers include housing expenses, children’s education costs, travel expenses, and tax equalization payments. These benefits and perquisites are, however, consistent with those paid to similarly placed Santander executives who are subject to appointment to Santander locations globally as deemed appropriate by Santander senior management. Additionally, Santander reviewed compensation surveys of human resources advisory firms, which have shown that these types of benefits and perquisites are common elements of expatriate programs of global companies.

We describe the additional perquisites and benefits that we paid to the named executive officers below in the notes to the Summary Compensation Table.

Retirement Benefits

Each of the named executive officers is eligible to participate in their respective employer’s qualified retirement plan under the same terms as other of such employer’s eligible employees. In addition, certain of Santander’s executive officers, including Mr. Sabater is eligible to participant in a defined contribution retirement plan. In addition, Messrs. Morán and Yanes are entitled to certain payments under their employment agreements with Santander upon their retirement under certain circumstances. Santander provides these benefits in order to foster the development of these executives’ long-term careers with Santander. We describe these executive officers’ retirement benefits below under the captions “Other Arrangements”

Employment and Letter Agreements

We have entered into letter agreements with our named executive officers to establish key elements of compensation that differ from our standard plans and programs. Santander has also entered into employment agreements with Messrs. Morán, Dundon, and Yanes. Messrs. Morán’s, Dundon’s, and Yanes’s agreements with Santander facilitates the creation of covenants, such as those prohibiting post-employment competition or solicitation by the executives. We and Santander believe these agreements provide stability to the organization and further our overarching compensation objective of attracting and retaining the highest quality executives to manage and lead us. We discuss these agreements below under the caption “Description of Employment and Related Agreements.”

Benchmarking

Neither we nor Santander undertook benchmarking in 2011 with respect to the compensation of the named executive officers, except that Santander undertook some internal benchmarking with respect to the compensation of its expatriate executives.

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Matters Relating to the Compensation Committee of the Board

Compensation Committee Report

For purposes of Item 407(e)(5) of Regulation S-K, the Compensation Committee furnishes the following information. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in Part III—Item 11 of the Form 10-K with management. Based upon the Compensation Committee’s review and discussion with management, the Compensation Committee has recommended that the Compensation Discussion and Analysis be included in the Form 10-K for the fiscal year ended December 31, 2011.

Submitted by:

Marian L. Heard, Chair

Jorge Morán

Wolfgang Schoellkopf

The foregoing “Compensation Committee Report” shall not be deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, and notwithstanding anything to the contrary set forth in any of SHUSA’s previous filings under the Securities Act or the Exchange Act, that incorporate future filings, including this Form 10-K, in whole or in part, the foregoing “Compensation Committee Report” shall not be incorporated by reference into any such filings.

Compensation Committee Interlocks and Insider Participation

The following directors served as members of our Compensation Committee in 2011: Marian Heard (Chair), Wolfgang Schoellkopf, and Jorge Morán, who replaced Gabriel Jaramillo on the Committee on February 1, 2011. Mr. Jaramillo served on our Compensation Committee from January 20, 2010 through January 31, 2011.

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Gabriel Jaramillo and Jorge Morán each had lending relationships with Sovereign Bank that were made and remained in compliance with Regulation O of the Board of Governors of the Federal Reserve System. Such loans (i) were made in the ordinary course of business, (ii) 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 Sovereign Bank, and (iii) did not involve more than the normal risk of collectability or present other unfavorable features. As detailed in Item 13 of this Form 10-K, during the 2011 fiscal year, Messrs. Morán and Jaramillo also served as executive officers of Santander or an affiliated entity, and certain relationships existed between SHUSA and its affiliates, on one hand, and Santander and its affiliates, on the other hand. With these exceptions, no member of the Compensation Committee (i) was, during the 2011 fiscal year, or had previously been, an officer or employee of SHUSA or its subsidiaries nor (ii) had any direct or indirect material interest in a transaction of SHUSA or a business relationship with SHUSA, in each case that would require disclosure under the applicable rules of the SEC. Except as described above, no other interlocking relationship existed between any member of our Compensation Committee or an executive officer of SHUSA, on the one hand, and any member of the Compensation Committee (or committee performing equivalent functions, or the full Board of Directors) or an executive officer of any other entity, on the other hand, requiring disclosure pursuant to the applicable rules of the SEC.

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Summary Compensation Table—2011

		xxx		xxx		xxx		xxx		xxx		xxx		xxx		xxx		xxx
Name and Principal Position	Year		Salary ($) (6)		Bonus ($)		Stock Awards ($) (7)		Option Awards ($) (7)		Non-Equity Incentive Plan Compen- sation ($)(8)		Change in Pension Value and Nonqualified Deferred Compen- sation Earnings ($) (9)		All Other Compen- sation ($) (10)		Total ($)
Jorge Morán (1) President and Chief Executive Officer		2011	$	1,888,398	$	0	$	727,481	$	0	$	1,766,076	$	7,169,290	$	771,850	$	12,323,095
Guillermo Sabater Chief Financial Officer		2011	$	284,222	$	0	$	331,791	$	0	$	330,000	$	0	$	362,509	$	1,308,521
		2010	$	283,944	$	0	$	202,200	$	0	$	748,000	$	0	$	351,257	$	1,585,401
		2009	$	224,036	$	62,627	$	54,824	$	0	$	275,000	$	0	$	292,324	$	908,811
Thomas G. Dundon (2) President and Chief Executive Officer of Santander Consumer USA, Inc.		2011	$	1,028,039	$	0	$	711,838	$	0	$	1,022,823	$	0	$	145,922	$	2,908,622
Nuno Matos (3) Managing Director— Retail Banking		2011	$	395,668	$	0	$	975,668	$	0	$	600,000	$	0	$	398,729	$	2,319,571
		2010	$	364,703	$	0	$	370,700	$	0	$	1,547,238	$	0	$	403,814	$	2,686,455
		2009	$	359,476	$	187,880	$	148,808	$	0	$	1,025,000	$	0	$	325,887	$	2,047,051
Juan Yanes (4) Chief Executive of Compliance and Internal Control		2011	$	464,727	$	0	$	842,188	$	0	$	970,815	$	1,903,620	$	394,742	$	3,770,081
Gabriel Jaramillo (5) Former Chairman, President, and Chief Executive Officer		2011	$	1,006,500	$	0	$	0	$	0	$	0	$	0	$	3,535	$	1,010,035
		2010	$	2,013,000	$	0	$	1,264,942	$	0	$	3,635,537	$	0	$	1,041,281	$	7,954,760
		2009	$	1,869,987	$	0	$	0	$	0	$	4,560,000	$	0	$	1,051,301	$	7,481,288

Footnotes:

1. Mr. Morán began serving as our President and Chief Executive Officer on February 1, 2011. Mr. Morán also served as a director SHUSA and Sovereign Bank for 2011. Mr. Morán receives no compensation for his service as a director.

2. Mr. Dundon also served as a director of SHUSA and SCUSA commencing on April 14, 2011. Mr. Dundon receives no compensation for his service as a director.

3. Mr. Matos also served as a director of SHUSA and Sovereign Bank for 2011. Mr. Matos receives no compensation for his service as a director. Mr. Matos served as Managing Director—Retail Business Development and Marketing through January 2, 2011.

4. In 2011, Mr. Yanes was employed by Santander’s New York Branch but commenced performing services for SHUSA on July 28, 2011. Mr. Yanes formally became an employee of SHUSA on February 1, 2012. Amounts reflect compensation that Mr. Yanes received with respect to his service with SHUSA. Mr. Yanes also served as a director SHUSA and Sovereign Bank for 2011. Mr. Yanes receives no compensation for his service as a director.

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5. Mr. Jaramillo stepped down as President and Chief Executive Officer of SHUSA on January 31, 2011. Mr. Jaramillo served as a director of SHUSA from February 1, 2011, through June 29, 2011. Mr. Jaramillo also served as a director of Sovereign Bank and provided consulting services to Sovereign Bank from February 1, 2011, through December 21, 2011.

6. Amounts in this column are based on actual base compensation paid through the end of the applicable fiscal year. Amount for Mr. Jaramillo for 2011 includes $200,556 that we paid to Mr. Jaramillo for service on the SHUSA and Sovereign Bank Boards in 2011.

7. The amounts in these columns reflect the grant date fair value of such awards in accordance with A.S.C. Topic 718, for equity awards granted under Santander’s equity compensation plans. We include the assumptions used in the calculation of these amounts in the footnotes to our audited financial statements included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2011. We describe Santander’s equity compensation programs under the caption “Our Equity Compensation Plans.”

8. The amounts in this column for 2011 do not include amounts payable in Santander common stock that vest in future years pursuant to the terms of the Executive Bonus Program. We describe the Executive Bonus Program under the caption “Short-Term Incentive Compensation.” The amounts in this column 2011 reflect the change in the structure of our bonus program from earlier years. The bonuses earned by the named executive officers for 2011 before deferral were:

		September 30,
Named Executive Officer	Bonus
Jorge Morán	$	3,532,154
Guillermo Sabater	$	660,000
Thomas Dundon	$	2,045,645
Nuno Matos	$	1,200,000
Juan Yanes	$	1,941,631

9. Includes the aggregate change in the actuarial present value of the amounts that Messrs. Morán and Yanes are entitled to receive upon their retirement pursuant to the terms of their employment agreements with Santander.

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10. Includes the following amounts that we paid to or on behalf of the named executive officers:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
	Year		Morán		Sabater		Dundon		Matos		Yanes		Jaramillo
Provision of Car, Car Allowance, or Personal Use of Company Automobile (*)		2011	$	8,186	$	12,912	$	12,246	$	12,912	$	3,987	$	0
		2010	$	—	$	12,912	$	—	$	12,912	$	—	$	0
		2009	$	—	$	5,932	$	—	$	12,142	$	—	$	132,079
Santander Contribution to		2011	$	0	$	39,761	$	12,250	$	0	$	0	$	0
Defined Contribution Plan		2010	$	—	$	37,832	$	—	$	40,969	$	—	$	0
		2009	$	—	$	29,196	$	—	$	0	$	—	$	0
Club		2011	$	1,727	$	0	$	12,336	$	1,282	$	293	$	105
Memberships		2010	$	—	$	0	$	—	$	1,282	$	—	$	1,873
		2009	$	—	$	0	$	—	$	738	$	—	$	2,888
Relocation Expenses		2011	$	150,000	$	0	$	0	$	0	$	1,750	$	0
and Temporary		2010	$	—	$	0	$	—	$	0	$	—	$	0
Housing		2009	$	—	$	71,452	$	—	$	37,438	$	—	$	10,591
Housing Allowance,		2011	$	258,856	$	129,199	$	0	$	133,184	$	314,454	$	0
Utility Payments,		2010	$	—	$	235,157	$	—	$	138,557	$	—	$	570,000
and Per Diem		2009	$	—	$	50,672	$	—	$	58,777	$	—	$	411,400
Legal, Tax, and Financial		2011	$	0	$	6,536	$	109,090	$	49,909	$	0	$	0
Consulting		2010	$	—	$	4,390	$	—	$	0	$	—	$	65,173
Expenses		2009	$	—	$	0	$	—	$	1,295	$	—	$	64,811
Life Insurance Allowance		2011	$	0	$	0	$	0	$	0	$	6,187	$	0
and Medical and		2010	$	—	$	0	$	—	$	0	$	—	$	65,605
Dental Reimbursements		2009	$	—	$	0	$	—	$	0	$	—	$	63,897
Tax		2011	$	294,760	$	100,147	$	0	$	130,214	$	31,148	$	0
Reimbursements (**)		2010	$	—	$	82,717	$	—	$	129,271	$	—	$	332,870
		2009	$	—	$	91,680	$	—	$	147,363	$	—	$	362,387
School Tuition		2011	$	36,967	$	58,804	$	0	$	1,054	$	35,468	$	0
and Language		2010	$	—	$	47,170	$	—	$	65,899	$	—	$	0
Classes		2009	$	—	$	40,400	$	—	$	64,511	$	—	$	0
Paid Parking		2011	$	4,758	$	5,880	$	0	$	5,880	$	0	$	3,430
		2010	$	—	$	5,760	$	—	$	5,760	$	—	$	5,760
		2009	$	—	$	2,992	$	—	$	3,623	$	—	$	3,248
Airfare for Annual		2011	$	16,597	$	9,270	$	0	$	13,800	$	5,442	$	0
Trip Home		2010	$	—	$	25,318	$	—	$	9,163	$	—	$	0
		2009	$	—	$	0	$	—	$	0	$	—	$	0
Total		2011	$	771,850	$	362,509	$	145,922	$	348,235	$	398,729	$	3,535
		2010	$	—	$	351,257	$	—	$	403,814	$	—	$	1,041,281
		2009	$	—	$	292,324	$	—	$	325,887	$	—	$	1,051,301

(*) The value that we attribute to the personal use of SHUSA-provided automobiles (as calculated in accordance with Internal Revenue Service guidelines) is generally included as compensation on the Forms W-2 of the named executive officers who receive such benefits. Each such named executive officer is responsible for paying income tax on such amount (generally subject to the right of each named executive officer to receive a tax gross-up payment with respect to the provision of such benefits). We determined the aggregate incremental cost of any personal use of company automobiles in accordance with the requirements of the U.S. Treasury Regulation § 1.61-21.

(**) Includes amounts paid to gross up for tax purposes certain perquisites in accordance with an applicable letter agreement or other arrangement.

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Grants of Plan-Based Awards—2011

		XXXX		XXXX		XXXX		XXXX	XXXX		XXXX	XXXX	XXXX	XXXX		XXXX
			Estimated Possible Future Payouts Under Non-Equity Incentive Plan Awards (1)						Estimated Possible Future Payouts Under Equity Incentive Plan Awards			All Other Stock Awards: Number of Shares of Stock or Units (#) (3)	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Sh)	Grant Date Fair Value of Stock and Option Awards ($)
Name	Grant Date		Threshold ($)		Target ($)		Maximum ($)		Minimum (#)	Target (#) (2)
Jorge Morán			$	1,458,400	$	2,916,800	$	4,375,200
		3/22/2011									60,674				$	727,481
		2/15/2011									42,392				$	429,044
Guillermo Sabater			$	312,992	$	625,984	$	938,977
		3/22/2011									20,000				$	239,800
		2/15/2011									9,090				$	91,991
Thomas Dundon			$	730,588	$	1,461,175	$	2,191,763
		3/22/2011									37,080				$	444,589
		2/15/2011									26,408				$	267,249
Nuno Matos			$	668,189	$	1,336,378	$	2,004,567
		3/22/2011									28,000				$	335,720
		2/15/2011									63,236				$	639,948
Juan Yanes			$	970,816	$	1,941,632	$	2,912,448
		3/22/2011									40,970				$	491,230
		2/15/2011									34,677				$	350,958
Gabriel Jaramillo			$	0	$	0	$	0
		3/22/2011									0				$	0

Footnotes:

(1) These columns reflect the estimated possible payouts for named executive officers under the applicable bonus program for fiscal year 2011 based on the performance targets that we set in September 2011. We report the actual awards paid out under our bonus programs in the Summary Compensation Table and describe our bonus programs in the Compensation Discussion & Analysis.

(2) This column reflects the target numbers of shares of common stock that each named executive officer may receive under the I-13 Plan and the Executive Bonus Program. We describe the I-13 Plan and the Executive Bonus Program under the caption “Our Equity Compensation Plans.”

(3) This column reflects the maximum number of shares of SCUSA common stock that Mr. Dundon may acquire pursuant to the exercise of time options granted under the SCUSA Equity Plan.

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Outstanding Equity Awards at Fiscal 2011 Year End

		September 30,		September 30,		September 30,	September 30,	September 30,	September 30,	September 30,		September 30,			September 30,
	Option Awards								Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive  Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)		Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock that have not Vested (#)	Market Value of Shares or Units of Stock that have not Vested ($)	Number of Unearned Shares, Units or Other Rights that have not Vested (#)			Market or Payout Value of Unearned Shares, Units or Other Rights that have not Vested ($)
Jorge Morán		0		0		0						60,674	(1)	$	461,614
												60,674	(2)	$	461,614
												24,590	(3)	$	187,083
												13,328	(4)	$	101,401
												42,392	(5)	$	322,523
Guillermo Sabater		0		0		0						15,000	(1)	$	114,122
												20,000	(2)	$	152,162
												9,090	(5)	$	69,158
Thomas Dundon		0		0		0						36,000	(1)	$	380,159
												37,080	(2)	$	391,564
												26,408	(5)	$	200,915
Nuno Matos		0		0		0						27,500	(1)	$	209,223
												28,000	(2)	$	213,027
												63,236	(5)	$	481,106
Juan Yanes		0		0		0						40,970	(1)	$	432,642
												40,970	(2)	$	432,642
												34,677	(5)	$	263,826
Gabriel Jaramillo		0		0		0						0		$	0

Footnotes:

(1) Santander awarded these restricted stock units on February 15, 2010, as part of the I-12 Plan. These units vest in accordance with the terms of the I-12 Plan, which we describe under the caption “The Performance Shares Plan.”

(2) Santander awarded these restricted stock units on March 22, 2011, as part of the I-13 Plan. The units vest in accordance with the terms of the I-13 Plan, which we describe under the caption “The Performance Shares Plan.”

(3) Santander awarded these shares on February 26, 2009, under the Obligatory Investment Plan. The shares vested on February 26, 2012, in accordance with the terms of the Obligatory Investment Plan, which we describe under the caption “The Obligatory Investment Plan.”

(4) Santander awarded these shares on February 22, 2010, under the Obligatory Investment Plan. The shares vest on February 22, 2013, in accordance with the terms of the Obligatory Investment Plan.

(5) Santander awarded these shares on February 15, 2011, under the Executive Bonus Program. One-third of the shares vested on February 15, 2012, one-third vest on February 15, 2013, and one-third vest on February 15, 2014, in accordance with the terms of the Executive Bonus Program, which we describe in the Compensation Discussion and Analysis.

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Option Exercises and Stock Vested—2011

	September 30,	September 30,		September 30,		September 30,
	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)	Number of Shares Acquired on Vesting (#)		Value Realized on Vesting (#)
Jorge Morán				43,303	$	457,280
Guillermo Sabater				6,020	$	63,571
Thomas Dundon				36,963	$	390,328
Nuno Matos				16,340	$	172,550
Juan Yanes				29,240	$	409,847
Gabriel Jaramillo				0	$	0

Our Equity Compensation Plans

As we describe in the Compensation Discussion and Analysis, the named executive officers receive a portion of their compensation in Santander common stock (or American Depositary Shares, in the case of native U.S. participants or participants who elect to have their shares delivered in the U.S.). Set forth below is a description of the equity compensation plans through which we make these common stock awards.

The Performance Shares Plan

As we describe above in the Compensation Discussion & Analysis, each of our named executive officers (other than Mr. Jaramillo) was eligible to participate in the Performance Shares Plan in 2011. The Performance Shares Plan, which Santander sponsors for all of its eligible employees, generally consists of a multi-year bonus plan under which Santander may award a participant a maximum number of shares of Santander common stock. The shares are subject to certain pre-established service and performance requirements.

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Santander makes awards under the Performance Shares Plan in cycles, with one cycle ending each year. We describe the three cycles (each of which we refer to as the “I-11 Plan,” the “I-12 Plan,” and the “I-13 Plan” respectively) for which the named executive officers vested in or received shares in 2011. Santander shareholders approved each of these plans at annual meetings of shareholders. Each plan is similarly structured and has the following features:

• Each cycle is for a three-year period, with payout of shares no later than July 31 of the year following the end of the cycle, as follows:

Plan	Cycle	Date of Payout
I-11 Plan	2008 through 2010	No later than July 31, 2011
I-12 Plan	2009 through 2011	No later than July 31, 2012
I-13 Plan	2010 through 2012	No later than July 31, 2013

• The maximum number of shares that each participant is eligible to receive under each cycle was entirely discretionary as Santander determined 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-11 Plan, pre-established Santander total shareholder return (which we refer to as “TSR”) and growth in earnings per share goals compared to a peer group, with each goal weighted 50%; and

• in the case of the I-12 and I-13 Plans, pre-established Santander TSR goals compared to a peer group.

• Each plan defines TSR as the difference (expressed as a percentage) between the value of a hypothetical investment in ordinary shares of each of the members of a peer group and Santander at the end of the cycle and the value of the same investment at the beginning of the cycle. Santander will consider dividends or similar amounts received by shareholders as if such amounts were invested in more shares. Santander uses the trading price on the exchange with the highest trading volume to calculate the initial and final share prices.

• Santander chooses the peer group from among the world’s largest financial institutions, on the basis of their market capitalization, geographic location, and the nature of their businesses. The peer group may vary slightly from plan to plan. Santander may remove a member of the peer group from the calculations in the event the member is acquired by another company, is delisted, or otherwise is otherwise ceases to be in existence. In such a case, Santander will adjust the maximum number of shares that a participant earns to equitably reflect such removal.

• The I-11 Plan defines growth in earnings per share as the percentage ratio between the earnings per common share as the applicable entity discloses in its consolidated annual financial statements at the beginning and end of each cycle.

• In order for a participant to receive the shares under each plan, the plan requires the participant to remain continuously employed at Santander or a subsidiary through the June 30 of the year following the end of the cycle, except in the cases of retirement, involuntary termination, unilateral waiver by the participant for good cause (as provided under Spanish law), unfair dismissal, forced leave of absence, permanent disability, or death, in which case, the participant (or his or her beneficiary, in the case of death), will receive a pro-rated portion of the participant’s award that he or she would otherwise be entitled to if the participant had remain employed based on the number of days that the participant was employed.

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Santander paid out the applicable number of shares under the I-11 Plan by July 31, 2011, in accordance with its terms. The maximum number of shares payable under each of the other plans as of the end of 2011 to the named executive officers is as follows:

		September 30,		September 30,
Named Executive Officer	I-12 Plan		I-13 Plan
Jorge Morán *		60,674		60,674
Guillermo Sabater		15,000		20,000
Thomas Dundon		36,000		37,080
Nuno Matos		27,500		28,000
Juan Yanes		40,970		40,970
Gabriel Jaramillo		60,000		0

* Shares were awarded to Mr. Morán prior to becoming our President and Chief Executive Officer.

The I-11 Plan

The TSR and growth in earnings per share goals and the associated possible percentages that participants may earn under the I-11 Plan are as follows:

		September 30,			September 30,		September 30,
Santander’s position in the TSR ranking	Percentage of shares earned of maximum			Santander’s position in the EPS growth ranking		Percentage of shares to be delivered of maximum
1st 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	%

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The I-12 Plan and I-13 Plan

The TSR goals are as follows and the associated possible percentages that participants may earn under the I-12 Plan are as follows:

		September 30,
Santander’s position in the TSR ranking	Percentage of  shares earned of maximum
1st to 5th		100.0	%
6th		82.5	%
7th		65.0	%
8th		47.5	%
9th		30.0	%
10th or below		0	%

Bonus Deferral under the 2011 Executive Bonus Program

Under the Executive Bonus Program, certain executive officers, including the named executive officers, are required to defer a portion of their annual bonuses for 2011. The deferral requirement applies to all bonuses and other variable cash compensation. The portion that the executive officer must defer is based the executive’s classification.

		September 30,
Classification	Percentage of Award Deferred
Executive Director		60	%
Senior Management		50	%
Other Executives		40	%

Santander classifies Messrs. Morán and Yanes as “Senior Management” and therefore he must defer 50% of his award. Santander classifies Messrs. Sabater, Dundon, and Matos as “Other Executives” and therefore they each must defer 40% of their respective awards.

All amounts that a participant defers under the Executive Bonus Program are deferred 50% in cash and 50% in Santander common stock. The deferred amounts are paid out in three equal parts over three years provided that the participant remains employed through the applicable payment date (except as described below) and none of the following occurs:

• Santander’s deficient financial performance;

• the participant’s breach of internal rules, including those any related to risk;

• material restatement of Santander’s financial statements, except when modified accounting rules require such restatement; or

• significant variation in the economic capital or in Sovereign Bank’s risk profile.

Any deferred award made in shares of Santander common stock under the Executive Bonus Program is subject to a one-year holding requirement from the vesting date of the award.

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Our named executive officers deferred the following amounts into the Executive Bonus Program and will be entitled to the following number of shares if the above conditions are satisfied:

		September 30,		September 30,		September 30,
Named Executive Officer	Total Amount Deferred		Cash Deferred		Shares Deferred
Jorge Morán	$	1,766,077	$	883,038		111,918
Guillermo Sabater	$	264,000	$	132,000		16,730
Thomas Dundon	$	1,431,951	$	409,129		51,854
Nuno Matos	$	480,000	$	240,000		30,418
Juan Yanes	$	1,456,223	$	485,408		61,521
Gabriel Jaramillo	$	0	$	0		0

* Number of shares based on an exchange rate of €1.390322 to $1 and an €5.675 per share price on the deferral date. Amounts deferred by and shares awarded are estimates subject to the tax-equalization provisions of their respective employment or letter agreement.

Santander’s Remuneration Risk Evaluation Committee will determine whether the conditions for payment are satisfied. Santander’s Appointments and Remuneration Committee will recommend to Santander’s Board whether to approve final payment of amounts under the Executive Bonus Program.

SCUSA Management Equity Plan

As we note above in the Compensation Discussion & Analysis, certain senior executive officers and directors of SCUSA, including Mr. Dundon, are eligible to participate in the SCUSA Equity Plan. Under the SCUSA Equity Plan, participants receive nonqualified stock options to purchase SCUSA common stock with an exercise price of at least the fair market value of SCUSA common stock on the date of grant. The Board of Directors of SCUSA administers the SCUSA Equity Plan.

Under the SCUSA Equity Plan, participants may receive time options, which vest based on the continued provision of services to SCUSA or its subsidiaries or performance options, which vest based on the continued provision of services and the achievement of preestablished performance targets relating the SCUSA’s return on equity.

A participant’s time option generally vests and become exercisable over five years in equal annual installments of 20% per year as long as the participant continuously provides services for SCUSA or a subsidiary. In general, unless otherwise determined by the SCUSA Board, a participant will forfeit his or her time options upon his or her termination of service. Upon a participant’s termination due to death or disability, however, that portion of the participant’s time options that would have vested had the participant continued to provide services through the next following anniversary of the grant date will vest and become exercisable upon such termination due to death or disability.

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A participant’s performance option generally vests and become exercisable over five years in equal annual installments of 20% per year as long as the participant continuously provides services for SCUSA or a subsidiary if, and to the extent, SCUSA achieves the applicable threshold return on equity target set forth in the agreement evidencing such option. If, however, a performance option does not vest due to SCUSA’s failure to achieve the applicable threshold return on equity target, such option will vest if, and to the extent that, SCUSA achieves the applicable average return on equity target starting at the beginning of a preestablished five-year performance period and ending upon the earlier of the end of such performance period or a change in control. Upon a participant’s termination due to death or disability, any of the participant’s unvested performance options will remain outstanding until the next applicable vesting date and shall vest with respect to the 20% installment that was scheduled to vest on such vesting date if and to the extent that such installment would have vested had the participant continued to provide services until such vesting date.

Notwithstanding the termination provisions described above, upon a change in control, unless otherwise provided by the SCUSA Board:

• unvested time options will automatically vest and become exercisable and

• unvested performance options will vest to the extent that SCUSA achieves the applicable average return on equity target starting at the beginning of a preestablished five-year performance period and ending upon the date of the change in control.

A participant’s stock option general terminates upon the earliest of:

• 10 years from the date of grant;

• One year after the participant’s termination of employment by reason of death or disability;

• Immediately upon the participant’s involuntary termination for cause (as defined in the SCUSA Equity Plan);

• 30 days after the participant’s voluntary termination for good reason (as defined in the SCUSA Equity Plan);

• 60 days after the participant’s involuntary termination other than for cause; or

• in the discretion of the SCUSA Board, in the event of a change in control of SCUSA.

The options that Mr. Dundon received are reflected in the table captioned “Grants of Plan Based Awards—2011.”

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The Obligatory Investment Plan

As we note above in the Compensation Discussion & Analysis, Santander required Messrs. Morán and Jaramillo to participate in the Obligatory Investment Plan. Santander terminated the Obligatory Investment Plan in 2010 and replaced it with the deferral feature of Executive Bonus Program, which we describe above.

The Obligatory Investment Plan generally required participants to dedicate 10% (subject to shareholder limitations) of their gross annual bonus to acquire shares of Santander common stock. Participants in the Obligatory Investment Plan were required to purchase the required number shares of Santander common stock on the open market and deposit those shares into a designated account. If the participant holds the shares and remains employed with Santander for three years, Santander will provide at the end of the three-year period a 100% matching contribution of the number of shares that the participant purchased. Santander pays the matching contribution in additional shares of Santander common stock. Participants do not receive dividends on the shares prior to vesting. If a participant terminates employment for any reason before the end of the applicable three-year period, the participant will forfeit Santander’s matching contribution.

A participant’s receipt of Santander’s matching contribution under the Obligatory Investment Plan is subject to there being no:

• deficient financial performance by Santander during the three-year period,

• poor conduct by the participant,

• breach or falsification by the participant in violation of the internal risk rules, and

• material restatement of the entity’s financial statements.

Description of Employment and Related Agreements

We and/or Santander have entered into employment agreements and letter agreements with certain of our executive officers that were in effect at the end of fiscal year 2011. We describe each of the agreements below.

Jorge Morán

Mr. Morán is entitled to a gross base salary of $2,522,000 and an annual bonus contingent on the achievement of certain performance objectives.

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Mr. Morán is a party to an agreement with Santander dated June 15, 2002, as amended, which he is entitled to certain compensation and benefits. Under his agreement, Mr. Morán is entitled to receive certain payments in the event his employment with Santander is terminated under certain circumstances. If Mr. Morán’s employment is terminated at a time when he has from five to 10 years of service with Santander, he is entitled to receive three annual payments of the annual salary he was receiving at the time of his termination. If Mr. Morán’s employment is terminated at a time at a time when he has over 10 years of service with Santander he is entitled to receive five annual payments of the annual salary he was receiving at the time of his termination. Mr. Morán is entitled to these payments under the following circumstances:

• Santander’s terminates Mr. Morán’s employment and such termination is invalid or wrongful as agreed to by the parties or determined by an applicable final ruling or arbitration;

• Santander’s terminates Mr. Morán’s employment because of objective, technical, organizational, or production reasons;

• Santander terminates Mr. Morán’s employment under applicable Spanish law;

• Santander’s terminates Mr. Morán’s employment as a result of an unjustified or improper transfer, as determined by an applicable final labor court ruling or arbitration; or

• Mr. Morán voluntarily terminates employment because of Santander’s serious and wrongful breach or as provided in applicable Spanish law.

Mr. Morán is also entitled to certain retirement benefits upon his termination of employment under certain circumstances:

• If Mr. Morán terminates employment due to retirement, pre-retirement, or early retirement (as such terms are defined in his employment agreement with Santander) or is terminated by Santander after reaching age 50 with 10 years of service, he is entitled to receive lifetime payments equal to 100% of his annual base salary at the time of termination less any amounts due from social security or another Santander pension plan, if any.

• If Mr. Morán dies:

• while employed by Santander, his surviving spouse is entitled to receive lifetime payments equal to 70% of his annual base salary at the time of death less any amounts due from social security or another Santander pension plan, if any;

• after retirement, pre-retirement, or early retirement, his surviving spouse is entitled to receive lifetime payments equal to 60% of his annual base salary at the time of death less any amounts due from social security or another Santander pension plan, if any;

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• his surviving children are entitled to each receive payments until they reach age 25 equal to 20% of his annual base salary at the time of death less any amounts due from social security or another Santander pension plan, if any; and

• the total annual amounts due to Mr. Morán’s surviving spouse and children may not exceed 100% of Mr. Morán’s base annual salary at the time of death.

• If Mr. Morán becomes permanently disabled, he is entitled to receive lifetime annual payments that, when added to any amounts Mr. Morán is entitled to under social security and any other Santander retirement plan, if any, enables Mr. Morán to receive the retirement benefit on the date when he reaches retirement age.

Upon the occurrence of one of the events listed above, Mr. Morán, or his spouse or children as applicable, has the option of receiving a lump sum payment in lieu of the periodic payments described above.

Mr. Morán’s amended agreement provides that, in the event of Mr. Morán’s termination of employment with Santander for any reason other than wrongful or dismissal with no reinstatement, Mr. Morán may not work for another financial institution for two years without Santander’s consent. If Santander does not consent to Mr. Morán providing services for another financial institution during that time period, it must pay Mr. Morán an amount equal to 80% of his base salary at the time of his termination. In the event that Mr. Morán violates this non-compete provision, he will be required to pay Santander a penalty equal to 60% of his base salary at the time of his termination plus any amounts that he received with respect to this non-compete provision.

Mr. Morán’s amended agreement also contains a two-year nonsolicitation provision in the event of his termination of employment with Santander.

Mr. Morán is also entitled to life and health insurance coverage and certain perquisites under his agreement in accordance with Santander’s general policies.

The benefits that Mr. Morán actually received in 2011 under the terms of his agreement are reflected in the “Summary Compensation Table.”

Guillermo Sabater

We entered into a letter agreement with Mr. Sabater, dated as of February 11, 2009.

Mr. Sabater’s agreement has a fixed term of three years; provided that either party may terminate the agreement by notifying the other party in writing at least 90 days prior to the termination date.

The agreement provides for a base salary of $255,448, which we may increase in accordance with existing policies. In addition, Mr. Sabater is eligible to receive an annual bonus, contingent upon the achievement of annual performance objectives. See the discussion under the caption “Short-Term Incentive Compensation” for more information about the bonuses paid for 2011.

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The agreement also provides, among other things, that Mr. Sabater has a right to participate in all long-term incentive compensation programs and all other employee benefit plans and programs available to senior executives. In addition, Mr. Sabater will be covered by the Santander Group health, life, disability, and accidental death insurance plans for expatriates.

In connection with Mr. Sabater’s relocation from Spain to the United States, the agreement provides for:

• 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 ($9,064, based on the exchange rate on December 31, 2011) 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 ($1,942, based on the exchange rate on December 31, 2011) per family member; and

• a one-time payment of $62,627, on a grossed-up basis, for Mr. Sabater’s relocation to the United States and other benefits inherent in his previous assignment in Chile which he received in 2009.

In addition to the foregoing, we will reimburse Mr. Sabater for any tax benefits he would have been able to deduct had he remained in Spain, reimburse Mr. Sabater for tax planning and preparation services, and provide Mr. Sabater with a guaranteed exchange rate of €1 to $1.3917 for transfers from the United States to Spain, up to $68,615 per year.

The benefits that Mr. Sabater actually received in 2011 under the terms of his agreement are reflected in the “Summary Compensation Table.”

In accordance with our policy applicable to all Santander employees who relocate to the United States from abroad in connection with their employment with us, in the event that we terminate Mr. Sabater’s employment without cause, we will provide for all reasonable moving and relocation expenses incurred in relocating Mr. Sabater and his family to Spain.

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Thomas Dundon

Santander and SCUSA entered into an employment agreement with Mr. Dundon on December 31, 2011. This agreement amended and restated the obligations of the parties under a prior agreement dated September 23, 2006 as amended on August 24, 2009.

Mr. Dundon’s agreement has an initial term of five years and, unless earlier terminated, will automatically extend annually for an additional one-year term, unless a party gave the other party written notice at least 90 days prior to such anniversary date that such party did not agree to renew the agreement.

The agreement provides for a base salary of $1,500,000, which we can increase in accordance with our existing policies. In addition, Mr. Dundon is eligible to receive a discretionary annual cash bonus, contingent upon the achievement of annual performance objectives that are established in accordance with SCUSA policies.

The agreement also provides that, among other things, Mr. Dundon had a right to:

• participate in all equity compensation programs and all other employee benefit plans and programs generally available to senior executives.

• reimbursement of reasonable expenses in accordance with SCUSA’s policies and practices; and

Under his agreement, if Mr. Dundon resigns for “good reason” or we terminate his employment without “cause,” (other than for death or disability), provided Mr. Dundon executes a release of claims against us and does not compete with us or solicit our team members during the 12-month period following termination, make disparaging statements about us, or disclose any confidential information, he is entitled to the following severance benefits under his agreement:

• an amount equal to the two times the sum of his then current base salary and the target bonus in effect, payable in a lump sum;

• a lump sum payment equal to his then current base salary, pro-rated through the date of termination; and

• continuation of welfare benefits (including life, long-term disability and other fringe benefits) for Mr. Dundon and his dependents, on the same basis as provided to actively employed senior executives, until the third anniversary of the termination date.

If Mr. Dundon’s employment terminated as a result of his death or “disability” (i.e., determined to be disabled under SCUSA’s long-term disability plan), he is entitled to receive a lump sum payment equal to then current base salary.

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For purposes of the agreement, “cause” means:

• breach of the agreement or other certain agreements to which the Executive and SCUSA are parties in any material respect;

• gross negligence or willful, material malfeasance, misconduct or insubordination in connection with the performance of duties;

• willful refusal or recurring failure to carry out written directives or instructions of the board that are consistent with the scope and nature of duties and responsibilities;

• willful repeated failure to adhere in any material respect to any material written policy or code of conduct of SCUSA;

• willful misappropriation of a material business opportunity, including attempting to secure or securing, any personal profit in connection with any transaction entered into on behalf of SCUSA;

• willful misappropriation of any of SCUSA’s funds or material property; or

• conviction of, or the entering of a guilty plea or plea of no contest with respect to, a felony or the equivalent thereof, any other crime involving fraud or theft or any other crime with respect to which imprisonment is a possible punishment or the indictment (or its procedural equivalent) for a felony involving fraud or theft.

For purposes of the agreement, “good reason” means:

• any material failure by SCUSA to comply with its compensation obligations under the agreement;

• any material failure by SCUSA to require a successor to assume the agreement;

• a substantial reduction in the responsibilities or duties except in accordance with the terms of the agreement;

• any relocation of the principal place of business of 20 miles or more;

• materially increasing the travel required in the performance of duties hereunder for a period of more than three consecutive months;

• assignment of duties that are inconsistent with role;

• the reduction in title, except as contemplated by agreements or the articles of incorporation or by-laws,

• a material reduction in the responsibilities; or

• a resignation for any reason during the 30-day period following the date that six month after a change in control of SCUSA.

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In the event that a payment is made in connection with a change in control such that an excise tax imposed by Code Section 4999 applies, Dundon is entitled to a gross-up payment in an amount such that after payment of all taxes (including interest and penalties imposed with respect thereto), Dundon retains an amount as if the excise tax did not apply. However, if the amount otherwise due Dundon is not more than 110% of the amount that he could receive without triggering the excise tax, the amount shall be reduced so that the excise tax does not apply.

The benefits that Mr. Dundon actually received in 2011 under the terms of his employment agreement are reflected in the “Summary Compensation Table.”

Nuno Matos

We entered into a letter agreement with Mr. Matos, dated as of February 25, 2009.

Mr. Matos’s agreement has a fixed term of three years and either party may terminate the agreement by notifying the other party in writing at least 90 days prior to the termination date.

The agreement provides for a base salary of $363,648, which we may increase in accordance with existing policies. In addition, Mr. Matos is eligible to receive a base bonus contingent upon the achievement of annual performance objectives. See the Summary Compensation table for more information about the bonuses that we paid for 2011.

The agreement also provides, among other things, that Mr. Matos has a right to participate in all long-term incentive compensation programs and all other employee benefit plans and programs available to senior executives. In addition, Mr. Matos will be covered by the Santander Group health, life, disability, and accidental death insurance plans for expatriates.

In connection with Mr. Matos’s relocation from Portugal to the United States, the agreement provides for:

• 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 ($9,064, based on the exchange rate on December 31, 2011) 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,

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• language lessons for Mr. Matos and his household family members up to a maximum of €1,500 ($1,942, based on the exchange rate on December 31, 2011) 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.

In addition to the foregoing

• we (or Mr. Matos, as applicable) will be responsible for the difference, if any, between the taxes due on Mr. Matos’s U.S. income under U.S. tax laws and Portuguese tax laws;

• we will reimburse Mr. Matos for any tax benefits he would have been able to deduct had he remained in Portugal;

• we will reimburse Mr. Matos for approved tax planning and preparation services;

• we will provide Mr. Matos with a guaranteed exchange rate of €1 to $1.3917 for transfers from the United States to Portugal, up to $109,782 per year.

The benefits that Mr. Matos actually received in 2011 under the terms of his agreement are reflected in the “Summary Compensation Table.”

In accordance with our policy applicable to all Santander employees who relocate to the United States from abroad in connection with employment with us, in the event that we terminate Mr. Matos’s employment without cause, we will provide for all reasonable moving and relocation expenses incurred in relocating Mr. Matos and his family to Portugal.

Juan Yanes

For 2011, Mr. Yanes’s base salary was $989,708.

Santander entered into an employment agreement with Mr. Yanes, dated January 21, 2011. Under his agreement, Mr. Yanes is entitled to a base salary as Santander may adjust each year. Mr. Yanes is also entitled under his agreement to an annual bonus in Santander’s discretion. Mr. Yanes is also entitled to life and health insurance coverage and certain perquisites in accordance with Santander’s general policies.

Under his agreement, Mr. Yanes is entitled to receive certain payments in the event his employment with Santander is terminated under certain circumstances. If Mr. Yanes’s employment is terminated at a time when he has from five to 10 years of service with Santander, he is entitled to receive three annual payments of the annual salary he was receiving at the time of his termination. If Mr. Yanes’s employment is terminated at a time at a time when he has over 10 years of service with Santander he is entitled to receive five annual payments of the annual salary he was receiving at the time of his termination. Mr. Yanes is entitled to these payments under the following circumstances:

• Santander’s terminates Mr. Yanes’s employment and such termination is invalid or wrongful as agreed to by the parties or determined by an applicable final ruling or arbitration;

• Santander’s terminates Mr. Yanes’s employment because of objective, technical, organizational, or production reasons;

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• Santander terminates Mr. Yanes’s employment under applicable Spanish law;

• Santander’s terminates Mr. Yanes’s employment as a result of an unjustified or improper transfer, as determined by an applicable final labor court ruling or arbitration; or

• Mr. Yanes voluntarily terminates employment because of Santander’s serious and wrongful breach or as provided in applicable Spanish law.

Mr. Yanes is also entitled to certain retirement benefits upon his termination of employment under certain circumstances:

• If Mr. Yanes terminates employment due to retirement, pre-retirement, or early retirement (as such terms are defined in his employment agreement with Santander) or is terminated by Santander after reaching age 50 with 10 years of service, he is entitled to receive lifetime payments equal to 100% of his annual base salary at the time of termination less any amounts due from social security or another Santander pension plan, if any.

• If Mr. Yanes dies:

• while employed by Santander, his surviving spouse is entitled to receive lifetime payments equal to 70% of his annual base salary at the time of death less any amounts due from social security or another Santander pension plan, if any;

• after retirement, pre-retirement, or early retirement, his surviving spouse is entitled to receive lifetime payments equal to 60% of his annual base salary at the time of death less any amounts due from social security or another Santander pension plan, if any;

• his surviving children are entitled to each receive payments until they reach age 25 equal to 20% of his annual base salary at the time of death less any amounts due from social security or another Santander pension plan, if any; and

• the total annual amounts due to Mr. Yanes’s surviving spouse and children may not exceed 100% of Mr. Yanes’s base annual salary at the time of death.

• If Mr. Yanes becomes permanently disabled, he is entitled to receive lifetime annual payments that, when added to any amounts Mr. Yanes is entitled to under social security and any other Santander retirement plan, if any, enables Mr. Yanes to receive the retirement benefit on the date when he reaches retirement age.

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Upon the occurrence of one of the events listed above, Mr. Yanes, or his spouse or children as applicable, has the option of receiving a lump sum payment in lieu of the periodic payments described above.

Mr. Yanes’s agreement provides that, in the event of Mr. Yanes’s termination of employment with Santander for any reason other than wrongful or dismissal with no reinstatement, Mr. Yanes may not work for another financial institution for two years without Santander’s consent. If Santander does not consent to Mr. Yanes providing services for another financial institution during that time period, it must pay Mr. Yanes an amount equal to 80% of his base salary at the time of his termination. In the event that Mr. Yanes violates this non-compete provision, he will be required to pay Santander a penalty equal to 60% of his base salary at the time of his termination plus any amounts that he received with respect to this non-compete provision.

Mr. Yanes’s agreement also contains a two-year nonsolicitation provision in the event of his termination of employment with Santander.

The benefits that Mr. Yanes actually received in 2011 under the terms of his agreement are reflected in the “Summary Compensation Table.”

Gabriel Jaramillo

We entered into an employment agreement with Mr. Jaramillo, dated as of February 1, 2009. We terminated his agreement in connection with his termination of employment on January 31, 2011.

Mr. Jaramillo’s agreement had an initial term of three years and, unless earlier terminated, was automatically extended annually to provide a new term of three years, unless a party gave the other party written notice at least six months prior to such anniversary date that such party did not agree to renew the agreement.

The agreement provided for a base salary of $2,013,000, which we could increase in accordance with our existing policies. In addition, Mr. Jaramillo was eligible to receive a discretionary annual cash bonus, contingent upon the achievement of annual performance objectives that were established in accordance with Santander policies.

The agreement also provided that, among other things, Mr. Jaramillo had a right to:

• 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.

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In connection with Mr. Jaramillo’s relocation from Brazil to the United States, the agreement provided for, on a grossed-up basis:

• a monthly housing allowance of $30,500;

• use of two cars, provided and maintained by us, and one full-time driver, who will be our employee;

• an annual allowance of $30,000 for tax planning and preparation services; and

• reimbursement of legal expenses that Mr. Jaramillo incurred in connection with the negotiation and execution of the agreement, up to $40,000.

We did not provide a car or driver for Mr. Jaramillo in 2011.

Under his agreement, if Mr. Jaramillo resigned for “good reason” or we terminated his employment without “cause,” (other than for death or disability), provided Mr. Jaramillo executed a release of claims against us and did not compete with us or solicit our team members during the 12-month period following termination, make disparaging statements about us, or disclose any confidential information, he was entitled to the following severance benefits under his agreement:

• an amount equal to the sum of his then current base salary and the annual bonus last paid (which would be deemed to be $4,800,000 if, as of the date of termination, the annual bonus for 2009 had not been paid) (which we refer to as the “last annual bonus”), payable in 12 substantially equal monthly installments;

• a lump sum payment equal to the last annual bonus, pro-rated through the date of termination;

• continuation of health benefits for Mr. Jaramillo and his dependents, on the same basis as provided to actively employed senior executives, until the earlier of the end of the 12-month period following termination or the date Mr. Jaramillo became 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 another location but the relocation expenses to such other location could not be more than the expenses Mr. Jaramillo and his family would have incurred had they relocated to Brazil).

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If Mr. Jaramillo’s employment terminated as a result of his death or “disability” (i.e., inability to perform duties for 90 consecutive days or a total of 120 days in any 365-day period due to physical or mental incapacity), he was entitled to receive a lump sum payment equal to the last annual bonus, pro-rated through the date of termination, and the relocation expenses.

If Mr. Jaramillo’s employment terminated as a result of the expiration of the employment term (and regardless of whether there is any period of at-will employment following the employment term), provided Mr. Jaramillo executed a release of claims against us and did not compete with us or solicit our team members during the 12-month period following termination, make disparaging statements about us, or disclose any confidential information, he was entitled to receive a lump sum payment equal to the last annual bonus, pro-rated through the date of termination, and the relocation expenses.

For purposes of the agreement, “cause” meant:

• 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.

For purposes of the agreement, “good reason” meant:

• 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.

On January 31, 2011, Mr. Jaramillo terminated employment with us and with Sovereign Bank.

Upon his termination of employment, Mr. Jaramillo forfeited the portion of his 2010 bonus that he previously deferred and the unvested portion of the performance share awards that we awarded him under the Performance Shares Plan.

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Effective February 1, 2011, we entered into a consulting agreement with Mr. Jaramillo under which he served as our and Sovereign Bank’s non-executive chairman from February 1, 2011, through June 29, 2011, and as a director of Sovereign Bank from June 30, 2011, through December 21, 2011. Under the consulting agreement, Mr. Jaramillo also provided consulting services to Sovereign Bank from February 1, 2011, through December 21, 2011.

Under his consulting agreement, Mr. Jaramillo was entitled to receive fees (as we determined from time to time) for service as our non-executive chair and as a director of the SHUSA Board. Mr. Jaramillo also received a cash payment of $651,098 in exchange for his consulting services. Mr. Jaramillo also was entitled to be reimbursed for reasonable attorneys’ fees, up to $30,000, for the preparation and execution of the consulting agreement. We did not reimburse any amounts in 2011 for Mr. Jaramillo’s attorneys’ fees.

The benefits that Mr. Jaramillo actually received in 2011 under the terms of his employment and consulting agreements are reflected in the “Summary Compensation Table.”

Deferred Compensation Arrangements

Deferred Compensation Plan

On December 20, 2006, our Board adopted the Sovereign Bancorp, Inc. 2007 Nonqualified Deferred Compensation Plan, which we refer to as the “Deferred Compensation Plan.” The Deferred Compensation Plan has the following features:

• Participants may defer up to 100% of their cash bonus and choose among various investment options upon which the rate of return of amounts deferred will be based. We adjust participants’ accounts periodically to reflect the deemed gains and losses attributable to the deferred amounts. The specific investment options mirror the investment options in our qualified retirement plan with some additional alternative investments available.

• We distribute all account balances in cash.

• Participants are always 100% vested in all amounts deferred.

• Directors of SHUSA and Sovereign Bank may defer receipt of cash fees received for service as a director into the Deferred Compensation Plan.

• Distribution events will be only as permitted under Code Section 409A.

Each of the named executive officers is eligible to participate in the Deferred Compensation Plan but no named executive officer deferred any salary or bonus earned in 2011 into the Deferred Compensation Plan.

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Other Arrangements

Mr. Sabater began participating in the Sistema de Previsión para Directivos before his commenced his employment with us. Under this arrangement, Santander makes an annual discretionary contribution to participants’ accounts based on a percentage of their respective reference salaries from their home country. Under this arrangement, Mr. Sabater is entitled to receive amounts in his account, plus or minus investment gains and losses, upon termination of employment or death or permanent disability. If Mr. Sabater is terminated for cause, he forfeits all amounts in his account.

Nonqualified Deferred Compensation—2011

		September 30,		September 30,		September 30,		September 30,		September 30,
Name	Executive Contributions in Last Fiscal Year ($)		Employer Contributions in Last Fiscal Year ($)		Aggregate Earnings in Last Fiscal Year ($)		Aggregate Withdrawals/ Distributions ($)		Aggregate Balance At Last Fiscal Year End ($)
Guillermo Sabater	$	0	$	39,761	$	3,057	$	0	$	221,371

Messrs. Morán and Yanes are entitled under their respective employment agreements to receive a pension benefit upon their retirement from Santander under certain circumstances. We describe the payments that they are entitled to receive, including upon early or pre-retirement, in the description of his employment agreement.

Pension Benefits—2011

		September 30,		September 30,		September 30,		September 30,
Name	Plan Name		Number of Years  of Credited Service (#)		Present Value of Accumulated Benefit ($)		Payments During Last Fiscal Year ($)
Jorge Morán		Employment Agreement		n/a	$	11,247,442	$	0
Juan Yanes		Employment Agreement		n/a	$	5,684,355	$	0

Potential Payments upon Termination or Change in Control

The table below sets forth the value of the benefits (other than payments that were generally available to salaried team members) that would have been due to the named executive officers if they had terminated employment on December 31, 2011, under their respective employment or letter agreement. We describe these agreements, including the material conditions or obligations applicable to the receipt of these benefits, under the caption “Description of Employment Agreements and Related Agreements.” We describe the pension benefits that Messrs. Morán and Yanes are entitled to receive under certain circumstances in the description of their employment agreements and under the caption “Other Arrangements.” Mr. Jaramillo terminated employment on January 31, 2011. He did not receive any payments on account of his termination of employment.

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	XXXXX		XXXXX		XXXXX		XXXXX		XXXXX		XXXXX
				Before Change in Control				After Change in Control
		Termination for Death or Disability		Involuntary Termination without Cause		Voluntary Termination for Good Reason		Involuntary Termination without Cause		Voluntary Termination for Good Reason
Jorge Morán	Severance (1)	$	0	$	12,238,007	$	12,238,007	$	12,238,007	$	12,238,007
	Relocation expenses	$	0	$	29,000	$	29,000	$	29,000	$	29,000
	Total	$	0	$	12,267,007	$	12,267,007	$	12,267,007	$	12,267,007
Guillermo Sabater	Relocation expenses	$	0	$	25,000	$	25,000	$	25,000	$	25,000
	Total	$	0	$	25,000	$	25,000	$	25,000	$	25,000
Thomas G. Dundon	Severance (1)	$	0	$	8,250,000	$	8,250,000	$	8,250,000	$	8,250,000
	Welfare continuation (2)	$	0	$	467,593	$	467,593	$	467,593	$	467,593
	Value of stock option vesting	$	0	$	0	$	0	$	0	$	0
	Value of restricted stock vesting	$	0	$	520,309	$	520,309	$	520,309	$	520,309
	Code Section 280G Gross-Up	$	0	$	0	$	0	$	8,826,255	$	8,826,255
	Total	$	0	$	9,237,902	$	9,237,902	$	18,064,156	$	18,064,156
Nuno Matos	Relocation expenses	$	0	$	24,930	$	24,930	$	24,930	$	24,930
	Total	$	0	$	24,930	$	24,930	$	24,930	$	24,930
Juan Yanes	Severance (1)	$	0	$	4,802,559	$	4,802,559	$	4,802,559	$	4,802,559
	Relocation expenses	$	0	$	35,000	$	35,000	$	35,000	$	35,000
	Total	$	0	$	4,837,559	$	4,837,559	$	4,837,559	$	4,837,559

(1) For severance and welfare continuation payment calculation, and time and form of such payments, see “Employment and Severance Agreements.

(2) Assumes no increase in the cost of welfare benefits.

Director Compensation in Fiscal Year 2011

We believed that the amount, form, and methods used to determine compensation of our non-employee directors were important factors in:

• 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.

The following table sets forth a summary of the compensation that we paid to each SHUSA director for service as a director of SHUSA and Sovereign Bank in 2011. The amounts that we paid Mr. Jaramillo for service as our non-executive chair and as a director are set forth in the Summary Compensation Table.

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		September 30,		September 30,
Name	Fees Earned or Paid  in Cash ($) (1)		Total ($)
Thomas Dundon	$	0	$	0
Jerry Grundhofer	$	597,032	$	597,032
John P. Hamill	$	165,417	$	165,417
Marian L. Heard	$	175,000	$	175,000
Gonzalo de Las Heras	$	0	$	0
Nuno Matos	$	0	$	0
Jorge Morán	$	0	$	0
Alberto Sánchez	$	0	$	0
Wolfgang Schoellkopf	$	245,417	$	245,417
Kirk W. Walters (2)	$	0	$	0
Juan Andres Yanes	$	0	$	0

Footnotes:

1. Reflects amounts paid in 2011 for the fourth quarter of 2010 and the first three quarters of 2011. Messrs. Dundon, de Las Heras, Matos, Morán, Sánchez, Walters, and Yanes did not receive compensation for service on our Board for 2011.

2. Mr. Walters terminated service as a member of our Board on March 16, 2011.

Director Compensation

Our Board adopted the following compensation program for non-employee directors (other than Mr. de Las Heras, who receives no compensation for service on our Board) for service on our Board and on the Sovereign Bank Board for 2011:

• $140,000 in cash annually; plus

• $50,000 in cash annually for each non-executive director who serves on the Executive Committee; plus

• $35,000 in cash annually for the non-executive directors who serve as the chairs of our Audit Committee and our Compensation Committee; plus

• $35,000 in cash annually for the non-employee directors who serve on Sovereign Bank’s Oversight Committee; plus

• $5,000 in cash annually for each other Board committee for which such non-executive director serves as chair.

We pay these amounts quarterly in arrears.

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Santander approved an arrangement under which Mr. Grundhofer agreed to serve as our non-executive chair for an initial term of July 1, 2011, through June 30, 2014. Under this arrangement, Mr. Grundhofer is entitled to receive a $1,000.000 per year cash retainer, plus an additional $100,000 per year fee, which amount (less applicable taxes) he must use to purchase Santander common stock. We pay these amounts in arrears. If we terminate Mr. Grundhofer’s service involuntarily before June 30, 2014, he is entitled to receive the full amount of the retainer fee in a lump sum within 10 days of termination.

As part of his compensation arrangement for serving as our non-executive chair, we also agreed to pay Mr. Grundhofer a cash payment equal to the market value on July 1, 2011, of 10,982 shares of Citigroup common stock that he expected to forfeit when he terminated service on the Citigroup board to become our non-executive chair. Mr. Grundhofer forfeited only 5,761 shares of Citigroup common upon his termination and we made a cash payment of the market value of that number shares on July 1, 2011.

For 2012, the compensation program will remain the same except that our Board approved a $75,000 per-year cash fee payable for service as chair of our Enterprise Risk Committee.

Directors Participation in Deferred Compensation Plan

On December 20, 2006, our Board amended the Deferred Compensation Plan (the significant features of which we describe following in the section entitled “Deferred Compensation Arrangements”) to permit non-employee directors of SHUSA and of Sovereign Bank to elect defer cash fees earned beginning in 2007 into the Deferred Compensation Plan. The relevant terms of the revised Deferred Compensation Plan, as we describe above, apply in the same manner to participants who are directors as they do to participants who are executive officers.

No director deferred fees earned for 2011 into the Deferred Compensation Plan.

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Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

As noted elsewhere in this Form 10-K, on January 30, 2009, SHUSA became a wholly-owned subsidiary of Santander as a result of the consummation of the transactions contemplated by the Transaction Agreement. As a result, following January 30, 2009, all of SHUSA’s voting securities are owned by Santander.

Also as noted elsewhere in this Form 10-K, as a result of the Santander transaction, there are no longer any outstanding equity awards under SHUSA’s equity incentive compensation plans. Pursuant to the Transaction Agreement, (i) all stock options outstanding immediately prior to the Transaction were cancelled and any positive difference between the exercise price of any given stock option and the closing price of SHUSA’s common stock on January 29, 2009 was paid in cash to option holders, and (ii) all shares of restricted stock outstanding immediately prior to the Transaction vested and were treated the same way as all other shares of SHUSA common stock in the Transaction.

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Item 13 Related Party Transactions

Certain Relationships and Related Transactions

During each of 2009, 2010 and 2011, SHUSA was a participant in the transactions described below in which a “related person” (as defined in Item 404(a) of Regulation S-K, which includes directors and executive officers who served during the applicable fiscal year) had a direct or indirect material interest and the amount involved in such transaction exceeded $120,000.

Santander Relationship: On January 30, 2009, Santander acquired 100% of SHUSA’s common stock. As a result, Santander has the right to elect the members of SHUSA’s Board of Directors. In addition, certain individuals who serve as officers of SHUSA are also employees or officers of, or may be deemed to be officers of, Santander and/or its affiliates. The following relationships existed during the 2009, 2010 and 2011 fiscal years or are currently proposed between the Company and its affiliates, on the one hand, and Santander or its affiliates, on the other hand.

In 2009, the Bank established a derivatives trading program with Santander pursuant to which Santander and its subsidiaries and affiliates provides advice with respect to derivative trades, coordinates trades with counterparties, and acts as a counterparty in certain transactions. The term of the agreement and the trades are market. In 2009, two transactions were completed in which Santander participated: an equity derivative transaction with Santander in the amount of $296.7 million, for which Santander was paid a fee of $14,953,680; and an interest rate swap in the amount of $650 million (no fee was paid to Santander with respect to the interest rate swap transaction). In 2010, 114 transactions, in the aggregate amount of $2,733,843,758, were completed in which Santander participated, for which Santander was paid a total fee of $21,044,565. In 2011, 255 transactions, in the aggregate amount of $1.8 billion, were completed in which Santander and its subsidiaries and affiliates participated. No fees were paid in 2011 related to these transactions. The Bank provides U.S. deposit and other cash management services to Santander’s Latin American and European commercial clients. Customer vetting procedures are the same as those that apply to other Bank customers. Under a revenue sharing agreement, Santander receives 50% of the net margin on any deposits, which resulted in fees to Santander for 2009 and 2010 of $398,604 and $637,236 respectively. As of December 31, 2009 and 2010, there were 148 and 177 accounts, respectively, and 81 and 111 customers, respectively, with approximately $152 million and $143 million in deposits outstanding under this agreement as of such dates. This program ended in 2010 and no fees were paid in 2011.

In 2008, the Bank established a program to advise and confirm Santander letters of credit in the United States. The terms of the agreement are market and require all fees to be paid by the customer. In 2009, the Bank advised three letters of credit in the aggregate amount of $266,349. In 2010, the Bank advised seven letters of credit in the aggregate amount of $739,114. In 2011, the Bank advised two letters of credit in the aggregate amount of $200,699.

In March 2009, SHUSA issued to Santander 72,000 shares of SHUSA’s Series D Preferred Stock, having a liquidation amount per share equal to $25,000, for a total price of $1.8 billion. The Series D Preferred Stock pays non-cumulative dividends at a rate of 10% per year. SHUSA may not redeem the Series D Preferred Stock during the first five years. The Series D Preferred Stock is generally non-voting. Each share of Series D Preferred Stock is convertible into 100 shares of common stock, without par value, of SHUSA. The Company contributed the proceeds from this offering to Sovereign Bank in order to increase the Bank’s regulatory capital ratios. On July 20, 2009, Santander converted all of its investment in the Series D preferred stock of $1.8 billion into 7.2 million shares of SHUSA common stock. This action further demonstrates the support of our Parent Company to SHUSA and reduces the cash obligations of the Company with respect to Series D 10% preferred stock dividend.

In March 2010, SHUSA issued to Santander 3,000,000 shares of SHUSA common stock for a total price of $750 million.

In December 2010, SHUSA issued to Santander 3,000,000 shares of SHUSA common stock for a total price of $750 million. SHUSA also declared a $750 million dividend to Santander during December 2010.

In December 2011, SHUSA issued to Santander 3,200,000 shares of SHUSA common stock for a total price of $800 million. SHUSA also declared a $800 million dividend to Santander during December 2011.

As of December 31, 2009, 2010 and 2011, SHUSA had $2.0 billion, $1.9 billion and $2.1 billion, respectively, of public securities consisting of various senior note obligations, trust preferred security obligations and preferred stock issuances. As of such dates, Santander owned approximately 29%, 40% and 34.8% of these securities, respectively.

As of December 31, 2010 and 2011, SHUSA has entered into interest rate swap agreements with Santander to hedge interest rate risk on floating rate tranches of its securitizations with a notional value of $8.8 billion and $5.8 billion, respectively.

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Santander has provided guarantees on the covenants, agreements and obligations of SCUSA under the governing documents where SCUSA is a party for the securitizations. This includes, but is not limited to, the obligations of SCUSA as servicer and transferor to repurchase certain receivables.

In 2010, Capital Street Delaware LP, a subsidiary of SHUSA, sold $18.1 million and 25.4 million of past-due retail auto loans and charged-off retail auto loans, respectively, to Servicios de Cobranza, Recuperacion y Seguimiento, S.A. DE C.V. SHUSA guaranteed the payments of principal and interest on the past-due retail auto loans sold. In 2011, Capital Street Delaware LP purchased $1.1 million of retail auto loans from Servicios de Cobranza, Recuperacion y Seguimiento, S.A. DE C.V.

In 2010, SHUSA extended a $10 million unsecured loan to Servicios de Cobranza, Recuperacion y Seguimiento, S.A. DE C.V. For 2010, the highest balance outstanding was $10 million and the principal balance as of December 31, 2010 was $10 million. Servicios de Cobranza, Recuperacion y Seguimiento, S.A. DE C.V. did not pay any interest to SHUSA in 2010 in connection with this loan. For 2011, the highest balance outstanding was $10 million and the principal balance as of December 31, 2011 was $2 million. Servicios de Cobranza, Recuperacion y Seguimiento, S.A. DEC.V. paid approximately $0.1 million in interest to SHUSA for 2011 in connection with this loan.

In 2009, 2010 and 2011, the Company and its subsidiaries borrowed money and obtained credit from Santander and its affiliates. Each of the transactions was done in the ordinary course of business and on market terms prevailing at the time for comparable transactions with persons not related to Santander and its affiliates, including interest rates and collateral, and did not involve more than the normal risk of collectability or present other unfavorable features. The transactions are as follows:

• In 2006, Santander extended a $425 million unsecured line of credit to the Bank for federal funds and Eurodollar borrowings and for the confirmation of standby letters of credit issued by the Bank. The line was increased to $2.5 billion in 2009. In the third quarter of 2011 this line was decreased to $1.5 billion and in the fourth quarter of 2011 this line was further decreased to $1.0 billion. This line of credit can be cancelled by either the Bank or Santander at any time and can be replaced by the 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. For 2010, the highest balance outstanding was $1,972,921,810 and the principal balance as of December 31, 2010 was $1,735,361,677, all of which was for confirmation of standby letters of credit. The Bank paid $14,119,180 in fees to Santander in 2010 in connection with this line of credit. For 2011, the highest balance outstanding was $1,735,361,677 and the principal balance as of December 31, 2011 was $607,737,848, all of which was for confirmation of standby letters of credit. The Bank paid approximately $10.5 million in fees to Santander in 2011 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. For 2010, the highest balance outstanding was $890 million and the balance as of December 31, 2010 was $250 million. The Company paid $557,128 in interest and $1,722,986 in non-use fees to Santander on this line of credit for 2010. For 2011, the highest balance outstanding was $250,000,000 and the balance as of December 31, 2011 was $0. The Company paid $431,250 in interest and $982,639 in non-use fees to Santander on this line of credit for 2011.

• 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. For 2010, the highest outstanding balance on the line was $250 million and the balance as of December 31, 2010 was $0. The Company paid $269,514 in interest to Santander Overseas Bank, Inc. with respect to this line in 2010. This line was terminated in 2010.

• In 2009 Santander’s New York Branch provided an approximately $2 million letter of credit on behalf of the Bank. The Bank paid Santander $9,119, $15,755 and $11,688 in fees for the letter of credit in 2009, 2010 and 2011, respectively.

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• In March 2010, SHUSA issued to Santander a $750 million subordinated note due March 15, 2020 bearing an interest rate of 5.75% through March 14, 2015 and 6.25% beginning March 15, 2015 and until the Note is repaid. SHUSA paid Santander $23,239,583 and $43,125,000 in interest in 2010 and 2011, respectively.

• In 2010, Banco Santander S.A. provided a $250 million letter of credit on behalf of the Bank. The Bank paid Santander $1,901,042 in fees for the letter of credit in 2010.

• In 2010 the Company established a $1.5 billion line of credit with Santander’s New York branch. This line can be cancelled by either the Company or Santander at any time and can be replaced by the Company at any time. For each of 2010 and 2011, the highest balance outstanding (and the balance as of December 31, 2010 and 2011) was $0. The Company did not pay any interest to Santander with respect to this line of credit for 2010 or 2011.

• In 2010, the Bank issued a Certificate of Deposit to Banco Santander International, in the amount of $10,000,000 accruing interest at 0.55%. The Certificate of Deposit was redeemed and was at $0 as of December 31, 2010.

• SCUSA has established a $1 billion line of credit with Santander’s New York branch for letters of credit. For 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. For 2010, the highest balance outstanding under this line was $473.7 million and the balance as of December 31, 2010 was $198.5 million. As of December 31, 2010 the facility commitment was reduced to $500 million. In 2010, SCUSA paid $6,666,457 in interest and fees on this line of credit. For 2011, the highest balance outstanding under this line was $351.9 million and the balance as of December 31, 2011 was $285.9 million. In 2011, SCUSA paid $3,020,519 in interest and fees on this line of credit, with $844,901 accrued and unpaid as of December 31, 2011.

• SCUSA had established a $100 million revolving line of credit with Santander Benelux, SA, NV (“Benelux”). This line of credit could be cancelled by either SCUSA or Benelux at any time and can be replaced by SCUSA at any time. For all of 2009, 2010 and 2011, the line was fully utilized. In 2009, 2010 and 2011, SCUSA paid Benelux $917,865, $2,144,103 and $2,013,719, respectively, in interest on this line of credit. The line was terminated by mutual consent of Benelux and SCUSA on December 30, 2011.

• SCUSA had established a $150 million revolving line of credit with Benelux. This line of credit could 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 each of 2009, 2010 and 2011 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. The outstanding balance of the line as of December 31, 2010 was $150 million. In 2010, SCUSA paid Benelux $1,860,143 in interest on this line of credit. The outstanding balance of the line as of December 31, 2011 was $0. In 2011, SCUSA paid Benelux $3,178,604 in interest on this line of credit. The line was terminated by mutual consent of Benelux and SCUSA on December 30, 2011.

• In 2009, SCUSA had a $200 million unsecured loan from Santander’s New York branch. 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. This loan was paid off in early 2010.

• In 2009, SCUSA had a $500 million warehouse line of credit with Santander’s New York branch. 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. This line of credit was paid off in early 2010.

• In 2009, SCUSA had a $1.7 billion warehouse line of credit with Abby National Bank. 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. This line of credit was paid off in early 2010.

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• Santander Consumer Receivables 2 LLC (a subsidiary of SCUSA) had a $3.65 billion line of credit with Santander’s New York branch. This line of credit can be cancelled by either the Santander Consumer Receivables 2 LLC or Santander at any time and can be replaced by Santander Consumer Receivables 2 LLC at any time. The highest outstanding balance of the line in 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. The highest outstanding balance of the line in 2010 was $2,930,200,000. As of December 31, 2010, the balance of the line was $2,552,000,000. In 2010, Santander Consumer Receivables 2 LLC paid $30,482,170 in interest on this line of credit. During December 2011, Santander Consumer Receivables 2 LLC had a name change to Santander Consumer Funding 3 LLC. On December 30, 2011, the Santander Consumer Funding 3 LLC line of credit was amended and restated, reducing its commitment to $1,750,000,000. The highest outstanding balance of the line in 2011 was $3,637,500,000. As of December 31, 2011, the balance of the line was $1,747,800,000. In 2011, Santander Consumer Funding 3 LLC fka Santander Consumer Receivables 2 LLC paid $37,251,790 in interest on this line of credit and had $3,067,121 accrued and unpaid as of December 31, 2011.

• On December 30, 2011 Santander Consumer Funding 5 LLC was opened with Santander’s New York branch for a commitment of $1,750,000,000. The highest outstanding balance of the line in 2011 was $300,000,000. As of December 31, 2011, the balance of the line was $300,000,000. In 2011, Santander Consumer Funding 5 LLC paid $0 in interest on this line of credit during 2011 and had $44,060 accrued and unpaid as of December 31, 2011.

• SCUSA is under contract with the Bank to service the Bank’s retail auto loan portfolio. In 2009, 2010 and 2011, the Bank paid $18.3 million, $29.3 million and $19.9 million, respectively, to SCUSA with respect to this agreement.

• SCUSA is under contract with the Bank to service the Bank’s RV loan portfolio. In 2011, the Bank paid $6.3 million to SCUSA with respect to this agreement.

In 2009, 2010 and 2011, the Company and its affiliates entered into, or were subject to, various service agreements with Santander and its affiliates. Each of the agreements was done in the ordinary course of business and on market terms. The agreements are as follows:

• NW Services Co., a Santander affiliate doing business as Aquanima, is under contract with the Bank to provide procurement services, with total fees paid in 2009, 2010 and 2011 in the amount of $2.0 million, $2.2 million and $3.4 million, respectively.

• Geoban, S.A., a Santander affiliate, is under contract with the Bank to provide administrative services, consulting and professional services, application support and back-office services, including debit card disputes and claims support, and consumer and mortgage loan set-up and review; with total fees paid in 2009, 2010 and 2011 in the amount of $0, $9.8 million and $15.3 million, respectively.

• Ingenieria De Software Bancario S.L., a Santander affiliate, is under contract with the Bank to provide information technology development, support and administration, with total fees paid in 2009, 2010 and 2011 in the amount of $5.7 million, $120.9 million and $113.7 million, respectively.

• Produban Servicios Informaticos Generales S.L., a Santander affiliate, is under contract with the Bank to provide professional services, and administration and support of information technology production systems, telecommunications and internal/external applications, with total fees paid in 2009, 2010 and 2011 in the amount of $3.4 million, $58.1 million and $82.6 million, respectively.

• Santander Back-Offices Globales Mayoristas S.A., a Santander affiliate, is under contract with the Bank to provide administrative services and back-office support for the Bank’s derivative, foreign exchange and hedging transactions and programs, with total fees paid in 2009, 2010 and 2011 in the amount of $0, $0.1 million and $0.4 million, respectively.

• Santander Global Facilities (“SGF”), a Santander affiliate, is under contracts with the Bank to provide: (a) administration and management of employee benefits and payroll functions for the Bank and other affiliates, including employee benefits and payroll processing services provided by third party sponsorship by SGF; and (b) property management and related services; with total fees paid in 2009, 2010 and 2011 in the amount of $0.5 million, $10.0 million and $10.8 million, respectively.

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Cameron C. Troilo, Sr.: The relationships below existed during the 2009 fiscal year between SHUSA and its affiliates, on the one hand, and Mr. Troilo and his affiliates, on the other hand. Mr. Troilo was elected to the SHUSA Board of Directors in 1997 and served until his tendered resignation became effective on January 30, 2009.

• 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.

Thomas G. Durdon: In addition to the employment relationship described in the Compensation Discussion and Analysis included in Part III—Item 11, Mr. Dundon is also party to certain agreements with the Company in connection with the SCUSA Transaction, Refer to the discussion of the SCUSA Transaction included in Note 3 of the Notes to Consolidated Financial Statements for additional information.

Carlos Garcia, who became a director of SHUSA on January 26, 2012, has been employed as the Chief of Staff to the Chief Executive Officer, Chief of Corporate Affairs and Communications Officer since 2011. Mr. Garcia is expected to receive total compensation in 2012 of $1,498,794.00 in the aggregate, consisting of a base salary of $480,000.00, and is eligible for a bonus of $800,000.00 (to include any applicable deferral), long-term incentive stock awards with an estimated value of $201,250.00, and other compensation, including perquisites such as personal use of a Company automobile and paid parking, expected to amount to $17,544.00. Mr. Garcia has agreed to certain restrictive and noncompetition covenants and, under certain circumstances, in addition to the severance benefits to which other Sovereign Bank employees are entitled, may be entitled to a severance payment of $1,500,000.00, if the qualifying termination occurs within three years of his start of employment, and 24 months of his monthly base salary, if the qualifying termination occurs after three years from his start of employment. “Qualifying terminations,” for purposes of Mr. Garcia’s enhanced severance benefits, include termination without cause, the elimination of his position, voluntary resignation with good reason or within one year after a change of control of Sovereign Bank. Under certain circumstances, Mr. Garcia may have to repay a portion of the enhanced severance benefits described above if he returns to employment with Sovereign Bank (or any other Santander affiliate) within 12 months of his termination date. In 2011, Mr. Garcia received a housing allowance, installation payment, and relocation expense reimbursements in the total amount of $539,565.28 as a one-time payment to support his relocation to Boston. If Mr. Garcia voluntarily terminates his employment with the Bank, or if his employment is terminated by the Bank for cause prior to the completion of 12 months of service, Mr. Garcia will be required to reimburse a pro-rata portion of the relocation expenses.

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Loans to Directors and Executive Officers

SHUSA, through Sovereign Bank is in the business of gathering deposits and making loans. Like many financial institutions, SHUSA actively encourages its directors and the companies which they control and/or are otherwise affiliated with to maintain their banking business with the Bank, rather than with a competitor.

All lending relationships between the Bank and its directors and the entities which they control are subject to Regulation O and are in compliance with Regulation O.⁽¹⁾ In addition, in management’s opinion, all loans to directors and entities affiliated with them (whether or not controlled by them and therefore, subject to Regulation O) were made in the ordinary course of business and on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the time for comparable transactions with similar customers and do not involve more than normal collection risk or present other unfavorable features. SHUSA believes that the aggregate dollar amount of the Bank’s loans to directors and the entities they control or are otherwise affiliated with represent insignificant percentages of the Bank’s total loans and equity.

In addition, the Bank provides other banking services to its directors and entities which they control or with which they are affiliated. In each case, these services are provided in the ordinary course of the Bank’s business and on substantially the same terms as those prevailing at the time for comparable transactions with others.

The Bank, as part of its banking business, also extends loans to officers and employees of SHUSA and the Bank. Such loans are provided in the ordinary course of the Bank’s business and on substantially the same terms as those prevailing at the time for comparable transactions with others.

Certain mortgage loans held by executive officers, like similar loans made to other SHUSA employees, are priced at a 1% discount to market but contain no other terms which are different than terms available in comparable transactions with non-employees. The 1% discount is discontinued when an employee terminates his or her employment with SHUSA. In each case, all loans to executive officers (i) were made in the ordinary course of business, (ii) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, including other employees of SHUSA or the Bank, and (iii) did not involve more than the normal risk of collectability or present other unfavorable features. Such loans also comply with Regulation O and were never non-accrual, past due, restructured or potential problem loans.

Approval of Related Transactions

Prior to and following January 30, 2009, the date on which the Santander transaction was consummated, SHUSA has had policies to approve all proposed transactions between SHUSA and its subsidiaries, on the one hand, and “related persons” (as defined therein), on the other hand. SHUSA’s policies require that all related person transactions be reviewed for compliance and applicable banking and securities laws and be approved by, or approved pursuant to procedures approved by, the Bank’s “Transactions with Affiliates Committee” (except for loans to directors and officers that were subject to Federal Reserve Regulation O, which were handled under a different process). Moreover, SHUSA’s policies require that all material transactions be approved by SHUSA’s Board or the Bank’s Board.

Director Independence

As noted elsewhere in this Form 10-K, on January 30, 2009, SHUSA became a wholly-owned subsidiary of Santander as a result of the consummation of the transactions contemplated by the Transaction Agreement. As a result, all of SHUSA’s voting common equity securities are owned by Santander and are no longer listed on the NYSE. However, the depository shares of SHUSA’s Series C non-cumulative preferred stock continue to be listed on the NYSE. In accordance with the NYSE rules, because SHUSA does not have common equity securities but rather only preferred and debt securities listed on the NYSE, the SHUSA Board is not required to have a majority of “independent” directors. Nevertheless, this Item 13 requires SHUSA to identify each director that is “independent” using a definition of independence of a national securities exchange, such as the NYSE’s listing standards (to which SHUSA is not currently subject). Based on the foregoing, although the SHUSA Board has not made a formal determination on the matter, under current NYSE listing standards (to which SHUSA is not currently subject), SHUSA believes that Directors Grundhofer, Ferriss, Heard, and Schoellkopf would be independent under such standards.

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.

200

Regulation O prohibits the Bank from making loans to an Insider unless the loan (i) is made on substantially the same terms (including interest rates and collateral) as, and following credit underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions by the Bank with other persons who are not subject to Regulation O and who are not employed by Sovereign Bank and (ii) does not involve more than the normal risk of repayment or present other unfavorable features. Regulation O does not prohibit Sovereign Bank from making loans to Insiders pursuant to a benefit or compensation program (i) that is widely available to employees of the Bank and, in the case of extensions of credit to an Insider of its affiliates, is widely available to employees of the affiliates at which that person is an Insider and (ii) that does not give preference to any Insider of the Bank over other employees of the Bank and, in the case of extension of credit to an Insider of its affiliates, does not give preference to any Insider of its affiliates over other employees of the affiliates at which that person is an Insider.

The Bank is examined periodically by the Office of the Comptroller of the Currency for compliance with Regulation O and internal controls exist within the Bank to ensure that compliance with Regulation O is maintained on an ongoing basis after such loans are made.

Item 14 Principal Accounting Fees and Services

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees of the Independent Auditor

The following tables set forth the aggregate fees for services rendered to the Company, for the fiscal years ended December 31, 2011 by our principal accounting firm Deloitte & Touche LLP.

		September 30,
Fiscal Year Ended December 31, 2011
December 31, 2011
Audit Fees	$	4,542,000
Audit-Related Fees		735,900
Tax Fees		150,000
All Other Fees		277,400
Total Fees	$	5,705,300

Audit fees in 2011 included fees associated with the annual audit of the financial statements and the audit of internal control over financial reporting of the Company, the reviews of the Quarterly Reports on Form 10-Q, certain accounting consultations, consent to use its report in connection with various documents filed with the SEC, and comfort letters issued to underwriters for securities offerings.

Audit-related fees in 2011 principally included audits of employee benefit plans, audits of separate subsidiary financial statements required by their formation agreements, and attestation reports required under services agreements.

Tax fees in 2011 included tax compliance, tax advice and tax planning.

Other fees in 2011 included assistance with validation of test environments and data accuracy related to the migration process for a pending conversion to a new corporate general ledger application.

201

The following tables set forth the aggregate fees billed to SHUSA for the fiscal years ended December 31, 2010 by the principal accounting firm Deloitte & Touche LLP.

		September 30,
Fiscal Year Ended December 31, 2010
December 31, 2010
Audit Fees	$	4,812,000
Audit-Related Fees		552,900
Tax Fees		86,920
All Other Fees		449,333
Total Fees	$	5,901,153

Audit fees in 2010 included fees associated with the annual audit of the financial statements and the audit of internal control over financial reporting of the Company, the reviews of the Quarterly Reports on Form 10-Q, certain accounting consultations, consent to use its report in connection with various documents filed with the SEC, and comfort letters issued to underwriters for securities offerings.

Audit-related fees in 2010 principally included audits of employee benefit plans, audits of separate subsidiary financial statements required by their formation agreements, and attestation reports required under services agreements.

Tax fees in 2010 included tax compliance, tax advice and tax planning.

Other fees in 2010 included assistance with validation of test environments and data accuracy related to the migration process for a pending conversion to a new corporate general ledger application.

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by Independent Auditor

During 2011, SHUSA’s Audit Committee pre-approved audit and non-prohibited, non-audit services provided by the independent auditor after its appointment as such. These services may have included audit services, audit-related services, tax services and other services. The Audit Committee adopted a policy for the pre-approval of services provided by the independent auditor. Under the policy, pre-approval was generally provided for up to one year and any pre-approval was detailed as to the particular service or category of services and was subject to a specific budget. In addition, the Audit Committee may also have pre-approved particular services on a case-by-case basis. For each proposed service, the Audit Committee received detailed information sufficient to enable the Audit Committee to pre-approve and evaluate such service. The Audit Committee may have delegated pre-approval authority to one or more of its members. Any pre-approval decisions made under delegated authority must have been communicated to the Audit Committee at or before its then next scheduled meeting. There were no waivers by the Audit Committee of the pre-approval requirement for permissible on-audit services in 2011.

202

PART IV

Item 15 Exhibits and Financial Statement Schedules

(a) 1. Financial Statements.

The following financial statements are filed as part of this report:

• 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.

Financial statement schedules are omitted because the required information is either not applicable, not required or is shown in the respective financial statements or in the notes thereto.

(b) Exhibits.

(2.1)	Transaction Agreement, dated as of October 13, 2008, between Santander Holdings USA, Inc. and Banco Santander, S.A. (Incorporated by reference to Exhibit 2.1 to SHUSA’s Current Report on Form 8-K filed October 16, 2008)
(3.1)	Amended and Restated Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to SHUSA’s Current Report on Form 8-K filed January 30, 2009)
(3.2)	Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to SHUSA’s Current Report on Form 8-K filed March 27, 2009)
(3.3)	Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to SHUSA’s Current Report on Form 8-K filed February 5, 2010)
(3.4)	Amended and Restated Bylaws of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to SHUSA’s Current Report on Form 8-K filed January 30, 2012)
(4.1)	Santander Holdings USA, Inc. has certain debt obligations outstanding. None of the instruments evidencing such debt authorizes an amount of securities in excess of 10% of the total assets of Santander Holdings USA, Inc. and its subsidiaries on a consolidated basis; therefore, copies of such instruments are not included as exhibits to this Annual Report on Form 10-K. Santander Holdings USA, Inc. agrees to furnish copies to the SEC on request
(4.2)	Fiscal Agency Agreement dated December 22, 2008 between Sovereign Bank and The Bank of New York Mellon Trust Company, N.A., as fiscal agent (Incorporated by reference to Exhibit 4.1 to SHUSA’s Current Report on Form 8-K filed December 22, 2008)
(4.3)	Fiscal Agency Agreement dated December 22, 2008 between Santander Holdings USA, Inc. and The Bank of New York Mellon Trust Company, N.A., as fiscal agent (Incorporated by reference to Exhibit 4.2 to SHUSA’s Current Report on Form 8-K filed December 22, 2008)
(10.1)	Commercial Paper Dealer Agreement between Santander Holdings USA, Inc. and Santander Investment Securities Inc., dated as of July 15, 2010 (Incorporated by reference to Exhibit 10.1.1 to SHUSA’s Current Report on Form 8-K filed July 21, 2010)
(10.2)	Investment Agreement, dated October 20, 2011, by and between Santander Holdings USA, Inc. and Sponsor Auto Finance Holdings Series LP.
(10.3)	Investment Agreement, dated October 20, 2011, by and between Santander Holdings USA, Inc. and Dundon DFS LLC.
(10.4)	Shareholders Agreement, dated December 31, 2011, by and among Santander Holdings USA, Inc., Santander Consumer USA, Inc., Sponsor Auto Finance Holdings Series LP, Dundon DFS LLC, Mr. Thomas G. Dundon and Banco Santander, S.A.

203

(21)	Subsidiaries of Registrant
(23.1)	Consent of Deloitte & Touche LLP (Santander Holdings USA, Inc.)
(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

204

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SANTANDER HOLDINGS USA, INC. (Registrant)
By:	/s/ Jorge Morán
Name: Title:	Jorge Morán President, Chief Executive Officer

March 16, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Jorge Morán Jorge Morán	President Chief Executive Officer (Principal Executive Officer)	March 16, 2012
/s/ Guillermo Sabater Guillermo Sabater	Senior Executive Vice President Chief Financial Officer (Principal Financial Officer)	March 16, 2012
/s/ Jerry Grundhofer Jerry Grundhofer	Chairman of the Board	March 16, 2012
/s/ José Antonio Alvarez José Antonio Alvarez	Director	March 16, 2012
/s/ Thomas G. Dundon Thomas G. Dundon	Director	March 16, 2012
/s/ Stephen Ferris Stephen Ferris	Director	March 16, 2012
/s/ José Maria Fuster José Maria Fuster	Director	March 16, 2012
/s/ Gonzalo de Las Heras Gonzalo de Las Heras	Director	March 16, 2012

205

Signature	Title	Date
/s/ John Hamill John Hamill	Director	March 16, 2012
/s/ Marian L. Heard Marian L. Heard	Director	March 16, 2012
/s/ Carlos Garcia Carlos Garcia	Chief of Staff and Chief of Corporate Affairs and Communications Officer	March 16, 2012
/s/ Alberto Sánchez Alberto Sánchez	Director	March 16, 2012
/s/ Wolfgang Schoellkopf Wolfgang Schoellkopf	Director	March 16, 2012
/s/ Juan Andres Yanes Juan Andres Yanes	Chief Compliance and Internal Controls Officer and Senior Executive Vice President	March 16, 2012

206

EX-10.2

Exhibit 10.2

EXECUTION COPY

INVESTMENT AGREEMENT

among

SANTANDER CONSUMER USA INC.

and

SPONSOR AUTO FINANCE HOLDINGS SERIES LP

and, for purposes of certain sections specified herein,

SANTANDER HOLDINGS USA, INC.

for the purchase and sale

of

shares of capital stock in

SANTANDER CONSUMER USA INC.

Dated as of October 20, 2011

EXECUTION COPY

TABLE OF CONTENTS

		September 30,
	Page
ARTICLE I
Purchase and Sale; Closing
SECTION 1.01. Purchase and Sale of the Shares		1
SECTION 1.02. Closing Date		2
SECTION 1.03. Transactions To Be Effected at the Closing		3
SECTION 1.04. Pro Forma Capitalization Calculations; Post-Closing Adjustment		3
ARTICLE II
Representations and Warranties Relating to the Company and the Acquired Shares
SECTION 2.01. Organization, Standing and Power		6
SECTION 2.02. Capital Stock of the Company and the Company Subsidiaries		6
SECTION 2.03. Authority; Execution and Delivery; Enforceability		7
SECTION 2.04. Issuance of Acquired Shares		8
SECTION 2.05. No Conflicts; Consents		8
SECTION 2.06. Private Offering		9
SECTION 2.07. Financial Statements; Undisclosed Liabilities; Absence of Certain Changes		9
SECTION 2.08. Taxes		10
SECTION 2.09. Litigation		12
SECTION 2.10. Governmental Permits; Compliance with Applicable Laws		13
SECTION 2.11. Retail Installment Contracts and Other Credit Extensions		14
SECTION 2.12. Securitizations		14
SECTION 2.13. Material Contracts		16
SECTION 2.14. Insurance		18
SECTION 2.15. Real Property		18
SECTION 2.16. Intellectual Property		18
SECTION 2.17. Benefit Plans		18
SECTION 2.18. Labor		19
SECTION 2.19. Environmental Laws		19
SECTION 2.20. Risk Management Instruments		20
SECTION 2.21. Affiliate Transactions		20
SECTION 2.22. Sufficiency of Assets		20
SECTION 2.23. Brokers and Finders		21

		September 30,
	Page
ARTICLE III
Representations and Warranties of the Acquirer
SECTION 3.01. Organization, Standing and Power		21
SECTION 3.02. Authority; Execution and Delivery; and Enforceability		21
SECTION 3.03. No Conflicts; Consents		21
SECTION 3.04. Litigation		22
SECTION 3.05. Securities Act		22
SECTION 3.06. Availability of Funds		22
SECTION 3.07. Brokers and Finders		23
ARTICLE IV
Covenants
SECTION 4.01. Covenants Relating to Conduct of Business		23
SECTION 4.02. Access to Information; Confidentiality		25
SECTION 4.03. Reasonable Efforts		25
SECTION 4.04. Expenses		26
SECTION 4.05. Notice of Developments		27
SECTION 4.06. Further Assurances		27
SECTION 4.07. Management Equity Plan		27
SECTION 4.08. Capital Contribution by SHUSA		27
SECTION 4.09. Public Announcements		27
SECTION 4.10. Use of Proceeds		28
SECTION 4.11. D&O Insurance		28
SECTION 4.12. No Shop		28
SECTION 4.13. Financing		29
ARTICLE V
Conditions Precedent
SECTION 5.01. Conditions to Each Party’s Obligation		29
SECTION 5.02. Conditions to Obligation of the Acquirer		30
SECTION 5.03. Conditions to Obligation of the Company		32
ARTICLE VI
Termination
SECTION 6.01. Termination		32
SECTION 6.02. Effect of Termination		33
SECTION 6.03. Termination Fee		34

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		September 30,
	Page
ARTICLE VII
Indemnification
SECTION 7.01. Indemnification by the Company		35
SECTION 7.02. Indemnification by the Acquirer		36
SECTION 7.03. Notification of Claims		37
SECTION 7.04. Indemnification Payment		39
SECTION 7.05. Exclusive Remedies		39
SECTION 7.06. Tax Treatment of Indemnification Payment		39
ARTICLE VIII
General Provisions
SECTION 8.01. Survival		40
SECTION 8.02. No Additional Representations		40
SECTION 8.03. Amendments and Waivers		40
SECTION 8.04. Assignment		40
SECTION 8.05. No Third-Party Beneficiaries		41
SECTION 8.06. Attorneys’ Fees		41
SECTION 8.07. Notices		41
SECTION 8.08. Interpretation; Exhibits and Schedules Definitions		42
SECTION 8.09. Certain Definitions		43
SECTION 8.10. Counterparts		49
SECTION 8.11. Entire Agreement		49
SECTION 8.12. Severability		49
SECTION 8.13. SPECIFIC PERFORMANCE; NO RECOURSE		49
SECTION 8.14. CONSENT TO JURISDICTION		51
SECTION 8.15. GOVERNING LAW		51
SECTION 8.16. WAIVER OF JURY TRIAL		51

	September 30,
Exhibits
Exhibit A Form of Post-Closing Articles of Incorporation of the Company
Exhibit B Form of Post-Closing Bylaws of the Company
Exhibit C Form of Preliminary Pro Forma Capitalization Statement
Exhibit D Form of Banco Santander Financing Documents
Exhibit E Liquidity Policy
Exhibit F Form of Amended Employment Agreement
Exhibit G Form of Comparable Facility

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Exhibit H Form of Dundon Investment Agreement

Exhibit I Form of Indemnification Agreement

Exhibit J Terms of Management Equity Plan

Exhibit K Form of Note Purchase Agreement

Exhibit L Form of Shareholders Agreement

Exhibit M Form of State Tax Sharing Agreement

Exhibit N Form of Trademark License Agreement

Exhibit O Form of Transfer Side Letter

Schedules

Schedule A Accounting Principles

Schedule B Credit Loss Allowance Schedule

Schedule C Loss Coverage Schedule

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INVESTMENT AGREEMENT (this “Agreement”) dated as of October 20, 2011, among SANTANDER CONSUMER USA INC., an Illinois corporation (the “Company”), Sponsor Auto Finance Holdings Series LP, a Delaware limited partnership (the “Acquirer”), and, solely for purposes of Sections 1.02(b), 1.04, 2.08, 4.03, 4.04, 4.08, 4.09 and 4.12 and Article VIII, SANTANDER HOLDINGS USA, INC., a Virginia corporation (“SHUSA”).

WHEREAS, the Company desires to increase its outstanding capital by issuing to the Acquirer, and the Acquirer desires to purchase and acquire from the Company, pursuant to the terms and conditions set forth in this Agreement, shares of common stock, no par value (“Company Common Stock”), of the Company.

WHEREAS, the Company is, concurrently with the execution and delivery of this Agreement, also entering into the Dundon Investment Agreement to issue and sell shares of Company Common Stock to the purchaser thereunder.

WHEREAS, SHUSA has agreed to capitalize the Company with additional common equity at or prior to the Closing Date such that the Company will achieve, as of the Determination Date (as defined in Section 5.02) and after giving effect to the transactions contemplated hereby and by the Dundon Investment Agreement, Pro Forma Capitalization (as defined in Section 5.02) of at least $1,990,000,000.

WHEREAS, in connection with the capital increase contemplated hereby and as referenced herein, it is the intention of the Company and the shareholders of the Company that the shareholders will jointly manage the Company and will share control over it, all of the foregoing subject to the terms and conditions of this Agreement, the Shareholders Agreement and the Company’s articles of incorporation and bylaws.

WHEREAS, concurrently with the execution and delivery of this Agreement, certain Affiliates of Warburg Pincus LLC, Kohlberg Kravis Roberts & Co. L.P. and Centerbridge Partners L.P. (collectively, the “Guarantors”) are entering into guarantees with the Company (collectively, the “Guarantees”) pursuant to which each of the Guarantors is guaranteeing certain obligations of Acquirer in connection with this Agreement.

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and subject to the conditions set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

Purchase and Sale; Closing

SECTION 1.01. Purchase and Sale of the Shares. On the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 1.02), the Company shall issue, sell and deliver to the Acquirer, and the Acquirer shall purchase and acquire from the Company, an aggregate number of shares of

Company Common Stock (the “Acquired Shares”) representing 25.0% of the total number of issued and outstanding shares of Company Common Stock as of the Closing Date (as defined in Section 1.02), after giving effect to the issuance and sale of the Acquired Shares and the shares of Company Common Stock to be issued and sold pursuant to the Dundon Investment Agreement, for an aggregate purchase price of $1.0 billion (the “Purchase Price”), payable as set forth below in Section 1.02. The purchase and sale of the Acquired Shares is referred to in this Agreement as the “Acquisition”.

SECTION 1.02. Closing Date. (a) Subject to Section 1.02(b), the closing of the Acquisition (the “Closing”) shall take place at the offices of Cravath, Swaine & Moore LLP, 825 Eighth Avenue, New York, New York 10019, at 10:00 a.m. on the thirteenth Business Day following the satisfaction (or, to the extent permitted, the waiver) of the conditions set forth in Article V (other than those conditions which by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), or at such other place, time and date as shall be agreed between the Company and the Acquirer. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.

(b) In the event that SHUSA determines in good faith that it reasonably expects that the conditions set forth in Article V (other than those conditions which by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions) will be satisfied between December 12, 2011 and December 29, 2011, then, on December 9, 2011, SHUSA shall be entitled to request, by written notice to the Acquirer (the “Funding Notice”), that the Acquirer notify each of the counterparties to the Equity Commitment Letters (as defined in Section 3.06) to be prepared to have funds available to permit the Closing to occur on December 30, 2011. Upon receipt of the Funding Notice, the Acquirer shall notify each of the counterparties to the Equity Commitment Letters that such counterparties need to be prepared to have funds available in order to permit a Closing to occur on December 30, 2011, and accordingly that such counterparties should take any necessary steps to call funds from their respective limited partners and other investors. If SHUSA gives the Funding Notice, the Acquirer must have funds available to permit the Closing to occur on December 30, 2011 and subject to satisfaction or waiver of the conditions set forth in Article V (other than those conditions which by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions) the Closing shall occur on December 30, 2011. In the event that SHUSA delivers the Funding Notice and the Closing does not occur on December 30, 2011 (other than by reason of breach by the Acquirer), then SHUSA shall pay the Acquirer interest on the Equity Financing at a rate equal to the Prime Rate plus 1.0% during the period beginning on December 31, 2011 and ending on the earlier of the (i) Closing Date and (ii) the date this Agreement is terminated pursuant to Section 6.01. SHUSA shall pay such interest to the Acquirer on the Closing Date or the date of termination of this Agreement pursuant to Section 6.01, as applicable, by wire transfer in immediately available funds to the account designated by the Acquirer.

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SECTION 1.03. Transactions To Be Effected at the Closing. At the Closing:

(a) the Company shall deliver to the Acquirer: (i) one or more stock certificates representing the Acquired Shares and (ii) the expense reimbursement in accordance with Section 4.04, by wire transfer of immediately available funds to a bank account (which account has been designated in writing by the Acquirer at least one Business Day prior to the Closing Date);

(b) the Acquirer shall deliver to the Company payment, by wire transfer of immediately available funds in an amount equal to the Purchase Price to a bank account (which account has been designated in writing by the Company at least one Business Day prior to the Closing Date); and

(c) the articles of incorporation of the Company and the bylaws of the Company, amended to read in the form of Exhibit A hereto and Exhibit B hereto, respectively, shall become effective.

SECTION 1.04. Pro Forma Capitalization Calculations; Post-Closing Adjustment.

(a) Not less than five Business Days prior to the anticipated Closing Date, the Company will deliver to the Acquirer and SHUSA a statement setting forth in reasonable detail its good faith calculation of the Company’s Tangible Common Equity, as of the Determination Date (determined in accordance with the Accounting Principles and, with respect to any matter not covered by the Accounting Principles, the accounting policies of the Company as used in the preparation of the Financial Statements (as defined in Section 2.07)), the Pro Forma Adjustments and the Pro Forma Capitalization (such statement, the “Preliminary Pro Forma Capitalization Statement”) substantially in the form of Exhibit C hereto. In connection with the delivery of the Preliminary Pro Forma Capitalization Statement, (i) the Company shall provide the Acquirer with a certificate signed on behalf of the Company by an officer of the Company representing that the accounting policies and methodologies used to determine the components of Tangible Common Equity as of the Determination Date, including the estimates of future credit losses under the Company’s Base Case (as defined in Schedule A hereto) and Stress Case (as defined in Schedule A hereto) scenarios used to determine the Credit Loss Allowance (as defined in Schedule A hereto), are consistent with the Accounting Principles and, with respect to any matter not covered by the Accounting Principles, the accounting policies of the Company as used in the preparation of the Financial Statements, and (ii) the Company will provide a schedule to the Acquirer which summarizes the Company’s Credit Loss Allowance as of July 31, 2011 and the Determination Date substantially in the form of Schedule B. Simultaneously with the delivery of the Preliminary Pro Forma Capitalization Statement, the Company shall make available to the Acquirer and SHUSA or their respective Representatives the Company personnel responsible for preparing the Preliminary Pro Forma Capitalization Statement and underlying support for the computations and assumptions underlying

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such computations, and shall make reasonably available to the Acquirer and SHUSA, upon the Acquirer’s or SHUSA’s request, all relevant books and records, any work papers (including those of the Company’s accountants) and supporting documentation, in each case to the extent within the control of the Company, relating to the Preliminary Pro Forma Capitalization Statement.

(b) The Preliminary Pro Forma Capitalization Statement shall be binding and conclusive upon, and deemed accepted by, the Acquirer unless the Acquirer notifies the Company and SHUSA in writing of any objections thereto (any such written dispute or objection, the “Objection”), within 30 days following the Closing Date (such period, the “Review Period”). The Objection shall set forth the Acquirer’s calculation of the Pro Forma Capitalization, including the basis for the Acquirer’s dispute or objections and the specific adjustments (including dollar amounts) that the Acquirer believes in good faith should be made. If no Objection is delivered by the Acquirer to the Company and SHUSA prior to the expiration of the Review Period, then the Pro Forma Capitalization Statement shall be deemed to have been accepted by the parties and shall become final and binding upon the parties. The Company and the Acquirer shall, within 15 days following delivery of an Objection as set forth above, attempt in good faith to resolve their dispute. If at the end of such period the Company and the Acquirer have been unable to resolve such dispute, the dispute shall be referred within five Business Days to the Neutral Auditor. The Company and the Acquirer each agree to promptly sign an engagement letter, in commercially reasonable form, if reasonably required by the Neutral Auditor. The Neutral Auditor shall, acting as an expert in accounting and not as an arbitrator, determine on a basis consistent with the requirements of this Agreement, whether and to what extent the Preliminary Pro Forma Capitalization Statement requires adjustment and, in accordance with such determination, shall select either the Pro Forma Capitalization set forth in the Preliminary Pro Forma Capitalization Statement or the Pro Forma Capitalization set forth in the Objection. The Company and the Acquirer shall request the Neutral Auditor to use its commercially reasonable efforts to (i) render its final written determination within 30 days after such firm’s engagement, and (ii) prepare the applicable Final Pro Forma Capitalization Statement (as defined below). The final written determination of the Neutral Auditor shall be based solely on the written submissions by the Company and the Acquirer, as well as relevant books and records, any work papers (including those of the parties’ respective accountants) and supporting documentation, and shall be made in strict accordance with the terms of this Agreement. The Neutral Auditor shall not be entitled or permitted to (x) take oral testimony or interview any persons or (y) retain or consult with any outside witnesses or experts. In making its final written determination, the Neutral Auditor shall apply the Accounting Principles and, with respect to any matter not covered by the Accounting Principles, the accounting policies and methodologies of the Company as used in the preparation of the Financial Statements. The Neutral Auditor’s final written determination shall be conclusive and binding upon the Company, SHUSA and the Acquirer. The Company and the Acquirer shall make reasonably available to the Neutral Auditor, upon the Neutral Auditor’s request, all relevant books and records, any work papers (including those of the parties’ respective accountants) and supporting documentation, in each

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case to the extent within the control of the Company or the Acquirer, as applicable, relating to the Preliminary Pro Forma Capitalization Statement and the Objection (provided, that each party shall contemporaneously provide a copy to the other party of any materials requested by, and provided to, the Neutral Auditor). All fees and disbursements of the Neutral Auditor shall be borne by (i) the Acquirer, in the event that the Neutral Auditor selects the Pro Forma Capitalization set forth in the Preliminary Pro Forma Capitalization Statement or (ii) the Company, in the event that the Neutral Auditor selects the Pro Forma Capitalization set forth in the Objection.

(c) The Preliminary Pro Forma Capitalization Statement shall become final and binding on the Company, SHUSA and the Acquirer upon the earliest of (i) if no Objection has been given, the expiration of the Review Period, (ii) if an Objection has been given, agreement by the Company and the Acquirer that the Preliminary Pro Forma Capitalization Statement, together with any modifications thereto agreed to by the Company and the Acquirer, shall have become final and binding and (iii) the date on which the Neutral Auditor shall issue its decision with respect to any dispute relating to the Preliminary Pro Forma Capitalization Statement. The Preliminary Pro Forma Capitalization Statement without adjustment if no timely Objection is made, or as adjusted pursuant to any agreement between the parties or pursuant to the decision of the Neutral Auditor, when final and binding on both parties, is herein referred to as the “Final Pro Forma Capitalization Statement”.

(d) If an Objection is timely delivered pursuant to Section 1.04(b), then promptly (but not more than five Business Days) following the date upon which the Final Pro Forma Capitalization Statement has been determined pursuant to Section 1.04(c):

(i) if the Company’s Pro Forma Capitalization as set forth in the Final Pro Forma Capitalization Statement exceeds $1,990,000,000, the Company shall pay to SHUSA, by wire transfer in immediately available funds to the account designated by SHUSA, an amount equal to 100% of such difference, as a refund of any capital contributions previously made pursuant to Section 4.08, or

(ii) if the Company’s Pro Forma Capitalization as set forth in the Final Pro Forma Capitalization is less than $1,990,000,000, SHUSA shall pay to the Company, by wire transfer in immediately available funds to the account designated by the Company, an amount equal to 100% of such difference, as an additional capital contribution pursuant to Section 4.08.

ARTICLE II

Representations and Warranties

Relating to the Company and the Acquired Shares

Except as set forth in the Company Disclosure Letter, the Company and, solely for purposes of Section 2.08, SHUSA hereby represent and warrant to the Acquirer as follows:

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SECTION 2.01. Organization, Standing and Power. Each of the Company and its Subsidiaries (the “Company Subsidiaries”) is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect. For purposes of this Agreement, “Material Adverse Effect” means a material adverse effect on (i) the business, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a whole, (ii) the ability of the Company to perform its obligations under this Agreement, (iii) the ability of the Company to consummate the Acquisition and the other transactions contemplated hereby or (iv) the ability of the Company and the Company Subsidiaries to finance their operations on terms consistent with past practices in the capital markets through access to the asset-backed securitization markets and third party warehouse capacity. The Company has made available to the Acquirer true and complete copies of the articles of incorporation of the Company as amended to the date of this Agreement (as so amended, the “Company Charter”) and the bylaws of the Company as amended to the date of this Agreement (as so amended, the “Company Bylaws”). The Company has made available to the Acquirer a true, complete and correct list of all of the Company Subsidiaries as of the date of this Agreement. Except for the Company Subsidiaries, the Company does not own beneficially or of record, directly or indirectly, more than 5.0% of any class of equity securities or similar interests of any corporation, bank, business trust, association or similar organization, and is not, directly or indirectly, a partner in any partnership or party to any joint venture. The Company owns, directly or indirectly through wholly-owned Company Subsidiaries, all of its interests in each Company Subsidiary free and clear of any and all Liens (as defined in Section 2.05).

SECTION 2.02. Capital Stock of the Company and the Company Subsidiaries. (a) The authorized capital stock of the Company consists of 93,000,000 shares of Company Common Stock and 13,000,000 shares of preferred stock, par value $1.00 per share (“Company Preferred Stock” and, together with the Company Common Stock, the “Company Capital Stock”). At the close of business on October 20, 2011, (i) 92,173,913 shares of Company Common Stock and no shares of Company Preferred Stock were issued and outstanding and (ii) no shares of Company Common Stock were held by the Company in its treasury. Except as set forth in this Section 2.02(a), there are no shares of capital stock of, or other equity securities of, or any securities convertible into or exchangeable or exercisable for shares of capital stock in, or other equity securities in, the Company issued, reserved or authorized for issuance. Section 2.02(a)(ii) of the Company Disclosure Letter sets forth for each Company Subsidiary the amount of its authorized capital stock, the amount of its outstanding capital stock and the record and beneficial owners of its outstanding capital stock and other equity interests therein. Except as set forth in Section 2.02(a)(ii) of the Company Disclosure Letter, there are no shares of capital stock of, or other equity securities of, any Company Subsidiary issued, reserved for issuance or outstanding.

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(b) All of the issued and outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights (except such as have been duly waived pursuant to written waivers previously provided to the Acquirer) and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the Illinois Business Corporation Act of 1983, as amended (the “IBCA”), the Company Charter or the Company Bylaws or any Contract (as defined in Section 2.05) to which the Company is a party or otherwise bound. None of the outstanding shares of Company Capital Stock or other securities of the Company or any of the Company Subsidiaries was issued, sold or offered by the Company or any Company Subsidiary in violation of the Securities Act (as defined in Section 2.05) or the securities or blue sky laws of any state or jurisdiction, or any applicable securities laws in the relevant jurisdictions outside of the United States. All the outstanding shares of capital stock of each Company Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable and were not issued in violation of any preemptive rights. There are not any bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Company Common Stock may vote (“Voting Company Debt”). There are not any options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Company or any Company Subsidiary is a party or by which any of them is bound (i) obligating the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, the Company or of any Company Subsidiary or any Voting Company Debt, (ii) obligating the Company or any Company Subsidiary to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii) that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights accruing to holders of Company Common Stock. There are not any outstanding contractual obligations of the Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any Company Subsidiary.

SECTION 2.03. Authority; Execution and Delivery; Enforceability. The Company has full power and authority to execute this Agreement and to consummate the Acquisition and the other transactions contemplated hereby. The execution and delivery by the Company of this Agreement and the consummation by the Company of the Acquisition and the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the Acquirer, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws (as defined in Section 2.05) of general applicability relating to or affecting creditors’ rights and to general equity principles, whether considered in a proceeding at law or in equity.

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SECTION 2.04. Issuance of Acquired Shares. As of the Closing Date, and upon the completion of the actions to be taken at the Closing, the Acquired Shares (i) will be duly authorized by all necessary corporate action on the part of the Company, (ii) will be validly issued, fully paid and nonassessable and (iii) will not be subject to preemptive rights or restrictions on transfer (other than preemptive rights and restrictions on transfer under this Agreement, the Shareholders Agreement, the IBCA, the Company Charter and the Company Bylaws and under applicable state and federal securities laws).

SECTION 2.05. No Conflicts; Consents. The execution and delivery by the Company of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any Company Subsidiary under any provision of (A) the Company Charter or the Company Bylaws or (B) (1) any loan or credit agreement, license, contract, lease, sublease, indenture, note, debenture, bond, mortgage or deed of trust or other legally binding agreement, arrangement or understanding (each, a “Contract”) to which the Company or any Company Subsidiary is a party or by which any of their respective properties or assets are bound, or (2) any Federal, national, state, provincial, local or foreign statute, law (including common law), ordinance, rule or regulation of any Governmental Authority (as defined below) (each, a “Law”) or any judgment, order or decree of any Governmental Authority (each, a “Judgment”), in each case, applicable to the Company or any Company Subsidiary or any of their respective properties or assets, other than, in the case of such clause (B) above, any such conflicts, violations, breaches, defaults, rights, losses or pledges, liens, charges, mortgages, encumbrances or security interests of any kind or nature (collectively, “Liens”) or Judgments that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect. Other than in connection or in compliance with the provisions of the Securities Act of 1933, as amended (the “Securities Act”) and the securities or blue sky laws of the various states or the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver, authorization or approval of, any governmental or regulatory (including any stock exchange) authorities, agencies, courts, commissions or other entities, whether Federal, national, state, provincial, local or foreign, or applicable self-regulatory organizations (each, a “Governmental Authority”) is necessary for the consummation by the Company of the transactions contemplated by this Agreement.

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SECTION 2.06. Private Offering. None of the Company, the Company Subsidiaries, their Affiliates and their Representatives have issued, sold or offered any security of the Company to any person under circumstances that would cause the sale of the Acquired Shares, as contemplated by this Agreement, to be subject to the registration requirements of the Securities Act. None of the Company, the Company Subsidiaries, their Affiliates and their Representatives will offer the Acquired Shares or any part thereof or any similar securities for issuance or sale to, or solicit any offer to acquire any of the same from, anyone so as to make the issuance and sale of the Acquired Shares subject to the registration requirements of Section 5 of the Securities Act. Assuming the representations of the Acquirer contained in Section 3.05 are true and correct, the sale and delivery of the Acquired Shares hereunder are exempt from the registration and prospectus delivery requirements of the Securities Act.

SECTION 2.07. Financial Statements; Undisclosed Liabilities; Absence of Certain Changes. (a) The Company has provided to the Acquirer (i) the audited consolidated balance sheet of the Company as of December 31, 2010 and the related statements of income, shareholders’ equity and cash flows for the year then ended (the “Audited Financial Statements”) and (ii) the unaudited consolidated balance sheet of the Company as of July 31, 2011 and the related statements of income, shareholders’ equity and cash flows for the seven months then ended (the “Unaudited Financial Statements,” and, together with the Audited Financial Statements, the “Financial Statements”). The Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), consistently applied (except as described in the notes thereto and, in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and on that basis fairly present (subject, in the case of the unaudited statements, to normal, recurring year-end audit adjustments) the consolidated financial condition, results of operations and cash flows of the Company as of the respective dates thereof and for the respective periods indicated. The unaudited consolidated balance sheet of the Company as of July 31, 2011 is referred to as the “Balance Sheet” and July 31, 2011 is referred to as the “Balance Sheet Date”. Since the Balance Sheet Date through the date hereof, there has not been any action taken by the Company or any Company Subsidiary which, if taken following entry by the Company into this Agreement, would have required the consent of the Acquirer pursuant to Section 4.01(a)(i).

(b) The Company and the Company Subsidiaries do not have any liabilities or obligations (whether accrued, absolute, matured or unmatured, contingent, unasserted or otherwise) of a nature required by GAAP to be reflected on a consolidated balance sheet of the Company or in the notes thereto, except (i) as disclosed, reflected or reserved against in the Balance Sheet or the notes thereto, (ii) for liabilities and obligations incurred in the ordinary course of business since the Balance Sheet Date, and (iii) for Taxes (x) accrued after the Determination Date, (y) to the extent covered by the Tax indemnification in Section 6.16 of the Shareholders Agreement or (z) reflected in the Pro Forma Capitalization.

(c) Since December 31, 2010, the Company has conducted its business only in the ordinary course, and there has not been a Company Material Adverse Effect. For purposes of this Agreement, a “Company Material Adverse Effect” means any event, change, effect or development that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect other than events, changes, effects or developments resulting from (i) actions

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or omissions of the Company or any Company Subsidiary expressly required or contemplated by the terms of this Agreement, (ii) changes in general economic conditions in the United States or the Company’s or the Company Subsidiaries’ industries or markets in general, including their effect on auto sales and resales, (iii) changes in financial and securities market conditions relevant to the Company, including prevailing interest rates, credit availability and liquidity, (iv) changes in national or international political conditions, including acts of war, sabotage or terrorism, military actions or the escalation thereof, or outbreak of hostilities, (v) any changes after the date hereof in applicable Laws or accounting rules or principles, including changes in GAAP, (vi) the announcement of this Agreement, or (vii) any failure, in and of itself, by the Company to meet any internal or disseminated projections, forecasts or predictions for any period (provided that any underlying causes of such failure shall not be excluded in determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur); except, with respect to clauses (ii), (iii), (iv), and (v), to the extent that any such circumstance, event, change, development or effect has had or would reasonably be expected to have a disproportionate effect on the Company and the Company Subsidiaries, taken as a whole, relative to other participants in the industry in which the Company and the Company Subsidiaries participate.

(d) The records, systems, controls, data and information of the Company and the Company Subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive or shared ownership and direct or indirect control of the Company or the Company Subsidiaries (including all means of access thereto and therefrom), except for any non-ownership and non-control that individually or in the aggregate has not had and would not reasonably be expected to have a Material Adverse Effect.

(e) Since December 31, 2010, neither the Company nor any Company Subsidiary nor, to the Knowledge of the Company, any director, officer, employee, auditor, accountant or Representative of the Company or any Company Subsidiary has received any material written complaint, allegation, assertion or claim regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any Company Subsidiary or their respective internal accounting controls, including any material written complaint, allegation, assertion or claim that the Company or any Company Subsidiary has engaged in questionable accounting or auditing practices.

SECTION 2.08. Taxes. (a) All material Tax Returns of consolidated, unitary or other tax groups of which the Company and the Company Subsidiaries are members have been timely filed and each of the Company and each Company Subsidiary has timely filed all material Tax Returns required to be filed by it. All such Tax Returns are true, complete and correct in all material respects with respect to the Company and each Company Subsidiary. All material Taxes relating to the Company and each Company Subsidiary have been timely paid in full, whether or not shown on such Tax Returns.

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(b) No material examination or audit of any Tax Return relating to any Taxes of the Company or any of the Company Subsidiaries or with respect to any Taxes due from or with respect to the Company or any of the Company Subsidiaries is currently in progress or, to the knowledge of the Company, threatened or contemplated. No material deficiency with respect to any Taxes has been proposed, asserted or assessed against the Company or any Company Subsidiary. No agreements, waivers, or arrangements extending the statutory period of limitation applicable to any claim for, or the time to collect or assess, any such Taxes against the Company or any Company Subsidiary are pending.

(c) The Tax Returns of the Company and each Company Subsidiary (i) with respect to federal income Taxes have been examined by and settled with the United States Internal Revenue Service, or the statute of limitations with respect to the relevant Tax liability has expired, for all taxable periods through and including the year ended December 31, 2007, and (ii) with respect to state income Taxes have been examined by and settled with the appropriate taxing authorities, or the statute of limitations with respect to the relevant Tax liability has expired, for all taxable periods through and including the year ended December 31, 2003.

(d) No closing agreement pursuant to Section 7121 of the Code (or any similar provision of any state, local or foreign law) has been entered into by or with respect to the Company or any of the Company Subsidiaries.

(e) Neither the Company nor any of the Company Subsidiaries has any liability for the Taxes of any person (other than any current or former member of the consolidated group of which SHUSA is the common parent for federal income tax purposes and the Company or any of the Company Subsidiaries) under Treasury Regulations Section 1.1502-6 (or any similar provision of any state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

(f) The Company and each Company Subsidiary have duly and timely withheld from employee salaries, wages and other compensation and paid over to the appropriate taxing authorities all material amounts required to be so withheld and paid over for all periods under all applicable laws and regulations.

(g) None of Company or any of the Company Subsidiaries has been either a “distributing corporation” or a “controlled corporation” in a distribution in which the parties to such distribution treated the distribution as one to which Section 355 of the Code is applicable.

(h) Neither the Company nor any of the Company Subsidiaries is a party to, or bound by, or has any obligation under, any tax allocation or sharing agreement or similar contract or arrangement or any agreement that obligates it to make any payment computed by reference to the Taxes, taxable income or taxable losses of any other Person, except for (i) the Existing Tax Allocation Agreement, (ii) the State Tax Sharing Agreement and (iii) any such agreements solely among the Company and the Company Subsidiaries.

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(i) Neither the Company nor any of the U.S. Company Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (A) change in method of accounting for a taxable period ending on or prior to the Closing Date, (B) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state or local income Tax law) executed on or prior to the Closing Date, (C) intercompany transactions or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state or local income Tax law), (D) installment sale or open transaction disposition made on or prior to the Closing Date, (E) prepaid amount received on or prior to the Closing Date (other than pursuant to transactions entered into in the ordinary course of business), or

(F) election under Section 108(i) of the Code.

(j) There are no material Liens for Taxes on any assets of the Company or any of the Company Subsidiaries, other than (i) statutory Liens for Taxes not yet due and payable or (ii) Liens for Taxes being contested in good faith by appropriate proceedings for which the Company and the Company Subsidiaries maintain adequate reserves in accordance with GAAP.

(k) Neither the Company nor any of the Company Subsidiaries has ever participated in a “listed transaction” (as defined in Treasury Regulation Section 1.6011-4(b)(2) or 301.6111-2(b)(2)).

(l) Neither the Company nor any of the Company Subsidiaries has been, or will as a result of the Acquisition be, required to reduce any Tax attributes, including basis in assets (and including basis in the stock of any of the Company Subsidiaries), by reason of Treasury Regulation Section 1.1502-36(d).

(m) For purposes of this Section 2.08, all representations are made by the Company, except to the extent a representation relates to a Tax Return that is filed by SHUSA or its Subsidiaries (other than the Company and the Company Subsidiaries) and includes the Company or a Company Subsidiary, in which case such representation is made by SHUSA.

SECTION 2.09. Litigation. Section 2.09 of the Company Disclosure Letter sets forth (i) each claim, suit, action, arbitration, complaint, charge, investigation or proceeding (each an “Action”) pending or, to the Company’s Knowledge, threatened against the Company or any Company Subsidiary (A) that has a realistic potential cost to the Company in excess of $500,000.00, (B) that seeks to mandate or prohibit any material conduct or business practice by the Company or any Company Subsidiary, or (C) which may give rise to any legal restraint on or prohibition against the transactions contemplated by this Agreement and (ii) all Judgments outstanding against the Company or any Company Subsidiary in excess of $500,000.00 or which mandate or prohibit any material conduct or business practice by the Company or any Company Subsidiary.

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SECTION 2.10. Governmental Permits; Compliance with Applicable Laws. (a) The Company and the Company Subsidiaries have all material permits, licenses, franchises, authorizations, orders and approvals (“Permits”) issued or granted by Governmental Authorities that are required in order to carry on their businesses as presently conducted, including owning, holding or possessing sales finance company/agency licenses, consumer and commercial loan or lender licenses, collection agency licenses and servicer licenses in each jurisdiction where such Permits are required. Section 2.10(a) of the Company Disclosure Letter sets forth as of the date of this Agreement all material state Permits that are required for the Company and the Company Subsidiaries to carry on their businesses as presently conducted in each state of the United States.

(b) Since December 31, 2009, the Company and each Company Subsidiary have filed all material reports, registrations, notices, documents, filings, statements and submissions, together with any required amendments thereto, that they were required to file with any Governmental Authority (the foregoing, collectively, the “Company Reports”) and have paid all material fees and assessments due and payable in connection therewith. As of the later of their respective filing dates or the dates on which they were amended, the Company Reports complied in all material respects with all statutes and applicable rules and regulations of the applicable Governmental Authorities, and the information set forth therein was accurate and complete in all material respects.

(c) The Company and the Company Subsidiaries are, and since December 31, 2009 have been, conducting their respective businesses in compliance in all material respects with all applicable Laws, including all state usury, “high cost” or “predatory lending” laws, consumer lending laws, the Truth in Lending Act, the Consumer Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act and other applicable federal, state and local Laws regulating lending, servicing loans, selling credit or collecting credit balances (including collateral foreclosure and repossession), and all Laws related to occupational, health and safety and the environment, and their own policies relating to privacy, data security and personal information.

(d) Neither the Company nor any Company Subsidiary (i) is subject to any order, determination, consent order, written agreement or memorandum of understanding imposed on it by any Governmental Authority or (ii) has received any written notice from any Governmental Authority since January 1, 2009, regarding any actual or alleged breach or violation of, or non-compliance with, any Laws or orders, determinations, consent orders, written agreements or memorandum of understandings to which the Company or any Company Subsidiary is subject.

(e) This Section 2.10 does not relate to matters with respect to Taxes, which are the subject of Section 2.08.

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SECTION 2.11. Retail Installment Contracts and Other Credit Extensions. (a) All outstanding retail installment contracts and other consumer loans (“Loans”) owned by the Company or any Company Subsidiary, (i) (x) to the extent originally solicited and originated by the Company or any Company Subsidiary that was a Company Subsidiary at the time of such solicitation or origination, were solicited and originated in accordance with the Company’s or the Company Subsidiary’s, as applicable, material underwriting standards and with all requirements of applicable Laws, and (y) to the extent originally solicited and originated by a person other than the Company or any Company Subsidiary were, to the Knowledge of the Company, solicited and originated in accordance with the material underwriting standards of such person and with all requirements of applicable Laws, and (ii) (x) to the extent administered and serviced by the Company or any Company Subsidiary, have been administered and, where applicable, serviced by the Company or such Company Subsidiary (during periods in which it was a Company Subsidiary) in accordance with all requirements of applicable Laws and the servicing standards applicable to such Loan, and (y) to the extent administered and serviced by a person other than the Company or any Company Subsidiary have, to the Knowledge of the Company, been administered and, where applicable, serviced in accordance with all requirements of applicable Laws and the servicing standards applicable to such Loan, except, in the cases of clauses (i) and (ii), for those matters that individually or in the aggregate have not had and would not reasonably be expected to have a Material Adverse Effect.

(b) Each outstanding Loan owned by the Company or any Company Subsidiary (i) is evidenced by notes, agreements or other evidences of indebtedness that are true, genuine and what they purport to be and (ii) to the Knowledge of the Company, is a legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles, except, in the cases of clauses (i) and (ii), for those matters that individually or in the aggregate have not had and would not reasonably be expected to have a Material Adverse Effect. The notes, installment contracts and other credit or security documents with respect to each such outstanding Loan originated by the Company or any Company Subsidiary were in compliance in all material respects with all material applicable Laws at the time of origination by the Company or applicable Company Subsidiary, as applicable. The notes, installment contracts and other credit or security documents with respect to each such outstanding Loan originated by a person other than the Company or any Company Subsidiary were, to the Knowledge of the Company, in compliance in all material respects with all material applicable Laws at the time of origination by such person.

(c) The information set forth in the July Tape is true and correct in all material respects.

SECTION 2.12. Securitizations. (a) Each of the Company and the Company Subsidiaries is in compliance in all material respects with the Securitization Instruments. The Company has made available to the Acquirer complete and accurate copies of all of the material Securitization Instruments. Neither the Company nor any of the Company Subsidiaries has received any written notice of a servicer termination event under any Securitization Transaction and to the Company’s Knowledge no event has

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occurred and is continuing that has or would reasonably be expected to give rise to any such servicer termination event. Each of the Company and the Company Subsidiaries, to the extent that it is a seller, depositor, performance guarantor or issuing entity in any Securitization Transaction, has performed in all material respects all of its respective obligations under the material Securitization Instruments with respect to such Securitization Transaction. Since December 31, 2010, neither the Company nor any of the Company Subsidiaries was required pursuant to the terms of the Securitization Instruments to repurchase any assets transferred in connection with a Securitization Transaction.

(b) Since December 31, 2010, there has been no Action pending against the Company or any Company Subsidiary or, to the Company’s Knowledge, threatened in writing against the Company or any Company Subsidiary, in which it is alleged that any private placement memorandum or other offering document issued in any Securitization Transaction which was sponsored by the Company or any Company Subsidiary, or any amendment or supplement thereto, contained, as of the date on which securities were issued in the applicable Securitization Transaction, any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No securities were issued or sold by the Company or the Company Subsidiaries in violation of Section 5 of the Securities Act in any Securitization Transaction sponsored by the Company or any Company Subsidiary. None of the Company or the Company Subsidiaries or any Securitization SPV, in each case to the extent that it is an issuing entity in any Securitization Transaction, is required to register as an investment company under the Investment Company Act of 1940, as amended.

(c) Since December 31, 2010, no nationally recognized statistical rating agency has downgraded or withdrawn its rating of any securities that were rated at least BBB or its equivalent by any such rating agency at issuance of any Securitization Transaction or placed any such ratings on a credit watch for possible downgrade, except for any such event that has resulted from a downgrade, withdrawal or credit watch with respect to the credit rating of a third party credit enhancement provider, nor, to the Company’s Knowledge, has any such downgrade, withdrawal or placement on credit watch been threatened. Since December 31, 2010, no nationally recognized statistical rating agency has downgraded or withdrawn its rating of the Company or any of the Company Subsidiaries, as servicer, or placed any such ratings on a credit watch for possible downgrade, nor, to the Company’s Knowledge, has any such downgrade, withdrawal or placement on credit watch been threatened.

(d) No default, event of default, servicer default or similar event has occurred under any Securitization Instrument or contract to which a Securitization SPV is a party and no cash trapping trigger event or other event requiring the increase of credit enhancement for any Securitization Transaction has been declared (and, to the Company’s Knowledge, no event has occurred or is continuing that would reasonably be expected to give rise to any of the foregoing events).

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(e) Neither the Company nor any Company Subsidiary has acted in the capacity of guarantor or credit enhancer in any Securitization Transaction, nor has the Company or any Company Subsidiary provided any type of guarantee in any Securitization Transaction with respect to any payments of principal and/or interest in connection with any issued securities; provided, however, that for the purposes of this Section 2.12(e), the Company and the Company Subsidiaries shall not be deemed a “guarantor” or “credit enhancer” solely by reason of owning or holding any credit residual, subordinate interest, credit reserve account or similar instrument or account related to any Securitization Transaction or by reason of providing market standard indemnities under any Securitization Instrument.

(f) Section 2.12(f) of the Company Disclosure Letter lists all Securitization Transactions outstanding as of the date hereof together with the amount of funding outstanding thereunder as of the dates indicated therein and sets forth all material notices, notifications, filings, consents, authorizations, approvals, and deliveries required under any Securitization Instruments in connection with the consummation of the transactions contemplated hereby (such required notices, notifications, filings, consents, authorizations, approvals, and deliveries, whether or not set forth in the Company Disclosure Letter, the “Securitization Consents”). Assuming all Securitization Consents set forth in Section 2.12(f) of the Company Disclosure Letter are obtained, the consummation of the transactions contemplated hereby will not cause the occurrence of any default, event of default, servicer default or similar event under any Securitization Instrument or any cash trapping trigger event or other event requiring the increase of credit enhancement for any Securitization Transaction. All of the Securitization Instruments (i) are legal, valid and binding obligations of the Company or a Company Subsidiary, as applicable, party thereto and, to the Company’s Knowledge, each of the counterparties thereto and (ii) are in full force and effect and enforceable against the Company and the Company Subsidiaries party thereto and, to the Company’s Knowledge, each of the counterparties thereto, in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles. To the Company’s Knowledge, there are no material breaches, violations or defaults or allegations or assertions of such by any party pursuant to any Securitization Instrument.

SECTION 2.13. Material Contracts. The Company has provided (by hard copy, electronic data room or otherwise) to the Acquirer or its Representatives true, correct and complete copies of each of the following to which the Company or any Company Subsidiary is a party as of the date of this Agreement (each, a “Material Contract”):

(a) all Contracts relating to Intellectual Property (excluding commercially available off-the-shelf non-exclusive licenses for software with aggregate fees of less than $500,000);

(b) all Securitization Instruments that are material to securitizations of $500,000,000 or more in principal amount;

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(c) all Contracts with vendors involving in each case annual payments by the Company or any Company Subsidiary of $500,000 or more;

(d) all Contracts which relate to an acquisition, divestiture, merger or similar transaction and which contain representations, covenants, indemnities or other obligations (including “earn-out” or other contingent obligations) that are still in effect; and

(e) all Contracts with respect to the employment or service of any current or former directors, officers, employees or consultants of the Company or any of the Company Subsidiaries other than (i) with respect to non-executive employees and consultants, Contracts entered into in the ordinary course of business and (ii) any oral Contracts for employment or retention that may be terminated by the Company or the applicable Subsidiary for a payment of less than $250,000.

Each Material Contract and each Specified Contract (A) is legal, valid and binding on the Company and the Company Subsidiaries which are a party to such contract, (B) is in full force and effect and enforceable against the Company and the Company Subsidiaries which are party to such contract and, to the Company’s Knowledge, each of the other parties thereto in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors’ rights and to general equity principles, whether considered in a proceeding at law or in equity and (C) will continue to be legal, valid, binding, enforceable, and in full force and effect in all material respects following the consummation of the Acquisition, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors’ rights and to general equity principles, whether considered in a proceeding at law or in equity, other than with respect to any Material Contract or Specified Contract that has expired after the date of this Agreement in accordance with its terms. Neither the Company nor any of the Company Subsidiaries, nor to the Knowledge of the Company, any other party thereto is in material violation or default under any Material Contract or any Specified Contract. No benefits under any Material Contract or any Specified Contract will be increased, and no vesting of any benefits under any Material Contract or any Specified Contract will be accelerated, by the occurrence of the Acquisition, nor will the value of any of the benefits under any Material Contract or any Specified Contract be calculated on the basis of the Acquisition. The Company and the Company Subsidiaries, and to the Knowledge of the Company, each of the other parties thereto, have performed in all material respects all material obligations required to be performed by them under each Material Contract and each Specified Contract, and to the Knowledge of the Company, no event has occurred that with notice or lapse of time would constitute a material breach or default or permit termination, modification, or acceleration, under the Material Contracts or the Specified Contracts. As of the date of this Agreement, there is not any pending, or to the Knowledge of the Company, threatened, amendment, modification, cancellation or termination with respect to the Material Contracts or any Specified Contract.

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SECTION 2.14. Insurance. The Company maintains insurance policies with respect to its business in such amounts and against such risks as are, in the Company’s judgment, reasonable for its business as presently conducted. All of the material policies, bonds and other arrangements providing for the foregoing (the “Company Insurance Policies”) are in full force and effect, the premiums due and payable thereon have been or will be timely paid through the Closing Date (other than retroactive or retrospective premium adjustments that are not yet, but may be, required to be paid with respect to any period ending prior to the Closing Date). Neither the Company nor any of the Company Subsidiaries has received any written notice of cancellation or non-renewal of any Company Insurance Policy and there is no material claim for coverage by the Company, or any of the Company Subsidiaries, pending under any of such Company Insurance Policies as to which coverage has been denied or disputed by the underwriters of such Company Insurance Policies or in respect of which such underwriters have reserved their rights.

SECTION 2.15. Real Property. The Company and the Company Subsidiaries have good and valid title to, or valid leasehold or sublease interests or other comparable contract rights in or relating to all real property that is material to the Company and its Subsidiaries, taken as a whole, free and clear of all Liens, except for Liens which do not materially affect the value of such property or the use made of such property by the Company or the Company Subsidiaries.

SECTION 2.16. Intellectual Property. The Company or the Company Subsidiaries exclusively own or validly license all material proprietary Intellectual Property currently used in the conduct of their businesses. All Intellectual Property applications and registrations owned by the Company and the Company Subsidiaries are subsisting and unexpired and, to the Company’s Knowledge, are valid and enforceable. The conduct of the businesses of the Company and the Company Subsidiaries does not infringe or violate the Intellectual Property of any other Person and, to the Knowledge of the Company, no Person is infringing or violating their material Intellectual Property. The Company and the Company Subsidiaries (i) take all commercially reasonable actions to maintain and protect their Intellectual Property and the security, contents and operation of their material software and systems, and (ii) require all employees of the Company or the Company Subsidiaries who have contributed to the creation, invention or improvement of any material Intellectual Property to assign to the Company or the Company Subsidiary in writing all of their rights therein.

SECTION 2.17. Benefit Plans. (a) (i) Each Benefit Plan has been established and administered in accordance with its terms, and in compliance with the applicable provisions of ERISA, the Code and other Laws; and (ii) no event has occurred and no condition exists that would subject the Company or any of its Subsidiaries, either directly or by reason of their affiliation with any member of their “Controlled Group” (defined as any organization which is a member of a controlled group of organizations within the meaning of Sections 414(b), (c), (m) or (o) of the Code), to any fine, lien, penalty or other liability imposed by ERISA, the Code or other Laws, except, in the case of clauses (i) and (ii) as individually or in the aggregate has not had and would not reasonably be expected to have a Material Adverse Effect.

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(b) No Benefit Plan is a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA) and neither the Company nor any member of their Controlled Group has sponsored or contributed to any multiemployer plan at any time during the six year period preceding the date hereof.

(c) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby will (A) result in any material payment (including severance, unemployment compensation or “excess parachute payment” (within the meaning of Section 280G of the Code) or otherwise)) becoming due to any current or former director, officer, employee, or independent contractor of the Company or any of its Subsidiaries from the Company or any of its Subsidiaries under any Benefit Plan or otherwise, (B) materially increase any compensation or benefits otherwise payable under any Benefit Plan, (C) result in any acceleration of the time of payment or vesting of any such benefits, (D) require the funding or increase in the funding of any such benefits, or (E) result in payments under any of the Benefit Plans or otherwise which would not be deductible under Section 280G of the Code.

SECTION 2.18. Labor. Employees of the Company and the Company Subsidiaries are not represented by any labor union nor are any collective bargaining agreements otherwise in effect with respect to such employees. As of the date hereof, no labor organization or group of employees of the Company or any Company Subsidiary has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or, to the Knowledge of the Company, threatened to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority. As of the date hereof, there are no organizing activities, strikes, work stoppages, slowdowns, lockouts, material arbitrations or material grievances, or other material labor disputes pending or, to the Knowledge of the Company, threatened against or involving the Company or any Company Subsidiary. The Company and the Company Subsidiaries are in compliance with all (1) laws and requirements respecting employment and employment practices, terms and conditions of employment, collective bargaining, disability, immigration, health and safety, wages, hours and benefits, non-discrimination in employment, workers’ compensation and the collection and payment of withholding and/or payroll taxes and similar taxes and (2) obligations of the Company and any Company Subsidiary, as applicable, under any employment agreement, severance agreement or any similar employment-related agreement or understanding, except in the cases of clauses (1) and (2) where the failure to be in compliance individually or in the aggregate has not had and would not reasonably be expected to have a Material Adverse Effect.

SECTION 2.19. Environmental Laws. The Company and the Company Subsidiaries (i) are in compliance with Environmental Laws, (ii) have received all permits, licenses or other approvals required under applicable Environmental Laws to conduct their business, (iii) are in compliance with all terms and conditions of any such permit, license or approval, (iv) have not owned or operated any real property contaminated with any Hazardous Substance that would reasonably be expected to result

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in liability to the Company or any Company Subsidiary pursuant to any Environmental Law and (v) have not received any written notice, demand, letter, claim or request for information alleging that the Company or any Company Subsidiary may be in violation of or subject to liability under any Environmental Law, except in the case of each of clauses (i) through (v), as has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

SECTION 2.20. Risk Management Instruments. All derivative instruments, including swaps, caps, floors and option agreements, entered into by the Company or any of the Company Subsidiaries (each, a “Derivative Instrument”), (a) were entered into (i) other than those entered into in connection with the acquisition by the Company or any Company Subsidiary of any Loans or any Securitization Transaction, only for purposes of mitigating identified risk and in the ordinary course of business, (ii) in accordance with prudent practices and in all material respects with all applicable Laws, and (iii) with counterparties believed by the Company to be financially responsible at the time; and (b) each of them constitutes the valid and legally binding obligation of the Company or one of the Company Subsidiaries and, to the Knowledge of the Company, the other parties thereto, enforceable in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors’ rights and to general equity principles, whether considered in a proceeding at law or in equity, other than (in the case of this clause (b)) with respect to any Derivative Instrument that has expired after the date of this Agreement in accordance with its terms. Neither the Company nor the Company Subsidiaries, nor to the Knowledge of the Company any other party thereto, is in breach of any of its material obligations under any Derivative Instrument. Section 2.20 of the Company Disclosure Letter sets forth, as of the date hereof, a list of all Derivative Instruments to which the Company or any Company Subsidiary is a party.

SECTION 2.21. Affiliate Transactions. As of the date of this Agreement, no Affiliate of the Company or any Company Subsidiary is a party to any material Contract (other than the Existing Shareholders Agreement, the Existing Tax Allocation Agreement, the Existing IT Agreement or any employment or similar Contracts) or transaction (other than transactions pursuant to or contemplated by the Existing Shareholders Agreement, the Existing Tax Allocation Agreement, the Existing IT Agreement or related to such person’s employment by the Company or any Company Subsidiary, in the case of non-executive employees) with the Company or any Company Subsidiary which pertains to the business of the Company or any Company Subsidiary. Except as set forth in Section 2.21 of the Company Disclosure Letter, SHUSA and its Affiliates (other than the Company and the Company Subsidiaries) do not provide any material services to the Company or any Company Subsidiary.

SECTION 2.22. Sufficiency of Assets. Except for the Intellectual Property covered by the Trademark License Agreement and the Existing IT Agreement, the Company and the Company Subsidiaries do not utilize the assets of SHUSA or any of its Affiliates (other than the Company and the Company Subsidiaries) for the conduct of their business as currently conducted.

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SECTION 2.23. Brokers and Finders. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of the Company or its Affiliates that is entitled to any fee or commission from the Company or any Company Subsidiary.

ARTICLE III

Representations and Warranties of the Acquirer

The Acquirer hereby represents and warrants to the Company as follows:

SECTION 3.01. Organization, Standing and Power. The Acquirer is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has full power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to carry on its business as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, have not had and would not reasonably be expected to have a material adverse effect on the ability of the Acquirer to perform its obligations under this Agreement or on the ability of the Acquirer to consummate the Acquisition and the other transactions contemplated hereby (an “Acquirer Material Adverse Effect”).

SECTION 3.02. Authority; Execution and Delivery; and Enforceability. The Acquirer has full power and authority to execute this Agreement and to consummate the Acquisition and the other transactions contemplated hereby. The execution and delivery by the Acquirer of this Agreement and the consummation by the Acquirer of the Acquisition and the other transactions contemplated hereby have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by the Acquirer and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of the Acquirer, enforceable against the Acquirer in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors’ rights and to general equity principles, whether considered in a proceeding at law or in equity.

SECTION 3.03. No Conflicts; Consents. The execution and delivery by the Acquirer of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Acquirer or any of its Subsidiaries under any provision of (A) the certificate of limited partnership or limited partnership agreement of the Acquirer or (B) (1) any Contract to which the Acquirer or any of its Subsidiaries is a party or by which any of their respective properties or assets are bound, or (2) any Law or any Judgment, in each case, applicable to the Acquirer or

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any of its Subsidiaries or any of their respective properties or assets, other than, in the case of such clause (B) above, any such conflicts, violations, breaches, defaults, rights, losses or Liens that, individually or in the aggregate, have not had and would not reasonably be expected to have an Acquirer Material Adverse Effect. Other than in connection or in compliance with the provisions of the Securities Act and the securities or blue sky laws of the various states or the HSR Act, no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver, authorization or approval of, any Governmental Authority is necessary for the consummation by the Acquirer of the transactions contemplated by this Agreement.

SECTION 3.04. Litigation. There is no Action pending or, to the Acquirer’s knowledge, threatened against the Acquirer, any of its Subsidiaries or any of its Affiliates that, individually or in the aggregate, has had or would reasonably be expected to have an Acquirer Material Adverse Effect, nor is there any Judgment outstanding against the Acquirer or any of its Subsidiaries or any of its Affiliates that has had or would reasonably be expected to have an Acquirer Material Adverse Effect.

SECTION 3.05. Securities Act. The Acquirer acknowledges that the Acquired Shares have not been registered under the Securities Act or under any state securities laws. The Acquirer (i) is acquiring the Acquired Shares pursuant to an exemption from registration under the Securities Act solely for investment with no present intention or view to distribute any of the Acquired Shares to any person in violation of the Securities Act, (ii) will not sell or otherwise dispose of any of the Acquired Shares, except in compliance with the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws, (iii) has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of its investment in the Acquired Shares and of making an informed investment decision, and has conducted an independent review and analysis of the business and affairs of the Company that it considers sufficient and reasonable for purposes of its making its investment in the Acquired Shares, and (iv) is an “accredited investor” (as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act).

SECTION 3.06. Availability of Funds. The Acquirer has provided true and correct copies of the executed commitment letters from certain Affiliates of Warburg Pincus LLC, Kohlberg Kravis Roberts & Co. L.P. and Centerbridge Partners L.P. relating to the commitment of such persons to provide cash equity to the Acquirer in the amount, and subject to the terms and conditions, set forth therein (such executed commitment letters, collectively, the “Equity Commitment Letters” and such equity financing, the “Equity Financing”). The Debt Financing and the Equity Financing required to consummate the Acquisition are referred to in this Agreement collectively as the “Financing”. As of the date of this Agreement, the Acquirer does not have any reason to believe that any of the conditions to the Financing (other than the financing contemplated by the Note Purchase Agreement) will not be satisfied or that such Financing will not be available to the Acquirer on a timely basis to consummate the Acquisition.

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SECTION 3.07. Brokers and Finders. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of the Acquirer or its Affiliates that is entitled to any fee or commission from the Company or any Company Subsidiary.

ARTICLE IV

Covenants

SECTION 4.01. Covenants Relating to Conduct of Business. (a) Except as expressly set forth in Section 4.01 of the Company Disclosure Letter or otherwise expressly permitted by the terms of this Agreement and except as shall be prohibited by this Section 4.01(a), from the date of this Agreement to the Closing, the Company shall, and shall cause the Company Subsidiaries to, (x) conduct their respective businesses in the usual, regular and ordinary course in substantially the same manner as previously conducted, and (y) use commercially reasonable efforts to maintain and preserve their businesses in good operating condition suitable in all material respects for their intended purposes and their respective business relationships with customers, strategic partners, suppliers, distributors and others having business dealings with the Company and the Company Subsidiaries. The Company shall not, and shall not permit any Company Subsidiary to, take any action that would, or that would reasonably be expected to, result in any of the conditions to the Acquisition not being satisfied. In addition (and without limiting the generality of the foregoing), except as set forth in Section 4.01 of the Company Disclosure Letter or otherwise expressly permitted or required by the terms of this Agreement, from the date of this Agreement to the Closing, the Company shall not, and shall not permit any Company Subsidiary to, do any of the following without the prior written consent of the Acquirer:

(i) take any action that would, after the Closing, be a (A) Shareholder Reserved Matter (as defined in the form of the Company’s restated articles of incorporation attached hereto as Exhibit A) or (B) Board Reserved Matter (as defined in the form of the Company’s bylaws attached hereto as Exhibit B); provided, however, the Company may declare and pay dividends or make other distributions on the Company Common Stock in such amounts as the Company reasonably determines would not cause the Pro Forma Capitalization, as of the Determination Date, to be less than $1,990,000,000;

(ii) take any action that materially and adversely deviates from the Annual Budget then in effect; or

(iii) authorize, or commit or agree to take, whether in writing or otherwise, any of the foregoing actions.

(b) Except as set forth in Section 4.01 of the Company Disclosure Letter or otherwise expressly permitted or required by the terms of this Agreement, from the date of this Agreement to the Closing, the Company shall not, and shall not permit any Company Subsidiary to, do any of the following without first providing reasonable notice to, and consulting with, the Acquirer:

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(i) release any reserves, other than in the ordinary course of business consistent with past practice, the Accounting Principles and the Company’s accounting policies and methodologies as in effect on the Balance Sheet Date;

(ii) except (A) in the ordinary course of business consistent with past practice, (B) as required pursuant to the terms of any Benefit Plan or other written agreement in effect on the date of this Agreement and made available to the Acquirer or its Representatives prior to the date of this Agreement, or (C) as may be required by applicable Law, (1) materially increase the benefits of any present or former director, officer or employee of the Company or any of the Company Subsidiaries, (2) grant any material severance, change in control, retention, or termination pay to any present or former director, officer or employee of the Company or any of the Company Subsidiaries, (3) loan or advance any money or other property to any present or former director, officer or employee or (D) establish, adopt, enter into, amend or terminate any material Benefit Plan or any plan, agreement, program, policy, trust, fund or other arrangement that would be a material Benefit Plan if it were in existence as of the date of this Agreement; provided however, that the foregoing clauses (A), (B), (C) and (D) shall not restrict the Company or any of the Company Subsidiaries from entering into or making available to newly hired employees or to employees in the context of promotions based on job performance or workplace requirements, any plans, agreements, benefits or compensation arrangements (including incentive grants) that have a value that is materially consistent with the past practice of making compensation and benefits available to newly hired or promoted employees in similar positions; and provided further, that nothing in this paragraph (ii) shall permit the Company or any Company Subsidiary to take any action not permitted by Section 4.01(a)(i) or (ii) above;

(iii) make or change any material Tax election, change an annual accounting period, adopt or change any accounting method with respect to Taxes, file any amended Tax Return, enter into any closing agreement, settle or compromise any proceeding with respect to any Tax claim or assessment, surrender any right to claim a refund of Taxes, or take any other similar action relating to the filing of any Tax Return or the payment of any Tax;

(iv) make any material change in its lending, leasing, origination, underwriting, credit management and debt collection, risk and asset-liability management and other operating policies and procedures, except as required by Law; or

(v) authorize, or commit or agree to take, whether in writing or otherwise, any of the foregoing actions.

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SECTION 4.02. Access to Information; Confidentiality. (a) Upon reasonable notice and subject to applicable Laws relating to the exchange of information, the Company shall, and shall cause each of the Company Subsidiaries to, afford to the Acquirer and its Representatives reasonable access, during normal business hours during the period prior to the Closing, to all the properties, books, contracts, commitments, personnel and records of the Company and the Company Subsidiaries (including Tax Returns and work papers of the Company’s accountants), and to its Representatives, in each case to the extent within the control of the Company and in a manner not unreasonably disruptive to the operation of the business of the Company and the Company Subsidiaries, and, during such period, the Company shall, and shall cause the Company Subsidiaries to, make available to Acquirer (i) a copy of each material report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of the federal securities laws or other applicable Laws (other than reports or documents which the Company is not permitted to disclose under applicable Law) and (ii) all other material information concerning its business, properties and personnel as Acquirer may reasonably request in writing. Neither the Company nor any of the Company Subsidiaries shall be required to provide access to or to disclose information, documents or other materials if (i) such access or disclosure would jeopardize the attorney-client privilege of the person in possession or control of such information, the Company or any Company Subsidiary or contravene any Law applicable to the person in possession or control of such information, the Company or any Company Subsidiary or (ii) such access or disclosure would violate the terms of a confidentiality agreement with a third party that is in effect as of the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.

(b) The Acquirer hereby agrees to keep confidential and to cause its Subsidiaries, Affiliates and Representatives to keep confidential any and all confidential information of the Company and the Company Subsidiaries, including non-public information relating to the Company’s finances and results, trade secrets, know-how, customers, business plans, marketing activities, financial data and other business affairs that was disclosed by the Company, the Company Subsidiaries or their Affiliates or Representatives on or prior to the date of this Agreement pursuant to the terms of the Confidentiality Agreements.

SECTION 4.03. Reasonable Efforts. (a) On the terms and subject to the conditions of this Agreement, each party shall use its reasonable efforts to cause the Closing to occur; provided, however, that nothing in this Agreement shall obligate the Acquirer to provide any of its, its Affiliates’ or their control persons’ or direct or indirect equityholders’ nonpublic, proprietary, personal or otherwise confidential information which relates to the persons that control the Investors or to limited partners and similar investors in investment funds managed by such Investors.

(b) Each of the Company and the Acquirer shall as promptly as practicable, but in no event later than five Business Days following the execution and delivery of this Agreement, file with the United States Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”) the notification

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and report form, if any, required for the transactions contemplated hereby and any supplemental information requested in connection therewith pursuant to the HSR Act. Any such notification and report form and supplemental information shall be in substantial compliance with the requirements of the HSR Act. The Company and the Acquirer shall furnish to the other such necessary information and reasonable assistance as the other may request in connection with its preparation of any filing or submission that is necessary under the HSR Act. The Company and the Acquirer shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC and the DOJ and shall comply promptly with any such inquiry or request and shall promptly provide any supplemental information requested in connection with the filings made hereunder pursuant to the HSR Act. Any such supplemental information shall be in substantial compliance with the requirements of the HSR Act. Each party shall use its reasonable efforts to obtain any clearance required under the HSR Act for the consummation of the transactions contemplated by this Agreement. Notwithstanding any covenants of the parties set forth herein, none of the parties hereto will be required to take any action requiring, or enter into any settlement, undertaking, condition, consent decree, stipulation or other agreement with any Governmental Authority that requires such party or any of its Subsidiaries or Affiliates to (x) hold separate (in trust or otherwise), divest itself or otherwise rearrange the composition of any assets, businesses or interests of such party or any of its Subsidiaries or Affiliates or imposes any limitations on such person’s freedom of action with respect to future acquisitions of assets or with respect to any existing or future business or activities or on the enjoyment of the full rights of ownership, possession and use of any asset now owned or hereafter acquired by any such person (including any securities of the Company and the voting and other rights related to ownership thereof), (y) agree to any other conditions or requirements or to take any other actions that are adverse or burdensome or would reasonably be expected to adversely affect such person, in order to satisfy any objection of any Governmental Authority or any other person or (z) incur any material financial obligation imposed by any Governmental Authority.

(c) Each party shall use its reasonable efforts (at its own expense) to obtain, and to cooperate in obtaining, all consents from third parties necessary or appropriate to permit the consummation of the Acquisition; provided, however, that the parties shall not be required to pay or commit to pay any amount to (or incur any obligation in favor of) any person from whom any such consent may be required (other than nominal filing or application fees).

SECTION 4.04. Expenses. (a) Subject to, and upon the occurrence of, the Closing, the Company shall pay all reasonable, documented, out-of-pocket fees and expenses of (i) the Acquirer, on the one hand, and (ii) SHUSA and Banco Santander, S.A., on the other hand, including all reasonable, documented, out-of-pocket legal, accounting, financial, investment banking and other fees and expenses payable to third parties and incurred in connection with this Agreement, the Dundon Investment Agreement, the Shareholders Agreement, the Acquisition and the other transactions contemplated hereby and thereby; provided that the Company shall not pay any such fees and expenses of the Acquirer, on the one hand, or SHUSA and Banco Santander, S.A., on the other hand, in an aggregate amount in excess of (x) in the case of SHUSA and Banco Santander, S.A., $1.0 million and (y) in the case of the Acquirer, $2.5 million.

(b) Subject to, and upon the occurrence of, the Closing, SHUSA, on behalf of the Company, shall pay the Acquirer $10.0 million.

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(c) If the Closing does not occur (other than by reason of breach of this Agreement by the Acquirer), upon termination of this Agreement SHUSA shall pay all reasonable, documented, out-of-pocket fees and expenses of the Acquirer, including all reasonable, documented, out-of-pocket legal, accounting, financial, investment banking and other fees and expenses payable to third parties and incurred in connection with this Agreement, the Dundon Investment Agreement, the Shareholders Agreement, the Acquisition and the other transactions contemplated hereby and thereby; provided that SHUSA shall not be required to pay any such fees and expenses of the Acquirer in excess of $1.0 million.

SECTION 4.05. Notice of Developments. (a) The Acquirer shall promptly notify the Company of, and furnish the Company any information it may reasonably request with respect to, the occurrence to the Acquirer’s knowledge of any event or condition or the existence to the Acquirer’s knowledge of any fact that would cause any of the conditions to the Company’s obligation to consummate the Acquisition not to be fulfilled.

(b) The Company shall promptly notify the Acquirer of, and furnish the Acquirer any information it may reasonably request with respect to, the occurrence to the Company’s Knowledge of any event or condition or the existence to the Company’s Knowledge of any fact that would cause any of the conditions to the Acquirer’s obligation to consummate the Acquisition not to be fulfilled.

SECTION 4.06. Further Assurances. From time to time, as and when requested by any party, each party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions (subject to Section 4.03), as such other party may reasonably deem necessary or desirable to consummate the Acquisition.

SECTION 4.07. Management Equity Plan. On or before the Closing Date, the Company shall establish a Management Equity Plan.

SECTION 4.08. Capital Contribution by SHUSA. To the extent necessary to satisfy the condition to Closing in Section 5.02(c), SHUSA shall contribute an amount of capital in cash to the Company such that, as of the Determination Date, the Pro Forma Capitalization shall equal $1,990,000,000 or greater.

SECTION 4.09. Public Announcements. Upon execution and delivery of this Agreement, the parties shall jointly issue a press release in the form approved by the parties prior to the date hereof. Except for such press release, prior to the Closing Date, no news release or other public announcement pertaining to the transactions contemplated by this Agreement shall be made by or on behalf of any party hereto

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without the prior approval of the other parties, unless otherwise required by Law, court process or by obligations pursuant to any listing agreement with any national securities exchange or national securities quotation system, in which case the party making such public announcement or disclosure shall give prior written notice to the other parties and a reasonable opportunity to comment thereon.

SECTION 4.10. Use of Proceeds. The Company may use the proceeds of the Acquisition (a) to repay existing indebtedness of the Company, including indebtedness owed to Banco Santander, S.A., or its Affiliates, and (b) for general corporate purposes.

SECTION 4.11. D&O Insurance. The Company shall purchase on commercially reasonable terms by the Closing Date or maintain the existing directors’ and officers’ liability insurance in force, and maintain for such periods as the Company’s board of directors shall in good faith determine (provided that such period shall not be less than six years following cessation of service), at its expense, insurance in an amount to be determined in good faith by the board of directors to be appropriate (provided, that such amount shall not be lower than $75.0 million (including Side A coverage) unless otherwise agreed by the Acquirer), on behalf of any person who after the Closing is or was a director or officer of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another person, including any Company Subsidiary, against any expense, liability of loss asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, subject to customary exclusions.

SECTION 4.12. No Shop. From and after the date of this Agreement until the Closing, none of SHUSA, the Company or their respective Representatives shall, and they shall use their reasonable best efforts to cause their Affiliates not to, (i) initiate, solicit or encourage any inquiries, proposals or offers with respect to an Acquisition Proposal (as defined below), (ii) engage in, continue or otherwise participate in any discussions or negotiations regarding, or provide any non-public information to any person relating to, an Acquisition Proposal, or (iii) enter into, approve or recommend, or propose to enter into, approve or recommend, any Acquisition Proposal or any letter of intent, memorandum of understanding, or other agreement relating to an Acquisition Proposal. For purposes of this Agreement, the term “Acquisition Proposal” means (a) any proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, rights offering, share exchange, business combination or similar transaction, involving the Company or any of the Company Subsidiaries and (b) any acquisition by any person resulting in, or proposal or offer, which, if consummated, would result in, any person becoming the beneficial owner, directly or indirectly, more than 10% of any class of equity securities of the Company or any of the Company Subsidiaries, any of the consolidated total assets of the Company, in each case, other than the transactions contemplated by this Agreement. The Company shall notify the Acquirer orally and in writing promptly (but in no event later than two business days) after receipt by the Company or any of its Representatives of any proposal or offer from any person other than the Acquirer regarding an Acquisition Proposal or any request for non-public information by any person other than the Acquirer contemplated by this Agreement in connection with an Acquisition Proposal.

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SECTION 4.13. Financing. The Acquirer shall use its reasonable best efforts to satisfy the conditions to funding set forth in the Note Purchase Agreement. The Acquirer shall use its reasonable best efforts to maintain in effect the Equity Commitment Letters and shall not take any action to terminate, cancel, amend or modify the Equity Commitment Letters prior to the earlier of (a) the Closing and (b) termination of this Agreement.

ARTICLE V

Conditions Precedent

SECTION 5.01. Conditions to Each Party’s Obligation. The obligation of the Acquirer to purchase and pay for the Acquired Shares and the obligation of the Company to issue and sell the Acquired Shares to the Acquirer is subject to the satisfaction or waiver on or prior to the Closing of the following conditions:

(a) Governmental Approvals. The waiting period under the HSR Act shall have expired or been terminated. Other than the State License Approvals, all other authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Authority necessary for the consummation of the Acquisition shall have been obtained or filed or shall have occurred. With respect to the State License Approvals, (i) authorizations, consents, orders, approvals and declarations shall have been obtained from, filings shall have been made with and waiting periods shall have expired in, states (in any combination) in which the Company and the Company Subsidiaries originated Loans in an amount, during the period from January 1, 2011 through the date of this Agreement, at least equal to the Required Origination Amount and (ii) in the case of any consents, orders, approvals and declarations that have not been obtained, filings that have not been made and waiting periods that have not expired, either (x) conditional consents, orders, approvals or declarations or waivers shall have been obtained and shall be in effect, which shall be sufficient to permit the Closing to occur and for the Company and the Company Subsidiaries to conduct their respective businesses as currently contemplated during the 45 day period following the Closing, in each case without the Company or any of its Subsidiaries being in violation of any applicable Law relating to State License Approvals, or (y) the Company or any Company Subsidiary shall have entered into one or more Qualifying Agreements.

(b) No Injunctions or Restraints. No order, decree or ruling issued by any Governmental Authority of competent jurisdiction or other Law preventing the consummation of the Acquisition shall be in effect.

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(c) Tax Sharing Agreements. The tax allocation agreements or tax sharing agreements with respect to each of the Company and the Company Subsidiaries shall have been terminated as of the Determination Date and, upon such termination, such agreements shall be of no further force or effect as to any of the Company and the Company Subsidiaries on and after the Determination Date and there shall be no further liabilities or obligations imposed on any of the Company and the Company Subsidiaries under any such agreements.

(d) Other Agreements. The Company, the Acquirer and each of the other parties thereto, as applicable, shall have entered into the Shareholders Agreement, the Note Purchase Agreement, the Amended Employment Agreement, the State Tax Sharing Agreement, the Dundon Investment Agreement and the Trademark License Agreement. The Company shall, to the extent requested in writing by any director of the Company, have entered into an Indemnification Agreement with such director.

(e) Concurrent Transactions. (i) All conditions to the issuance and sale of the shares of Company Common Stock pursuant to the Dundon Investment Agreement shall have been satisfied or the fulfillment of any such conditions shall have been waived, and none of the terms thereof which will survive the Closing shall have been amended or modified in any material respect without Acquirer’s prior consent and (ii) such shares of Company Common Stock shall have been, or substantially contemporaneously with the Closing shall be, issued and sold in accordance with the terms of the Dundon Investment Agreement.

SECTION 5.02. Conditions to Obligation of the Acquirer. The obligation of the Acquirer to purchase and pay for the Acquired Shares is subject to the satisfaction (or waiver by the Acquirer) on or prior to the Closing Date of the following conditions:

(a) Representations and Warranties. The representations and warranties of the Company in this Agreement shall be true and correct (without giving effect to any qualifications or limitations as to materiality or Material Adverse Effect set forth therein), as of the date hereof and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties expressly relate to a specified date, in which case such representations and warranties shall be true and correct as of such specified date, in each case other than for such failures to be true and correct that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

(b) Performance of Obligations of the Company. The Company shall have performed or complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by the Company by the time of the Closing.

(c) Pro Forma Capitalization. The Company shall have, as of the Determination Date, Tangible Common Equity, after giving effect to the Pro Forma Adjustments (the “Pro Forma Capitalization”), of at least $1,990,000,000. The Tangible Common Equity will be determined by reference to the most recent available month-end balance sheet of the Company, and calculated in accordance with the Accounting Principles (but in no event will the Tangible Common Equity be

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determined by reference to any balance sheet dated after October 31, 2011) (the date of such balance sheet, the “Determination Date”). Solely for purposes of determining whether this condition is satisfied, the Pro Forma Capitalization will be determined by reference to the Preliminary Pro Forma Capitalization Statement.

(d) Banco Santander Financing. Each of the parties thereto shall have, or substantially contemporaneously with the Closing shall, enter into the new committed lines of financing substantially in the forms set forth in Exhibit D and such financing shall be available to the borrower under such facilities.

(e) Waiver of Preemptive Rights. Each of the Company’s shareholders shall have waived any preemptive rights it may have under applicable Law or the Company Charter that would be applicable to the purchase and sale of the Acquired Shares.

(f) Receipt of Debt Financing. Concurrently with the Closing, the Acquirer shall have received gross proceeds of at least $400.0 million under the Note Purchase Agreement.

(g) Warehouse Financing. (A) If the Closing Date is prior to February 28, 2012, the Company, together with the Company Subsidiaries, shall have Third Party Warehouse Agreements (i) with aggregate commitments of at least $4.25 billion, there shall be no breach or default under such Third Party Warehouse Agreements and the Company shall reasonably expect that it will be able to satisfy all conditions to funding under such agreements, (ii) with terms such that Third Party Warehouse Agreements that have aggregate commitments of at least $1.2 billion shall have a maturity of no earlier than two years following the later of the respective dates of such Third Party Warehouse Agreements and the latest renewal, extension or rollover of such Third Party Warehouse Agreements and (iii) (x) in the case of Third Party Warehouse Agreements entered into after the date of this Agreement, with terms that are not materially less favorable to the Company in the aggregate than the terms of the Comparable Facility and (y) in the case of Third Party Warehouse Agreements the maturities of which are extended after the date of this Agreement, with margins and advance rates that are not materially less favorable to the Company in the aggregate than the comparable terms of the Comparable Facility and the other terms of such extended Third Party Warehouse Agreements are not materially less favorable in the aggregate than the terms of such Third Party Warehouse Agreements prior to such extension; provided that clauses (x) and (y) shall be satisfied with respect to the margins of such Third Party Warehouse Agreements if such margins do not exceed the margins of the Comparable Facility by more than 40 basis points.

(B) If the Closing Date is on or after February 28, 2012, the Company, together with the Company Subsidiaries, shall have the Required Financing, there shall be no breach or default under the Required Financing and the Company shall reasonably expect that it will be able to satisfy all conditions to funding under the Required Financing.

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(h) Liquidity Policy. The board of directors of the Company shall have adopted the liquidity policy in the form of Exhibit E hereto.

(i) Certificate. The Acquirer shall have received a certificate of the Company, executed on behalf of the Company by a duly authorized officer of the Company, dated as of the Closing Date, to the effect that the conditions specified in paragraphs (a) through (c) above have been fulfilled.

SECTION 5.03. Conditions to Obligation of the Company. The obligation of the Company to issue and sell the Acquired Shares is subject to the satisfaction (or waiver by the Company) on or prior to the Closing Date of the following conditions:

(a) Representations and Warranties. The representations and warranties of the Acquirer in this Agreement shall be true and correct (without giving effect to any qualifications or limitations as to materiality or Acquirer Material Adverse Effect set forth therein), as of the date hereof and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties expressly relate to a specified date, in which case such representations and warranties shall be true and correct as of such specified date, in each case other than for such failures to be true and correct that, individually or in the aggregate, have not had and would not reasonably be expected to have an Acquirer Material Adverse Effect.

(b) Performance of Obligations of the Acquirer. The Acquirer shall have performed or complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by the Acquirer by the time of the Closing.

(c) Transfer Side Letter. The Company, the Acquirer and each of the other parties thereto, as applicable, shall have entered into the Transfer Side Letter.

(d) Certificate. The Company shall have received a certificate of the Acquirer, executed on behalf of the Acquirer by a duly authorized officer of the Acquirer, dated as of the Closing Date, to the effect that the conditions specified in paragraphs (a) and (b) above have been fulfilled.

ARTICLE VI

Termination

SECTION 6.01. Termination. (a) Notwithstanding anything to the contrary in this Agreement, this Agreement may be terminated and the Acquisition and the other transactions contemplated by this Agreement abandoned at any time prior to the Closing:

(i) by mutual written consent of the Company and the Acquirer;

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(ii) by either the Company or the Acquirer in the event of a breach by the other party of any representation or warranty or any breach or default by such other party in the performance by such other party of any covenant or agreement contained in this Agreement, in each case, which breach or default (A) would constitute grounds, either individually or in the aggregate, for the non-breaching party to elect not to consummate the transactions contemplated hereby pursuant to Sections 5.02(a) or (b) or 5.03(a) or (b), as applicable and (B) has not been, or by its terms cannot be, cured within 30 days after written notice of such breach or default, describing such breach or default in reasonable detail, is given by the terminating party to the breaching or defaulting party;

(iii) by the Company or the Acquirer, if the Closing does not occur on or prior to March 31, 2012;

(iv) by the Company or the Acquirer in the event that any Governmental Authority (including any court of competent jurisdiction) shall have issued an order, decree or injunction or taken any other official action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement or denying approval of any application or notice for approval to consummate such transactions, and such order, decree, injunction or other action shall have become final and non-appealable; or

(v) by the Company in the event that (i) all of the conditions set forth in Sections 5.01 and 5.02 have been satisfied (other than those conditions which by their terms are to be satisfied at the Closing), (ii) the Acquirer fails to consummate the transactions contemplated by this Agreement within two Business Days of the date the Closing should have occurred pursuant to Section 1.02 and (iii) the Company has irrevocably committed to consummate the Acquisition on that date if the Equity Financing is funded by the Acquirer to the extent provided in the Equity Commitment Letters;

provided, however, that the party seeking termination pursuant to clause (ii), (iii), (iv) or (v) is not then in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement.

(b) In the event of termination by the Company or the Acquirer pursuant to this Section 6.01, written notice thereof shall forthwith be given to the other and the transactions contemplated by this Agreement shall be terminated, without further action by any party.

SECTION 6.02. Effect of Termination. If this Agreement is terminated and the transactions contemplated hereby are abandoned as described in Section 6.01, this Agreement shall become null and void and of no further force and effect, except for the provisions of Section 4.02(b), Section 4.04, Section 4.09, Section 6.01, this Section 6.02 and Section 6.03. Notwithstanding anything to the contrary contained in this Agreement, but subject in all cases to Section 6.03 and Section 8.13(b), none of the Acquirer, the Company or SHUSA shall be relieved or released from any liabilities or damages arising

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out of its willful and material breach of any provision of this Agreement; provided, that in no event shall any party hereto be liable for any punitive damages. For purposes of this Agreement, “willful and material breach” means a material breach that is a consequence of an act undertaken by the breaching party with knowledge (actual or constructive) that the taking of such act would, or would be reasonably expected to, cause a breach of this Agreement.

SECTION 6.03. Termination Fee.

(a) In the event that this Agreement is terminated by the Company pursuant to Sections 6.01(a)(ii) or 6.01(a)(v), the Acquirer shall pay to the Company a termination fee of $100,000,000 (the “Termination Fee”), it being understood that in no event will the Acquirer be required to pay the Termination Fee on more than one occasion. Any amount due under this Section 6.03 will be paid promptly by wire transfer of same-day funds.

(b) Notwithstanding anything to the contrary set forth in this Agreement, the Company’s right to receive payment of the Termination Fee pursuant to Section 6.03(a) shall constitute the sole and exclusive remedy of the Company, the Company Subsidiaries and their respective Affiliates (including the holders of Company Common Stock) for all losses and damages suffered as a result of the failure of the transactions contemplated by this Agreement to be consummated or for a breach or failure to perform hereunder at or prior to the Closing, and upon payment of such amount, none of the Acquirer, its Affiliates, and any of their respective former, current, or future general or limited partners, stockholders, managers, members, directors, officers, Affiliates, employees, representatives or agents shall have any further liability or obligation relating to or arising out of this Agreement or the transactions contemplated by this Agreement, the Guarantees, the Equity Commitment Letters or in respect of any other document or theory of law or equity or in respect of oral representations made or alleged to be made in connection herewith or therewith, whether in equity or at law, in contract, in tort or otherwise.

(c) Each of the parties hereto acknowledges that (i) the agreements contained in this Section 6.03 are an integral part of the transactions contemplated by this Agreement, (ii) the Termination Fee is not a penalty, but is liquidated damages, in a reasonable amount that will compensate the Company in the circumstances in which such fee is payable for the efforts and resources expended and opportunities foregone while negotiating this Agreement and in reliance on this Agreement and on the expectation of the consummation of the transactions contemplated hereby, which amount would otherwise be impossible to calculate with precision, and (iii) without these agreements, the parties would not enter into this Agreement; accordingly, if the Acquirer fails to timely pay any amount due pursuant to this Section 6.03 and, in order to obtain such payment, the Company commences a suit that results in a judgment against the Acquirer for the payment of the Termination Fee, the Acquirer shall pay the Company its costs and expenses (including reasonable attorneys’ fees and expenses) in connection with such suit, together with interest on such amount at the Prime Rate.

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(d) Notwithstanding anything to the contrary herein, in the event that any Action is commenced or instituted by the Company or SHUSA in respect of the Termination Fee, during the pendency of such Action and, if a court of competent jurisdiction has ordered the Acquirer to pay the Termination Fee, within two Business Days of such order, the Acquirer may notify the Company in writing that it will consummate the Closing, in which case the Acquirer shall consummate the Closing within thirteen Business Days of such notice, and the Company shall not be permitted or entitled to enforce such order for such thirteen Business Day period (and, if the Closing is not consummated within such thirteen Business Day period, the Company shall be entitled to continue to pursue such Action); provided, however, that the Acquirer may not exercise such option unless the Closing would occur prior to July 31, 2012; and provided further, that upon such Closing all rights of the Company and SHUSA to pursue such proceeding or enforce such order shall irrevocably terminate.

ARTICLE VII

Indemnification

SECTION 7.01. Indemnification by the Company. (a) After the Closing, and subject to Sections 7.01(b), 7.03 and 7.04, the Company shall indemnify, defend and hold harmless to the fullest extent permitted by Law the Acquirer and its Affiliates, and their successors and assigns, officers, directors, partners, members and employees (the “Acquirer Indemnified Parties”) against, and reimburse any of the Acquirer Indemnified Parties for, all Losses that any of the Acquirer Indemnified Parties may at any time suffer or incur, or become subject to, as a result of (1) the inaccuracy or breach of any representation or warranty made by the Company in this Agreement (other than Section 2.08) as of the Closing Date (or, to extent any representation or warranty expressly relates to a specified date, the inaccuracy or breach of such representation or warranty as of such specified date), (2) any breach or failure by the Company to perform the covenant contained in the first sentence of Section 4.01(a), (3) any breach or failure by the Company to perform any of its other covenants or agreements contained in this Agreement and (4) any action, suit, claim, proceeding or investigation by any shareholder of the Company (other than the Acquirer or any Acquirer Indemnified Party) relating to this Agreement. This Section 7.01(a) shall not apply to any Losses relating to Taxes, the indemnification for which is addressed in the Shareholders Agreement.

(b) Notwithstanding anything to the contrary contained herein, the Company shall not be required to indemnify, defend or hold harmless any of the Acquirer Indemnified Parties against, or reimburse any of the Acquirer Indemnified Parties for, any Losses pursuant to Section 7.01(a)(1) or 7.01(a)(2) (other than Losses arising out of any inaccuracy or breach of the representations and warranties contained in Sections 2.01, 2.02, 2.03 and 2.04) (i) with respect to any claim (or series of related claims arising from the same underlying facts, events or circumstances) unless such claim (or series of related claims arising from the same underlying facts, events or circumstances) involves Losses in excess of $25,000.00 (the “De Minimis Amount”) (nor shall any such claim or series of related claims that do not meet the De Minimis Amount be applied to or considered for purposes of

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calculating the aggregate amount of the Losses by any of the Acquirer Indemnified Parties for which the Company has responsibility under clause (ii) or clause (iii) of this Section 7.01(b)); (ii) until the aggregate amount of the Acquirer Indemnified Parties’ Losses for which the Acquirer Indemnified Parties are finally determined to be otherwise entitled to indemnification under Section 7.01(a)(1) or 7.01(a)(2) (other than Losses arising out of any inaccuracy or breach of the representation and warranty contained in Section 2.11(c)) exceeds $50,000,000.00 (the “Deductible”), after which the Company shall be obligated for all of the Acquirer Indemnified Parties’ Losses (other than Losses arising out of any inaccuracy or breach of the representation and warranty contained in Section 2.11(c)) for which the Acquirer Indemnified Parties are finally determined to be otherwise entitled to indemnification under Section 7.01(a)(1) or 7.01(a)(2) that are in excess of the Deductible; and (iii) in the case of Losses arising out of any inaccuracy or breach of the representation and warranty contained in Section 2.11(c), until the aggregate amount of the Acquirer Indemnified Parties’ Losses arising out of any such inaccuracy or breach for which the Acquirer Indemnified Parties are finally determined to be otherwise entitled to indemnification under Section 7.01(a)(1) exceeds $50,000,000.00 (the “July Tape Threshold”), after which the Company shall be obligated for all of the Acquirer Indemnified Parties’ Losses arising out of any inaccuracy or breach of the representation and warranty contained in Section 2.11(c) for which the Acquirer Indemnified Parties are finally determined to be otherwise entitled to indemnification under Section 7.01(a)(1) without regard to the July Tape Threshold. Notwithstanding anything to the contrary contained herein, the Company shall not be required to indemnify, defend or hold harmless the Acquirer Indemnified Parties against, or reimburse the Acquirer Indemnified Parties for, any Losses pursuant to Section 7.01(a)(1) in a cumulative aggregate amount exceeding $300,000,000.00 (other than Losses arising out of the inaccuracy or breach of the representations and warranties contained in Sections 2.01, 2.02, 2.03 and 2.04).

(c) For purposes of Section 7.01(a), in determining whether there has been a breach of a representation or warranty, other than the representations and warranties set forth in Sections 2.07(c), 2.09(i)(B) and 2.09(ii), “materiality,” and “Material Adverse Effect” qualifications or limitations shall be disregarded.

(d) If, any fact, event or circumstance constitutes an inaccuracy or breach (after giving effect to Section 7.01(c)) of both (i) the representation or warranty contained in Section 2.11(c) (the “Section 2.11(c) Representation”) and (ii) any representation or warranty other than the Section 2.11(c) Representation (any such representation or warranty, an “Other Representation”), the Acquirer Indemnified Parties may not bring any claim for indemnity under Section 7.01(a)(1) for inaccuracy or breach of the Section 2.11(c) Representation based upon such fact, event or occurrence.

SECTION 7.02. Indemnification by the Acquirer. (a) After the Closing, and subject to Sections 7.02(b), 7.03 and 7.04, the Acquirer shall indemnify, defend and hold harmless to the fullest extent permitted by Law the Company and its Affiliates, and their successors and assigns, officers, directors, partners, members and employees (the

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“Company Indemnified Parties”) against, and reimburse any of the Company Indemnified Parties for, all Losses that the Company Indemnified Parties may at any time suffer or incur, or become subject to, as a result of (1) the inaccuracy or breach of any representation or warranty made by the Acquirer in this Agreement as of the Closing Date which representation or warranty survives the Closing and (2) any breach or failure by such Acquirer to perform any of its covenants or agreements contained in this Agreement.

(b) Notwithstanding anything to the contrary contained herein, the Acquirer shall not be required to indemnify, defend or hold harmless any of the Company Indemnified Parties against, or reimburse any of the Company Indemnified Parties for, any Losses pursuant to Section 7.02(a) (other than Losses arising out of any inaccuracy or breach of the representations and warranties contained in Sections 3.01 or 3.02) (i) with respect to any claim (or series of related claims arising from the same underlying facts, events or circumstances) unless such claim (or series of related claims arising from the same underlying facts, events or circumstances) involves Losses in excess of the De Minimis Amount (nor shall any such claim or series of related claims that do not meet the De Minimis Amount be applied to or considered for purposes of calculating the aggregate amount of the Losses by any of the Company Indemnified Parties for which the Acquirer has responsibility under clause (ii) of this Section 7.02(b)); and (ii) until the aggregate amount of the Company Indemnified Parties’ Losses for which the Company Indemnified Parties are finally determined to be otherwise entitled to indemnification under Section 7.02(a) exceeds the Deductible, after which the Acquirer shall be obligated for all of the Company Indemnified Parties’ Losses for which the Company Indemnified Parties are finally determined to be otherwise entitled to indemnification under Section 7.02(a) that are in excess of such Deductible. Notwithstanding anything to the contrary contained herein, the Acquirer shall not be required to indemnify, defend or hold harmless the Company Indemnified Parties against, or reimburse the Company Indemnified Parties for, any Losses pursuant to Section 7.02(a)(1) in a cumulative aggregate amount exceeding $300,000,000.00 (other than Losses arising out of any inaccuracy or breach of the representations and warranties contained in Sections 3.01 or 3.02).

(c) For purposes of Section 7.02(a), in determining whether there has been a breach of a representation or warranty, “materiality,” and “Material Adverse Effect” qualifications or limitations shall be disregarded.

SECTION 7.03. Notification of Claims. (a) Any Person that may be entitled to be indemnified under this Agreement (the “Indemnified Party”) shall promptly notify the party or parties liable for such indemnification (the “Indemnifying Party”) in writing of any claim in respect of which indemnity may be sought hereunder, including any pending or threatened claim or demand by a third party that the Indemnified Party has determined has given or would reasonably be expected to give rise to a right of indemnification under this Agreement (including a pending or threatened claim or demand asserted by a third party against the Indemnified Party) (each, a “Third Party Claim”), describing in reasonable detail the facts and circumstances with respect to the subject matter of such claim or demand; provided, however, that the failure to provide

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such notice shall not release the Indemnifying Party from any of its obligations under this Agreement except to the extent that the Indemnifying Party is actually prejudiced by such failure. The parties agree that notices for claims in respect of a breach of a representation, warranty, covenant or agreement must be delivered prior to the expiration of any applicable survival period specified in Section 8.01 for such representation, warranty, covenant or agreement; provided, that if, prior to such applicable date, a party hereto shall have notified the other parties hereto in accordance with the requirements of this Section 7.03(a) of a claim for indemnification under this Agreement (whether or not formal legal action shall have been commenced based upon or relating to such claim), such claim shall continue to be subject to indemnification in accordance with this Agreement notwithstanding the passing of such applicable date. The parties also agree that notices for claims may be given prior to the Closing.

(b) Upon receipt of a notice of a claim for indemnity from an Indemnified Party pursuant to Section 7.03(a) in respect of a Third Party Claim, the Indemnifying Party may, by notice to the Indemnified Party delivered within 20 Business Days of the receipt of notice of such Third Party Claim, assume the defense and control of any Third Party Claim, with its own counsel reasonably acceptable to the Indemnified Party and at its own expense. The Indemnified Party shall have the right to employ counsel on its own behalf for, and otherwise participate in the defense of, any such Third Party Claim, but the fees and expenses of its counsel will be at its own expense unless (1) the employment of counsel by the Indemnified Party at the Indemnifying Party’s expense has been authorized in writing by the Indemnifying Party, (2) the Indemnified Party reasonably believes there may be a conflict of interest between the Indemnified Party and the Indemnifying Party in the conduct of the defense of such Third Party Claim, or (3) the Indemnifying Party has not in fact employed counsel to assume the defense of such Third Party Claim within a reasonable time after receipt of notice of the commencement of such Third Party Claim, in each of which cases the fees and expenses of such Indemnified Party’s counsel shall be at the expense of the Indemnifying Party. The Indemnified Party may take any actions reasonably necessary to defend such Third Party Claim prior to the time that it receives a notice from the Indemnifying Party to assume the defense of such action as contemplated by the immediately preceding sentence. The Indemnified Party shall, and shall cause each of their Affiliates and Representatives to, use reasonable best efforts to cooperate with the Indemnifying Party in the defense of any Third Party Claim. The Indemnifying Party shall not, without the prior written consent of the Indemnified Party (which shall not be unreasonably withheld or delayed), consent to a settlement, compromise or discharge of, or the entry of any judgment arising from, any Third Party Claim, unless such settlement, compromise, discharge or entry of any judgment does not involve any statement, finding or admission of any fault, culpability, failure to act, violation of Law or admission of any wrongdoing by or on behalf of the Indemnified Party, and the Indemnifying Party shall (i) pay or cause to be paid all amounts arising out of such settlement or judgment concurrently with the effectiveness of such settlement or judgment (unless otherwise provided in such judgment), (ii) not agree to any restriction or condition that would apply to or affect any Indemnified Party or the conduct of any Indemnified Party’s business and (iii) obtain, as a condition of any settlement, compromise,

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discharge, entry of judgment (if applicable), or other resolution, a complete and unconditional release of each Indemnified Party in form and substance reasonably satisfactory to such Indemnified Party from any and all liabilities in respect of such Third Party Claim. An Indemnified Party shall not settle, compromise or consent to the entry of any judgment with respect to any claim or demand for which it is seeking indemnification from the Indemnifying Party or admit to any liability with respect to such claim or demand without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed); provided that such consent shall not be required if the Indemnifying Party has not fulfilled any material obligations under this Section 7.03(b).

(c) In the event any Indemnifying Party receives a notice of a claim for indemnity from an Indemnified Party pursuant to Section 7.03(a) that does not involve a Third Party Claim, the Indemnifying Party shall notify the Indemnified Party within 20 Business Days following its receipt of such notice whether the Indemnifying Party disputes its liability to the Indemnified Party under this Agreement.

SECTION 7.04. Indemnification Payment. In the event a claim or any Action for indemnification hereunder has been finally determined, the amount of such final determination shall be paid by the Indemnifying Party to the Indemnified Party on demand in immediately available funds; provided, however, that any reasonable and documented out-of-pocket expenses incurred by the Indemnified Party as a result of such claim or Action shall be reimbursed promptly by the Indemnifying Party upon receipt of an invoice describing such costs incurred by the Indemnified Party. A claim or an Action, and the liability for and amount of damages therefor, shall be deemed to be “finally determined” for purposes of this Agreement when the parties hereto have so determined by mutual agreement or, if disputed, when a final non-appealable governmental order has been entered into with respect to such claim or Action.

SECTION 7.05. Exclusive Remedies. Each party hereto acknowledges and agrees that following the Closing, the indemnification provisions hereunder shall be the sole and exclusive remedies of the parties hereto for any breach of the representations, warranties or covenants contained in the this Agreement, absent fraud or willful misconduct. No investigation of the Company by the Acquirer, or of the Acquirer by the Company, whether prior to or after the date of this Agreement, shall limit any Indemnified Party’s exercise of any right hereunder or be deemed to be a waiver of any such right.

SECTION 7.06. Tax Treatment of Indemnification Payment. The parties agree that, for tax purposes, any indemnification payment made pursuant to this Agreement shall be treated as a capital contribution to the Company, if paid to the Company, or as a Purchase Price adjustment, if paid to the Acquirer, unless otherwise required by applicable law.

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ARTICLE VIII

General Provisions

SECTION 8.01. Survival. The representations and warranties in this Agreement shall survive the Closing for a period of 18 months following the Closing Date; provided, however, that the representations and warranties (a) set forth in Sections 2.01, 2.02, 2.03, 2.04, 3.01 and 3.02 shall survive indefinitely and (b) set forth in Section 2.08 shall survive until the date that is 60 days following the expiration of the applicable statute of limitations for purposes of Section 6.16 of the Shareholders Agreement. Except as otherwise provided herein, all covenants and agreements contained herein, other than those which by their terms are to be performed in whole or in part after the Closing, shall terminate as of the Closing. After the Closing, a claim for indemnification under Section 7.01 or 7.02 (or any other claim) with respect to any representation or warranty or covenant may not be brought after the expiration of the applicable survival period, except that any representation or warranty or covenant that would otherwise terminate in accordance with the foregoing provisions of this Section 8.01 will continue to survive with respect to any written notice for a claim for indemnification with respect thereto that is given under Article VII on or prior to the expiration of the applicable survival date set forth in this Section 8.01 until the related claim for indemnification has been satisfied or otherwise resolved as provided in Article VII.

SECTION 8.02. No Additional Representations. Except for the representations and warranties of the Company and the Acquirer expressly set forth in this Agreement and the Company Disclosure Letter, none of the Company, the Acquirer or any other person makes any other express or implied representation or warranty on behalf of the Company or the Acquirer, as applicable, with respect to the Company, any Company Subsidiary or the Acquirer, as applicable, the accuracy or completeness of any information regarding the Company and the Company Subsidiaries or the transactions contemplated by this Agreement, including any representations or warranties with respect to any information, documents or material made available to the Acquirer in any “data rooms”, management presentations or in any other form in expectation of the transactions contemplated hereby. Each of the Company and the Acquirer acknowledges that such party has not relied on any representation or warranty from the Company or the Acquirer, as applicable, or any other person in determining to enter into this Agreement, except as expressly set forth in this Agreement and the Company Disclosure Letter.

SECTION 8.03. Amendments and Waivers. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. By an instrument in writing the Acquirer, on the one hand, or the Company, on the other hand, may waive compliance by the other with any term or provision of this Agreement that such other party was or is obligated to comply with or perform

SECTION 8.04. Assignment. This Agreement and the rights and obligations hereunder shall not be assignable or transferable by any party without the prior written consent of the other parties hereto. Any attempted assignment in violation of this Section 8.04 shall be void.

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SECTION 8.05. No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any person, other than the parties hereto and such assigns, any legal or equitable rights hereunder.

SECTION 8.06. Attorneys’ Fees. In the event that a dispute arises between the parties in connection with this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and expenses from the non-prevailing party. The payment of such fees and expenses is in addition to any other relief to which such prevailing party may be entitled.

SECTION 8.07. Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent by facsimile or other electronic delivery or sent, postage prepaid, by registered, certified or express mail or overnight courier service, as follows:

(a) if to the Acquirer,

Sponsor Auto Finance Holdings Series LP

c/o Warburg Pincus LLC

450 Lexington Ave

New York, NY 10017

Attention: Daniel Zilberman

Facsimile: (212) 716-8626

c/o Kohlberg Kravis Roberts & Co. L.P.

9 West 57th St., Suite 4200

New York, New York 10019

Attention: Tagar Olson

Facsimile: (212) 750-0003

c/o Centerbridge Partners L.P.

375 Park Avenue, 12th Floor

New York, NY 10152-0002

Attention: Matthew Kabaker

Facsimile: (212) 672-6471

with a copy to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Attention: Lee Meyerson, Esq.

    Elizabeth Cooper, Esq.

Facsimile: (212) 455-2502; and

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(b) if to SHUSA,

Santander Holdings USA, Inc.

75 State Street

Boston, MA 02109

Attention: Christopher Pfirrman, Esq.

Facsimile: (617) 757-5657

(c) if to the Company,

Santander Consumer USA Inc.

8585 N. Stemmons Frwy.

Suite 1100-North

Dallas, TX 75247

Attention: Eldridge Burns, Esq.

Facsimile: (972) 755-8382

with copies to, in the case of SHUSA and the Company:

Banco Santander, S.A.

Ciudad Grupo Santander

Edificio Pinar pl 0

28660 Boadilla del Monte

Madrid, Spain

Attention: Pablo Castilla Reparaz, Corporate Legal Counsel

Facsimile: +34 91 257 01 15

and

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

Attention: Joel F. Herold, Esq.

Facsimile: (212) 474-3700

SECTION 8.08. Interpretation; Exhibits and Schedules Definitions. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any matter set forth in any provision, subprovision, section or subsection of any Schedule shall, unless the context

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otherwise manifestly requires, be deemed set forth for all purposes of the Schedules. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein, shall have the meaning as defined in this Agreement. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.

SECTION 8.09. Certain Definitions. For all purposes hereof:

“Accounting Principles” means the principles set forth in Schedule A hereto relating to the adjustments to the Pro Forma Capitalization as of the Determination Date.

“Additional Financing” means any increase in the total commitments under the Santander ABS Credit Agreement.

“Affiliate” of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person.

“Amended Employment Agreement” means the Amended and Restated Employment Agreement, to be dated as of the Closing Date, among the Company, Banco Santander, S.A., Thomas G. Dundon and Dundon DFS, LLC, substantially in the form of Exhibit F hereto.

“Annual Budget” means, in any fiscal year of the Company, the Company’s budget for such fiscal year.

“Benefit Plan” means each material “employee benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including, without limitation, multiemployer plans within the meaning of Section 3(37) of ERISA), and all stock purchase, stock option, severance, employment, change-in-control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation, employee loan and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA (including any funding mechanism therefor now in effect or required in the future as a result of the transactions contemplated by the Transaction Documents under which (A) any current or former director, officer, employee, or independent contractor of the Company or any Subsidiary of the Company (the “Company Employees”) has any present or future right to benefits and which are contributed to, sponsored by or maintained by the Company or any of its Subsidiaries or (B) the Company or any of its Subsidiaries currently has any present or future liability.

“Business Day” means any weekday that is not a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to be closed.

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“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Company Disclosure Letter” means the letter dated as of the date of this Agreement delivered by the Company to the Acquirer.

“Comparable Facility” means the amended and restated facility substantially in the form attached hereto as Exhibit G.

“Confidentiality Agreements” means each of (a) the letter agreement, dated as of July 8, 2011, between Banco Santander, S.A. and Warburg Pincus LLC, (b) the letter agreement, dated as of July 8, 2011, between Banco Santander, S.A. and Kohlberg Kravis Roberts & Co. L.P. and (c) the letter agreement dated as of July 11, 2011 between the Company and Centerbridge Advisors II, LLC.

“Debt Financing” means the debt financing pursuant to the Note Purchase Agreement.

“Dundon Investment Agreement” means the Investment Agreement, dated as of the date hereof, between the Company and Dundon DFS, LLC, substantially in the form of Exhibit H hereto.

“Environmental Laws” means all federal, state or local laws relating to pollution or protection of human health (to the extent related to exposure to toxic or Hazardous Substances) or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes into the environment.

“Existing IT Agreement” means the Services Agreement, dated as of December 17, 2009, between the Company and Sovereign Bank.

“Existing Shareholders Agreement” means the Stockholders Agreement, dated as of September 23, 2006 and amended and restated as of August 24, 2009, among the Company, Banco Santander, S.A., Dundon DFS LLC and Thomas G. Dundon.

“Existing Tax Allocation Agreement” means the Amended and Restated Tax Allocation Agreement, dated as of September 14, 2009, among Sovereign Bancorp, Inc., the Company and certain other persons.

“Hazardous Substance” means any substance that is regulated pursuant to any Environmental Law including any waste, petroleum products, asbestos, as toxic or hazardous and lead.

“including” means including, without limitation.

“Indemnification Agreement” means the Form of Indemnification Agreement, substantially in the form of Exhibit I hereto.

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“Intellectual Property” means all worldwide intellectual property and proprietary rights, including without limitation all: (a) trademarks, service marks, domain names, logos, trade dress, trade names and other source indicators, and all goodwill symbolized thereby, (b) patents, inventions, technology, processes and designs, (c) trade secrets, know-how and confidential or proprietary information, (d) copyrights and works of authorship, software, databases, websites and systems and (e) all applications, registrations, renewals, foreign counterparts, extensions, continuations, continuations-in-part, re-examinations, reissues, and divisionals of the foregoing.

“Investors” means Warburg Pincus LLC, Kohlberg Kravis Roberts & Co. L.P. and Centerbridge Partners L.P. and any Affiliate thereof, and investment funds or partnerships managed by any of the foregoing, but excluding, however, any portfolio company of any of the foregoing and any Person controlled by any such portfolio company (including the Company).

“July Tape” means the Loan “tape” of the Company which sets forth information regarding the Loans owned or held by the Company and the Company Subsidiaries as of July 31, 2011.

“Knowledge” means, with respect to any matter in question, the actual knowledge of, with respect to the Company, those individuals listed in Section 8.09(i) of the Company Disclosure Letter.

“Losses” means any and all losses, damages, reasonable costs, reasonable expenses (including reasonable attorneys’ fees and disbursements), liabilities, settlement payments, awards, judgments, fines, obligations, claims, and deficiencies of any kind, excluding special, consequential, exemplary and punitive damages. In the case of the Acquirer, “Losses” shall include the Acquirer’s Proportionate Percentage of any indemnification payment made by the Company to any Acquirer Indemnified Party.

“Management Equity Plan” means a management equity compensation plan with the terms set forth in Exhibit J hereto.

“Neutral Auditor” means Ernst & Young, or any other internationally recognized independent public accounting firm mutually satisfactory to the Company, the Acquirer and Thomas G. Dundon.

“Note Purchase Agreement” means the Note Purchase Agreement, dated as of the date hereof, between the Acquirer and Caixabank, S.A., in the form of Exhibit K hereto.

“person” means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, Governmental Authority or other entity.

“Prime Rate” means, for any date of determination, (i) the highest rate of interest (or if a range is given, the highest prime rate) published in The Wall Street Journal on such date as constituting the “prime rate” or “base rate” in such publication’s Table of Money Rates on such date or (ii) if The Wall Street Journal is not published on such date, then in The Wall Street Journal most recently published, such rate to change as and when such designated rate changes.

45

“Pro Forma Adjustments” means adjustments giving effect to (i) the purchase and sale of the Acquired Shares pursuant to this Agreement, (ii) any capital contribution in cash to the Company by Santander Holdings USA, Inc. or any of its Affiliates on or before the Closing Date, (iii) the purchase and sale of shares of Company Common Stock pursuant to the Dundon Investment Agreement, (iv) the payment of any dividends or other distributions by the Company on the Company Common Stock or any other payments to shareholders of the Company in excess of amounts payable under contracts in effect as of the date of this Agreement, in each case, after October 31, 2011 and prior to the Closing and (v) any expenses, incurred in connection with the transactions contemplated by this Agreement, paid or payable by the Company (whether incurred by the Company or to be reimbursed by the Company to the Acquirer, SHUSA, Banco Santander, S.A. or Dundon DFS, LLC) in excess of $1.0 million, excluding (for the avoidance of doubt) from this clause (v) any expenses related to Section 4.04(b).

“Proportionate Percentage” means, with respect to any person, the fraction, expressed as a percentage, the numerator of which is the total number of shares of Company Common Stock held by such person and the denominator of which is the total number of shares of Company Common Stock outstanding at the time of determination.

“Qualifying Agreement” means any Contract between the Company or any Company Subsidiary and any of their Affiliates that holds an appropriate Permit, is properly exempt from a requirement to hold such a Permit, or otherwise has the authority to conduct the licensable business without holding such a Permit, which Contract is on commercially reasonable terms and (a) is sufficient to allow the Company to continue to carry on its business substantially as presently conducted (including servicing or collecting any Loans included in any Securitization Transactions or pledged pursuant to any warehouse or other financing facility for which the Company or any Company Subsidiary acts as servicer or collector), (b) provides for, among other things, as applicable, (i) the origination or purchasing of Loans by such Affiliate (which Loans, if the Company or applicable Company Subsidiary had all necessary Permits, would otherwise have been originated or purchased by the Company or a Company Subsidiary), (ii) the servicing or collection of any such Loans by such Affiliate (which Loans, if the Company or applicable Company Subsidiary had all necessary Permits, would otherwise have been serviced or collected by the Company or a Company Subsidiary), and (iii) as applicable, (x) the purchase of any such Loans by the Company or any Company Subsidiary from such Affiliate after the Company has obtained any required Permits and/or (y) the transfer of servicing or collection on such Loans from the Affiliate to the Company or any Company Subsidiary after the Company has obtained any required Permits, and (c) requires compliance by the parties thereto with applicable Law, including the Federal Fair Debt Collections Practices Act, and any Securitization Transactions or warehouse or other financing facility for which the Company or any Company Subsidiary acts as servicer or collector.

46

“Representative” means, with respect to any person, the directors, officers, employees, investment bankers, financial advisors, attorneys, accountants or other advisors, agents or representatives of such person.

“Required Financing” means Third Party Warehouse Agreements (taken together with any Additional Financing) (a) with aggregate commitments of at least $4.5 billion, without any breaches or defaults under such agreements and with conditions to funding that the Company reasonably expects that it will be able to satisfy, (b) with terms such that Third Party Warehouse Agreements (taken together with any Additional Financing) that have aggregate commitments of at least $2.0 billion shall have a maturity of no earlier than two years following the later of the respective dates of such Third Party Warehouse Agreements or Additional Financing and the latest renewal, extension or rollover of such Third Party Warehouse Agreements or Additional Financing and (c) (i) in the case of Third Party Warehouse Agreements entered into after the date of this Agreement, with terms that are not materially less favorable to the Company in the aggregate than the terms of the Comparable Facility and (ii) in the case of Third Party Warehouse Agreements in effect as of the date of this Agreement the maturities of which are extended after the date of this Agreement, with margins and advance rates that are not materially less favorable to the Company in the aggregate than the comparable terms of the Comparable Facility and the other terms of such extended Third Party Warehouse Agreements are not materially less favorable in the aggregate than the terms of such Third Party Warehouse Agreements prior to such extension; provided that clauses (i) and (ii) shall be satisfied with respect to the margins of such Third Party Warehouse Agreements if such margins do not exceed the margins of the Comparable Facility by more than 40 basis points.

“Required Origination Amount” means an amount, in dollars, equal to the product of (a) 0.90 and (b) the total dollar amount of all Loans originated by the Company and the Company Subsidiaries during the period from January 1, 2011 through the date of this Agreement.

“Santander ABS Credit Facility” means the Credit Agreement to be entered into by a special purpose subsidiary of the Company, the Company and Banco Santander, S.A. providing for a three-year ABS facility.

“Securitization Instruments” shall mean all Contracts to which the Company or any Company Subsidiary is bound under a Securitization Transaction.

“Securitization SPV” means each Person that is a special purpose vehicle that is both (a) owned by the Company or any of the Company Subsidiaries and (b) utilized in Securitization Transactions involving assets of the Company or any of the Company Subsidiaries.

“Securitization Transaction” means any transaction sponsored by the Company or any of the Company Subsidiaries under which any such Person has sold or pledged Loans or receivables in a securitization in which securities backed by, or other interests in, such loan or receivables were sold and any of such securities or other interests remain outstanding.

47

“Shareholders Agreement” means the Shareholders Agreement, to be dated as of the Closing Date, among the Company, the Acquirer, Santander Holdings USA, Inc., Dundon DFS, LLC, Thomas G. Dundon and Banco Santander, S.A., substantially in the form of Exhibit L hereto.

“Specified Contracts” means each of (a) the Dealer Agreement, dated as of November 10, 2009, by and among Carmax Auto Superstores, Inc., Carmax Auto Superstores West Coast, Inc., Carmax Auto Superstores California, LLC, Carmax Auto Mall, LLC, Carmax of Laurel, LLC and Santander Consumer USA Inc., (ii) the DealerTrack Lender Agreement, dated July 8, 2005, by and between DealerTrack, Inc. and Drive Financial Services, LP. and (iii) the Subvention Agreement, dated as of May 20, 2010, between Santander Consumer USA Inc. and Chrysler Group LLC, as amended by the First Amendment to Subvention Agreement, dated July 15, 2011.

“State License Approvals” means all authorizations, consents, orders, approvals, declarations, filings and expiration of waiting periods related to state business Permits necessary for the consummation of the Acquisition.

“State Tax Sharing Agreement” means a state tax sharing agreement substantially in the form of Exhibit M hereto, with an appropriate effective date and with appropriate adjustments, including to take into account NOLs and other tax attributes of the Company included as a deferred tax asset in the calculation of the Tangible Common Equity, to be agreed upon by the parties.

“Subsidiary” of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person or by another Subsidiary of such first person.

“Tangible Common Equity” has the meaning assigned to such term in Schedule A.

“Tax” or “Taxes” includes all taxes, charges, fees, levies, or other assessments, including, without limitation, income, gross receipts, excise, real and personal property, profits, estimated, severance, occupation, production, capital gains, capital stock, goods and services, environmental, employment, withholding, stamp, value added, alternative or add-on minimum, sales, transfer, use, license, payroll and franchise taxes or any other tax, custom, duty or governmental fee, or other like assessment or charge of any kind whatsoever, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, county, state, foreign, Federal or other government or subdivision or agency thereof, or in connection with any agreement with respect to Taxes, including all interest, penalties, fines, related liabilities, and additions imposed with respect to such amounts.

48

“Tax Return” means all Federal, state, local, provincial and foreign Tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax return relating to Taxes, including claims for refund and declarations of estimated Tax.

“Third Party Warehouse Agreement” means a warehouse agreement with a third party financing source (other than the Repurchase Facility, dated September 9, 2011, between UBS and the Company).

“Trademark License Agreement” means the Use of Trademark License Agreement, to be dated as of the date of this Agreement, between the Company, Santander Consumer Finance, S.A. and Banco Santander, S.A., substantially in the form of Exhibit N hereto.

“Transfer Side Letter” means the letter agreement, to be dated as of the Closing Date, among certain Affiliates of Warburg Pincus LLC, Kohlberg Kravis Roberts & Co. L.P. and Centerbridge Partners L.P., the Company, SHUSA, Dundon DFS LLC, Thomas G. Dundon and Banco Santander, S.A., substantially in the form of Exhibit O hereto.

SECTION 8.10. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties.

SECTION 8.11. Entire Agreement. This Agreement, the Shareholders Agreement and the Confidentiality Agreements, along with the Schedules and Exhibits hereto and thereto, contain the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter. None of the parties shall be liable or bound to any other party in any manner by any representations, warranties or covenants relating to such subject matter except as specifically set forth herein or in the Shareholders Agreement or in the Confidentiality Agreements.

SECTION 8.12. Severability. If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof (or the remaining portion thereof) or the application of such provision to any other persons or circumstances.

SECTION 8.13. SPECIFIC PERFORMANCE; NO RECOURSE. (A) THE PARTIES ACKNOWLEDGE AND AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT TO BE PERFORMED BY SHUSA, THE COMPANY OR ANY OF THE COMPANY SUBSIDIARIES WERE NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT IS

49

ACCORDINGLY AGREED THAT PRIOR TO THE VALID AND EFFECTIVE TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH SECTION 6.01, THE ACQUIRER SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OR THREATENED BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS OF THIS AGREEMENT IN ANY COURT OF COMPETENT JURISDICTION, IN EACH CASE WITHOUT PROOF OF DAMAGES OR OTHERWISE (AND EACH OF SHUSA, THE COMPANY AND THE COMPANY SUBSIDIARIES HEREBY WAIVES ANY REQUIREMENT FOR THE SECURING OR POSTING OF ANY BOND IN CONNECTION WITH SUCH REMEDY), THIS BEING IN ADDITION TO ANY OTHER REMEDY TO WHICH THE ACQUIRER IS ENTITLED AT LAW OR IN EQUITY. SHUSA AND THE COMPANY AGREE NOT TO ASSERT THAT A REMEDY OF SPECIFIC ENFORCEMENT IS UNENFORCEABLE, INVALID, CONTRARY TO LAW OR INEQUITABLE FOR ANY REASON, NOR TO ASSERT THAT A REMEDY OF MONETARY DAMAGES WOULD PROVIDE AN ADEQUATE REMEDY. PRIOR TO THE CLOSING, THE PARTIES ACKNOWLEDGE AND AGREE THAT NONE OF SHUSA, THE COMPANY OR ANY OF THE COMPANY SUBSIDIARIES SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF THIS AGREEMENT OR TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THEIR SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO ANY SUCH BREACH SHALL BE THE TERMINATION FEE SET FORTH IN SECTION 6.03.

(b) THIS AGREEMENT MAY ONLY BE ENFORCED AGAINST THE NAMED PARTIES HERETO. ALL CLAIMS OR CAUSES OF ACTION THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS AGREEMENT, OR THE NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT MAY BE MADE ONLY AGAINST THE ENTITIES THAT ARE EXPRESSLY IDENTIFIED AS PARTIES HERETO, OR AGAINST THE GUARANTORS UNDER AND TO THE EXTENT SET FORTH IN THE GUARANTEES, AND NO PAST, PRESENT OR FUTURE DIRECTOR, OFFICER, EMPLOYEE, INCORPORATOR, MEMBER, MANAGER, PARTNER, SHAREHOLDER, AFFILIATE, AGENT, ATTORNEY OR REPRESENTATIVE OF ANY PARTY HERETO (INCLUDING ANY PERSON NEGOTIATING OR EXECUTING THIS AGREEMENT ON BEHALF OF A PARTY HERETO) SHALL HAVE ANY LIABILITY OR OBLIGATION WITH RESPECT TO THIS AGREEMENT OR WITH RESPECT TO ANY CLAIM OR CAUSE OF ACTION, WHETHER IN TORT, CONTRACT OR OTHERWISE, THAT MAY ARISE OUT OF OR RELATE TO THIS AGREEMENT, OR THE NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY. THIS SECTION 8.13(B) DOES NOT LIMIT ANY LIABILITY OF ANY PERSON UNDER THE CONFIDENTIALITY AGREEMENTS OR ANY AGREEMENT REFERRED TO IN SECTION 5.01(D) TO THE EXTENT PROVIDED THEREIN.

50

SECTION 8.14. CONSENT TO JURISDICTION. EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF (I) THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY, AND (II) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. EACH PARTY FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO SUCH PARTY’S RESPECTIVE ADDRESS SET FORTH ABOVE SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING IN NEW YORK WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO JURISDICTION IN THIS SECTION 8.14. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN (A) THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY, OR (B) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND HEREBY AND THEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

SECTION 8.15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.

SECTION 8.16. WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. EACH PARTY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE ANCILLARY AGREEMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.16.

[Signature Page Follows.]

51

IN WITNESS WHEREOF, the Company and the Acquirer have duly executed this Agreement as of the date first written above.

SANTANDER CONSUMER USA INC.,
by	/s/ Jason Kulas
	Name: Jason Kulas
	Title:   Chief Financial Officer
SPONSOR AUTO FINANCE HOLDINGS
SERIES LP,
By:	Sponsor Auto Finance GP LLC, its general partner
by
	Name:
	Title:
SOLELY FOR PURPOSES OF SECTIONS
1.02(b), 1.04, 2.08, 4.03, 4.04, 4.08, 4.09
AND 4.12 AND ARTICLE VIII
SANTANDER HOLDINGS USA, INC.
by	/s/ Guillermo Sabater
	Name: Guillermo Sabater
	Title: Chief Financial Officer

[Investment Agreement Signature Page]

IN WITNESS WHEREOF, the Company and the Acquirer have duly executed this Agreement as of the date first written above.

SPONSOR AUTO FINANCE HOLDINGS SERIES LP
By:	Sponsor Auto Finance GP LLC, its general partner
By:	/s/ Daniel Zilberman
	Name: Daniel Zilberman
	Title:  Co-President

[Signature Page to the Investment Agreement]

EXHIBIT A

Form of Post-Closing Articles of Incorporation of the Company

A-1

EXHIBIT B

Form of Post-Closing Bylaws of the Company

B-1

EXHIBIT C

Form of Preliminary Pro Forma Capitalization Statement

Exhibit C – Pro-Forma Capitalization Statement

		September 30,		September 30,
	July 31			Determination
$’000	2011			Date
Common stockholders’ equity		773,752
Goodwill		(74,056	)
Intangibles		(50,157	)
Other comprehensive income		36,239
Tangible Common Equity		685,778
Exclusions from Tangible Common Equity1		—
Capital from Acquirers’ shares		1,000,000
Capital for Dundon Investment		[145,000	]
Expenses of the transaction		[ ·	]
Pro-forma capitalization		1,685,778

Note

1 Exclusions to give effect to amounts as defined per Section 5.02 (c) 1 of the Investment Agreement

C-1

EXHIBIT D

Form of Banco Santander Financing Documents

D-1

EXHIBIT E

Liquidity Policy

The Company shall at all times implement and maintain financing facilities that, in light of the Company’s then current business plan, to achieve the following objectives (the “Liquidity Policy”):

(a) Financing Facilities shall be maintained in amounts such that their aggregate unused capacity exceeds the Company’s expected peak usage of such facilities over the subsequent 12 months (assuming securitization markets are available) by at least $3.0 billion. Such expected peak usage shall be determined by management and delivered to the Board of Directors as part of the Company’s annual budgeting process.

(b) The maturities of Non-Santander Facilities shall be staggered with the goal of having no more than 25% of such facilities in aggregate mature in any given six- month period. At no point in time shall 50% or more of the aggregate availabilities under the Non-Santander Facilities have maturity dates of one year in the future or less.

(c) The Company shall use reasonable best efforts to first utilize the Non-Santander Facilities before utilizing the Santander Facilities.

(d) The Company shall maintain a target tangible common equity to tangible assets ratio consistent with the ratio in effect as of the Determination Date and a dividend policy consistent with that ratio.

For purposes of this Liquidity Policy:

“Santander Facilities” means (w) the Santander Three Year Credit Agreement (as defined in the Shareholders Agreement), (x) the Santander Five Year Credit Agreement (as defined in the Shareholders Agreement), (y) the Santander ABS Credit Agreement (as defined in the Shareholders Agreement) and (z) any additional financing facilities provided by Banco Santander, S.A. or its affiliates to the Company;

“Non-Santander Facilities” means all financing facilities of the Company other than the Santander Facilities; and

“Financing Facilities” means the Santander Facilities and the Non-Santander Facilities.

Requests for exceptions to the Liquidity Policy shall be presented to the Board of Directors. To the extent seeking an exception from the Board of Directors is impractical or could not be procured on a timely basis and the Company becomes non-compliant with the Liquidity Policy as a result of financing market conditions, the Company shall use commercially reasonable efforts to adjust its origination volumes in order to maximize liquidity until compliance can be achieved.

E-1

EXHIBIT F

Form of Amended Employment Agreement

F-1

EXHIBIT G

Form of Comparable Facility

G-1

EXHIBIT H

Form of Dundon Investment Agreement

H-1

EXHIBIT I

Form of Indemnification Agreement

I-1

EXHIBIT J

Terms of Management Equity Plan

J-1

EXHIBIT K

Form of Note Purchase Agreement

K-1

EXHIBIT L

Form of Shareholders Agreement

L-1

EXHIBIT M

Terms of State Tax Sharing Agreement

M-1

EXHIBIT N

Form of Trademark License Agreement

N-1

EXHIBIT O

Form of Transfer Side Letter

O-1

SCHEDULE A

Accounting Principles

1. The Company’s methods of estimating the Credit Loss Allowance, including the Base Case and Stress Case shall be consistent with the Company’s historical methods.

2. Tangible Common Equity will be determined without giving effect to any of the following which may occur between July 31, 2011 and the Determination Date:

(i) any after-tax income or expense resulting from an increase or decrease in the level of the Loss Coverage (expressed as a number of months) in the Organic Pool Allowance. For clarification purposes, the Company’s actual Organic Pool Allowance at July 31, 2011 provided for 15.1 months Loss Coverage. Any increase or decrease in the Loss Coverage (expressed as a number of months) provided by the Organic Pool Allowance recorded on the Company’s balance sheet at the Determination Date above or below 15.1 months will be excluded from the calculation of Tangible Common Equity;

(ii) any after-tax income resulting from a decrease in the remaining $111 million Acquired Loan Impairment balance at July 31, 2011 previously taken against loans accounted for under ASC 310-30;

(iii) any after-tax income resulting from a reduction in the nonaccretable discount recorded on Acquired Portfolios accounted for under ASC 310-30 acquired by the Company;

(iv) any after-tax income resulting from the reduction of any other reserve or liability (excluding litigation loss accruals) except as a result of settlement or expungement of such reserve or liability.

3. Cash and cash equivalents are recorded at face value.

4. Bonds are recorded at fair value based on the Company’s practice of using three different valuation sources: (a) internal cash flow projections with respect to principal and interest, (b) quotes from Bloomberg and JPMorgan and (c) indicative prices solicited from market participants.

S-A-1

5. No accrual for liabilities arising out of the Acquisition or the other transactions contemplated by this Agreement.

6. No change to litigation loss accruals as compared to Balance Sheet other than based on changes since Balance Sheet Date.

7. The line item “Payable to Parent” shall be divided into two line items: (a) “Payable to Parent – Tax Sharing Agreement”, which will represent an accrual as of the Determination Date of the Company’s net obligations to SHUSA under the Existing Tax Allocation Agreement; and (b) “Payable to Parent – Other”, which will represent all other payables to SHUSA and Banco Santander.

8. There will be separate line items for total deferred tax assets and total deferred tax liabilities and the two shall not be netted in computing either line item.

9. The Company may recognize up to, but no more than, $10 million with respect to anticipated Citi Servicing Performance Fees.

“Acquired Loan Impairment” – means any allowance recorded by the Company for future credit losses on Acquired Portfolios over and above the accretable discount or premium and the nonaccretable discount calculated upon acquisition of the Acquired Portfolios in accordance with ASC 310-30.

“Acquired Portfolios” means retail installment contracts or securities representing interest in retail installment contracts acquired by the Company or its consolidated Subsidiaries from third party lenders or finance companies. For the avoidance of doubt this excludes contracts originated directly by the Company or acquired from auto dealers or third party sellers in the ordinary course of business.

“ASC 310-30” means Accounting Standards Codification 310-30.

“Base Case” means the estimated credit losses for all Organic Loans held by the Company based upon the projected loss curves as determined by the Company’s Decision Science group.

“Credit Loss Allowance” means the sum of the Organic Pool Allowance and Acquired Loan Impairment. For the avoidance of doubt this is consistent with the credit loss allowance balance presented in Note 3 of the Company’s 2010 audited financial statements.

“Loss Coverage” means the number of months of estimated net charge-offs that the Organic Pool Allowance will cover as calculated by the Company under the Stress Case scenario.

S-A-2

“Organic Loans” means retail installment contracts or securities representing interests in retail installment contracts originated by the Company or acquired by the Company from auto dealers or third party sellers in the ordinary course of business.

“Organic Pool Allowance” means the allowance recorded by the Company for future credit losses on Organic Loans. The Organic Pool Allowance excludes any purchase discounts or capitalized costs or fees associated with the acquisition or origination of Organic Loans.

“Stress Case” means the estimated credit losses for all Organic Loans held by the Company as determined by the application of a stress factor to the expected loss frequency and an adjusted expected auction recovery rate on expected repossessed assets against the Base Case, consistent with the Company’s methodology and application of these factors at July 31, 2011. At July 31, 2011 the Stress Case applied a stress factor of 135% on the base case loss frequency and a 35% auction recovery rate on expected repossessed assets.

“Tangible Common Equity” means the total common stockholders’ equity of the Company as of the specified date, less goodwill, less intangible assets and omitting other comprehensive income.

S-A-3

SCHEDULE B

Credit Loss Allowance Schedule

Schedule B — Credit Loss Allowance

	September 30,		September 30,		September 30,
		July 31			Determination
$’000		2011			Date
Organic Pool Allowance (“Allowance”)
Calculated Allowance, Stress Case 13 months’ loss coverage			746,344
Excess of actual over Stress Case Allowance			117,568
Allowance, as reported	a		863,912
Stress factors applied under Stress Case
Excess over expected losses			35	%
Auction recovery rate			35	%
Loss Coverage (months)
Actual months’ coverage vs. stressed losses 1			15.12
Impairment on Acquired Portfolio accounted for under ASC 310-30	b		111,100
Total Credit Loss Allowance	a + b		975,012

Notes

¹  Calculated as presented in Exhibit C—Loss Coverage

S-B-1

SCHEDULE C

Loss Coverage Schedule

Exhibit C — Loss Coverage

	September 30,		September 30,	September 30,
		July 31		Determination
$’000		2011		Date
i. Organic Pool Allow ance (as recorded)	a		863,912
ii. Less: Estimated credit losses for all Organic Loans for the next 12 months as calculated under the Stress Case			690,975
Excess of Organic Pool Allowance over estimated Stress Case losses	c		172,937
iii. Estimated credit losses for all Organic Loans for the next 13 months under the Stress Case			746,344
iv. Less: Estimated credit losses for all Organic Loans for the next 12 months under the Stress Case			690,975
Estimated thirteenth month credit losses under the Stress Case	d		55,369
c / d	e		3.12
Loss coverage (= e + 12)			15.12

S-C-1

EX-10.3

Exhibit 10.3

EXECUTION COPY

INVESTMENT AGREEMENT

between

SANTANDER CONSUMER USA INC.

and

DUNDON DFS LLC

for the purchase and sale

of shares of capital stock in

SANTANDER CONSUMER USA INC.

Dated as of October 20, 2011

TABLE OF CONTENTS

	Page
ARTICLE I
Purchase and Sale; Closing; Waiver of Preemptive Rights
SECTION 1.01. Purchase and Sale of the Shares		1
SECTION 1.02. Closing Date		1
SECTION 1.03. Transactions To Be Effected at the Closing		2
SECTION 1.04. Waiver of Preemptive Rights		2
ARTICLE II
Representations and Warranties Relating to the Company and the Acquired Shares
SECTION 2.01. Organization, Standing and Power		2
SECTION 2.02. Capital Stock of the Company and the Company Subsidiaries		3
SECTION 2.03. Authority; Execution and Delivery; Enforceability		4
SECTION 2.04. Issuance of Acquired Shares		4
SECTION 2.05. No Conflicts; Consents		5
SECTION 2.06. Private Offering		5
ARTICLE III
Representations and Warranties of the Acquirer
SECTION 3.01. Organization, Standing and Power		6
SECTION 3.02. Authority; Execution and Delivery; and Enforceability		6
SECTION 3.03. No Conflicts; Consents		6
SECTION 3.04. Litigation		7
SECTION 3.05. Securities Act		7
SECTION 3.06. Availability of Funds		7
SECTION 3.07. Brokers and Finders		7
ARTICLE IV
Covenants
SECTION 4.01. Covenants Relating to Conduct of Business		8
SECTION 4.02. Reasonable Efforts		8
SECTION 4.03. Expenses		9
SECTION 4.04. Notice of Developments		9
SECTION 4.05. Further Assurances		9
SECTION 4.06. Management Equity Plan		10
SECTION 4.07. Use of Proceeds		10

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TABLE OF CONTENTS

	Page
ARTICLE V
Conditions Precedent
SECTION 5.01. Conditions to Each Party’s Obligation		10
SECTION 5.02. Conditions to Obligation of the Acquirer		11
SECTION 5.03. Conditions to Obligation of the Company		12
ARTICLE VI
Termination
SECTION 6.01. Termination		13
SECTION 6.02. Effect of Termination		13
ARTICLE VII
General Provisions
SECTION 7.01. Survival		14
SECTION 7.02. No Additional Representations		14
SECTION 7.03. Amendments and Waivers		14
SECTION 7.04. Assignment		14
SECTION 7.05. No Third-Party Beneficiaries		14
SECTION 7.06. Attorneys’ Fees		14
SECTION 7.07. Notices		15
SECTION 7.08. Interpretation; Exhibits and Schedules Definitions		16
SECTION 7.09. Certain Definitions		16
SECTION 7.10. Counterparts		19
SECTION 7.11. Entire Agreement		19
SECTION 7.12. Severability		19
SECTION 7.13. SPECIFIC ENFORCEMENT; NO RECOURSE		19
SECTION 7.14. CONSENT TO JURISDICTION		20
SECTION 7.15. GOVERNING LAW		21
SECTION 7.16. WAIVER OF JURY TRIAL		21

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TABLE OF CONTENTS

		Page
Exhibits
Exhibit A	Form of Post-Closing Articles of Incorporation of the Company
Exhibit B	Form of Post-Closing Bylaws of the Company
Exhibit C	Banco Santander Financing Documents
Exhibit D	Form of Amended Employment Agreement
Exhibit E	Form of Amended Loan Agreement
Exhibit F	Form of New Investor Investment Agreement
Exhibit G	Form of Indemnification Agreement
Exhibit H	Terms of Management Equity Plan
Exhibit I	Form of Shareholders Agreement
Exhibit J	Form of State Tax Sharing Agreement
Exhibit K	Form of Trademark License Agreement
Schedules
Schedule A	Accounting Principles

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INVESTMENT AGREEMENT (this “Agreement”) dated as of October 20, 2011, between SANTANDER CONSUMER USA INC., an Illinois corporation (the “Company”), and DUNDON DFS LLC, a Delaware limited liability company (the “Acquirer”).

WHEREAS, the Company desires to increase its outstanding capital by issuing to the Acquirer, and the Acquirer desires to purchase and acquire from the Company, pursuant to the terms and conditions set forth in this Agreement, shares of common stock, no par value (“Company Common Stock”), of the Company.

WHEREAS, the Company is, concurrently with the execution and delivery of this Agreement, also entering into the New Investor Investment Agreement to issue and sell shares of Company Common Stock to the purchaser thereunder.

WHEREAS, in connection with the capital increase contemplated hereby and as referenced herein, it is the intention of the Company and the shareholders of the Company that the shareholders will jointly manage the Company and will share control over it, all of the foregoing subject to the terms and conditions of this Agreement, the Shareholders Agreement and the Company’s articles of incorporation and bylaws.

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and subject to the conditions set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

Purchase and Sale; Closing; Waiver of Preemptive Rights

SECTION 1.01. Purchase and Sale of the Shares. On the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 1.02), the Company shall issue, sell and deliver to the Acquirer, and the Acquirer shall purchase and acquire from the Company, an aggregate number of shares of Company Common Stock (the “Acquired Shares”), that would represent, together with the Acquirer’s existing shares of stock, 10.0% of the total number of issued and outstanding shares of Company Common Stock as of the Closing Date (as defined in Section 1.02), after giving effect to the issuance and sale of the Acquired Shares and the shares of Company Common Stock to be issued and sold pursuant to the New Investor Investment Agreement, for an aggregate purchase price of $158.2 million (the “Purchase Price”), payable as set forth below in Section 1.02. The purchase and sale of the Acquired Shares is referred to in this Agreement as the “Acquisition”.

SECTION 1.02. Closing Date. The closing of the Acquisition (the “Closing”) shall take place at the offices of Cravath, Swaine & Moore LLP, 825 Eighth Avenue, New York, New York 10019, at 10:00 a.m. on the second Business Day following the satisfaction (or, to the extent permitted, the waiver) of the conditions set forth in Article V (other than those conditions which by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), or at such other place, time and date as shall be agreed between the Company and the Acquirer. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.

SECTION 1.03. Transactions To Be Effected at the Closing. At the Closing:

(a) the Company shall deliver to the Acquirer one or more stock certificates representing the Acquired Shares;

(b) the Acquirer shall deliver to the Company payment, by wire transfer of immediately available funds in an amount equal to the Purchase Price to a bank account (which account has been designated in writing by the Company at least one Business Day prior to the Closing Date); and

(c) the articles of incorporation of the Company and the bylaws of the Company, amended to read in the form of Exhibit A hereto and Exhibit B hereto, respectively, shall become effective.

SECTION 1.04. Waiver of Preemptive Rights. The Acquirer hereby irrevocably waives any preemptive or preferential rights it may have to purchase shares of any class of stock of the Company arising under (a) any applicable Law (as defined in Section 2.05), including, without limitation, the Illinois Business Corporation Act of 1983, as amended (the “IBCA”), (b) any contract, agreement or understanding or (c) the Company Charter (as defined in Section 2.01), which, in the case of any such rights arising under clause (a), (b) or (c), would be exercisable as a result of the issuances, purchases and sales of shares of common stock, no par value, of the Company contemplated by this Agreement and the New Investor Investment Agreement; provided, however, that, for the avoidance of doubt, such waiver is only being granted with respect to such issuances, purchases and sales and not with respect to any other issuances, purchases or sales of the shares of any class of stock of the Company.

ARTICLE II

Representations and Warranties

Relating to the Company and the Acquired Shares

Except as set forth in the Company Disclosure Letter, the Company hereby represents and warrants to the Acquirer as follows:

SECTION 2.01. Organization, Standing and Power. Each of the Company and its Subsidiaries (the “Company Subsidiaries”) is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, have not had and would not reasonably be

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expected to have a Material Adverse Effect. For purposes of this Agreement, “Material Adverse Effect” means a material adverse effect on (i) the business, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a whole, (ii) the ability of the Company to perform its obligations under this Agreement, (iii) the ability of the Company to consummate the Acquisition and the other transactions contemplated hereby. The Company has made available to the Acquirer true and complete copies of the articles of incorporation of the Company as amended to the date of this Agreement (as so amended, the “Company Charter”) and the bylaws of the Company as amended to the date of this Agreement (as so amended, the “Company Bylaws”). The Company has made available to the Acquirer a true, complete and correct list of all of the Company Subsidiaries as of the date of this Agreement. Except for the Company Subsidiaries, the Company does not own beneficially or of record, directly or indirectly, more than 5.0% of any class of equity securities or similar interests of any corporation, bank, business trust, association or similar organization, and is not, directly or indirectly, a partner in any partnership or party to any joint venture. The Company owns, directly or indirectly through wholly-owned Company Subsidiaries, all of its interests in each Company Subsidiary free and clear of any and all Liens (as defined in Section 2.05).

SECTION 2.02. Capital Stock of the Company and the Company Subsidiaries. (a) The authorized capital stock of the Company consists of 93,000,000 shares of Company Common Stock and 13,000,000 shares of preferred stock, par value $1.00 per share (“Company Preferred Stock” and, together with the Company Common Stock, the “Company Capital Stock”). At the close of business on October 20, 2011, (i) 92,173,913 shares of Company Common Stock and no shares of Company Preferred Stock were issued and outstanding and (ii) no shares of Company Common Stock were held by the Company in its treasury. Except as set forth in this Section 2.02(a), there are no shares of capital stock of, or other equity securities of, or any securities convertible into or exchangeable or exercisable for shares of capital stock in, or other equity securities in, the Company issued, reserved or authorized for issuance. Section 2.02(a)(ii) of the Company Disclosure Letter sets forth for each Company Subsidiary the amount of its authorized capital stock, the amount of its outstanding capital stock and the record and beneficial owners of its outstanding capital stock and other equity interests therein. Except as set forth in Section 2.02(a)(ii) of the Company Disclosure Letter, there are no shares of capital stock of, or other equity securities of, any Company Subsidiary issued, reserved for issuance or outstanding.

(b) All of the issued and outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid, nonassessable and, other than any shares of Company Common Stock held by the Acquirer, free of preemptive rights (except such as have been duly waived pursuant to written waivers previously provided to the Acquirer) and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the IBCA, the Company Charter or the Company Bylaws or any Contract (as defined in Section 2.05) to which the Company is a party or otherwise bound. None of the outstanding shares of Company Capital Stock or other securities of the Company or any of the Company Subsidiaries was issued, sold or offered by the Company or any

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Company Subsidiary in violation of the Securities Act (as defined in Section 2.05) or the securities or blue sky laws of any state or jurisdiction, or any applicable securities laws in the relevant jurisdictions outside of the United States. All the outstanding shares of capital stock of each Company Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable and were not issued in violation of any preemptive rights. There are not any bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Company Common Stock may vote (“Voting Company Debt”). There are not any options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Company or any Company Subsidiary is a party or by which any of them is bound (i) obligating the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, the Company or of any Company Subsidiary or any Voting Company Debt, (ii) obligating the Company or any Company Subsidiary to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii) that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights accruing to holders of Company Common Stock. There are not any outstanding contractual obligations of the Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any Company Subsidiary.

SECTION 2.03. Authority; Execution and Delivery; Enforceability. The Company has full power and authority to execute this Agreement and to consummate the Acquisition and the other transactions contemplated hereby. The execution and delivery by the Company of this Agreement and the consummation by the Company of the Acquisition and the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the Acquirer, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws (as defined in Section 2.05) of general applicability relating to or affecting creditors’ rights and to general equity principles, whether considered in a proceeding at law or in equity.

SECTION 2.04. Issuance of Acquired Shares. As of the Closing Date, and upon the completion of the actions to be taken at the Closing, the Acquired Shares (i) will be duly authorized by all necessary corporate action on the part of the Company, (ii) will be validly issued, fully paid and nonassessable and (iii) will not be subject to preemptive rights or restrictions on transfer (other than preemptive rights and restrictions on transfer under this Agreement, the Shareholders Agreement, the IBCA, the Company Charter and the Company Bylaws and under applicable state and federal securities laws).

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SECTION 2.05. No Conflicts; Consents. The execution and delivery by the Company of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any Company Subsidiary under any provision of (A) the Company Charter or the Company Bylaws or (B) (1) any loan or credit agreement, license, contract, lease, sublease, indenture, note, debenture, bond, mortgage or deed of trust or other legally binding agreement, arrangement or understanding (each, a “Contract”) to which the Company or any Company Subsidiary is a party or by which any of their respective properties or assets are bound, or (2) any Federal, national, state, provincial, local or foreign statute, law (including common law), ordinance, rule or regulation of any Governmental Authority (as defined below) (each, a “Law”) or any judgment, order or decree of any Governmental Authority (each, a “Judgment”), in each case, applicable to the Company or any Company Subsidiary or any of their respective properties or assets, other than, in the case of such clause (B) above, any such conflicts, violations, breaches, defaults, rights, losses or pledges, liens, charges, mortgages, encumbrances or security interests of any kind or nature (collectively, “Liens”) or Judgments that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect. Other than in connection or in compliance with the provisions of the Securities Act of 1933, as amended (the “Securities Act”) and the securities or blue sky laws of the various states or the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver, authorization or approval of, any governmental or regulatory (including any stock exchange) authorities, agencies, courts, commissions or other entities, whether Federal, national, state, provincial, local or foreign, or applicable self-regulatory organizations (each, a “Governmental Authority”) is necessary for the consummation by the Company of the transactions contemplated by this Agreement.

SECTION 2.06. Private Offering. None of the Company, the Company Subsidiaries, their Affiliates and their Representatives have issued, sold or offered any security of the Company to any person under circumstances that would cause the sale of the Acquired Shares, as contemplated by this Agreement, to be subject to the registration requirements of the Securities Act. None of the Company, the Company Subsidiaries, their Affiliates and their Representatives will offer the Acquired Shares or any part thereof or any similar securities for issuance or sale to, or solicit any offer to acquire any of the same from, anyone so as to make the issuance and sale of the Acquired Shares subject to the registration requirements of Section 5 of the Securities Act. Assuming the representations of the Acquirer contained in Section 3.05 are true and correct, the sale and delivery of the Acquired Shares hereunder are exempt from the registration and prospectus delivery requirements of the Securities Act.

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ARTICLE III

Representations and Warranties of the Acquirer

The Acquirer hereby represents and warrants to the Company as follows:

SECTION 3.01. Organization, Standing and Power. The Acquirer is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has full power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to carry on its business as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, have not had and would not reasonably be expected to have a material adverse effect on the ability of the Acquirer to perform its obligations under this Agreement or on the ability of the Acquirer to consummate the Acquisition and the other transactions contemplated hereby (an “Acquirer Material Adverse Effect”).

SECTION 3.02. Authority; Execution and Delivery; and Enforceability. The Acquirer has full power and authority to execute this Agreement and to consummate the Acquisition and the other transactions contemplated hereby. The execution and delivery by the Acquirer of this Agreement and the consummation by the Acquirer of the Acquisition and the other transactions contemplated hereby have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by the Acquirer and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of the Acquirer, enforceable against the Acquirer in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors’ rights and to general equity principles, whether considered in a proceeding at law or in equity.

SECTION 3.03. No Conflicts; Consents. The execution and delivery by the Acquirer of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Acquirer or any of its Subsidiaries under any provision of (A) the certificate of formation or limited liability company agreement of the Acquirer or (B) (1) any Contract to which the Acquirer or any of its Subsidiaries is a party or by which any of their respective properties or assets are bound, or (2) any Law or any Judgment, in each case, applicable to the Acquirer or any of its Subsidiaries or any of their respective properties or assets, other than, in the case of such clause (B) above, any such conflicts, violations, breaches, defaults, rights, losses or Liens that, individually or in the aggregate, have not had and would not reasonably be expected to have an Acquirer Material Adverse Effect. Other than in connection or in compliance with the provisions of the Securities Act and the securities or blue sky laws

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of the various states or the HSR Act, no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver, authorization or approval of, any Governmental Authority is necessary for the consummation by the Acquirer of the transactions contemplated by this Agreement.

SECTION 3.04. Litigation. There is no claim, suit, action arbitration, complaint, charge, investigation or proceeding pending or, to the Acquirer’s knowledge, threatened against the Acquirer or any of its Subsidiaries or Thomas G. Dundon that, individually or in the aggregate, has had or would reasonably be expected to have an Acquirer Material Adverse Effect, nor is there any Judgment outstanding against the Acquirer or any of its Subsidiaries or Thomas G. Dundon that has had or would reasonably be expected to have an Acquirer Material Adverse Effect.

SECTION 3.05. Securities Act. The Acquirer acknowledges that the Acquired Shares have not been registered under the Securities Act or under any state securities laws. The Acquirer (i) is acquiring the Acquired Shares pursuant to an exemption from registration under the Securities Act solely for investment with no present intention or view to distribute any of the Acquired Shares to any person in violation of the Securities Act, (ii) will not sell or otherwise dispose of any of the Acquired Shares, except in compliance with the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws, (iii) has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of its investment in the Acquired Shares and of making an informed investment decision, and has conducted an independent review and analysis of the business and affairs of the Company that it considers sufficient and reasonable for purposes of its making its investment in the Acquired Shares, and (iv) is an “accredited investor” (as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act).

SECTION 3.06. Availability of Funds. The Acquirer has cash available, existing borrowing facilities or firm financing commitments that, together with the financing to be provided under the Amended Loan Agreement, are sufficient to enable it to consummate the Acquisition. The Acquirer has provided true and correct copies of such commitments to the Company. The financing required to consummate the Acquisition is referred to in this Agreement as the “Financing”. As of the date of this Agreement, the Acquirer does not have any reason to believe that any of the conditions to the Financing (other than the financing contemplated by the Amended Loan Agreement) will not be satisfied or that such Financing will not be available to the Acquirer on a timely basis to consummate the Acquisition.

SECTION 3.07. Brokers and Finders. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of the Acquirer or its Affiliates that is entitled to any fee or commission from the Company or any Company Subsidiary.

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ARTICLE IV

Covenants

SECTION 4.01. Covenants Relating to Conduct of Business. The Company shall not, and shall not permit any Company Subsidiary to, take any action that would, or that would reasonably be expected to, result in any of the conditions to the Acquisition not being satisfied. In addition (and without limiting the generality of the foregoing), except as set forth in Section 4.01 of the Company Disclosure Letter or otherwise expressly permitted or required by the terms of this Agreement, from the date of this Agreement to the Closing, the Company shall not, and shall not permit any Company Subsidiary to, do any of the following without the prior written consent of the Acquirer:

(a) take any action that would, after the Closing, be a (i) Shareholder Reserved Matter (as defined in the form of the Company’s restated articles of incorporation attached hereto as Exhibit A) or (ii) Board Reserved Matter (as defined in the form of the Company’s bylaws attached hereto as Exhibit B); provided, however, the Company may declare and pay dividends or make other distributions on the Company Common Stock in such amounts as the Company reasonably determines would not cause the Pro Forma Capitalization, as of the Determination Date, to be less than $1,990,000,000; or

(b) authorize, or commit or agree to take, whether in writing or otherwise, any of the foregoing actions.

SECTION 4.02. Reasonable Efforts. (a) On the terms and subject to the conditions of this Agreement, each party shall use its reasonable efforts to cause the Closing to occur, including taking all reasonable actions necessary to comply promptly with all legal requirements that may be imposed on it.

(b) Each of the Company and the Acquirer shall as promptly as practicable, but in no event later than five Business Days following the execution and delivery of this Agreement, file with the United States Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”) the notification and report form, if any, required for the transactions contemplated hereby and any supplemental information requested in connection therewith pursuant to the HSR Act. Any such notification and report form and supplemental information shall be in substantial compliance with the requirements of the HSR Act. The Company and the Acquirer shall furnish to the other such necessary information and reasonable assistance as the other may request in connection with its preparation of any filing or submission that is necessary under the HSR Act. The Company and the Acquirer shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC and the DOJ and shall comply promptly with any such inquiry or request and shall promptly provide any supplemental information requested in connection with the filings made hereunder pursuant to the HSR Act. Any such supplemental information shall be in substantial compliance with the requirements

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of the HSR Act. Each party shall use its reasonable efforts to obtain any clearance required under the HSR Act for the consummation of the transactions contemplated by this Agreement. Notwithstanding any covenants of the parties set forth herein, none of the parties hereto will be required to take any action requiring, or enter into any settlement, undertaking, condition, consent decree, stipulation or other agreement with any Governmental Authority that requires such party or any of its Subsidiaries or Affiliates to (x) hold separate (in trust or otherwise), divest itself or otherwise rearrange the composition of any assets, businesses or interests of such party or any of its Subsidiaries or Affiliates or imposes any limitations on such person’s freedom of action with respect to future acquisitions of assets or with respect to any existing or future business or activities or on the enjoyment of the full rights of ownership, possession and use of any asset now owned or hereafter acquired by any such person (including any securities of the Company and the voting and other rights related to ownership thereof), (y) agree to any other conditions or requirements or to take any other actions that are adverse or burdensome or would reasonably be expected to adversely affect such person, in order to satisfy any objection of any Governmental Authority or any other person or (z) incur any material financial obligation imposed by any Governmental Authority.

(c) Each party shall use its reasonable efforts (at its own expense) to obtain, and to cooperate in obtaining, all consents from third parties necessary or appropriate to permit the consummation of the Acquisition; provided, however, that the parties shall not be required to pay or commit to pay any amount to (or incur any obligation in favor of) any person from whom any such consent may be required (other than nominal filing or application fees).

SECTION 4.03. Expenses. Subject to, and upon the occurrence of, the Closing, the Company shall pay all reasonable, documented, out-of-pocket fees and expenses of the Acquirer, including all reasonable, documented, out-of-pocket legal, accounting, financial, investment banking and other fees and expenses payable to third parties and incurred in connection with this Agreement, the Shareholders Agreement, the Amended Employment Agreement, the Amended Loan Agreement, the Acquisition and the other transactions contemplated hereby and thereby; provided that the Company shall not pay any such fees and expenses of the Acquirer, in an aggregate amount in excess of $500,000.

SECTION 4.04. Notice of Developments. The Acquirer shall promptly notify the Company of, and furnish the Company any information it may reasonably request with respect to, the occurrence to the Acquirer’s knowledge of any event or condition or the existence to the Acquirer’s knowledge of any fact that would cause any of the conditions to the Company’s obligation to consummate the Acquisition not to be fulfilled.

SECTION 4.05. Further Assurances. From time to time, as and when requested by any party, each party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions (subject to Section 4.02), as such other party may reasonably deem necessary or desirable to consummate the Acquisition.

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SECTION 4.06. Management Equity Plan. On or before the Closing Date, the Company shall establish a Management Equity Plan.

SECTION 4.07. Use of Proceeds. The Company may use the proceeds of the Acquisition (a) to repay existing indebtedness of the Company, including indebtedness owed to Banco Santander, S.A., or its Affiliates, and (b) for general corporate purposes.

ARTICLE V

Conditions Precedent

SECTION 5.01. Conditions to Each Party’s Obligation. The obligation of the Acquirer to purchase and pay for the Acquired Shares and the obligation of the Company to issue and sell the Acquired Shares to the Acquirer is subject to the satisfaction or waiver on or prior to the Closing of the following conditions:

(a) Governmental Approvals. The waiting period under the HSR Act shall have expired or been terminated. Other than the State License Approvals, all other authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Authority necessary for the consummation of the Acquisition shall have been obtained or filed or shall have occurred. With respect to the State License Approvals, (i) authorizations, consents, orders, approvals and declarations shall have been obtained from, filings shall have been made with and waiting periods shall have expired in, states (in any combination) in which the Company and the Company Subsidiaries originated Loans in an amount, during the period from January 1, 2011 through the date of this Agreement, at least equal to the Required Origination Amount and (ii) in the case of any consents, orders, approvals and declarations that have not been obtained, filings that have not been made and waiting periods that have not expired, either (x) conditional consents, orders, approvals or declarations or waivers shall have been obtained and shall be in effect, which shall be sufficient to permit the Closing to occur and for the Company and the Company Subsidiaries to conduct their respective businesses as currently contemplated during the 45 day period following the Closing, in each case without the Company or any of its Subsidiaries being in violation of any applicable Law relating to State License Approvals, or (y) the Company or any Company Subsidiary shall have entered into one or more Qualifying Agreements.

(b) No Injunctions or Restraints. No order, decree or ruling issued by any Governmental Authority of competent jurisdiction or other Law preventing the consummation of the Acquisition shall be in effect.

(c) Tax Sharing Agreements. The tax allocation agreements or tax sharing agreements with respect to each of the Company and the Company Subsidiaries shall have been terminated as of the Determination Date, and, upon such termination, such agreements shall be of no further force or effect as to any of the Company and the Company Subsidiaries on and after the Determination Date and there shall be no further liabilities or obligations imposed on any of the Company and the Company Subsidiaries under any such agreements.

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(d) Other Agreements. The Company, the Acquirer and each of the other parties thereto, as applicable, shall have entered into the Shareholders Agreement, the Amended Employment Agreement, the Amended Loan Agreement, the State Tax Sharing Agreement, the New Investor Investment Agreement and the Trademark License Agreement.

(e) Concurrent Transactions. (i) All conditions to the issuance and sale of the shares of Company Common Stock pursuant to the New Investor Investment Agreement shall have been satisfied or the fulfillment of any such conditions shall have been waived, and none of the terms thereof which will survive the Closing shall have been amended or modified in any material respect without Acquirer’s prior consent and (ii) such shares of Company Common Stock shall have been, or substantially contemporaneously with the Closing shall be, issued and sold in accordance with the terms of the New Investor Investment Agreement.

SECTION 5.02. Conditions to Obligation of the Acquirer. The obligation of the Acquirer to purchase and pay for the Acquired Shares is subject to the satisfaction (or waiver by the Acquirer) on or prior to the Closing Date of the following conditions:

(a) Representations and Warranties. The representations and warranties of the Company in this Agreement shall be true and correct (without giving effect to any qualifications or limitations as to materiality or Material Adverse Effect set forth therein), as of the date hereof and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties expressly relate to a specified date, in which case such representations and warranties shall be true and correct as of such specified date, in each case other than for such failures to be true and correct that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

(b) Performance of Obligations of the Company. The Company shall have performed or complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by the Company by the time of the Closing.

(c) Pro Forma Capitalization. The Company shall have, as of the Determination Date, Tangible Common Equity, after giving effect to the Pro Forma Adjustments (the “Pro Forma Capitalization”), of at least $1,990,000,000. The Tangible Common Equity will be determined by reference to the most recent available month-end balance sheet of the Company, and calculated in accordance with the Accounting Principles (but in no event will the Tangible Common Equity be determined by reference to any balance sheet dated after October 31, 2011) (the date of such balance sheet, the “Determination Date”). Solely for purposes of determining whether this condition is satisfied, the Pro Forma Capitalization will be determined by reference to the Preliminary Pro Forma Capitalization Statement (as defined in the New Investor Investment Agreement).

11

(d) Banco Santander Financing. Each of the parties thereto shall have, or substantially contemporaneously with the Closing shall, enter into the new committed lines of financing substantially in the forms set forth in Exhibit C and such financing shall be available to the borrower under such facilities.

(e) Waiver of Preemptive Rights. Each of the Company’s shareholders (other than the Acquirer) shall have waived any preemptive rights it may have under applicable Law or the Company Charter that would be applicable to the purchase and sale of the Acquired Shares.

(f) Certificate. The Acquirer shall have received a certificate of the Company, executed on behalf of the Company by a duly authorized officer of the Company, dated as of the Closing Date, to the effect that the conditions specified in paragraphs (a) through (c) above have been fulfilled.

SECTION 5.03. Conditions to Obligation of the Company. The obligation of the Company to issue and sell the Acquired Shares is subject to the satisfaction (or waiver by the Company) on or prior to the Closing Date of the following conditions:

(a) Representations and Warranties. The representations and warranties of the Acquirer in this Agreement shall be true and correct (without giving effect to any qualifications or limitations as to materiality or Acquirer Material Adverse Effect set forth therein), as of the date hereof and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties expressly relate to a specified date, in which case such representations and warranties shall be true and correct as of such specified date, in each case other than for such failures to be true and correct that, individually or in the aggregate, have not had and would not reasonably be expected to have an Acquirer Material Adverse Effect.

(b) Performance of Obligations of the Acquirer. The Acquirer shall have performed or complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by the Acquirer by the time of the Closing.

(c) Waiver of Preemptive Rights. Each of the Company’s shareholders shall have waived any preemptive rights it may have under applicable Law or the Company Charter that would be applicable to the purchase and sale of the Acquired Shares.

(d) Certificate. The Company shall have received a certificate of the Acquirer, executed on behalf of the Acquirer by a duly authorized officer of the Acquirer, dated as of the Closing Date, to the effect that the conditions specified in paragraphs (a) through (c) above have been fulfilled.

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ARTICLE VI

Termination

SECTION 6.01. Termination. (a) Notwithstanding anything to the contrary in this Agreement, this Agreement may be terminated and the Acquisition and the other transactions contemplated by this Agreement abandoned at any time prior to the Closing:

(i) by mutual written consent of the Company and the Acquirer;

(ii) by either the Company or the Acquirer in the event of a breach by the other party of any representation or warranty or any breach or default by such other party in the performance by such other party of any covenant or agreement contained in this Agreement, in each case, which breach or default (A) would constitute grounds, either individually or in the aggregate, for the non-breaching party to elect not to consummate the transactions contemplated hereby pursuant to Sections 5.02(a) or (b) or 5.03(a) or (b), as applicable and (B) has not been, or by its terms cannot be, cured within 30 days after written notice of such breach or default, describing such breach or default in reasonable detail, is given by the terminating party to the breaching or defaulting party;

(iii) by the Company or the Acquirer, if the Closing does not occur on or prior to March 31, 2012; or

(iv) by the Company or the Acquirer in the event that any Governmental Authority (including any court of competent jurisdiction) shall have issued an order, decree or injunction or taken any other official action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement or denying approval of any application or notice for approval to consummate such transactions, and such order, decree, injunction or other action shall have become final and non-appealable;

provided, however, that the party seeking termination pursuant to clause (ii), (iii) or (iv) is not then in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement.

(b) In the event of termination by the Company or the Acquirer pursuant to this Section 6.01, written notice thereof shall forthwith be given to the other and the transactions contemplated by this Agreement shall be terminated, without further action by any party.

SECTION 6.02. Effect of Termination. If this Agreement is terminated and the transactions contemplated hereby are abandoned as described in Section 6.01, this Agreement shall become null and void and of no further force and effect, except for the provisions of Section 4.03, Section 6.01 and this Section 6.02. Notwithstanding anything to the contrary contained in this Agreement, but subject in all cases to Section 7.13, neither the Acquirer nor the Company shall be relieved or released from any liabilities or

13

damages arising out of its willful and material breach of any provision of this Agreement; provided, that in no event shall any party hereto be liable for any punitive damages. For purposes of this Agreement, “willful and material breach” means a material breach that is a consequence of an act undertaken by the breaching party with knowledge (actual or constructive) that the taking of such act would, or would be reasonably expected to, cause a breach of this Agreement.

ARTICLE VII

General Provisions

SECTION 7.01. Survival. The representations and warranties contained in this Agreement shall not survive the Closing. Except as otherwise provided herein, all covenants and agreements contained herein, other than those which by their terms are to be performed in whole or in part after the Closing, shall terminate as of the Closing.

SECTION 7.02. No Additional Representations. Except for the representations and warranties of the Company and the Acquirer expressly set forth in this Agreement and the Company Disclosure Letter, none of the Company, the Acquirer or any other person makes any other express or implied representation or warranty on behalf of the Company or the Acquirer, as applicable, with respect to the Company, any Company Subsidiary or the Acquirer, as applicable, the accuracy or completeness of any information regarding the Company and the Company Subsidiaries or the transactions contemplated by this Agreement. Each of the Company and the Acquirer acknowledges that such party has not relied on any representation or warranty from the Company or the Acquirer, as applicable, or any other person in determining to enter into this Agreement, except as expressly set forth in this Agreement and the Company Disclosure Letter.

SECTION 7.03. Amendments and Waivers. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. By an instrument in writing the Acquirer, on the one hand, or the Company, on the other hand, may waive compliance by the other with any term or provision of this Agreement that such other party was or is obligated to comply with or perform

SECTION 7.04. Assignment. This Agreement and the rights and obligations hereunder shall not be assignable or transferable by any party without the prior written consent of the other parties hereto. Any attempted assignment in violation of this Section 7.04 shall be void.

SECTION 7.05. No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any person, other than the parties hereto and such assigns, any legal or equitable rights hereunder.

SECTION 7.06. Attorneys’ Fees. In the event that a dispute arises between the parties in connection with this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and expenses from the non-prevailing party. The payment of such fees and expenses is in addition to any other relief to which such prevailing party may be entitled.

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SECTION 7.07. Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent by facsimile or other electronic delivery or sent, postage prepaid, by registered, certified or express mail or overnight courier service, as follows:

(i) if to the Acquirer,

Dundon DFS LLC

5103 Southbrook Drive

Dallas, Texas 75209

Attention: Thomas G. Dundon

Facsimile: (214) 237-3787

with a copy to:

Bell Nunnally & Martin LLP

3232 McKinney Avenue, Suite 1400

Dallas, Texas 75204

Attention: James A. Skochdopole, Esq.

Facsimile: (214) 740-1499; and

(ii) if to the Company,

Santander Consumer USA Inc.

8585 N. Stemmons Frwy.

Suite 1100-North

Dallas, TX 75247

Attention: Eldridge Burns, Esq.

Facsimile: (972) 755-8382

with copies to:

Banco Santander, S.A.

Ciudad Grupo Santander

Edificio Pinar pl 0

28660 Boadilla del Monte

Madrid, Spain

Attention: Pablo Castilla Reparaz, Corporate Legal Counsel

Facsimile: +34 91 257 01 15

and

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

Attention: Joel F. Herold, Esq.

Facsimile: (212) 474-3700

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SECTION 7.08. Interpretation; Exhibits and Schedules Definitions. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any matter set forth in any provision, subprovision, section or subsection of any Schedule shall, unless the context otherwise manifestly requires, be deemed set forth for all purposes of the Schedules. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein, shall have the meaning as defined in this Agreement. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.

SECTION 7.09. Certain Definitions. For all purposes hereof:

“Accounting Principles” means the principles set forth in Schedule A hereto relating to the adjustments to the Pro Forma Capitalization as of the Determination Date.

“Affiliate” of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person.

“Amended Employment Agreement” means the Amended and Restated Employment Agreement, to be dated as of the Closing Date, among the Company, Banco Santander, S.A., Thomas G. Dundon and the Acquirer, substantially in the form of Exhibit D hereto.

“Amended Loan Agreement” means the Amended and Restated Loan Agreement, to be dated as of the Closing Date, between the Acquirer and Banco Santander, S.A., acting through its New York Branch, in substantially the form of Exhibit E hereto.

“Business Day” means any weekday that is not a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to be closed.

“Company Disclosure Letter” means the letter dated as of the date of this Agreement delivered by the Company to the Acquirer.

“including” means including, without limitation.

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“Indemnification Agreement” means the Form of Indemnification Agreement, substantially in the form of Exhibit G hereto.

“Management Equity Plan” means a management equity compensation plan with the terms set forth in Exhibit H hereto.

“New Investor Investment Agreement” means the Investment Agreement, dated as of the date hereof, among the Company, Sponsor Auto Finance Holdings Series LP and Santander Holdings USA, Inc., substantially in the form of Exhibit F hereto.

“Permits” means any permits, licenses, franchises, authorizations, orders and approvals issued or granted by a Governmental Authority.

“person” means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, Governmental Authority or other entity.

“Pro Forma Adjustments” means adjustments giving effect to (i) the purchase and sale of the Acquired Shares pursuant to this Agreement, (ii) any capital contribution in cash to the Company by Santander Holdings USA, Inc. or any of its Affiliates on or before the Closing Date, (iii) the purchase and sale of shares of Company Common Stock pursuant to the New Investor Investment Agreement, (iv) the payment of any dividends or other distributions by the Company on the Company Common Stock or any other payments to shareholders of the Company in excess amounts payable under contracts in effect as of the date of this Agreement, in each case, after October 31, 2011 and prior to the Closing and (v) any expenses, incurred in connection with the transactions contemplated by this Agreement, paid or payable by the Company (whether incurred by the Company or to be reimbursed by the Company to the Acquirer, Santander Holdings USA, Inc., Banco Santander, S.A. or Sponsor Auto Finance Holdings Series LP) in excess of $1.0 million, excluding (for the avoidance of doubt) from this clause (v) any expenses related to Section 4.04(b) of the New Investor Investment Agreement.

“Qualifying Agreement” means any Contract between the Company or any Company Subsidiary and any of their Affiliates that holds an appropriate Permit, is properly exempt from a requirement to hold such a Permit, or otherwise has the authority to conduct the licensable business without holding such a Permit, which Contract is on commercially reasonable terms and (a) is sufficient to allow the Company to continue to carry on its business substantially as presently conducted (including servicing or collecting any Loans included in any Securitization Transactions or pledged pursuant to any warehouse or other financing facility for which the Company or any Company Subsidiary acts as servicer or collector), (b) provides for, among other things, as applicable, (i) the origination or purchasing of Loans by such Affiliate (which Loans, if the Company or applicable Company Subsidiary had all necessary Permits, would otherwise have been originated or purchased by the Company or a Company Subsidiary), (ii) the servicing or collection of any such Loans by such Affiliate (which Loans, if the Company or applicable Company Subsidiary had all necessary Permits, would otherwise have been serviced or collected by the Company or a Company Subsidiary), and (iii) as applicable, (x) the purchase of any such Loans by the Company or any Company

17

Subsidiary from such Affiliate after the Company has obtained any required Permits and/or (y) the transfer of servicing or collection on such Loans from the Affiliate to the Company or any Company Subsidiary after the Company has obtained any required Permits, and (c) requires compliance by the parties thereto with applicable Law, including the Federal Fair Debt Collections Practices Act, and any Securitization Transactions or warehouse or other financing facility for which the Company or any Company Subsidiary acts as servicer or collector.

“Representative” means, with respect to any person, the directors, officers, employees, investment bankers, financial advisors, attorneys, accountants or other advisors, agents or representatives of such person.

“Required Origination Amount” means an amount, in dollars, equal to the product of (a) 0.90 and (b) the total dollar amount of all Loans originated by the Company and the Company Subsidiaries during the period from January 1, 2011 through the date of this Agreement.

“Shareholders Agreement” means the Shareholders Agreement, to be dated as of the Closing Date, among the Company, the Acquirer, Santander Holdings USA, Inc., Thomas G. Dundon, Sponsor Auto Finance Holdings Series LP and Banco Santander, S.A., substantially in the form of Exhibit I hereto.

“State License Approvals” means all authorizations, consents, orders, approvals, declarations, filings and expiration of waiting periods related to state business Permits necessary for the consummation of the Acquisition.

“State Tax Sharing Agreement” means a state tax sharing agreement substantially in the form of Exhibit J hereto, with an appropriate effective date and with appropriate adjustments, including to take into account NOLs and other tax attributes of the Company included as a deferred tax asset in the calculation of the Tangible Common Equity, to be agreed upon by the parties.

“Subsidiary” of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person or by another Subsidiary of such first person.

“Tangible Common Equity” has the meaning assigned to such term in Schedule A.

“Tax” or “Taxes” includes all taxes, charges, fees, levies, or other assessments, including, without limitation, income, gross receipts, excise, real and personal property, profits, estimated, severance, occupation, production, capital gains, capital stock, goods and services, environmental, employment, withholding, stamp, value added, alternative or add-on minimum, sales, transfer, use, license, payroll and franchise taxes or any other tax, custom, duty or governmental fee, or other like assessment or charge of any kind whatsoever, whenever created or imposed, and whether of the United

18

States or elsewhere, and whether imposed by a local, municipal, county, state, foreign, Federal or other government or subdivision or agency thereof, or in connection with any agreement with respect to Taxes, including all interest, penalties, fines, related liabilities, and additions imposed with respect to such amounts.

“Tax Return” means all Federal, state, local, provincial and foreign Tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax return relating to Taxes, including claims for refund and declarations of estimated Tax.

“Trademark License Agreement” means the Use of Trademark License Agreement, to be dated as of the date of this Agreement, between the Company, Santander Consumer Finance, S.A. and Banco Santander, S.A., substantially in the form of Exhibit K hereto.

SECTION 7.10. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties.

SECTION 7.11. Entire Agreement. This Agreement, the Shareholders Agreement, the Amended Loan Agreement and the Amended Employment Agreement along with the Schedules and Exhibits hereto and thereto, contain the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter. None of the parties shall be liable or bound to any other party in any manner by any representations, warranties or covenants relating to such subject matter except as specifically set forth herein or in the other agreements and documents referenced in the immediately preceding sentence.

SECTION 7.12. Severability. If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof (or the remaining portion thereof) or the application of such provision to any other persons or circumstances. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement (or any portion thereof) so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

SECTION 7.13. SPECIFIC ENFORCEMENT; NO RECOURSE. (a) THE PARTIES ACKNOWLEDGE AND AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT IS ACCORDINGLY AGREED THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR

19

INJUNCTIONS TO PREVENT BREACHES OR THREATENED BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS OF THIS AGREEMENT IN ANY COURT OF COMPETENT JURISDICTION, IN EACH CASE WITHOUT PROOF OF DAMAGES OR OTHERWISE (AND EACH PARTY HEREBY WAIVES ANY REQUIREMENT FOR THE SECURING OR POSTING OF ANY BOND IN CONNECTION WITH SUCH REMEDY), THIS BEING IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY ARE ENTITLED AT LAW OR IN EQUITY. THE PARTIES AGREE NOT TO ASSERT THAT A REMEDY OF SPECIFIC ENFORCEMENT IS UNENFORCEABLE, INVALID, CONTRARY TO LAW OR INEQUITABLE FOR ANY REASON, NOR TO ASSERT THAT A REMEDY OF MONETARY DAMAGES WOULD PROVIDE AN ADEQUATE REMEDY.

(b) THIS AGREEMENT MAY ONLY BE ENFORCED AGAINST THE NAMED PARTIES HERETO. ALL CLAIMS OR CAUSES OF ACTION THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS AGREEMENT, OR THE NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT, MAY BE MADE ONLY AGAINST THE ENTITIES THAT ARE EXPRESSLY IDENTIFIED AS PARTIES HERETO, AND NO PAST, PRESENT OR FUTURE DIRECTOR, OFFICER, EMPLOYEE, INCORPORATOR, MEMBER, MANAGER, PARTNER, SHAREHOLDER, AFFILIATE, AGENT, ATTORNEY OR REPRESENTATIVE OF ANY PARTY HERETO (INCLUDING ANY PERSON NEGOTIATING OR EXECUTING THIS AGREEMENT ON BEHALF OF A PARTY HERETO) SHALL HAVE ANY LIABILITY OR OBLIGATION WITH RESPECT TO THIS AGREEMENT OR WITH RESPECT TO ANY CLAIM OR CAUSE OF ACTION, WHETHER IN TORT, CONTRACT OR OTHERWISE, THAT MAY ARISE OUT OF OR RELATE TO THIS AGREEMENT, OR THE NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THE COMPANY AND THE ACQUIRER AGREE THAT, WHETHER OR NOT THIS AGREEMENT IS TERMINATED, TO THE EXTENT IT HAS INCURRED LOSSES OR DAMAGES IN CONNECTION WITH THIS AGREEMENT, NEITHER THE COMPANY NOR THE ACQUIRER SHALL BE LIABLE FOR ANY SPECIAL, INDIRECT, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT.

SECTION 7.14. CONSENT TO JURISDICTION. EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF (I) THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY, AND (II) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. EACH PARTY FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO SUCH PARTY’S RESPECTIVE ADDRESS SET FORTH ABOVE SHALL

20

BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING IN NEW YORK WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO JURISDICTION IN THIS SECTION 7.14. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN (A) THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY, OR (B) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND HEREBY AND THEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

SECTION 7.15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.

SECTION 7.16. WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. EACH PARTY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE ANCILLARY AGREEMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.16.

[Signature Page Follows.]

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IN WITNESS WHEREOF, the Company and the Acquirer have duly executed this Agreement as of the date first written above.

SANTANDER CONSUMER USA INC.,
by	/s/ Jason Kulas
	Name: Jason Kulas
	Title:   Chief Financial Officer
DUNDON DFS LLC,
by:	Dundon DFS Partnership LP, its Sole Member
by:	Dundon Management Company, LLC,
	its General Partner
by	/s/ Thomas G. Dundon
	Name: Thomas G. Dundon
	Title:

[Signature Page to Dundon Investment Agreement]

EXHIBIT A

Form of Post-Closing Articles of Incorporation of the Company

A-1

EXHIBIT B

Form of Post-Closing Bylaws of the Company

B-1

EXHIBIT C

Banco Santander Financing Documents

C-1

EXHIBIT D

Form of Amended Employment Agreement

D-1

EXHIBIT E

Form of Amended Loan Agreement

E-1

EXHIBIT F

Form of New Investor Investment Agreement

F-1

EXHIBIT G

Form of Indemnification Agreement

G-1

EXHIBIT H

Terms of Management Equity Plan

H-1

EXHIBIT I

Form of Shareholders Agreement

I-1

EXHIBIT J

Form of State Tax Sharing Agreement

J-1

EXHIBIT K

Form of Trademark License Agreement

K-1

SCHEDULE A

Accounting Principles

1. The Company’s methods of estimating the Credit Loss Allowance, including the Base Case and Stress Case shall be consistent with the Company’s historical methods.

2. Tangible Common Equity will be determined without giving effect to any of the following which may occur between July 31, 2011 and the Determination Date:

(i) any after-tax income or expense resulting from an increase or decrease in the level of the Loss Coverage (expressed as a number of months) in the Organic Pool Allowance. For clarification purposes, the Company’s actual Organic Pool Allowance at July 31, 2011 provided for 15.1 months Loss Coverage. Any increase or decrease in the Loss Coverage (expressed as a number of months) provided by the Organic Pool Allowance recorded on the Company’s balance sheet at the Determination Date above or below 15.1 months will be excluded from the calculation of Tangible Common Equity;

(ii) any after-tax income resulting from a decrease in the remaining $111 million Acquired Loan Impairment balance at July 31, 2011 previously taken against loans accounted for under ASC 310-30;

(iii) any after-tax income resulting from a reduction in the nonaccretable discount recorded on Acquired Portfolios accounted for under ASC 310-30 acquired by the Company;

(iv) any after-tax income resulting from the reduction of any other reserve or liability (excluding litigation loss accruals) except as a result of settlement or expungement of such reserve or liability.

3. Cash and cash equivalents are recorded at face value.

4. Bonds are recorded at fair value based on the Company’s practice of using three different valuation sources: (a) internal cash flow projections with respect to principal and interest, (b) quotes from Bloomberg and JPMorgan and (c) indicative prices solicited from market participants.

S-1

5. No accrual for liabilities arising out of the Acquisition or the other transactions contemplated by this Agreement.

6. No change to litigation loss accruals as compared to Balance Sheet (as defined in the New Investor Investment Agreement) other than based on changes since Balance Sheet Date (as defined in the New Investor Investment Agreement).

7. The line item “Payable to Parent” shall be divided into two line items: (a) “Payable to Parent – Tax Sharing Agreement”, which will represent an accrual as of the Determination Date of the Company’s net obligations to SHUSA under the Existing Tax Allocation Agreement; and (b) “Payable to Parent – Other”, which will represent all other payables to SHUSA and Banco Santander.

8. There will be separate line items for total deferred tax assets and total deferred tax liabilities and the two shall not be netted in computing either line item.

9. The Company may recognize up to, but no more than, $10 million with respect to anticipated Citi Servicing Performance Fees.

“Acquired Loan Impairment” – means any allowance recorded by the Company for future credit losses on Acquired Portfolios over and above the accretable discount or premium and the nonaccretable discount calculated upon acquisition of the Acquired Portfolios in accordance with ASC 310-30.

“Acquired Portfolios” – means retail installment contracts or securities representing interest in retail installment contracts acquired by the Company or its consolidated Subsidiaries from third party lenders or finance companies. For the avoidance of doubt this excludes contracts originated directly by the Company or acquired from auto dealers or third party sellers in the ordinary course of business.

“ASC 310-30” – means Accounting Standards Codification 310–30.

“Base Case” – means the estimated credit losses for all Organic Loans held by the Company based upon the projected loss curves as determined by the Company’s Decision Science group.

“Credit Loss Allowance” – means the sum of the Organic Pool Allowance and Acquired Loan Impairment. For the avoidance of doubt this is consistent with the credit loss allowance balance presented in Note 3 of the Company’s 2010 audited financial statements.

“Loss Coverage” – means the number of months of estimated net charge-offs that the Organic Pool Allowance will cover as calculated by the Company under the Stress Case scenario, and in a form consistent with Exhibit C of the New Investor Investment Agreement.

S-2

“Organic Loans” – means retail installment contracts or securities representing interests in retail installment contracts originated by the Company or acquired by the Company from auto dealers or third party sellers in the ordinary course of business.

“Organic Pool Allowance”—means the allowance recorded by the Company for future credit losses on Organic Loans. The Organic Pool Allowance excludes any purchase discounts or capitalized costs or fees associated with the acquisition or origination of Organic Loans.

“Stress Case”—means the estimated credit losses for all Organic Loans held by the Company as determined by the application of a stress factor to the expected loss frequency and an adjusted expected auction recovery rate on expected repossessed assets against the Base Case, consistent with the Company’s methodology and application of these factors at July 31, 2011. At July 31, 2011 the Stress Case applied a stress factor of 135% on the base case loss frequency and a 35% auction recovery rate on expected repossessed assets.

“Tangible Common Equity” — means the total common stockholders’ equity of the Company as of the specified date, less goodwill, less intangible assets and omitting other comprehensive income.

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EX-10.4

Exhibit 10.4

EXECUTION COPY

Santander Consumer USA Inc.

(an Illinois corporation)

SHAREHOLDERS AGREEMENT

Dated as of December 31, 2011

TABLE OF CONTENTS

ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION	2
1.1. Definitions	2
1.2. Rules of Construction	23
ARTICLE II TRANSFERS OF SECURITIES	24
2.1. General; Joinder Agreement; Certain Transfers	24
2.2. Co-Sale Rights	25
2.3. Right of First Offer on Transfers by SHUSA	27
2.4. Bring-Along Rights	28
2.5. Certain Transfer Procedures	32
2.6. Certain Assignment Rights	32
ARTICLE III IPO PUT OPTION	33
3.1. IPO Put Option	33
3.2. Guarantee of IPO Put Option	33
3.3. Determination of IPO Put Option Fair Market Value	34
3.4. IPO Put Option Price, IPO Put Option Notice and Closing	36
3.5. Termination of the IPO Put Option	38
ARTICLE IV DEADLOCK PUT/CALL OPTIONS	38
4.1. Deadlock Put and Call Rights	38
4.2. Guarantee of Deadlock Put Option	38
4.3. Determination of Deadlock Fair Market Value	39
4.4. Deadlock Put/Call Option Price, Deadlock Put/Call Option Notice and Closing	43
4.5. Termination of the Deadlock Put Option and the Deadlock Call Option	46
ARTICLE V OTHER PUT/CALL OPTIONS	46
5.1. Employment Termination Put and Call Rights; Loan Agreement Call Rights	46
5.2. Determination of Dundon Put/Call Fair Market Value	47
5.3. Dundon Put/Call Option Price, Employment Put/Call Option Notice and Closing	50
ARTICLE VI ADDITIONAL AGREEMENTS	52
6.1. Board of Directors	52
6.2. Shareholder Reserved Matters	54
6.3. Acquirer Group Termination	55
6.4. Matters with Respect to the Acquirer Group	56
6.5. Matters with Respect to Management	56
6.6. Matters with Respect to Significant Subsidiaries	58
6.7. Provisions Concerning Executive and Dundon Holdco	59
6.8. Provisions Concerning the New Acquirer	60

	September 30,
6.9. Governance Committee	60
6.10. Non-Compete	61
6.11. Potential Acquisition	61
6.12. Contingent Adjustments	63
6.13. Dividends and Distributions	68
6.14. Financing Matters	69
6.15. IPO	71
6.16. Certain Tax Matters	72
6.17. Regulatory and Compliance Matters	75
6.18. Information and Access	75
6.19. Outside Activities	76
6.20. SHUSA Swap Adjustment Payment	77
6.21. Reincorporation	78
6.22. Servicer Guarantees	79
6.23. New Acquirer Funding Obligation	79
6.24. Dundon Holdco Adjustments	79
6.25. Assignments under the Note Purchase Agreement; Transfers of the Notes	80
ARTICLE VII PREEMPTIVE RIGHTS	81
7.1. Preemptive Rights	81
7.2. Preemptive Notice; Closing of Preemptive Issue	81
ARTICLE VIII REGISTRATION RIGHTS	82
8.1. Demand Registration	82
8.2. Piggyback Registration	84
8.3. Underwritten Offering; Priority	85
8.4. Shelf Registration Statement	85
8.5. Suspension of Resales	86
8.6. Registration Expenses	86
8.7. Restrictions on Public Sale	87
8.8. Registration Procedures	87
8.9. Obligations of Sellers	91
8.10. Free Writing Prospectuses	91
8.11. Indemnification and Contribution	91
8.12. Transfer of Registration Rights	93
8.13. Rule 144	94
8.14. Termination of Registration Rights	94
ARTICLE IX SECURITIES LAW COMPLIANCE; LEGENDS	94
9.1. Restrictive Legends	94
9.2. Removal of Legends, Etc.	94
9.3. Additional Legend	95

	September 30,
ARTICLE X AMENDMENT AND WAIVERS	95
10.1. Amendment	95
10.2. Waivers; Extensions	95
ARTICLE XI TERMINATION	96
11.1. Termination of Existing Shareholders Agreement	96
11.2. Termination of this Agreement	96
ARTICLE XII MISCELLANEOUS	96
12.1. Severability	96
12.2. Entire Agreement	96
12.3. Successors and Assigns	97
12.4. Counterparts; Facsimile Signatures	97
12.5. Remedies	97
12.6. Notices	97
12.7. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial	100
12.8. Further Assurances	101
12.9. Representations and Warranties of the Shareholders	101
12.10. Brokers	101
12.11. No Third Party Reliance	101
12.12. Certain Waivers	102

SHAREHOLDERS AGREEMENT

This SHAREHOLDERS AGREEMENT, dated as of December 31, 2011 (this “Agreement”), is entered into by and among Santander Consumer USA Inc., an Illinois corporation (the “Company”), Santander Holdings USA, Inc., a Virginia corporation (“SHUSA”), DDFS LLC, a Delaware limited liability company (“Dundon Holdco”), Thomas G. Dundon, an individual (“Executive”), Sponsor Auto Finance Holdings Series LP, a Delaware limited partnership (the “New Acquirer”), and, solely for purposes of Sections 2.4, 3.2, 3.4, 3.5, 4.2, 5.1, 6.10, 6.12, 6.13, 6.14, 6.22, 6.25, 10.1, 10.2, 11.1 and 11.2 and Article XII, Banco Santander, S.A., a Spanish sociedad anonima (“Banco Santander”).

W I T N E S S E T H:

WHEREAS, the Company, Banco Santander, Dundon Holdco and Executive entered into the Stockholders Agreement dated as of September 23, 2006, which was amended and restated as of August 24, 2009 (the “Existing Stockholders Agreement”);

WHEREAS, on the date hereof, Dundon Holdco purchased 5,140,468.58 shares of common stock, no par value (the “Common Stock”), of the Company pursuant to the Investment Agreement dated as of October 20, 2011 between the Company and Dundon Holdco (the “Dundon Investment Agreement”);

WHEREAS, on the date hereof, the New Acquirer purchased 32,438,127.19 shares of Common Stock pursuant to the Investment Agreement dated as of October 20, 2011 among the Company, the New Acquirer and, for purposes of certain sections specified therein, SHUSA (the “New Acquirer Investment Agreement” and, together with the Dundon Investment Agreement, the “Investment Agreements”);

WHEREAS, on the date hereof, after giving effect to the purchases pursuant to the Investment Agreements, SHUSA owns 84,339,130.70 shares of Common Stock, representing 65% of the outstanding Common Stock on the date hereof, Dundon Holdco owns 12,975,250.88 shares of Common Stock, representing 10% of the outstanding Common Stock on the date hereof, the New Acquirer owns 32,438,127.19 shares of Common Stock, representing 25% of the outstanding Common Stock on the date hereof and the Acquirer Group owns 45,413,378.07 shares of Common Stock, representing 35% of the outstanding Common Stock on the date hereof;

WHEREAS, in connection with the purchases of Common Stock by Dundon Holdco and the New Acquirer on the date hereof, the Company, SHUSA, Dundon Holdco and Executive now desire to terminate the Existing Stockholders Agreement;

WHEREAS, in connection with the purchases pursuant to the Investment Agreements, it is the intention of the Company and the Shareholders that the Shareholders will jointly manage the Company and will share control over it, all of the foregoing subject to the terms and conditions of this Agreement, the Investment Agreements and the Company’s articles of incorporation and by-laws;

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WHEREAS, in connection with the foregoing, the Company, SHUSA, Dundon Holdco, Executive, Banco Santander and the New Acquirer desire to establish in this Agreement certain terms and conditions concerning the Shareholders’ relationship with and investments in the Company;

NOW, THEREFORE, in consideration of the promises, covenants and conditions set forth herein, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS; RULES OF CONSTRUCTION

1.1. Definitions.

The following capitalized terms used in this Agreement have the meanings assigned to them below:

“Accepting Offeree” has the meaning assigned to such term in Section 2.3(c).

“Acquired Loan Impairment” means any allowance recorded by the Company for future credit losses on Acquired Portfolios over and above the accretable discount or premium and the nonaccretable discount calculated upon acquisition of the Acquired Portfolios in accordance with ASC 310-30.

“Acquired Portfolios” means retail installment contracts or securities representing interest in retail installment contracts acquired by the Company or its consolidated Subsidiaries from third party lenders or finance companies. “Acquired Portfolios” excludes contracts originated directly by the Company or acquired from auto dealers or third party sellers in the ordinary course of business.

“Acquired Shares” means, with respect to each Acquirer, the shares of Common Stock purchased by such Acquirer pursuant to its Investment Agreement.

“Acquirer Deadlock Put Objection” has the meaning assigned to such term in Section 4.3(b).

“Acquirer Group” means, collectively as a group, each of Dundon Holdco and the New Acquirer.

“Acquirer Group Directors” has the meaning assigned to such term in Section 6.1(a).

“Acquirer Group Representative” has the meaning assigned to such term in Section 6.4(a).

“Acquirer Group Termination” has the meaning assigned to such term in Section 6.1(e).

“Acquirer IPO Objection” has the meaning assigned to such term in Section 3.3(c).

“Acquirers” means each of Dundon Holdco and the New Acquirer.

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“Acquirer’s Proposed Deadlock Call Option Contingent Adjustment Value” has the meaning assigned to such term in Section 4.3(c).

“Acquirer’s Proposed Deadlock Fair Market Value” has the meaning assigned to such term in Section 4.3(c).

“Acquirer’s Proposed Deadlock Put Option Contingent Adjustment Value” has the meaning assigned to such term in Section 4.3(c).

“Acquisition Price” means, with respect to each Acquirer, the aggregate price paid by such Acquirer for its Acquired Shares.

“Additional Financing” means any increase in the total commitments under the Santander ABS Credit Agreement.

“Additional Financing Costs” means the product of (a) the total financing costs for all indebtedness of the Company and Subsidiaries of the Company during the one-year period immediately preceding the payment of any Applicable Dundon Contingent Payment and (b) a fraction, (i) the numerator of which is the amount of the Dundon Contingent Payment Excess, and (ii) the denominator of which is the average daily outstanding balance of all indebtedness of the Company during such one-year period.

“Additional Santander Facilities” has the meaning assigned to such term in Section 6.14(d).

“Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, owns or controls, is under common ownership or control with, or is owned or controlled by, such specified Person. With respect to any Person, the term “Affiliate” shall include any investment funds, vehicles, holding companies or partnerships managed by such Person or any Affiliate of such Person, but shall exclude any portfolio company of such Person and any Person controlled by any such portfolio company. As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Allocated Interest Costs” means:

(a) For the purpose of determining net income from Acquired Portfolios used in the calculation of the Run-Off Portfolio NPV, Allocated Interest Costs for a given projection period will be calculated as the product of (1) the average projected outstanding balance of the applicable Acquired Portfolios during such period multiplied by (2) the Company’s projected total interest expense, on a consolidated basis, during such period divided by (3) the book value of the Company’s total earning assets, on a consolidated basis after reserves, impairments and allowances, as of December 31, 2015.

(b) For the purpose of determining Recurring Net Income, Allocated Interest Costs for a given historical period will be calculated as the product of (1) the average outstanding balance of the Acquired Portfolios during such period multiplied by (2) the Company’s average

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annual total interest expense, determined on a consolidated basis, during such period divided by (3) the average book value of the Company’s total earning assets, on a consolidated basis after reserves, impairments and allowances, at each fiscal quarter end during such period.

“Applicable Date” means the date of payment of any Dundon Contingent Payment.

“Applicable Dundon Contingent Payment” means a Dundon Contingent Payment the result of which is that the sum of the amount of (a) such Dundon Contingent Payment, (b) all dividends and other distributions declared by the Company during the Applicable Dividend Period and (c) all dividends and other distributions expected, pursuant to the then current Dividend Policy, to be declared by the Company after the Applicable Date through the end of the fiscal year in which the Dundon Contingent Payment is made, is greater than the Dividend Threshold (the amount of such excess, the “Dundon Contingent Payment Excess”).

“Applicable Employment Termination” means (i) the termination of Executive’s employment by the Company under the Employment Agreement for any reason other than Cause following the occurrence of a Deadlock (as determined pursuant to Section 4.4(e)) and during the continuation of such Deadlock and (ii) in connection with such termination, SHUSA, pursuant to the Employment Call Option, purchases Dundon Holdco’s Shares.

“Applicable Dividend Period” means, with respect to any Dundon Contingent Payment, the period beginning on January 1st of the year in which the Dundon Contingent Payment is made and ending on the Applicable Date.

“Applicable Periods” has the meaning assigned to such term in Section 6.3(a).

“Article IV Termination” means the earlier of (a) the occurrence of an Acquirer Group Termination and (b) May 31, 2015, provided that, solely for purposes of this clause (b), following May 31, 2015 an Article IV Termination will be deemed not to have occurred for successive two-year periods unless SHUSA, on the one hand, or the Acquirer Group, on the other hand, gives written notice to the Company of its rejection of such extension at least six months prior to the commencement of such two-year period. Solely for purposes of this definition, (i) Dundon Holdco will no longer be considered a member of the Acquirer Group for purposes of providing the notice referred to in the preceding sentence if and when the total number of Shares owned by Dundon Holdco (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan) divided by the total number of Shares outstanding as of the date of this Agreement (as adjusted from time to time for any reorganization, reclassification, stock split, stock dividend, reverse stock split, or other like changes in the Company’s capitalization since the date of this Agreement) is less than 5% and (ii) the New Acquirer will no longer be considered a member of the Acquirer Group for purposes of providing the notice referred to in the preceding sentence if and when the total number of Shares owned by the New Acquirer divided by the total number of Shares outstanding as of the date of this Agreement (as adjusted from time to time for any reorganization, reclassification, stock split, stock dividend, reverse stock split, or other like changes in the Company’s capitalization since the date of this Agreement) is less than 12.5%.

“Available Financing” has the meaning assigned to such term in Section 6.14(c).

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“Average Stock Price” means the arithmetic mean of the daily VWAP for the Common Stock for each of the ten consecutive complete Trading Days ending on (and including) the day that is the trading day immediately prior to the Post-IPO SHUSA Contingent Adjustment Payment Date, the Post-IPO New Acquirer Contingent Adjustment Payment Date or any other date of determination, as applicable.

“Banco Santander” has the meaning assigned to such term in the Preamble.

“Bank Holding Company Act” means the Bank Holding Company Act of 1956, as amended, or any successor federal statute, and the rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.

“Base Case” means the estimated credit losses for all Organic Loans held by the Company based upon the projected loss curves as determined by the Company’s Decision Science group.

“Blackout Period” has the meaning assigned to such term in Section 8.1(c).

“Board” and “Board of Directors” means the Board of Directors of the Company.

“Board Observers” has the meaning assigned to such term in Section 6.1(f).

“Board Reserved Matters” has the meaning assigned to such term in the by-laws of the Company.

“Bring-Along Buyer” has the meaning assigned to such term in Section 2.4(a).

“Bring-Along Contingent Acquisition Price Adjustment” has the meaning assigned to such term in Section 2.4(e).

“Bring-Along Disposition Transaction” has the meaning assigned to such term in Section 2.4(a).

“Bring-Along Notice” has the meaning assigned to such term in the Section 2.4(a).

“Bring-Along Objection” has the meaning assigned to such term in the Section 2.4(f)

“Bring-Along Right” has the meaning assigned to such term in Section 2.4(a).

“Bring-Along Shareholders” has the meaning assigned to such term in Section 2.4(a).

“Bring-Along Transaction Closing” has the meaning as described to it in the Section 2.4(a).

“Bring-Along Valuation Firm” means (i) Houlihan Lokey, or (ii) to the extent that Houlihan Lokey is unable or unwilling to serve as the Bring-Along Valuation Firm, Perella Weinberg Partners, or any other independent, third party, nationally recognized valuation firm as agreed to in writing by each of the Company, SHUSA, Dundon Holdco and the New Acquirer.

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“Business Day” means any day that is not a Saturday, Sunday, legal holiday or other day on which banks are required to be closed in New York, New York, Dallas, Texas or Madrid, Spain.

“Buyer” has the meaning assigned to such term in the Section 2.2(a).

“Cause” has the meaning assigned to such term in the Employment Agreement.

“CCO” means the Chief Credit Officer of the Company.

“Centerbridge Funds” means CCP II AIV I, L.P and Centerbridge Capital Partners SBS II, L.P.

“CEO” means the Chief Executive Officer of the Company.

“CEO Applicable Period” has the meaning assigned to such term in Section 6.3(a).

“CFO” means the Chief Financial Officer of the Company.

“Chairman” means the Chairman of the Board of Directors.

“Change of Control” means (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, or any successor provision), other than Banco Santander and its Affiliates or the New Acquirer, shall be the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, or any successor provision), directly or indirectly, of more than 20% of the outstanding shares of Common Stock (such person or group, a “Change of Control Owner”) and (b) Banco Santander and its Affiliates shall be the beneficial owners, directly or indirectly, of fewer shares of Common Stock than the Change of Control Owner.

“COO” means the Chief Operating Officer of the Company.

“Close of Business” means 5:00 p.m. (New York City time) on the date in question.

“Closing Date” has the meaning assigned to such term in the New Acquirer Investment Agreement.

“Commission” means the Securities and Exchange Commission or any other Governmental Authority at the time administering the Securities Act.

“Common Stock” has the meaning assigned to such term in the Preamble.

“Company” has the meaning assigned to such term in the Preamble.

“Comparable Facility” means the amended and restated facility substantially in the form attached hereto as Exhibit B.

“Contingent Adjustment Guaranteed Obligations” has the meaning assigned to such term in Section 6.12(g).

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“Contingent Adjustment Shortfall” has the meaning assigned to such term in Section 6.12(f).

“Contingent Adjustments” has the meaning assigned to such term in Section 6.12(b).

“Contingent Adjustment Notice” has the meaning assigned to such term in Section 6.12(k).

“Contingent Adjustment Valuation Firm” means (i) Houlihan Lokey, or (ii) to the extent that Houlihan Lokey is unable or unwilling to serve as the Contingent Adjustment Valuation Firm, Perella Weinberg Partners, or any other independent, third party, nationally recognized valuation firm as agreed to in writing by each of the Company, SHUSA, Dundon Holdco and the New Acquirer.

“Cost of Funds” means the weighted average rate of interest on the Company’s total interest bearing liabilities.

“Credit Loss Allowance” means the sum of the Organic Pool Allowance and Acquired Loan Impairment. For the avoidance of doubt this is consistent with the credit loss allowance presented in Note 3 of the Company’s 2010 audited financial statements.

“Cumulative Investment Securities Gains” means the aggregate net unrealized gain or (loss) position of the Determination Date Investment Securities as of the Swap Determination Date, plus (a) realized gains on sales of Determination Date Investment Securities from the Determination Date to the Swap Determination Date minus (b) realized losses on sales of Determination Date Investment Securities from the Determination Date to the Swap Determination Date, minus (c), without duplication, any permanent impairment of Determination Date Investment Securities from the Determination Date to the Swap Determination Date. If the calculation results in a cumulative loss, then the amount shall be deemed zero for purposes of Section 6.20(b).

“Deadlock” means the Board of Directors or Shareholders become deadlocked on a Board Reserved Matter or a Shareholder Reserved Matter, as applicable, reasonably and in good faith, the effect of which is to cause the Company or any Significant Subsidiary to default on any material obligation or to cause the Company and its Subsidiaries to be unable to carry on their businesses such that, in each case, it is reasonably likely that the Company or any Significant Subsidiary will cease to continue as a going concern.

“Deadlock Call Option” has the meaning assigned to such term in Section 4.1(b).

“Deadlock Call Option Closing Date” has the meaning assigned to such term in Section 4.4(g).

“Deadlock Call Option Notice” has the meaning assigned to such term in Section 4.4(g).

“Deadlock Call Option Price” has the meaning assigned to such term in Section 4.4(b).

“Deadlock Contingent Adjustment Value” has the meaning assigned to such term in Section 4.3(a).

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“Deadlock Fair Market Value” has the meaning assigned to such term in Section 4.3(a).

“Deadlock Put Option” has the meaning assigned to such term in Section 4.1(a).

“Deadlock Put Option Closing Date” has the meaning assigned to such term in Section 4.4(f).

“Deadlock Put Option Notice” has the meaning assigned to such term in Section 4.4(f).

“Deadlock Put Option Price” has the meaning assigned to such term in Section 4.4(a).

“Deadlock Put Option Shares” means (i) with respect to Dundon Holdco, (x) following the expiration or termination of the Employment Agreement, all the shares of Common Stock held by Dundon Holdco and (y) prior to the expiration or termination of the Employment Agreement, a number of shares of Common Stock such that after giving effect to the Transfer by Dundon Holdco pursuant to the Deadlock Put Option Dundon Holdco’s Proportionate Percentage (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan) would be at least 5%, and (ii) with respect to the New Acquirer, all the shares of Common Stock held by the New Acquirer.

“Deadlock Substitution Effective Date” has the meaning assigned to such term in Section 4.3(b).

“Deadlock Valuation Firm” means (i) Houlihan Lokey, or (ii) to the extent that Houlihan Lokey is unable or unwilling to serve as the Deadlock Valuation Firm, Perella Weinberg Partners, or any other independent, third party, nationally recognized valuation firm as agreed to in writing by the Company, SHUSA, Dundon Holdco and the New Acquirer.

“Declining Offeree” has the meaning assigned to such term in Section 2.3(c).

“Demand Notice” has the meaning assigned to such term in Section 8.1(a).

“Demand Registration Right” has the meaning assigned to such term in Section 8.1(b).

“Demand Registration Statement” has the meaning assigned to such term in Section 8.1(a).

“Designated Amendment” has the meaning assigned to such term in Section 6.5(d).

“Designated Holders” has the meaning assigned to such term in Section 6.5(d).

“Designated Percentage” means, as of any date of determination, and expressed as a percent, (a) 1.00 minus (b) (i)(x) the total number of shares of Common Stock held by the New Acquirer as of the date of this Agreement minus (y) the total number of shares of Common Stock sold by the New Acquirer pursuant to Section 2.2 through the time of determination (in each case, as adjusted from time to time for any reorganization, reclassification, stock split, stock dividend, reverse stock split, or other like changes in the Company’s capitalization since the date of this Agreement), divided by (ii) the total number of shares of Common Stock outstanding at the time of determination, but excluding for all purposes of this clause (ii) any shares of Common Stock issued by the Company after the date of this Agreement.

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“Designated Sections” has the meaning assigned to such term in Section 6.5(d).

“Determination Date” has the meaning assigned to such term in the New Acquirer Investment Agreement.

“Determination Date Investment Securities” means investment securities that existed as of the Determination Date and were designated as available-for-sale in the Company’s consolidated financial statements at the Determination Date and for which the unrealized gains and losses of such investment securities were recorded in other comprehensive income as of the Determination Date.

“Determination Date Swap Agreements” means interest rate swap agreements that existed as of the Determination Date and were designated as hedges for accounting purposes under GAAP for purposes of the Company’s consolidated financial statements and for which changes in the fair value of the interest rate swap agreement were recorded in other comprehensive income as of the Determination Date and for which the recorded value was excluded from the definition of Tangible Common Equity.

“Disabling Conduct” has the meaning assigned to such term in the Limited Guaranty (as defined in the Dundon Loan Agreement).

“Dividend Policy” means the dividend policy of the Company approved by the Board of Directors.

“Dividend Threshold” means, with respect to any fiscal year, the amount of dividends and other distributions which the Company would pay to its shareholders pursuant to the then current Dividend Policy.

“Dundon Contingent Payment” has the meaning assigned to such term in Section 6.24(a).

“Dundon Contingent Payment Excess” has the meaning assigned to such term in the definition of “Applicable Dundon Contingent Payment”.

“Dundon Holdco” has the meaning assigned to such term in the Preamble.

“Dundon Holdco Adjustment” has the meaning assigned to such term in Section 6.24(a).

“Dundon Holdco Adjustment Fair Market Value” means the value of the outstanding shares of Common Stock based on the most recently available fair market value determination by the Board of Directors pursuant to any equity-based compensation plan of the Company.

“Dundon Holdco Objection” has the meaning assigned to such term in Section 5.2(c).

“Dundon Investment Agreement” has the meaning assigned to such term in the Preamble.

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“Dundon Loan Agreement” means the Amended and Restated Loan Agreement, dated as December 30, 2011, between Dundon Holdco and Banco Santander, acting through its New York Branch.

“Dundon Purchase Agreement” means the Stock Purchase Agreement, dated as of September 23, 2006, by and among The Governor & Company of the Bank of Scotland, a United Kingdom banking organization, Blake Bozman, Bozman DFS Partnership LP, a Delaware limited partnership, Executive, Dundon DFS Partnership LP, a Delaware limited partnership, Scot Foith, Foith DFS Partnership. LP, a Delaware limited partnership, Bradley Reeves, Reeves DFS Partnership LP, a Delaware limited partnership, and Banco Santander.

“Dundon Put/Call Adjustment Value” has the meaning assigned to such term in Section 5.2(a).

“Dundon Put/Call Fair Market Value” has the meaning assigned to such term in Section 5.2(a).

“Dundon Put/Call Option Price” has the meaning assigned to such term in Section 5.3(a).

“Dundon Valuation Firm” means (i) Houlihan Lokey, or (ii) to the extent that Houlihan Lokey is unable or unwilling to serve as the Dundon Valuation Firm, Perella Weinberg Partners, or any other independent, third party, nationally recognized valuation firm as agreed to in writing by each of the Company, SHUSA and Dundon Holdco.

“Employment Agreement” means the Amended and Restated Employment Agreement, effective as of the date hereof, among the Company, Banco Santander, Executive and Dundon Holdco.

“Employment Call Option” has the meaning assigned to such term in Section 5.1(a).

“Employment Call Option Closing Date” has the meaning assigned to such term in Section 5.3(c).

“Employment Call Option Notice” has the meaning assigned to such term in Section 5.3(c).

“Employment/Loan Substitution Effective Date” has the meaning assigned to such term in Section 5.1(d).

“Employment Put Option” has the meaning assigned to such term in Section 5.1(a).

“Employment Put Option Closing Date” has the meaning assigned to such term in Section 5.3(b).

“Employment Put Option Notice” has the meaning assigned to such term in Section 5.3(b).

“Event of Default” has the meaning assigned to such term in the Dundon Loan Agreement; provided, however, that the occurrence of any of the events described in Section 9.8 of the Dundon Loan Agreement shall not constitute an Event of Default for purposes of this Agreement.

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“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.

“Executive” has the meaning assigned to such term in the Preamble.

“Existing Stockholders Agreement” has the meaning assigned to such term in the Preamble.

“FINRA” means the United States Financial Industry Regulatory Authority.

“GAAP” means generally accepted accounting principles in the United States, as in effect from time to time, consistently applied.

“Good Reason” has the meaning assigned to such term in the Employment Agreement; provided that for purposes of Section 5.1, the definition of Good Reason shall (i) exclude from the meaning assigned to such term in the Employment Agreement clause (v), relating to increase in travel, and (ii) replace the text in clause (vi), relating to assignment of inconsistent duties, with the following phrase: “assignment by the Board of substantial and continuous duties that are inconsistent with and outside the scope of duties that (A) Executive currently performs for Employer (including those contemplated by the Shareholders Agreement or the articles of incorporation or by-laws of Employer) and/or (B) are regularly assigned to Presidents and Chief Executive Officers of businesses that are similar in nature and size to Employer.”

“Governance Committee” has the meaning assigned to such term in Section 6.9(a).

“Governmental Authority” means any domestic or foreign government or political subdivision thereof, whether on a federal, state or local level and whether executive, legislative or judicial in nature, including any agency, authority, board, bureau, commission, court, department or other instrumentality thereof.

“Group Tax Liabilities” means all liability for Taxes allocable to any Person (other than the Company and its Subsidiaries) imposed on the Company or its Subsidiaries under Treasury Regulation Section 1.1502-6 or any comparable provision of any Tax law as a result of joining in, or being included in, the filing of any consolidated, combined, affiliated, aggregate or unitary Tax Return with such Person (other than the Company and its Subsidiaries) for any taxable period (or portion thereof) ending on or prior to the Closing Date.

“Guaranteed Bring-Along Obligations” has the meaning assigned to such term in Section 2.4(g).

“Guaranteed Deadlock Put Option Obligations” has the meaning assigned to such term in Section 4.3(a).

“Guaranteed Obligations” has the meaning assigned to such term in Section 3.2.

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“Home Owners Loan Act” means the Home Owners Loan Act, as amended, or any successor federal statute, and the rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.

“Inability to Perform” has the meaning assigned to such term in the Employment Agreement.

“Incidental Registration Statement” has the meaning assigned to such term in Section 8.2(a).

“Indemnified Party” has the meaning assigned to such term in Section 8.11(c).

“Indemnifying Party” has the meaning assigned to such term in Section 8.11(c).

“Investment Agreement” has the meaning assigned to such term in the Preamble.

“Investors” means each of Warburg Pincus (Bermuda) Private Equity X Finance, L.P., Warburg Pincus X Partners, L.P., KKR SCUSA Holdings L.P., the Centerbridge Funds, DFS Sponsor Investments LLC and Jason Kulas.

“IPO” means (a) the initial firm commitment underwritten offering of shares of Common Stock of the Company (or any successor to the Company or any other Person substantially all of the assets of which directly or indirectly consist of equity Securities of the Company or any successor to the Company) in a public offering (whether primary or secondary) pursuant to an effective registration statement under the Securities Act that results in (i) aggregate proceeds (without deducting underwriting discounts, expenses and commissions) to the Company or any such successor to or holding company for the Company and the selling shareholders of at least $250,000,000.00 and (ii) the shares of Common Stock of the Company (or any successor to or holding company for the Company or any other Person substantially all of the assets of which directly or indirectly consist of equity Securities of the Company or any successor to the Company) being listed on a national securities exchange or (b) any offering of shares of Common Stock of the Company (or any successor to the Company or any other Person substantially all of the assets of which directly or indirectly consist of equity Securities of the Company or any successor to the Company) in connection with the exercise by the New Acquirer of its Demand Registration Rights.

“IPO Put Option” has the meaning assigned to such term in Section 3.1.

“IPO Put Option Closing Date” has the meaning assigned to such term in Section 3.4(c).

“IPO Put Option Contingent Adjustment Value” has the meaning assigned to such term in Section 3.3(a).

“IPO Put Option Date” has the meaning assigned to such term in Section 3.1.

“IPO Put Option Fair Market Value” has the meaning assigned to such term in Section 3.3(a).

“IPO Put Option Notice” has the meaning assigned to such term in Section 3.4(c).

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“IPO Put Option Price” has the meaning assigned to such term in Section 3.4(a).

“IPO Put Option Shares” means (i) with respect to Dundon Holdco, (x) following the expiration or termination of the Employment Agreement, all the shares of Common Stock held by Dundon Holdco as of the date of this Agreement and (y) prior to the expiration or termination of the Employment Agreement, a number of shares of Common Stock such that after giving effect to the Transfer by Dundon Holdco pursuant to the IPO Put Option Dundon Holdco’s Proportionate Percentage (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan) would be at least 5%, and (ii) with respect to the New Acquirer, its Acquired Shares. In respect of each Acquirer, its “IPO Put Option Shares” will include any shares of Common Stock received by such Acquirer as a result of a stock dividend on, or a stock split of, its shares of Common Stock described in the preceding clauses (i) and (ii).

“IPO Put Option Valuation Firm” means (i) Houlihan Lokey, or (ii) to the extent that Houlihan Lokey is unable or unwilling to serve as the IPO Put Option Valuation Firm, Perella Weinberg Partners, or any other independent, third party, nationally recognized valuation firm as agreed to in writing by the Company, SHUSA, Dundon Holdco and the New Acquirer.

“Joinder Agreement” has the meaning assigned to such term in Section 2.1(b).

“Judgment” means any judgment, order or decree of any Governmental Authority.

“Law” mean any Federal, national, state, provincial, local or foreign statute, law (including common law), ordinance, rule or regulation of any Governmental Authority.

“Lender” means CaixaBank, S.A., or any permitted holder of the Notes, the assignment to which was previously consented to in writing by Banco Santander and SHUSA pursuant to Section 6.25.

“Lien” means any charge, mortgage, pledge, hypothecation, security interest, restriction, claim, lien or encumbrance of any type whatsoever.

“Liquidity Policy” means the liquidity policy of the Company approved by the Board of Directors.

“Loan Call Option” has the meaning assigned to such term in Section 5.1(c).

“Loan Call Option Closing Date” has the meaning assigned to such term in Section 5.3(e).

“Loan Call Option Notice” has the meaning assigned to such term in Section 5.3(e).

“Lock-Up Securities” has the meaning assigned to such term in Section 8.7.

“Loss Coverage” means the number of months of estimated net charge-offs on Organic Loans that the Organic Pool Allowance will cover as calculated by the Company under the Stress Case scenario.

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“Losses” has the meaning assigned to such term in Section 8.11(a).

“Material Transaction” has the meaning assigned to such term in Section 8.1(c).

“New Acquirer Acquisition Price Adjustment” has the meaning assigned to such term in Section 6.12(b).

“New Acquirer Acquisition Price Adjustment Payment Date” has the meaning assigned to such term in Section 6.12(b).

“New Acquirer Investment Agreement” has the meaning assigned to such term in the Preamble.

“New Investor” has the meaning assigned to such term in Section 2.6.

“Newco” has the meaning assigned to such term in Section 6.11(a).

“Note Documents” has the meaning assigned to such term in the Note Purchase Agreement.

“Note Purchase Agreement” means the Note Purchase Agreement, dated as of October 20, 2011 between the New Acquirer and the Lender.

“Notes” mean the Senior Secured Notes due 2018 issued pursuant to the Note Purchase Agreement.

“Notice of Objection” has the meaning assigned to such term in Section 6.12(k).

“Notice of Swap Determination Objection” has the meaning assigned to such term in Section 6.20(b).

“Organic Loans” means retail installment contracts or securities representing interests in retail installment contracts originated by the Company or acquired by the Company from auto dealers or third party sellers in the ordinary course of business.

“Organic Pool Allowance” means the allowance recorded by the Company for future credit losses on Organic Loans. “Organic Pool Allowance” excludes any purchase discounts or capitalized costs or fees associated with the acquisition or origination of Organic Loans.

“Original Investors” means each of Warburg Pincus (Bermuda) Private Equity X Finance, L.P., Warburg Pincus X Partners, L.P., KKR SCUSA Holdings L.P. and the Centerbridge Funds.

“Outside Activities” has the meaning assigned to such term in Section 6.19.

“Permitted Liens” means (a) Liens created under the Note Documents, (b) Liens securing the obligations under the Dundon Loan Agreement and (c) Liens securing obligations of the New Acquirer under any agreements entered into by the New Acquirer in order to effectively cap, collar or exchange interest rates with respect to the Notes so long as Banco Santander and SHUSA previously consented in writing to the entry by the New Acquirer into such agreement.

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“Permitted Transfer” means any Transfer by any Shareholder or any Affiliate thereof (a) to any Affiliate thereof, (b) to any successor entity thereof, (c) to any Transferee approved in advance and in writing by SHUSA and the New Acquirer and (d) after the consummation of an IPO, to any indirect owner of the New Acquirer, including any limited or general partner of an investment fund.

“Permitted Transferee” means any Person to whom a Permitted Transfer is made.

“Person” means an individual or natural person, a partnership (including a limited liability partnership), a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a Governmental Authority.

“Post-Determination Date Tax Period” means any taxable period beginning after the Determination Date and the portion of any Straddle Period beginning after the Determination Date.

“Post-IPO Contingent Adjustments” has the meaning assigned to such term in Section 6.12(f).

“Post-IPO New Acquirer Contingent Adjustment” has the meaning assigned to such term in Section 6.12(f).

“Post-IPO New Acquirer Contingent Adjustment Payment Date” has the meaning assigned to such term in Section 6.12(f).

“Post-IPO SHUSA Contingent Adjustment” has the meaning assigned to such term in Section 6.12(e).

“Pre-Determination Date Tax Period” means any taxable period ending on or before the Determination Date and the portion of any Straddle Period ending on the Determination Date.

“Post-IPO SHUSA Contingent Adjustment Payment Date” has the meaning assigned to such term in Section 6.12(e).

“Preemptive Holders” has the meaning assigned to such term in Section 7.1.

“Preemptive Issue” has the meaning assigned to such term in Section 7.1.

“Preemptive Notice” has the meaning assigned to such term in Section 7.2(a).

“Preemptive Right” has the meaning assigned to such term in Section 7.1.

“Pre-IPO Equity Value” means, with respect to an IPO, the product of (a) the outstanding number of shares of Common Stock (on a fully diluted basis based on the treasury stock method and including only vested options) on the date on which the underwriting agreement, or other comparable agreement, with respect to such IPO is executed, giving effect to any stock split or combination to occur prior to the consummation of such IPO and (b) the price at which shares of Common Stock are sold to the public in such IPO.

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“Pro Forma Capitalization” has the meaning assigned to such term in the New Acquirer Investment Agreement.

“Projections” has the meaning assigned to such term in Section 6.12(c).

“Proportionate Percentage” means, with respect to any Person, the fraction, expressed as a percentage, the numerator of which is the total number of shares of Common Stock held by such Person and the denominator of which is the total number of shares of Common Stock outstanding at the time of determination.

“Pro Rata Shares” has the meaning assigned to such term in Section 2.3(a).

“Qualifying Payment” means any payment pursuant to Section 2.12 of the Santander Three Year Credit Agreement, Section 2.12 of the Santander Five Year Credit Agreement or Section 2.12 of the Santander ABS Credit Agreement.

“Recurring Net Income” means, with respect to the Company, for any period, the Company’s net income, determined on a consolidated basis in accordance with GAAP and consistent with the Company’s historical practices and procedures, including determination of the Company’s Credit Loss Allowance; provided, however, that, without duplication,

(a) any net after-tax effect of non-recurring gains or losses shall be excluded. For purposes of determining Recurring Net Income, non-recurring gains and losses shall include but not be limited to the following:

(i) Gains and losses from sale of retail installment contracts;

(ii) Income or loss resulting from a reduction or increase in Loss Coverage of the Organic Pool Allowance, expressed as a number of months, from the Loss Coverage as of December 31, 2013;

(iii) Income or loss resulting from changes in the methodology and estimates (including stress factors applied to the expected loss frequency and any adjusted expected auction recovery rate assumed on expected repossessed assets against the Base Case) used to determine the Company’s Credit Loss Allowance as recorded at December 31, 2014 and 2015 as compared to those used to determine the Credit Loss Allowance on December 31, 2013;

(iv) Income from any reduction in the Acquired Loan Impairment, interest income which results from the release of reserves or interest income which results from any reduction in the nonaccretable discount or increase in the effective yield, in each case in respect of Acquired Portfolios acquired prior to the date of this Agreement and accounted for under ASC 310-30; and

(v) Gains and losses on the sale of other assets except for repossessed vehicles.

(b) any net after-tax effect of income (loss) from disposed or discontinued operations (to the extent included in discontinued operations prior to consummation of the disposition

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thereof). Discontinued operations shall include any portion of the Company’s operations which generates revenue and have been disposed of or discontinued and which are included in discontinued operations, regardless of whether the portion qualified as discontinued operations under GAAP; and

(c) in the case of the Company, the net after-tax effect of income (loss) from Acquired Portfolios, acquired by the Company or its consolidated Subsidiaries after the date of this Agreement, shall be excluded. The net after-tax income (loss) from such Acquired Portfolios shall be net of (i) expected credit losses, servicing costs, and tax costs allocated by the Company to such portfolios and determined on a basis consistent with the basis used in calculating the “Run-Off Portfolio NPV” for such Acquired Portfolios pursuant to Section 6.12(c) and (ii) Allocated Interest Costs for such Acquired Portfolios.

“Registrable Securities” means (a) the Acquired Shares owned by the New Acquirer and any other Shares or other Securities that are directly or indirectly convertible into, or exercisable or exchangeable for, Shares hereinafter acquired by the New Acquirer, whether pursuant to Section 2.3, Article VII or by any other means, (b) other equity Securities of the Company beneficially owned by the New Acquirer into which the Acquired Shares shall be reclassified or changed, including by reason of a merger, consolidation, reorganization, recapitalization or statutory conversion and (c) any other Securities of the Company issued or issuable as a distribution with respect to or in exchange or replacement for or on exercise of any Shares or other Securities referred to in clause (a) or (b) of this definition. As to any particular Registrable Securities, once issued, such Securities shall cease to be Registrable Securities if (i) such Securities have been registered under the Securities Act, the Registration Statement with respect to the sale of such Securities has become effective under the Securities Act and such Securities have been disposed of pursuant to such effective Registration Statement, (ii) such Securities have been distributed pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, (iii) such Securities have been otherwise transferred, if new certificates or other evidences of ownership for them not bearing a legend restricting further transfer and not subject to any stop-transfer order or other restrictions on transfer have been delivered by the Company and subsequent disposition of such securities does not require registration or qualification of such securities under the Securities Act or any state securities laws then applicable, (iv) following an IPO, such securities may be sold without restriction under Rule 144(k) (or any similar provision then in force) under the Securities Act, or (v) such securities shall cease to be outstanding.

“Registration Expenses” shall mean all fees and expenses incident to the Company’s performance of or compliance with Article VIII, including all registration and filing fees and expenses (including Commission, stock exchange and FINRA fees), fees and expenses of compliance with state securities or “blue sky” laws (including reasonable fees and disbursements of counsel for the underwriters in connection with “blue sky” qualifications of the Registrable Securities), printing expenses, messenger and delivery expenses, the fees and expenses incurred in connection with the listing, if any, of the securities to be registered on each securities exchange or national market system on which the Shares are then listed, fees and disbursements of counsel for the Company and the New Acquirer and of the independent certified public accountants of the Company (including the expenses of any annual audit, special audit and “cold comfort” letters required by or incident to such performance and compliance), the fees and

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disbursements of underwriters customarily paid by issuers or sellers of securities (including, if applicable, the fees and expenses of any “qualified independent underwriter” (and its counsel) that is required to be retained in accordance with the rules and regulations of FINRA), the reasonable fees and expenses of any special experts retained by the Company in connection with such registration, and fees and expenses of other Persons retained by the Company (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Securities by holders of such Registrable Securities).

“Registration Statement” has the meaning assigned to such term in Section 8.8(a).

“Remaining SHUSA Offered Stock” has the meaning assigned to such term in Section 2.3(c).

“Replacement Facilities” has the meaning assigned to such term in Section 6.14(d).

“Requesting Demand Shareholder” shall have the meaning assigned to such term in Section 8.1(a).

“Required Financing” means Third Party Warehouse Agreements (taken together with any Additional Financing) (a) with aggregate commitments of at least $4.5 billion, without any breaches or defaults under such agreements and with conditions to funding that the Company reasonably expects that it will be able to satisfy, (b) with terms such that Third Party Warehouse Agreements (taken together with any Additional Financing) that have aggregate commitments of at least $2.0 billion shall have a maturity of no earlier than two years following the later of the respective dates of such Third Party Warehouse Agreements or Additional Financing and the latest renewal, extension or rollover of such Third Party Warehouse Agreements or Additional Financing and (c) (i) in the case of Third Party Warehouse Agreements entered into after the date of this Agreement, with terms that are not materially less favorable to the Company in the aggregate than the terms of the Comparable Facility and (ii) in the case of Third Party Warehouse Agreements in effect as of the date of this Agreement the maturities of which are extended after the date of this Agreement, with margins and advance rates that are not materially less favorable to the Company in the aggregate than the comparable terms of the Comparable Facility and the other terms of such extended Third Party Warehouse Agreements are not materially less favorable in the aggregate than the terms of such Third Party Warehouse Agreements prior to such extension; provided that clauses (i) and (ii) shall be satisfied with respect to the margins of such Third Party Warehouse Agreements if such margins do not exceed the margins of the Comparable Facility by more than 40 basis points.

“Required Financing Guaranteed Obligations” has the meaning assigned to such term in Section 6.14(e).

“Rule 144” means Rule 144 (including Rule 144(k) and all other subdivisions thereof) promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar or successor rule then in force.

“Run-Off Portfolio NPV” has the meaning assigned to such term in Section 6.12(c).

“Sale Notice” has the meaning assigned to such term in Section 2.2(a).

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“Santander ABS Credit Agreement” means the Credit Agreement, dated as of December 30, 2011, among Santander Consumer ABS Funding LLC, as the borrower, the Company, as the servicer, the lenders party thereto, the agents party thereto, and Banco Santander, acting through its New York branch, as the deal agent, providing for a three year ABS facility.

“Santander Three Year Credit Agreement” means the Amended and Restated Credit Agreement, dated as of December 30, 2011, among Santander Consumer Funding 3 LLC, as the borrower, the Company, as the servicer, the lenders party thereto, the agents party thereto, and Banco Santander, acting through its New York branch, as the deal agent, providing for a three year warehouse facility.

“Santander Five Year Credit Agreement” means the Credit Agreement, dated as of December 30, 2011, among Santander Consumer Funding 5 LLC, as the borrower, the Company, as the servicer, the lenders party thereto, the agents party thereto, and Banco Santander, acting through its New York branch, as the deal agent, providing for a five year warehouse facility.

“Santander Financing” means the Santander ABS Credit Agreement, the Santander Three Year Credit Agreement and the Santander Five Year Credit Agreement.

“Securities” means, with respect to any Person, such Person’s “securities” as defined in Section 2(a)(1) of the Securities Act and includes such Person’s capital stock or other equity interests or any options, warrants or other securities that are directly or indirectly convertible into, or exercisable or exchangeable for, such Person’s capital stock or other equity or equity-linked interests, including phantom stock and stock appreciation rights.

“Securities Act” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.

“Sell Down Percentage” means, with respect to any Person, the fraction, expressed as a percentage, the numerator of which is the total number of shares of Common Stock Transferred by such Person from and after the date of this Agreement through the date of determination and the denominator of which is the total number of shares of Common Stock held by such Person as of the date of this Agreement (in each case as adjusted from time to time for any reorganization, reclassification, stock split, stock dividend, reverse stock split, or other like changes in the Company’s capitalization since the date hereof).

“Seller” shall mean the Requesting Demand Shareholder and any Selling Incidental Shareholder.

“Selling Incidental Shareholder” has the meaning assigned to such term in Section 8.2(a).

“Selling Shareholders” has the meaning assigned to such term in Section 2.4(a).

“Servicing Arrangement” has the meaning assigned to such term in Section 6.11(c).

“Shareholder Applicable Period” has the meaning assigned to such term in Section 6.3(a).

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“Shareholder Reserved Matters” has the meaning assigned to such term in Section 6.2(a).

“Shareholders” means SHUSA, Dundon Holdco, the New Acquirer and any other Person who hereafter becomes a party to this Agreement as a Shareholder pursuant to a Joinder Agreement executed and delivered pursuant to Section 2.1.

“Shares” means the shares of Common Stock and any and all other capital stock or other equity Securities issued by the Company.

“Shelf Registration Statement” shall mean a “shelf” registration statement filed by the Company with the Commission covering offers and sales in accordance with Rule 415 under the Securities Act, or any similar rule that may be adopted by the Commission (whether or not the Company is then eligible to use Form S-3), and any amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.

“SHUSA” has the meaning assigned to such term in the Preamble.

“SHUSA Contingent Payment” has the meaning assigned to such term in Section 6.12(a).

“SHUSA Contingent Payment Date” has the meaning assigned to such term in Section 6.12(a).

“SHUSA Deadlock Call Objection” has the meaning assigned to such term in Section 4.3(c).

“SHUSA Directors” has the meaning assigned to such term in Section 6.1(a).

“SHUSA First Offer” has the meaning assigned to such term in Section 2.3(a).

“SHUSA Notice of ROFO Offer” has the meaning assigned to such term in Section 2.3(a).

“SHUSA Offered Share Price” has the meaning assigned to such term in Section 2.3(a).

“SHUSA Offered Stock” has the meaning assigned to such term in Section 2.3(a).

“SHUSA’s Proposed Deadlock Fair Market Value” has the meaning assigned to such term in Section 4.3(a).

“SHUSA’s Proposed Deadlock Put Option Contingent Adjustment Value” has the meaning assigned to such term sin Section 4.3(b).

“SHUSA’s Proposed Employment Put/Call Adjustment Value” has the meaning assigned to such term in Section 5.2(b).

“SHUSA’s Proposed IPO Put Option Contingent Adjustment Value” has the meaning assigned to such term in Section 3.3(b).

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“SHUSA’s Proposed IPO Put Option Fair Market Value” has the meaning assigned to such term in Section 3.3(b).

“SHUSA’s Proposed Put/Call Fair Market Value” has the meaning assigned to such term in Section 5.2(b).

“SHUSA Second Notice of ROFO Offer” has the meaning assigned to such term in Section 2.3(c).

“SHUSA Second Offer” has the meaning assigned to such term in Section 2.3(c).

“Significant Subsidiary” means any Subsidiary of the Company which had: (a) consolidated after-tax profit equal to or greater than 20% of the Company’s consolidated after-tax profit for the most recently completed fiscal year, (b) consolidated total revenue equal to or greater than 20% of the Company’s consolidated total revenue for the most recently completed fiscal year, or (c) consolidated total assets equal to or greater than 20% of the Company’s consolidated total assets as of the end of the most recently completed fiscal year.

“Straddle Period” means any taxable period that begins on or before and ends after the Determination Date.

“Stress Case” means the estimated credit losses for all Organic Loans held by the Company as determined by the application of a stress factor to the expected loss frequency and an adjusted expected auction recovery rate on expected repossessed assets against the Base Case.

“Subprime Business” has the meaning assigned to such term in Section 6.10(a).

“Subprime Loan” means any loan made to an individual in the United States of America who had, at origination, a FICO score of less than 660.

“Subprime Loan Portfolio” means any loan portfolio consisting of loans made to individuals in the United States of America who had on average, at origination, FICO scores of less than 660.

“Subsidiary” means, at any time, with respect to any Person (the “Subject Person”), any Person of which either (a) more than 50% of the shares of stock or other interests entitled to vote generally in the election of directors or comparable Persons performing similar functions or (b) more than a 50% interest in the profits or capital of such Person, are at the time owned or controlled directly or indirectly by the Subject Person or through one or more Subsidiaries of the Subject Person or by such Person and one or more Subsidiaries of such Person.

“Substitution Effective Date” has the meaning assigned to such term in Section 3.2(b).

“Suspension Period” has the meaning assigned to such term in Section 8.5.

“Swap Determination Date” has the meaning assigned to such term in Section 6.20(a).

“Swap Determination Notice” has the meaning assigned to such term in Section 6.20(b).

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“Swap Payments” means payments made by the Company to counterparties on Determination Date Swap Agreements between the Determination Date and the Swap Determination Date.

“Swap Receipts” means payments received by the Company from counterparties on Determination Date Swap Agreements between the Determination Date and the Swap Determination Date.

“Swap Recorded Value” means the cumulative recorded value of the Determination Date Swap Agreements.

“Swap Valuation Firm” means (i) Ernst & Young, or (ii) to the extent that Ernst & Young is unable or unwilling to serve as the Swap Valuation Firm, PricewaterhouseCoopers, or any other independent, third party, nationally recognized valuation firm as agreed to in writing by each of the Company, SHUSA and the New Acquirer.

“Tag-Along Notice” has the meaning assigned to such term in Section 2.2(b).

“Tag-Along Shareholder” has the meaning assigned to such term in Section 2.2(d).

“Tangible Common Equity” means the total common stockholders’ equity of the Company on a consolidated basis, less goodwill, less intangible assets and omitting other comprehensive income.

“Target” means the Person previously identified by the Company to the Acquirers.

“Tax” or “Taxes” includes all taxes, charges, fees, levies, or other assessments, including, without limitation, income, gross receipts, excise, real and personal property, profits, estimated, severance, occupation, production, capital gains, capital stock, goods and services, environmental, employment, withholding, stamp, value added, alternative or add-on minimum, sales, transfer, use, license, payroll and franchise taxes or any other tax, custom, duty or governmental fee, or other like assessment or charge of any kind whatsoever, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, county, state, foreign, Federal or other government or subdivision or agency thereof, or in connection with any agreement with respect to Taxes, including all interest, penalties, fines, related liabilities, and additions imposed with respect to such amounts.

“Tax Return” means all Federal, state, local, provincial and foreign Tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax return relating to Taxes, including claims for refund and declarations of estimated Tax.

“Third-Party Financing Source” has the meaning assigned to such term in Section 6.14(c).

“Third Party Warehouse Agreement” means a warehouse agreement with one or more Third Party Financing Sources (other than the Repurchase Facility, dated September 9, 2011, between UBS and the Company).

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“Trading Day” means a day on which the Common Stock (a) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the Close of Business, and (b) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

“Transfer” of Securities means any issuance, sale, assignment, transfer, participation, gift, bequest, distribution, or other disposition thereof, in each case whether voluntary or involuntary or by operation of law or otherwise, other than an original issuance of Securities by the Company.

“Transferee” means a Person acquiring Securities through a Transfer.

“Transferor” means a Person Transferring Securities.

“Two Year Net Income” means the sum of (a) the Company’s Recurring Net Income for fiscal year 2014 and (b) the Company’s Recurring Net Income for fiscal year 2015.

“Underwritten Offering” has the meaning assigned to such term in Section 8.3.

“Vice Chairman” means the Vice Chairman of the Board of Directors.

“VWAP” means, for any Trading Day, a price per share of the Common Stock equal to the volume-weighted average price of trades in such shares on the primary trading market for such shares for the entirety of such Trading Day as reported by Bloomberg L.P. (“Bloomberg”) (or, if Bloomberg is not available for any reason, any successor to, or substitute for, Bloomberg providing trading reports for such shares), without regard to pre-open or after hours trading outside of any regular trading session for such Trading Day.

1.2. Rules of Construction.

The use in this Agreement of the term “including” means “including, without limitation.” The words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time amended, modified, supplemented or restated, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. Any accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP. Any reference to “$” or “dollars” or “United States dollars” or “U.S. dollars” or “U.S.$” refers to the lawful currency of the United States of America. All references to articles, sections, schedules and exhibits mean the sections of this Agreement and the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the section and paragraph headings in this Agreement are for convenience of reference only and shall not govern . or affect the interpretation of any of the terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case as the context may require. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. Each of the parties hereto participated in the preparation of this Agreement and consequently any rule of construction construing any provision against the drafter will not be applicable.

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ARTICLE II

TRANSFERS OF SECURITIES

2.1. General; Joinder Agreement; Certain Transfers.

(a) The provisions regarding Transfers of Shares contained in this Article II shall apply to all Shares now owned or hereafter acquired by the Shareholders, including Shares acquired by reason of original issuance, dividend, distribution, exchange, conversion and acquisition of outstanding Shares from another Person, and such provisions shall apply to any Shares obtained upon the exercise, exchange or conversion of any option, warrant or other derivative Security.

(b) Prior to the consummation of an IPO, no Shareholder shall Transfer any Shares to any other Person unless (i) if such Person is not already a party to this Agreement, such Person executes and delivers to the Company a joinder agreement in substantially the form attached hereto as Exhibit A (a “Joinder Agreement”), pursuant to which such Person will thereupon become a party to, and be bound by and obligated to comply with the terms and provisions of, this Agreement, as a Shareholder hereunder and (ii) such Transfer is to a Permitted Transferee or is made in compliance with this Article II or pursuant to Article III, IV or V. Any Transferee who becomes a party to this Agreement pursuant to the foregoing shall be deemed, solely for purposes of this Agreement, to be (x) Dundon Holdco, if the Person from whom the Transferee obtained its Shares was Dundon Holdco, (y) the New Acquirer, if the Person from whom the Transferee obtained its Shares was the New Acquirer, or (z) SHUSA, if the Person from whom the Transferee obtained its Shares was SHUSA. Any Transferee that is not a Permitted Transferee will not assume any of the rights or privileges of the Transferor under this Agreement but will be bound by and obligated to comply with the terms and provisions of this Agreement as if it were the Transferor.

(c) Notwithstanding anything to the contrary in this Agreement, prior to the expiration or termination of the Employment Agreement, Dundon Holdco shall not Transfer (or agree or contract to Transfer) all or any portion of the Shares held by Dundon Holdco to any Person if, after giving effect to such Transfer, (i) Dundon Holdco’s Proportionate Percentage (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan) would be less than 5% or (ii) Dundon Holdco’s Sell Down Percentage (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan) would be greater than the New Acquirer’s Sell Down Percentage. This Section 2.1(c) shall not apply to any Transfer in accordance with Section 2.2 or 2.4 or Article V.

(d) Notwithstanding anything to the contrary in this Agreement, SHUSA shall not Transfer (or agree or contract to Transfer) all or any portion of the Shares held by SHUSA to any Person, other than a Transfer made in accordance with Section 2.4, (i) prior to the earlier of the consummation of an IPO and December 31, 2016, if, after giving effect to such Transfer, the

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sum of SHUSA’ and its Affiliates’ Proportionate Percentages would be less than 50%, and (ii) from and after the consummation of an IPO and prior to the earlier of (x) December 31, 2018 and (y) the repayment in full of all amounts due under the Note Purchase Agreement and the Notes, if, after giving effect to such Transfer, the sum of SHUSA’ and its Affiliates’ Proportionate Percentages would be less than 40%.

(e) Notwithstanding anything to the contrary in this Agreement, the New Acquirer shall not Transfer (or agree or contract to Transfer) all or any portion of the Shares held by the New Acquirer to any Person, other than a Transfer made in accordance with Section 2.2 or 2.4 or Article III or IV, prior to the consummation of an IPO.

(f) Prior to the consummation of an IPO, no Shareholder shall, directly or indirectly, create, incur, issue, assume, suffer to exist or permit to become effective any Lien upon any of their Shares, now owned or hereafter acquired, other than Permitted Liens.

(g) Nothing in this Agreement shall prevent the Lender from enforcing its rights under the Note Purchase Agreement, the Notes and the Note Documents, including foreclosing on any Shares of the New Acquirer subject to Liens under the Note Documents. Subject to the Lender’s execution and delivery to the Company of a Joinder Agreement, if the Lender acquires the Shares of the New Acquirer pursuant to any foreclosure proceedings or pursuant to any insolvency proceeding with respect to the New Acquirer, (i) the Lender shall acquire the rights and privileges, and assume the obligations, of the New Acquirer under this Agreement and shall be deemed, solely for purposes of this Agreement, to be the New Acquirer and (ii) the New Acquirer shall cease to have any rights, privileges or obligations under this Agreement.

(h) Prior to December 31, 2015 neither SHUSA nor the New Acquirer shall sell any Shares in the IPO unless the Pre-IPO Equity Value is at least equal to $4,000,000,000.00.

(i) This Article II shall not apply to any Transfer of Securities issued by the New Acquirer, which Transfers are the subject of Section 6.8(b).

2.2. Co-Sale Rights.

(a) Except pursuant to, or following the consummation of, an IPO, if at any time SHUSA proposes to sell Shares constituting more than 2.5% of the total number of outstanding Shares (on a fully diluted basis based on the treasury stock method) to any Person other than a Permitted Transferee, at least 15 days prior to the proposed closing of such sale, SHUSA shall deliver a written notice (the “Sale Notice”) to each Acquirer offering each Acquirer the option to participate in such proposed sale on the same terms as SHUSA; provided, however, that if SHUSA delivers a Bring-Along Notice to the other Shareholders with respect to such sale, then the provisions of Section 2.4 shall be applicable and such Shareholders shall not be entitled to exercise any rights under this Section 2.2 with respect to such sale and SHUSA shall not be required to deliver a Sale Notice. Such Sale Notice shall specify in reasonable detail: (i) the name and address of the prospective Transferee (a “Buyer”), (ii) the proposed amount and form of consideration SHUSA will receive for its Shares (and if such consideration consists in

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part or in whole of property other than cash, SHUSA will provide such information, to the extent reasonably available to SHUSA, relating to such non-cash consideration as each Acquirer may reasonably request in order to evaluate such non-cash consideration), (iii) the terms and conditions of payment of such consideration and all other material terms and conditions of such sale, (iv) the number of Shares proposed to be sold by SHUSA and (v) the anticipated time and place of the closing of such sale.

(b) Each Acquirer may, at any time prior to the 10th day after the Sale Notice was given, give written notice (each, a “Tag-Along Notice”) to SHUSA stating that it wishes to participate in such proposed sale and specifying the number of Shares it desires to include in such proposed sale; provided that Dundon Holdco may only deliver a Tag-Along Notice if the New Acquirer also delivers a Tag-Along Notice.

(c) If none of the Acquirers gives SHUSA a timely Tag-Along Notice with respect to the sale proposed in the Sale Notice, SHUSA may thereafter complete the sale of the Shares specified in the Sale Notice on substantially the same terms and conditions to the Buyer at any time within 75 days after the date of the Sale Notice; provided, however, that such 75 day period shall be extended until all necessary consents from applicable Governmental Authorities to the proposed sale have been received (but in no event more than 90 days after the expiration of such 75 day period). If, prior to consummation of the sale of such Shares to the Buyer set forth in the Sale Notice, the terms of the proposed sale shall change with the result that the purchase price to be paid in such proposed sale shall be more than the purchase price set forth in the Sale Notice or the other terms of such proposed sale shall, taken as a whole, be materially more favorable to SHUSA than those set forth in the Sale Notice, the Sale Notice shall be null and void, and it shall be necessary for a separate Sale Notice to be delivered, and the terms and provisions of this Section 2.2 separately complied with, in order to consummate such proposed Sale pursuant to this Section 2.2. Any Shares not so sold within such 75 day period (as extended) shall continue to be subject to this Section 2.2.

(d) If any Acquirer gives SHUSA a timely Tag-Along Notice (such person, a “Tag-Along Shareholder”), then SHUSA shall notify the Buyer of the Shares offered by the Tag-Along Shareholders identified in their Tag-Along Notices. If such Buyer is unwilling or unable to acquire all Shares proposed to be included in such sale upon such terms, then SHUSA may elect either to (i) cancel such proposed Transfer or (ii) proceed with such proposed Transfer but SHUSA and each Tag-Along Shareholder shall only be entitled to sell an amount of Shares equal to (A) the amount of Shares the Buyer is willing to purchase, multiplied by (B) a fraction, the numerator of which is the number of Shares held by SHUSA or such Tag-Along Shareholder, as the case may be, and the denominator of which is the sum of all Shares owned by SHUSA and the Tag-Along Shareholders. If any Tag-Along Shareholder wishes to sell less than all of the Shares it is entitled to sell pursuant to the previous sentence, the Shares it declines to sell shall be allocated among SHUSA and the other Tag-Along Shareholders participating in such sale who wish to sell additional Shares according to the formula in the previous sentence. SHUSA shall not consummate the proposed sale unless all of the Shares entitled to be sold pursuant to this Section 2.2(d) are simultaneously sold.

(e) Each of SHUSA and the Buyer shall have the right, in their sole discretion, at all times prior to consummation of the proposed Transfer subject to this Section 2.2, to abandon or otherwise terminate such Transfer, and neither SHUSA nor the Buyer shall have any liability or obligation to any Tag-Along Shareholder with respect thereto by virtue of any such abandonment or termination.

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2.3. Right of First Offer on Transfers by SHUSA.

Except pursuant to, or following the consummation of, an IPO, or in the case of Transfers pursuant to which the rights set forth under Section 2.2 or 2.4 are applicable, SHUSA shall not Transfer any Shares to any Person other than a Permitted Transferee except in compliance with the following procedures set forth in this Section 2.3 (as well as other applicable provisions of this Agreement):

(a) If SHUSA desires to Transfer any or all of its Shares to any Person other than a Permitted Transferee, SHUSA shall, before Transferring its Shares to any such Person, first deliver to each Acquirer a written notice (the “SHUSA Notice of ROFO Offer”), which shall be irrevocable for a period of 30 days after delivery thereof, offering (the “SHUSA First Offer”) to each Acquirer its pro rata share (based on the relative Proportionate Percentages of each Acquirer) of the Shares (with respect to each Acquirer, its “Pro Rata Shares”) proposed to be Transferred by SHUSA (the “SHUSA Offered Stock”) at the cash price (the “SHUSA Offered Share Price”) and on the terms and conditions specified in such notice.

(b) If each Acquirer accepts, by notice in writing to SHUSA during the 30 days following delivery of the SHUSA Notice of ROFO Offer, the SHUSA First Offer with respect to all of its Pro Rata Shares, then (i) each Acquirer shall be legally bound to purchase its Pro Rata Shares and SHUSA shall be legally bound to sell such Shares to each Acquirer and (ii) SHUSA and each Acquirer shall enter into agreement(s) reflecting the terms set forth in the SHUSA Notice of ROFO Offer as soon as practicable thereafter. During the 30 days following delivery of the SHUSA Notice of ROFO Offer, if each Acquirer refuses or does not elect to purchase its all of its Pro Rata Shares at the SHUSA Offered Share Price and on the terms and conditions specified in the SHUSA Notice of ROFO Offer, SHUSA shall have the right, for a period of 75 days thereafter, to Transfer all (but not less than all) the SHUSA Offered Stock at a price per share not less than the SHUSA Offered Share Price and on other terms no less favorable in the aggregate to SHUSA than those specified in the SHUSA Notice of ROFO Offer; provided, however, that such 75 day period shall be extended until all necessary consents from applicable Governmental Authorities to the proposed sale have been received (but in no event more than 90 days after the expiration of such 75 day period). In the event the SHUSA Offered Stock is not so Transferred by SHUSA on such terms during such 75 day period (as extended), the restrictions of this Section 2.3 shall again become applicable to any Transfer of Shares by SHUSA.

(c) If an Acquirer (the “Declining Offeree”) does not accept, by notice in writing to SHUSA during the 30 days following delivery of the SHUSA Notice of ROFO Offer, the SHUSA First Offer with respect to all of its Pro Rata Shares, then SHUSA shall promptly deliver to the other Acquirer (the “Accepting Offeree”), if such Acquirer accepted, by notice in writing to SHUSA, the SHUSA First Offer with respect to all of its Pro Rata Shares, a written notice (the “SHUSA Second Notice of ROFO Offer”), which shall be irrevocable for a period of five days after delivery thereof, offering (the “SHUSA Second Offer”) to the Accepting Offeree

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the number of shares of SHUSA Offered Stock which the Declining Offeree has not elected to purchase (such shares, the “Remaining SHUSA Offered Stock”). If the Accepting Offeree accepts, by notice in writing to SHUSA during the five days following delivery of the SHUSA Second Notice of ROFO Offer, the SHUSA Second Offer, then (i) each Acquirer shall be legally bound to purchase the number of Shares it has agreed to purchase in the written acceptances it has delivered to SHUSA and SHUSA shall be legally bound to sell such Shares to each Acquirer and (ii) SHUSA and each Acquirer shall enter into agreement(s) reflecting the terms set forth in the SHUSA Notice of ROFO Offer and SHUSA Second Notice of ROFO Offer as soon as practicable thereafter. During the five days following delivery of the SHUSA Second Notice of ROFO Offer, if the Accepting Offeree refuses or does not elect to purchase all of the Remaining SHUSA Offered Stock at the SHUSA Offered Share Price and on the terms and conditions specified in the SHUSA Notice of ROFO Offer, SHUSA shall have the right, for a period of 75 days thereafter, to Transfer all (but not less than all) the SHUSA Offered Stock at a price per share not less than the SHUSA Offered Share Price and on other terms no less favorable in the aggregate to SHUSA than those specified in the SHUSA Notice of ROFO Offer; provided, however, that such 75 day period shall be extended until all necessary consents from applicable Governmental Authorities to the proposed sale have been received (but in no event more than 90 days after the expiration of such 75 day period). In the event the SHUSA Offered Stock is not so Transferred by SHUSA on such terms during such 75 day period (as extended), the restrictions of this Section 2.3 shall again become applicable to any Transfer of Shares by SHUSA.

(d) Transfers of Shares under the terms of this Section 2.3 shall be made at the offices of the Company on a mutually satisfactory Business Day within 15 days after the expiration of the time periods provided for in Sections 2.3(b) and 2.3(c), as applicable; provided, however, if SHUSA and each Acquirer purchasing SHUSA Offered Stock cannot agree on a mutually acceptable date, the closing of such Transfer shall occur on said 15th day; provided further, that the foregoing references to “15th day” shall mean such later day on which all necessary consents from applicable Governmental Authorities to such sale have been received if any such required consents were not received prior to such 15th day (but in no event more than 90 days after the expiration of the time period provided for in Section 2.3(b), and if such consents from Governmental Authorities have not been received by such 90th day then the Acquirers’ rights under Sections 2.3(a) or 2.3(c) shall terminate with respect to the Shares covered by such SHUSA Notice of ROFO Offer and SHUSA Second Notice of ROFO Offer, if any). Delivery of certificates or other instruments evidencing such Shares (if any), duly endorsed for Transfer and free and clear of all Liens (other than those imposed by this Agreement), shall be made on such date against payment of the price therefor in accordance with Section 2.8(a).

2.4. Bring-Along Rights.

(a) Except pursuant to, or following the consummation of, an IPO, if any Shareholder or group of Shareholders holding more than the Designated Percentage of the issued and outstanding Shares of the Company (the “Selling Shareholders”) intend to effect a Transfer of all of such Selling Shareholders’ Shares to a Person that is not a Permitted Transferee (a “Bring-Along Buyer”), the Selling Shareholders shall have the right (the “Bring-Along Right”) to require each other Shareholder (collectively, the “Bring-Along Shareholders”) to Transfer all of the Shares owned by each such Bring-Along Shareholder to the Bring-Along Buyer (a “Bring-Along Disposition Transaction”). If the Selling Shareholders elect to exercise their Bring-Along

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Right, the Selling Shareholders shall deliver written notice (a “Bring-Along Notice”) to the Company and the Bring-Along Shareholders, which notice shall state (i) that the Selling Shareholders wish to exercise their Bring-Along Right with respect to such Transfer, (ii) the name and address of the Bring-Along Buyer, (iii) the amount and form of consideration the Selling Shareholders propose to receive for their Shares (and if such consideration consists in part or in whole of property other than cash, the Selling Shareholders will provide such information, to the extent reasonably available to such Selling Shareholders, relating to such non-cash consideration as each Bring-Along Shareholder may reasonably request in order to evaluate such non-cash consideration), (iv) the terms and conditions of payment of such consideration and all other material terms and conditions of such Transfer and (v) the anticipated time and place of the closing of such Transfer (a “Bring-Along Transaction Closing”). If such Bring-Along Transaction Closing does not occur prior to the expiration of the later of (x) 75 days following the delivery of such Bring-Along Notice, which 75 day period shall be extended until all necessary consents from applicable Governmental Authorities to the proposed sale have been received (but in no event more than 90 days after the expiration of such 75 day period) and (y) the date which is 15 days following the final determination of the Bring-Along Contingent Acquisition Price Adjustment pursuant to Section 2.4(f), the Bring-Along Shareholders shall be released from their obligations under this Section 2.4 with respect to such Bring-Along Notice. The Selling Shareholders shall also furnish to the Bring-Along Shareholders copies of all transaction documents relating to the Bring-Along Disposition promptly as the same become available and such additional information in the Selling Shareholders’ possession relating to the Bring-Along Disposition Transaction as such Bring-Along Shareholders may reasonably request.

(b) In connection with any Bring-Along Disposition Transaction, each Bring-Along Shareholder shall be required to Transfer all of the Shares owned by each such Bring-Along Shareholder to the Bring-Along Buyer. Each Bring-Along Shareholder, unless such Bring-Along Shareholder agrees otherwise, shall receive as consideration upon such sale or disposition for its Shares the same type of consideration and the same amount of consideration per share and on the same terms and conditions as are applicable to the Shares to be sold by the Selling Shareholders. Each Bring-Along Shareholder shall agree to the same covenants, representations and warranties as the Selling Shareholders agree to in connection with the proposed sale; provided, however, that the Bring-Along Shareholders shall not be required to (i) agree to non-compete and non-solicitation provisions or (ii) make representations and warranties as to any other Shareholder. Each Bring-Along Shareholder shall bear its pro rata share of the fees and expenses incurred by the Selling Shareholders in the Bring-Along Disposition Transaction based on the total number of Shares to be sold in the Bring-Along Disposition Transaction. To the extent any Bring-Along Shareholder is required to provide indemnification in connection with the Bring-Along Disposition Transaction, the monetary indemnification obligations of such Bring-Along Shareholder shall be several and not joint and no less favorable to such Bring-Along Shareholder than that resulting from pro rata indemnification among all the Bring-Along Shareholders and the Selling Shareholders based on the total number of Shares to be sold in the Bring-Along Disposition Transaction and in any event shall not exceed the proceeds received by such Bring-Along Shareholder in such Bring-Along Disposition Transaction; provided, however, that the foregoing limitation shall not apply in respect of any representations, warranties or covenants that are personal in nature to such Bring-Along Shareholder (e.g., title to shares being transferred).

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(c) If any Bring-Along Disposition Transaction is structured as a merger, share exchange, consolidation or other sale of the Company, then each Bring-Along Shareholder shall consent to, vote in favor of or consent to and waive any dissenter rights, appraisal rights or other similar rights in connection with such Bring-Along Disposition Transaction.

(d) Each of the Selling Shareholders and the Bring-Along Buyer shall have the right, in their sole discretion, at all times prior to consummation of the proposed Transfer giving rise to the Bring-Along Right, to abandon or otherwise terminate such Transfer, and neither the Selling Shareholders nor the Bring-Along Buyer shall have any liability or obligation to any Bring-Along Shareholder with respect thereto by virtue of any such abandonment or termination.

(e) “Bring-Along Contingent Acquisition Price Adjustment” means an estimate, as of the date of the Bring-Along Notice, of the amount of both the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment, in each case without applying any discount for the time value of money. This estimate (i) may be zero for either or both the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment, (ii) may not be a positive number for both and (iii) may not be a negative number for either. Concurrently with or immediately prior to the consummation of any Bring-Along Disposition Transaction, the Company shall (X) pay to the New Acquirer an amount in cash equal to the Bring-Along Contingent Acquisition Price Adjustment as it relates to the New Acquirer Acquisition Price Adjustment and (Y) pay to SHUSA an amount in cash equal to the Bring-Along Contingent Acquisition Price Adjustment as it relates to the SHUSA Contingent Payment. A Bring-Along Disposition Transaction shall not be consummated until the Bring-Along Contingent Acquisition Price Adjustment has been determined and paid. The parties shall treat the Bring-Along Contingent Acquisition Price Adjustment for Tax purposes in the same manner as the SHUSA Contingent Payment or the New Acquirer Acquisition Price Adjustment, as applicable, is treated pursuant to the second sentence of Sections 6.12(a) and 6.12(b).

(f) Within 20 days after the Company receives a Bring-Along Notice, the Company shall deliver notice to the New Acquirer and SHUSA stating the Company’s initial determination of the Bring-Along Contingent Acquisition Price Adjustment, including the Company’s initial determination of the amount, as of the date of the Bring-Along Notice, of each of the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment, in each case without applying any discount for the time value of money. In connection with such determination and notice, the Company shall, upon request by the New Acquirer or SHUSA, make available to the New Acquirer or SHUSA, as applicable, all of the Company’s relevant books and records and supporting documentation relating to the Bring-Along Contingent Acquisition Price Adjustment and provide access to the Company personnel who prepared such estimate. If the New Acquirer or SHUSA disagrees with the Company’s initial determination of the Bring-Along Contingent Acquisition Price Adjustment, the New Acquirer or SHUSA, as applicable, shall be entitled, within ten days of receipt of the Company’s notice described above, to give notice to the Company and SHUSA or the New Acquirer, as applicable, of such disagreement which shall set forth the New Acquirer’s or SHUSA’s, as applicable, calculation of the Bring-Along Contingent Acquisition Price Adjustment, including the basis for the New Acquirer’s or SHUSA’s dispute or objections and the specific adjustments (including dollar amounts) that the New Acquirer or SHUSA, as applicable, believes in good faith should be made

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(any such written notice, a “Bring-Along Objection”) and, upon receipt thereof, the Company, the New Acquirer and SHUSA will negotiate reasonably and in good faith in an effort to agree upon the Bring-Along Contingent Acquisition Price Adjustment. If neither the New Acquirer nor SHUSA provides such notice to the Company and SHUSA or the New Acquirer, as applicable, within such ten day period, then the Company’s determination of the Bring-Along Contingent Acquisition Price Adjustment shall be final and binding on the Company, SHUSA and the New Acquirer for purposes of Section 2.4(e). If the New Acquirer or SHUSA provides such notice and the New Acquirer, SHUSA and the Company fail to agree in writing upon the Bring-Along Contingent Acquisition Price Adjustment within 10 days from the date of the notice described in the first sentence of this Section 2.4(f), then the Bring-Along Valuation Firm shall make a determination of the Bring-Along Contingent Acquisition Price Adjustment and, in accordance with such determination, shall select either (i) the Company’s proposed Bring-Along Contingent Acquisition Price Adjustment, (ii) the New Acquirer’s Bring-Along Contingent Acquisition Price Adjustment (if the New Acquirer delivered a Bring-Along Objection) or (iii) SHUSA’s Bring-Along Contingent Acquisition Price Adjustment (if SHUSA delivered a Bring-Along Objection), including, in each case, such person’s determination of the amount, as of the date of the Bring-Along Notice, of each of the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment. The Company, SHUSA and the New Acquirer each agree to sign an engagement letter, in commercially reasonable form, if reasonably required by the Bring-Along Valuation Firm. Each party promptly shall, upon request, make available to each other and the Bring-Along Valuation Firm all relevant books and records, any work papers (including those of the parties’ respective accountants) and supporting documentation relating to the Bring-Along Contingent Acquisition Price Adjustment, in each case to the extent within the control of such party. The Bring-Along Valuation Firm’s determination of the Bring-Along Contingent Acquisition Price Adjustment, including the amount, as of the date of the Bring-Along Notice, of each of the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment, in each case without applying any discount for the time value of money, shall be final and binding on the Company, SHUSA and the New Acquirer for purposes of Section 2.4(e). In any case where the Bring-Along Valuation Firm is required to render an opinion of the Bring-Along Contingent Acquisition Price Adjustment, such opinion shall be rendered within 30 days of being engaged. All fees and disbursements of the Bring-Along Valuation Firm shall be borne by (i) the New Acquirer, in the event that the New Acquirer delivered a Bring-Along Objection, and the Bring-Along Valuation Firm selects the Company’s proposed Bring-Along Contingent Acquisition Price Adjustment or SHUSA’s proposed Bring-Along Contingent Acquisition Price Adjustment, (ii) SHUSA, in the event that SHUSA delivered a Bring-Along Objection and the New Acquirer did not deliver a Bring-Along Objection, (iii) the New Acquirer and SHUSA equally, in the event that both the New Acquirer and SHUSA delivered a Bring-Along Objection, and the Bring-Along Valuation Firm selects the Company’s proposed Bring-Along Contingent Acquisition Price Adjustment and (iv) SHUSA, in the event that the New Acquirer delivered a Bring-Along Objection, and the Bring-Along Valuation firm selects the New Acquirer’s proposed Bring-Along Contingent Acquisition Price Adjustment.

(g) Banco Santander hereby unconditionally and irrevocably guarantees to the New Acquirer the full and punctual performance by the Company of all obligations of the Company under Section 2.4(e) (the “Guaranteed Bring-Along Obligations”). The obligations of Banco Santander under this Section 2.4(g) shall not be affected by (1) the failure of the New Acquirer to assert any claim or demand or to enforce any right or remedy against the Company

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under this Agreement; (2) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement; or (3) any change in the ownership of Banco Santander. Without limiting the generality of the foregoing, Banco Santander agrees that if the Company shall fail in any manner whatsoever to perform or observe any of the Guaranteed Bring-Along Obligations when the same shall be required to be performed or observed, then Banco Santander will itself duly and punctually perform or observe or cause to be performed or observed the Guaranteed Bring-Along Obligations.

2.5. Certain Transfer Procedures.

(a) In connection with any Transfer of Shares by a Shareholder to another Shareholder pursuant to this Agreement, the Transferor Shareholder shall deliver to the Transferee Shareholder, on or before the date scheduled for the closing of such Transfer, certificates representing the number of Shares to be Transferred on such date, duly endorsed for Transfer or accompanied by duly executed stock powers, free and clear of all Liens. In addition, the Transferor Shareholder shall, on or before such date, enter into an agreement for the benefit of the Transferee Shareholder that shall contain customary representations and warranties to the effect of the following and pursuant to which the Transferor Shareholder (and, if Dundon Holdco is the Transferor Shareholder, Executive, personally) shall indemnify the Transferee Shareholder for damages suffered by the Transferee Shareholder as a result of breaches of or inaccuracies in such representations and warranties: (i) such agreement has been duly authorized, executed and delivered by or on behalf of the Transferor Shareholder and is enforceable against the Transferor Shareholder, (ii) the Transferor Shareholder has full power, right and authority to Transfer the Shares to be Transferred by it and to enter into such agreement, (iii) such Transfer will not conflict with, or result in a violation or breach of, any Law or Judgment applicable to the Transferor Shareholder, (iv) no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver, authorization or approval of any Governmental Authority is necessary on the part of the Transferor Shareholder for the consummation of such Transfer, (v) upon payment for and delivery of the Shares, the Transferee Shareholder will acquire all of the rights of the Transferor Shareholder in the Shares to be sold and will acquire its interest in such Shares free of any “adverse claim” (as defined in Section 8-102 of the Uniform Commercial Code) and (vi) delivery of the Shares to be sold by the Transferor Shareholder will pass title to such Shares free and clear of any Liens.

(b) Each of the Shareholders and the Company shall use commercially reasonable efforts to secure any necessary consent from applicable Governmental Authorities and to comply with any applicable Law necessary in connection with any Transfer of Shares by a Shareholder pursuant to this Agreement.

2.6. Certain Assignment Rights.

If New Acquiror receives a Sale Notice pursuant to Section 2.3 or a Preemptive Notice pursuant to Section 7.2, New Acquiror may at its election assign its right to purchase the Securities being offered thereby to one or more entities Affiliated with some or all of the Original Investors (each such entity, a “New Investor”). Concurrently with the completion of any such purchase, the New Investor shall execute a Joinder Agreement in accordance with Section 2.1(b) and it shall thereafter have the same rights and obligations with respect to the

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Securities it purchases as New Acquirer has with respect to Securities owned by New Acquirer for purposes of this Agreement, it being understood that whenever in this Agreement a determination is required or permitted to be made or action taken by New Acquirer with respect to the Securities it then holds (including Section 4.3 but excluding Sections 2.2, 2.3 and 4.1, Article VII and Article VIII (other than Section 8.1)), such determination shall be made by New Acquirer on behalf of New Investor. In the event a New Investor shall acquire Securities as contemplated by this Section 2.6, the parties hereto shall negotiate in good faith and enter into any appropriate amendments or supplements to this Agreement and any related documents to fully implement the provisions contemplated by this Section 2.6.

ARTICLE III

IPO PUT OPTION

3.1. IPO Put Option.

Subject to and in accordance with the procedures and provisions set forth in this Article III, each of Dundon Holdco (together with its Transferees acting as a single Person) and the New Acquirer (together with its Transferees acting as a single Person) shall have the right to require, by notice given during the period of 60 days following each of the fourth, fifth and seventh anniversaries of the date of this Agreement, that SHUSA purchase from such Acquirer, (i) in the case of the New Acquirer, its IPO Put Option Shares in whole, but not in part, and (ii) in the case of Dundon Holdco, its IPO Put Option Shares in whole or in part, in each case at the IPO Put Option Price (the “IPO Put Option”); provided that Dundon Holdco may only exercise the IPO Put Option if the New Acquirer has exercised the IPO Put Option. The date upon which the IPO Put Option is exercised is referred to in this Agreement as the “IPO Put Option Date”.

3.2. Guarantee of IPO Put Option

(a) Banco Santander hereby unconditionally and irrevocably guarantees to each Acquirer the full and punctual performance by SHUSA of all obligations of SHUSA under the IPO Put Option and the obligation of the Company to pay any amount to the New Acquirer pursuant to Section 3.4(b) (the “Guaranteed Obligations”). The obligations of Banco Santander under this Section 3.2(a) shall not be affected by (1) the failure of any Acquirer to assert any claim or demand or to enforce any right or remedy against SHUSA or the Company under this Agreement; (2) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement; or (3) any change in the ownership of Banco Santander. Without limiting the generality of the foregoing, Banco Santander agrees that if SHUSA or the Company, as applicable, shall fail in any manner whatsoever to perform or observe any of the Guaranteed Obligations when the same shall be required to be performed or observed, then Banco Santander will itself duly and punctually perform or observe or cause to be performed or observed the Guaranteed Obligations.

(b) At its option, Banco Santander may become the direct obligor under the IPO Put Option. If Banco Santander elects to become the direct obligor under the IPO Put Option it shall provide written notice of such election to SHUSA and each Acquirer, which notice shall set forth the effective date of such election (such date, the “Substitution Effective

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Date”). Effective from and after the Substitution Effective Date, (i) all rights and obligations of SHUSA under the IPO Put Option shall be fully and irrevocably discharged and terminated, (ii) each Acquirer shall have no claims against, or recourse to, SHUSA under the IPO Put Option and (iii) Banco Santander shall irrevocably assume all of the rights and obligations of SHUSA under the IPO Put Option.

3.3. Determination of IPO Put Option Fair Market Value.

(a) “IPO Put Option Fair Market Value” means the value of the outstanding shares of Common Stock (on the day before the IPO Put Option Date), which shall be determined using a valuation methodology based on the fully distributed public market value of the Company, assuming that the shares of Common Stock are fully-liquid, broadly-held public securities not subject to any transfer restrictions and without any initial public offering, minority or liquidity discount, and which shall take into account the Santander Financing. The IPO Put Option Fair Market Value shall be calculated utilizing balance sheets, income statements, cash flows and other assumptions that are adjusted to assume there is no future liability of the Company related to any expected payment of the Contingent Adjustments. The IPO Put Option Fair Market Value shall then be reduced by an estimate, as of the day before the IPO Put Option Date, of the amount of both the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment, using assumptions consistent with the assumptions utilized for the determination of the IPO Put Option Fair Market Value, and without applying any discount for the time value of money. This estimate (i) may be zero for either or both the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment, (ii) may not be a positive number for both and (iii) may not be a negative number for either. This estimate is referred to in this Agreement as the “IPO Put Option Contingent Adjustment Value”.

(b) Within 20 days after SHUSA receives an IPO Put Option Notice, SHUSA shall make an initial determination of the IPO Put Option Fair Market Value (in accordance with the methodology set forth in Section 3.3(a)) and shall provide notice to the applicable Acquirer of such initial determination (“SHUSA’s Proposed IPO Put Option Fair Market Value”), including SHUSA’s initial determination of the IPO Put Option Contingent Adjustment Value (“SHUSA’s Proposed IPO Put Option Contingent Adjustment Value”). For purposes of making and evaluating such initial determination, the Company shall, upon request by SHUSA or the applicable Acquirer, make available to SHUSA and such Acquirer, as applicable, all of the Company’s relevant books and records and supporting documentation relating to the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) and provide access to relevant Company personnel.

(c) If such Acquirer disagrees with SHUSA’s Proposed IPO Put Option Fair Market Value (including SHUSA’s Proposed IPO Put Option Contingent Adjustment Value), such Acquirer shall be entitled, within ten days of receipt of SHUSA’s notice described above, to give notice in writing to SHUSA of such disagreement which shall set forth the Acquirer’s calculation of the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value), the basis for such Acquirer’s dispute or objection and the specific adjustments (including dollar amounts) that such Acquirer believes in good faith should be made (any such written notice, an “Acquirer IPO Objection”) and, upon receipt thereof, such Acquirer and SHUSA will negotiate reasonably and in good faith in an effort to agree upon the IPO Put

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Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value). If such Acquirer does not provide an Acquirer IPO Objection to SHUSA within such ten day period, then SHUSA’s determination of the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) shall be final and binding on SHUSA, the Company and such Acquirer for purposes of such IPO Put Option. If such Acquirer provides an Acquirer IPO Objection and such Acquirer and SHUSA fail to agree in writing upon the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) within 25 days from the date of the IPO Put Option Notice, then the IPO Put Option Valuation Firm shall make a determination of the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) (in accordance with the methodology set forth in Section 3.3(a)) and, in accordance with such determination, shall select either SHUSA’s Proposed IPO Put Option Fair Market Value (including SHUSA’s Proposed IPO Put Option Contingent Adjustment Value) or the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) set forth in the Acquirer IPO Objection. SHUSA and such Acquirer each agree to sign an engagement letter, in commercially reasonable form, if reasonably required by the IPO Put Option Valuation Firm. Each party promptly shall, upon request, make available to each other and the IPO Put Option Valuation Firm all relevant books and records, any work papers (including those of the parties’ respective accountants) and supporting documentation relating to the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value), in each case to the extent within the control of such party. The IPO Put Option Valuation Firm’s determination of the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) shall be final and binding on SHUSA, the Company and such Acquirer for purposes of such IPO Put Option. In any case where the IPO Put Option Valuation Firm is required to render an opinion of the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value), such opinion shall be rendered within 30 days of being engaged and shall be in accordance with the methodology set forth in Section 3.3(a). All fees and disbursements of the IPO Put Option Valuation Firm shall be borne by (i) the New Acquirer, in the event that the IPO Put Option Valuation Firm selects SHUSA’s Proposed IPO Put Option Fair Market Value (including SHUSA’s Proposed IPO Put Option Contingent Adjustment Value) or (ii) SHUSA, in the event that the IPO Put Option Valuation Firm selects the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) set forth in the Acquirer IPO Objection.

(d) For purposes of this Article III, if the New Acquirer exercises the IPO Put Option and Dundon Holdco exercises the IPO Put Option with respect to the same IPO Put Option Date, the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) determined pursuant to this Section 3.3 with respect to the Shares held by the New Acquirer shall be final and binding on Dundon Holdco and in no event shall Dundon Holdco be permitted to propose or agree to a separate determination of the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value).

(e) Any Acquirer may revoke its election to exercise the IPO Put Option by providing written notice thereof to SHUSA if (i) the Acquirer delivers an Acquirer IPO Objection and SHUSA and such Acquirer cannot agree on the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) within the time period provided for in Section 3.3(c), (ii) the IPO Put Option Valuation Firm’s determination of the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) is less than the

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IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) set forth in the Acquirer IPO Objection or (iii) the closing of the purchase by SHUSA of such Acquirer’s IPO Put Option Shares does not occur within 15 days after the final determination of the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value), which 15 day period shall be extended until all necessary consents from applicable Governmental Authorities to the proposed purchase have been received (but in no event more than 90 days after the expiration of such 15 day period). If any Acquirer revokes its election to exercise the IPO Put Option pursuant to the foregoing clause (ii), then such Acquirer shall pay (x) all of the fees and expenses of the IPO Put Option Valuation Firm and (y) all fees and expenses of SHUSA, including all legal, accounting, financial, investment banking and other fees and expenses payable to third parties and incurred in connection with such Acquirer’s exercise of its IPO Put Option; provided, however, that such Acquirer shall not be obligated to pay any such fees and expenses pursuant to the foregoing clauses (x) and (y) in an aggregate amount in excess of $3.0 million. Further, if any Acquirer revokes its election to exercise the IPO Put Option pursuant to the foregoing clause (ii) and such IPO Put Option was exercised during the 60 days following the fourth anniversary of the date of this Agreement, then such Acquirer shall not be permitted to exercise its IPO Put Option during the 60 days following the fifth anniversary of the date of this Agreement. An Acquirer shall only be permitted to revoke its IPO Put Option one time pursuant to the foregoing clause (ii). Any revocation by the New Acquirer of the IPO Put Option shall be deemed a revocation by Dundon Holdco of the IPO Put Option, if applicable.

3.4. IPO Put Option Price, IPO Put Option Notice and Closing.

(a) The aggregate price to be paid for IPO Put Option Shares being purchased pursuant to Section 3.1 shall be equal to (x) the IPO Put Option Fair Market Value as determined pursuant to Section 3.3 (which shall have been reduced by the IPO Put Option Contingent Adjustment Value as determined pursuant to Section 3.3), multiplied by (y) (A) the number of IPO Put Option Shares being purchased, divided by (B) the outstanding number of shares of Common Stock on the IPO Put Option Date (the “IPO Put Option Price”).

(b) (i) If the IPO Put Option Price is paid to the New Acquirer then, concurrently with such payment, the Company shall pay to the New Acquirer an amount in cash equal to the IPO Put Option Contingent Adjustment Value as determined in accordance with Section 3.3 as it relates to the New Acquirer Acquisition Price Adjustment. Following the IPO Put Option Closing Date and assuming compliance with this Section 3.4(b)(i), the Company shall have no further obligation to pay any New Acquirer Acquisition Price Adjustment and SHUSA shall have no further obligation to pay any Post-IPO New Acquirer Contingent Adjustment. The parties shall treat the IPO Put Option Contingent Adjustment Value for Tax purposes in the same manner as the New Acquirer Acquisition Price Adjustment is treated pursuant to the second sentence of Section 6.12(b). (ii) If the IPO Put Option Price is paid to Dundon Holdco then, concurrently with such payment, the Company shall pay to Dundon Holdco an amount equal to the product of (x) the IPO Put Option Contingent Adjustment Value as determined in accordance with Section 3.3 and (y) Dundon Holdco’s Proportionate Percentage (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan and without giving effect to any Transfers of Shares pursuant to this Article III). Following the IPO Put Option Closing Date and assuming

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compliance with this Section 3.4(b)(ii), the Company shall have no further obligation to pay any Dundon Holdco Adjustment. The parties shall treat any amount paid pursuant to this Section 3.4(b) for Tax purposes in the same manner as the Dundon Holdco Adjustment is treated pursuant to the second or third sentence of Section 6.24(a), as applicable. Any payments to Dundon Holdco pursuant to this Section 3.4(b)(ii) may be made by the Company in the form of cash or Shares, at the option of the Company. If any such payment is made in the form of Shares, then the per share value of the Shares used to pay such payment shall be determined by reference to the IPO Put Option Fair Market Value (and the IPO Put Option Fair Market Value, determined in accordance with Section 3.3 shall be final and binding on the Company and Dundon Holdco).

(c) If any Acquirer desires to exercise its IPO Put Option it, together with its Transferees acting as a single person, shall deliver written notice thereof to SHUSA, the Company and Banco Santander during the applicable period specified in Section 3.1. Such notice (an “IPO Put Option Notice”) shall set forth the number of IPO Put Option Shares subject to the put, the proposed date for closing such sale and a description of any consents, approvals or other conditions precedent to such closing known to such Acquirer. The closing of the purchase by SHUSA of IPO Put Option Shares under this Article III shall take place not later than 15 days from the date of the determination of the IPO Put Option Fair Market Value (including the IPO Put Option Contingent Adjustment Value) on a date mutually agreeable to the applicable Acquirer and SHUSA (the “IPO Put Option Closing Date”); provided, however, if such Persons cannot agree on a mutually acceptable date, the closing of such sale shall occur at 10:00 a.m. (New York City time) on said 15th day; provided further, that the foregoing references to “15th day” shall mean such later day on which all necessary consents from applicable Governmental Authorities to such sale have been received if any such required consents were not received prior to such 15th day. The sale rights in Section 3.1 may only be exercised for 100% of the IPO Put Option Shares then held by the applicable Acquirer. Each of the Shareholders and the Company shall use commercially reasonable efforts to secure any necessary consent from applicable Governmental Authorities and to comply with any applicable Law necessary in connection with the exercise of an IPO Put Option.

(d) Transfers of Shares under the terms of this Article III shall be made at the offices of the Company on the IPO Put Option Closing Date. In connection with any Transfer of Shares pursuant to this Article III, the Transferor shall deliver to the Transferee, on or before the IPO Put Option Closing Date, certificates representing the number of Shares to be Transferred on such date, duly endorsed for Transfer or accompanied by duly executed stock powers, free and clear of all Liens. The Person delivering such Shares shall also deliver a certificate which shall contain customary representations and warranties to the effect of the following: (i) such Person has full power, right and authority to Transfer the Shares to be Transferred by it, (ii) such Transfer will not conflict with, or result in a violation or breach of, any Law or Judgment applicable to such Person, (iii) no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver, authorization or approval of any Governmental Authority is necessary on the part of such Person for the consummation of such Transfer, (iv) upon delivery of the Shares, the transferee will acquire all of the rights of the transferor in such Shares and will acquire its interest in such Shares free of any “adverse claim” (as defined in Section 8-102 of the Uniform Commercial Code) and (v) delivery of such Shares to the Transferee will pass title to such Shares free and clear of any Liens.

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(e) Following the delivery of an IPO Put Option Notice, the Company shall not declare or make any dividends or other distributions (other than making dividends or other distributions declared prior to the delivery of the IPO Put Option Notice) on its equity Securities, unless and until the amount of any IPO Put Option Contingent Adjustment Value payment that has become payable is paid in full and the IPO Put Option Contingent Adjustment Value payment shall rank pari passu with unsecured and unsubordinated obligations of the Company.

3.5. Termination of the IPO Put Option.

The IPO Put Option, and the Company’s, SHUSA’s, Banco Santander’s and each Acquirer’s rights and obligations under this Article III, will terminate upon (i) the consummation of an IPO unless an Acquirer has given prior notice of its exercise of the IPO Put Option pursuant to Section 3.1, (ii) any merger, amalgamation or consolidation of the Company with any other Person or the spinoff of a substantial portion of the business of the Company or (iii) the Transfer of all or substantially all of the assets of the Company, in any such case if such transaction has been approved as a Shareholder Reserved Matter under the Company’s articles of incorporation or as a Board Reserved Matter under the Company’s bylaws, but only to the extent such transaction was required to be approved as a Shareholder Reserved Matter under the Company’s articles of incorporation or as a Board Reserved Matter under the Company’s bylaws.

ARTICLE IV

DEADLOCK PUT/CALL OPTIONS

4.1. Deadlock Put and Call Rights.

(a) Subject to and in accordance with the procedures and provisions set forth in this Article IV, in the event of a Deadlock, each of Dundon Holdco (together with its Transferees acting as a single Person) and the New Acquirer (together with its Transferees acting as a single Person) shall have the right to require that SHUSA purchase from such Acquirer, so long as such Deadlock exists, (i) in the case of the New Acquirer, its Deadlock Put Option Shares in whole, but not in part, and (ii) in the case of Dundon Holdco, its Deadlock Put Option Shares in whole or in part, in each case at the Deadlock Put Option Price (the “Deadlock Put Option”); provided that Dundon Holdco may only exercise the Deadlock Put Option if the New Acquirer has exercised the Deadlock Put Option.

(b) Subject to and in accordance with the procedures and provisions set forth in this Article IV, in the event of a Deadlock, SHUSA shall have the right to require that each or any Acquirer sell to SHUSA, so long as such Deadlock exists, its shares of Common Stock in whole, but not in part, at the Deadlock Call Option Price (the “Deadlock Call Option”).

4.2. Guarantee of Deadlock Put Option.

(a) Banco Santander hereby unconditionally and irrevocably guarantees to each Acquirer the full and punctual performance by SHUSA of all obligations of SHUSA under the Deadlock Put Option and the obligation of the Company to pay any amount to the New Acquirer pursuant to Section 4.4(c) (the “Guaranteed Deadlock Put Option Obligations”). The

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obligations of Banco Santander hereunder shall not be affected by (1) the failure of any Acquirer to assert any claim or demand or to enforce any right or remedy against SHUSA or the Company under this Agreement; (2) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement; or (3) any change in the ownership of Banco Santander. Without limiting the generality of the foregoing, Banco Santander agrees that if SHUSA or the Company shall fail in any manner whatsoever to perform or observe any of the Guaranteed Deadlock Put Option Obligations when the same shall be required to be performed or observed, then Banco Santander will itself duly and punctually perform or observe or cause to be performed or observed the Guaranteed Deadlock Put Option Obligations.

(b) At its option, Banco Santander may become the direct obligor under the Deadlock Put Option or the direct beneficiary under the Deadlock Call Option. If Banco Santander elects to become the direct obligor under the Deadlock Put Option or the direct beneficiary under the Deadlock Call Option it shall provide written notice of such election to SHUSA and each Acquirer, which notice shall set forth the effective date of such election (such date, the “Deadlock Substitution Effective Date”). Effective from and after the Deadlock Substitution Effective Date, if Banco Santander has elected to become the direct obligor under the Deadlock Put Option, (i) all rights and obligations of SHUSA under the Deadlock Put Option shall be fully and irrevocably discharged and terminated, (ii) each Acquirer shall have no claims against, or recourse to, SHUSA under the Deadlock Put Option and (iii) Banco Santander shall irrevocably assume all of the rights and obligations of SHUSA under the Deadlock Put Option. Effective from and after the Deadlock Substitution Effective Date, if Banco Santander has elected to become the direct beneficiary under the Deadlock Call Option, (i) all rights and obligations of SHUSA under the Deadlock Call Option shall be fully and irrevocably discharged and terminated, (ii) each Acquirer shall have no claims against, or recourse to, SHUSA under the Deadlock Call Option and (iii) Banco Santander shall irrevocably assume all of the rights and obligations of SHUSA under the Deadlock Call Option.

4.3. Determination of Deadlock Fair Market Value.

(a) “Deadlock Fair Market Value” means the value of the outstanding shares of Common Stock (on the day before the exercise of the Deadlock Put Option or the Deadlock Call Option, as applicable), which shall be determined using a valuation methodology based on the fully distributed public market value of the Company, assuming that the shares of Common Stock are fully-liquid, broadly-held public securities not subject to any transfer restrictions and without any initial public offering, minority or liquidity discount, and which shall take into account the Santander Financing. The Deadlock Fair Market Value shall be calculated utilizing balance sheets, income statements, cash flows and other assumptions that are adjusted to assume there is no future liability to the Company related to any expected payment of the Contingent Adjustments. The Deadlock Fair Market Value shall then be reduced by an estimate, as of the day before the exercise of the Deadlock Put Option or the Deadlock Call Option, as applicable, of the amount of both the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment, using assumptions consistent with the assumptions utilized for the determination of the Deadlock Fair Market Value, and without applying any discount for the time value of money. This estimate (i) may be zero for either or both the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment, (ii) may not be a positive number for both and (iii) may not be a negative number for either. This estimate is referred to in this Agreement as the “Deadlock Contingent Adjustment Value”.

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(b) Within 20 days after SHUSA receives a Deadlock Put Option Notice, SHUSA shall make an initial determination of the Deadlock Fair Market Value (in accordance with the methodology set forth in Section 4.3(a)) and shall provide notice to the applicable Acquirer of such initial determination (“SHUSA’s Proposed Deadlock Fair Market Value”), including SHUSA’s initial determination of the Deadlock Contingent Adjustment Value (“SHUSA’s Proposed Deadlock Put Option Contingent Adjustment Value”). For purposes of making and evaluating such initial determination, the Company shall, upon request by SHUSA or the applicable Acquirer, make available to SHUSA and such Acquirer, as applicable, all of the Company’s relevant books and records and supporting documentation relating to the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) and provide access to relevant Company personnel. If such Acquirer disagrees with SHUSA’s Proposed Deadlock Fair Market Value (including SHUSA’s Proposed Deadlock Put Option Contingent Adjustment Value), such Acquirer shall be entitled, within ten days of receipt of SHUSA’s notice described above, to give notice in writing to SHUSA of such disagreement which shall set forth such Acquirer’s calculation of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value), the basis for such Acquirer’s dispute or objections and the specific adjustments (including dollar amounts) that such Acquirer believes in good faith should be made (any such written notice, an “Acquirer Deadlock Put Objection”) and, upon receipt thereof, the Acquirer and SHUSA will negotiate reasonably and in good faith in an effort to agree upon the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value). If such Acquirer does not provide an Acquirer Deadlock Put Objection to SHUSA within such ten day period, then SHUSA’s determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) shall be final and binding on SHUSA, the Company and such Acquirer for purposes of such Deadlock Put Option. If such Acquirer provides an Acquirer Deadlock Put Objection and the Acquirer and SHUSA fail to agree in writing upon the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) within 25 days from the date of the Deadlock Put Option Notice, then the Deadlock Valuation Firm shall make a determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) (in accordance with the methodology set forth in Section 4.3(a)) and, in accordance with such determination, shall select either SHUSA’s Proposed Deadlock Fair Market Value (including SHUSA’s Proposed Deadlock Put Option Contingent Adjustment Value) or the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) set forth in the Acquirer Deadlock Put Objection. SHUSA and such Acquirer each agree to sign an engagement letter, in commercially reasonable form, if reasonably required by the Deadlock Valuation Firm. Each party promptly shall, upon request, make available to each other and the Deadlock Valuation Firm all relevant books and records, any work papers (including those of the parties’ respective accountants) and supporting documentation relating to the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value), in each case to the extent within the control of such party. The Deadlock Valuation Firm’s determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) shall be final and binding on SHUSA, the Company and such Acquirer for purposes of such Deadlock Put Option. In any case where the Deadlock Valuation Firm is required to render an opinion of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value), such opinion shall be rendered within 30 days of being engaged and shall be in accordance with the

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methodology set forth in Section 4.3(a). All fees and disbursements of the Deadlock Valuation Firm shall be borne by (i) the Acquirer, in the event that the Deadlock Valuation Firm selects SHUSA’s Proposed Deadlock Fair Market Value (including SHUSA’s Proposed Deadlock Put Option Contingent Adjustment Value) or (ii) SHUSA, in the event that the Deadlock Valuation Firm selects the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) set forth in the Acquirer Deadlock Put Objection.

(c) Within 20 days after an Acquirer receives a Deadlock Call Option Notice, such Acquirer shall make an initial determination of the Deadlock Fair Market Value (in accordance with the methodology set forth in Section 4.3(a)) and shall provide notice to SHUSA of such initial determination (the “Acquirer’s Proposed Deadlock Fair Market Value”), including the Acquirer’s initial determination of the Deadlock Contingent Adjustment Value (the “Acquirer’s Proposed Deadlock Call Option Contingent Adjustment Value”). For purposes of making and evaluating such initial determination, the Company shall, upon request by the applicable Acquirer and SHUSA, make available to such Acquirer and SHUSA, as applicable, all of the Company’s relevant books and records and supporting documentation relating to the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) and provide access to relevant Company personnel. If SHUSA disagrees with the Acquirer’s Proposed Deadlock Fair Market Value (including the Acquirer’s Proposed Deadlock Call Option Contingent Adjustment Value), SHUSA shall be entitled, within ten days of receipt of the Acquirer’s notice described above, to give notice in writing to such Acquirer of such disagreement which shall set forth SHUSA’s calculation of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value), the basis for SHUSA’s dispute or objections and the specific adjustments (including dollar amounts) that SHUSA believes in good faith should be made (any such written notice, a “SHUSA Deadlock Call Objection”) and, upon receipt thereof, the Acquirer and SHUSA will negotiate reasonably and in good faith in an effort to agree upon the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value). If SHUSA does not provide a SHUSA Deadlock Call Objection to the Acquirer within such ten day period, then the Acquirer’s determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) shall be final and binding on SHUSA, the Company and such Acquirer for purposes of such Deadlock Call Option. If SHUSA provides a SHUSA Deadlock Call Objection and the Acquirer and SHUSA fail to agree in writing upon the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) within 25 days from the date of the Deadlock Call Option Notice, then the Deadlock Valuation Firm shall make a determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) (in accordance with the methodology set forth in Section 4.3(a)) and, in accordance with such determination, shall select either the Acquirer’s Proposed Deadlock Fair Market Value (including the Acquirer’s Proposed Deadlock Call Option Contingent Adjustment Value) or the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) set forth in the SHUSA Deadlock Call Objection. SHUSA and such Acquirer each agree to sign an engagement letter, in commercially reasonable form, if reasonably required by the Deadlock Valuation Firm. Each party promptly shall, upon request, make available to each other and the Deadlock Valuation Firm all relevant books and records, any work papers (including those of the parties’ respective accountants) and supporting documentation relating to the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value), in each case to the extent within the control of such party. The Deadlock Valuation Firm’s determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) shall

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be final and binding on SHUSA and such Acquirer for purposes of such Deadlock Call Option. In any case where the Deadlock Valuation Firm is required to render an opinion of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value), such opinion shall be rendered within 30 days of being engaged and shall be in accordance with the methodology set forth in Section 4.3(a). All fees and disbursements of the Deadlock Valuation Firm shall be borne by (i) SHUSA, in the event that the Deadlock Valuation Firm selects the Acquirer’s Proposed Deadlock Fair Market Value (including the Acquirer’s Proposed Deadlock Put Option Contingent Adjustment Value) or (ii) the Acquirer, in the event that the Deadlock Valuation Firm selects the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) set forth in the SHUSA Deadlock Call Objection.

(d) For purposes of this Article IV, if, with respect to the same Deadlock, (i) the New Acquirer exercises the Deadlock Put Option and Dundon Holdco exercises the Deadlock Put Option or (ii) SHUSA exercises the Deadlock Call Option with respect to both the Shares held by the New Acquirer and Dundon Holdco, then, in each case, the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) determined pursuant to this Section 4.3 with respect to the Shares held by the New Acquirer shall be final and binding on Dundon Holdco and in no event shall Dundon Holdco be permitted to propose or agree to a separate determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value).

(e) Any Acquirer may revoke its election to exercise the Deadlock Put Option by providing written notice thereof to SHUSA if (i) the Acquirer delivers an Acquirer Deadlock Put Objection and SHUSA and such Acquirer cannot agree on the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) within the time period provided for in Section 4.3(b), (ii) if the Deadlock Valuation Firm’s determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) is less than the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) set forth in the Acquirer Deadlock Put Objection or (iii) the closing of the purchase by SHUSA of such Acquirer’s Deadlock Put Option Shares does not occur within 15 days after the final determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value), which 15 day period shall be extended until all necessary consents from applicable Governmental Authorities to the proposed purchase have been received (but in no event more than 90 days after the expiration of such 15 day period). If any Acquirer revokes its election to exercise the Deadlock Put Option pursuant to the foregoing clause (ii), then such Acquirer shall pay (x) all of the fees and expenses of the Deadlock Valuation Firm and (y) all fees and expenses of SHUSA, including all legal, accounting, financial, investment banking and other fees and expenses payable to third parties and incurred in connection with such Acquirer’s exercise of its Deadlock Put Option; provided, however, that such Acquirer shall not be obligated to pay any such fees and expenses pursuant to the foregoing clauses (x) and (y) in an aggregate amount in excess of $1.0 million. Further, if any Acquirer revokes its election to exercise the Deadlock Put Option pursuant to the foregoing clause (ii), such Acquirer shall, and shall cause the Acquirer Group Directors to, consent or vote with respect to the Shareholder Reserved Matter or Board Reserved Matter that is the cause of the applicable Deadlock as directed by SHUSA. Any revocation by the New Acquirer of the Deadlock Put Option shall be deemed a revocation by Dundon Holdco of the Deadlock Put Option, if applicable.

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(f) SHUSA may revoke its election to exercise the Deadlock Call Option by providing written notice thereof to the applicable Acquirer if (i) SHUSA delivers a SHUSA Deadlock Call Objection and SHUSA and such Acquirer cannot agree on the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) within the time period provided for in Section 4.3(c), or (ii) the closing of the purchase by SHUSA of such Acquirer’s Shares does not occur within 90 days after the date of the applicable Deadlock Call Option Notice.

4.4. Deadlock Put/Call Option Price, Deadlock Put/Call Option Notice and Closing.

(a) The aggregate price to be paid for Deadlock Put Option Shares being purchased pursuant to Section 4.1(a) shall be equal to (x) 0.90 multiplied by (y) the Deadlock Fair Market Value as determined pursuant to Section 4.3 (which shall have been reduced by the Deadlock Contingent Adjustment Value determined pursuant to Section 4.3), multiplied by (z) (A) the number of Deadlock Put Option Shares being purchased, divided by (B) the outstanding number of shares of Common Stock on the day immediately preceding the date of the Deadlock Put Option Notice (the “Deadlock Put Option Price”). (b) The aggregate price to be paid for shares of Common Stock being purchased pursuant to Section 4.1(b) shall be equal to (x) 1.20 multiplied by (y) the Deadlock Fair Market Value as determined pursuant to Section 4.3 (which shall have been reduced by the Deadlock Contingent Adjustment Value determined pursuant to Section 4.3), multiplied by (z) (A) the number of shares of Common Stock being purchased, divided by (B) the outstanding number of shares of Common Stock on the day immediately preceding the date of the Deadlock Call Option Notice (the “Deadlock Call Option Price”).

(c) If the Deadlock Put Option Price or Deadlock Call Option Price, as applicable, is paid to the New Acquirer, then, concurrently with such payment, the Company shall pay to the New Acquirer an amount in cash equal to the Deadlock Contingent Adjustment Value as determined in accordance with Section 4.3(b) as it relates to the New Acquirer Acquisition Price Adjustment. Following the Deadlock Put Option Closing Date or the Deadlock Call Option Closing Date, as applicable, and assuming compliance with this Section 4.4(c), the Company shall have no further obligation to pay any New Acquirer Acquisition Price Adjustment and SHUSA shall have no further obligation to pay any Post-IPO New Acquirer Contingent Adjustment. The parties shall treat the Deadlock Contingent Adjustment Value for Tax purposes in the same manner as the New Acquirer Acquisition Price Adjustment is treated pursuant to the second sentence of Section 6.12(b).

(d) If the Deadlock Put Option Price or Deadlock Call Option Price, as applicable, is paid to Dundon Holdco, then, concurrently with such payment, the Company shall pay to Dundon Holdco an amount equal to the product of (i) the Deadlock Contingent Adjustment Value as determined in accordance with Section 4.3(b) and (ii) Dundon Holdco’s Proportionate Percentage (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan and without giving effect to any Transfers of Shares pursuant to this Article IV). Following the Deadlock Put Option Closing Date or the Deadlock Call Option Closing Date, as applicable, and assuming

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compliance with this Section 4.4(d), the Company shall have no further obligation to pay any Dundon Holdco Adjustment. The parties shall treat any amount paid pursuant to this Section 4.4(d) for Tax purposes in the same manner as the Dundon Holdco Adjustment is treated pursuant to the second or third sentence of Section 6.24(a), as applicable. Any payments to Dundon Holdco pursuant to this Section 4.4(d) may be made by the Company in the form of cash or Shares, at the option of the Company. If any such payment is made in the form of Shares, then the per share value of the Shares used to pay such payment shall be determined by reference to the Deadlock Fair Market Value (and the Deadlock Fair Market Value, determined in accordance with Section 4.3 shall be final and binding on the Company and Dundon Holdco).

(e) In the event that a Shareholder believes that a Deadlock exists, such Shareholder shall promptly give written notice to the Company and the other Shareholders specifying the details of the Deadlock, including the Board Reserved Matter or Shareholder Reserved Matter, as applicable, that the Shareholder believes is the cause of such Deadlock and the basis for such Shareholder’s belief that a Deadlock exists. For the purpose of this Agreement, a Deadlock shall be deemed to occur (x) whenever the Shareholders agree that a Deadlock has occurred or (y) in absence of such an agreement, whenever a court decision is obtained pursuant to Section 12.7 which concludes that a Deadlock has occurred. The date on which the Deadlock shall be deemed to occur will be the date on which the Shareholders agree that a Deadlock has occurred or the date of the court resolution obtained pursuant to Section 12.7 that concludes that a Deadlock has occurred, as applicable. Upon the occurrence of a Deadlock, each Shareholders shall, and shall cause any director nominated by such Shareholder, as applicable, to use their good faith efforts to resolve the Deadlock within 90 days from the occurrence of the Deadlock. In the event that the Board of Directors or the Shareholders, as applicable, are unable to resolve the Deadlock within such 90 day period, the Deadlock will be promptly submitted to (i) in the case of a Deadlock with respect to a Board Reserved Matter, a representative appointed by the SHUSA Directors, as a group, a representative appointed by the Acquirer Group Directors, as a group, and Executive, and (ii) in the case of a Deadlock with respect to a Shareholder Reserved Matter, a representative appointed by SHUSA, a representative appointed by the New Acquirer and Executive. In each case, such representatives shall use their good faith efforts to resolve the Deadlock within 90 days from the date on which such Deadlock is submitted to them and no Person shall be permitted to exercise a Deadlock Put Option or a Deadlock Call Option prior to the expiration of such 90 day period.

(f) Following the expiration of the time period provided for in Section 4.4(e), if an Acquirer desires to exercise its Deadlock Put Option it shall, within five days of the expiration of such time period, deliver written notice thereof to SHUSA and the Company. Such notice (a “Deadlock Put Option Notice”) shall set forth the number of Deadlock Put Option Shares subject to the put, a description of the Deadlock giving rise to the Deadlock Put Option, the proposed date for closing such sale and a description of any consents, approvals or other conditions precedent to such closing known to such Acquirer. The closing of the purchase by SHUSA of Deadlock Put Option Shares under this Article IV shall take place not later than 15 days from the date of the determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) on a date mutually agreeable to such Acquirer and SHUSA (the “Deadlock Put Option Closing Date”); provided, however, if such Persons cannot agree on a mutually acceptable date, the closing of such sale shall occur at 10:00 a.m. (New York City time) on said 15th day; provided further that the foregoing references to “15th day” shall

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mean such later day on which all necessary consents from applicable Government Authorities to such sale have been received if any such required consents were not received prior to such 15th day. With respect to the New Acquirer, the sale rights in Section 4.1 may only be exercised for 100% of the Deadlock Put Option Shares then held by such Acquirer.

(g) Following the expiration of the time period provided for in Section 4.4(e), if SHUSA desires to exercise its Deadlock Call Option it shall, within five days of the expiration of such time period, deliver written notice thereof to the applicable Acquirer. Such notice (a “Deadlock Call Option Notice”) shall set forth the number of Shares subject to the call, a description of the Deadlock giving rise to the Deadlock Call Option, the proposed date for closing such sale and a description of any consents, approvals or other conditions precedent to such closing known to SHUSA. The closing of the purchase by SHUSA of Shares under this Article IV shall take place not later than 15 days from the date of the determination of the Deadlock Fair Market Value (including the Deadlock Contingent Adjustment Value) on a date mutually agreeable to SHUSA and such Acquirer (the “Deadlock Call Option Closing Date”); provided, however, if such Persons cannot agree on a mutually acceptable date, the closing of such sale shall occur at 10:00 a.m. (New York City time) on said 15th day; provided further that the foregoing references to “15th day” shall mean such later day on which all necessary consents from applicable Government Authorities to such sale have been received if any such required consents were not received prior to such 15th day. With respect to any Acquirer, the purchase rights in Section 4.1 may only be exercised for 100% of the Shares then held by such Acquirer.

(h) Following the delivery of a Deadlock Put Option Notice, the Company shall not declare or make any dividends or other distributions (other than making dividends or other distributions declared prior to the delivery of the Deadlock Put Option Notice) on its equity Securities, unless and until the amount of any Deadlock Contingent Adjustment Value that has become payable is paid in full and the Deadlock Contingent Adjustment Value shall rank pari passu with unsecured and unsubordinated obligations of the Company.

(i) Transfers of Shares under the terms of this Article IV shall be made at the offices of the Company on each Deadlock Put Option Closing Date and Deadlock Call Option Closing Date, as applicable. In connection with any Transfer of Shares pursuant to this Article IV, the Transferor shall deliver to the Transferee, on or before the Deadlock Put Option Closing Date or Deadlock Call Option Closing Date, as applicable, certificates representing the number of Shares to be Transferred on such date, duly endorsed for Transfer or accompanied by duly executed stock powers, free and clear of all Liens. The Person delivering such Shares shall also deliver a certificate which shall contain customary representations and warranties to the effect of the following: (i) such Person has full power, right and authority to Transfer the Shares to be Transferred by it, (ii) such Transfer will not conflict with, or result in a violation or breach of, any Law or Judgment to such Person, (iii) no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver, authorization or approval of any Governmental Authority is necessary on the part of such Person for the consummation of such Transfer, (iv) upon delivery of the Shares, the Transferee will acquire all of the rights of the Transferor in such Shares and will acquire its interest in such Shares free of any “adverse claim” (as defined in Section 8-102 of the Uniform Commercial Code) and (v) delivery of such Shares to the Transferee will pass title to such Shares free and clear of any Liens.

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(j) Each of the Shareholders and the Company shall use commercially reasonable efforts to secure any necessary consent from applicable Governmental Authorities and to comply with any applicable Law necessary in connection with the exercise of an the Deadlock Put Option or Deadlock Call Option, as applicable.

(k) No Shareholder shall (i) consent to, or fail to consent to, any Shareholder Reserved Matter or (ii) cause any member of the Board of Directors nominated by such Shareholder to consent to, or fail to consent to, any Board Reserved Matter, in each case, for the primary purpose of triggering a Deadlock Call Option or Deadlock Put Option.

4.5. Termination of the Deadlock Put Option and the Deadlock Call Option.

(a) This Article IV shall terminate and be of no further force and effect upon the consummation of an IPO.

(b) Dundon Holdco’s Deadlock Put Option, SHUSA’s Deadlock Call Option with respect to Dundon Holdco’s Shares and Dundon Holdco’s rights and obligations, under this Article IV, and the New Acquirer’s Deadlock Put Option, SHUSA’s Deadlock Call Option with respect to the New Acquirer’s Shares and the New Acquirer’s rights and obligations, under this Article IV, will terminate upon the occurrence of an Acquirer Group Termination.

ARTICLE V

OTHER PUT/CALL OPTIONS

5.1. Employment Termination Put and Call Rights; Loan Agreement Call Rights.

(a) Subject to and in accordance with the procedures and provisions set forth in this Article V, following the expiration of Executive’s employment under the Employment Agreement or in the event Executive’s employment under the Employment Agreement is terminated (i) by reason of Executive’s death, (ii) by reason of Executive’s Inability to Perform, (iii) by Executive for Good Reason or (iv) by the Company for any reason other than Cause, Dundon Holdco shall have the right to require that SHUSA purchase from Dundon Holdco, for a period of 90 days following the date of such expiration or termination, its Shares in whole, but not in part, at the Dundon Put/Call Option Price (the “Employment Put Option”).

(b) Subject to and in accordance with the procedures and provisions set forth in this Article V, following the expiration of Executive’s employment under the Employment Agreement or in the event Executive’s employment under the Employment Agreement is terminated for any reason, SHUSA shall have the right to require that Dundon Holdco sell to SHUSA, at any time following such expiration or termination, its Shares in whole, but not in part, at the Dundon Put/Call Option Price (the “Employment Call Option”).

(c) Subject to and in accordance with the procedures and provisions set forth in this Article V, upon the occurrence and during the continuation of an Event of Default or Disabling Conduct, SHUSA shall have the right to require that Dundon Holdco sell to SHUSA, at any time following and during the continuation of an Event of Default or Disabling Conduct, its Shares in whole, but not in part, at the Dundon Put/Call Option Price (the “Loan Call Option”).

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(d) At its option, Banco Santander may become the direct obligor under the Employment Put Option or the direct beneficiary under the Employment Call Option or Loan Call Option. If Banco Santander elects to become the direct obligor under the Employment Put Option or the direct beneficiary under the Employment Call Option or Loan Call Option it shall provide written notice of such election to SHUSA and each Acquirer, which notice shall set forth the effective date of such election (such date, the “Employment/Loan Substitution Effective Date”). Effective from and after the Employment/Loan Substitution Effective Date, if Banco Santander has elected to become the direct obligor under the Employment Put Option, (i) all rights and obligations of SHUSA under the Deadlock Put Option shall be fully and irrevocably discharged and terminated, (ii) Dundon Holdco shall have no claims against, or recourse to, SHUSA under the Employment Put Option and (iii) Banco Santander shall irrevocably assume all of the rights and obligations of SHUSA under the Employment Put Option. Effective from and after the Employment/Loan Substitution Effective Date, if Banco Santander has elected to become the direct beneficiary under the Employment Call Option, (i) all rights and obligations of SHUSA under the Employment Call Option shall be fully and irrevocably discharged and terminated, (ii) Dundon Holdco shall have no claims against, or recourse to, SHUSA under the Employment Call Option and (iii) Banco Santander shall irrevocably assume all of the rights and obligations of SHUSA under the Employment Call Option. Effective from and after the Employment/Loan Substitution Effective Date, if Banco Santander has elected to become the direct beneficiary under the Loan Call Option, (i) all rights and obligations of SHUSA under the Loan Call Option shall be fully and irrevocably discharged and terminated, (ii) Dundon Holdco shall have no claims against, or recourse to, SHUSA under the Loan Call Option and (iii) Banco Santander shall irrevocably assume all of the rights and obligations of SHUSA under the Loan Call Option.

5.2. Determination of Dundon Put/Call Fair Market Value.

(a) “Dundon Put/Call Fair Market Value” means the value of the outstanding shares of Common Stock (on the day before the exercise of the Employment Call Option, Employment Put Option or Loan Call Option, as applicable), which shall be determined using a valuation methodology based on the fully distributed public market value of the Company, assuming that the shares of Common Stock are fully-liquid, broadly-held public securities not subject to any transfer restrictions and without any initial public offering, minority or liquidity discount, and which shall take into account the Santander Financing The Dundon Put/Call Fair Market Value shall be calculated utilizing balance sheets, income statements, cash flows and other assumptions that are adjusted to assume there is no future liability to the Company related to any expected payment of the Contingent Adjustments. The Dundon Put/Call Fair Market Value shall then be reduced by an estimate, as of the day before the exercise of the Employment Put Option, the Employment Call Option or the Loan Call Option, as applicable, of the amount of both the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment, using assumptions consistent with the assumptions utilized for the determination of the Dundon Put/Call Fair Market Value, and without applying any discount for the time value of money. This estimate (i) may be zero for either or both the New Acquirer Acquisition Price Adjustment and the SHUSA Contingent Payment, (ii) may not be a positive number for both and (iii) may not be a negative number for either. This estimate is referred to in this Agreement as the “Dundon Put/Call Adjustment Value”.

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(b) Within 20 days after SHUSA receives an Employment Put Option Notice or delivers an Employment Call Option Notice or Loan Call Option Notice, SHUSA shall make an initial determination of the Dundon Put/Call Fair Market Value (in accordance with the methodology set forth in Section 5.2(a)) and shall provide notice to Executive and Dundon Holdco of such initial determination (“SHUSA’s Proposed Put/Call Fair Market Value”), including SHUSA’s initial determination of the Dundon Put/Call Adjustment Value (“SHUSA’s Proposed Dundon Put/Call Adjustment Value”). For purposes of making and evaluating such initial determination, the Company shall, upon request by SHUSA or Dundon Holdco, make available to SHUSA and Dundon Holdco, as applicable, all of the Company’s relevant books and records and supporting documentation relating to the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) and provide access to relevant Company personnel.

(c) If Dundon Holdco disagrees with SHUSA’s Proposed Put/Call Fair Market Value (including SHUSA’s Proposed Put/Call Adjustment Value), Dundon Holdco shall be entitled, within ten days of receipt of SHUSA’s notice described above, to give notice in writing to SHUSA of such disagreement which shall set forth Dundon Holdco’s calculation of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value), the basis for Dundon Holdco’s dispute or objections and the specific adjustments (including dollar amounts) that Dundon Holdco believes in good faith should be made (any such written notice, a “Dundon Holdco Objection”) and, upon receipt thereof, Dundon Holdco and SHUSA will negotiate reasonably and in good faith in an effort to agree upon the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value). If Dundon Holdco does not provide a Dundon Holdco Objection to SHUSA within such ten day period, then SHUSA’s determination of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) shall be final and binding on SHUSA and Dundon Holdco for purposes of such Employment Call Option, Employment Put Option or Loan Call Option, as applicable. If Dundon Holdco provides a Dundon Holdco Objection and Dundon Holdco and SHUSA fail to agree in writing upon the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) within 25 days from the date of the Employment Put Option Notice, the Employment Call Option Notice or the Loan Call Option Notice, as applicable, then the Dundon Valuation Firm shall make a determination of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) (in accordance with the methodology set forth in Section 5.2(a)) and, in accordance with such determination, shall select either SHUSA’s Proposed Dundon Put/Call Fair Market Value (including SHUSA’s Proposed Dundon Put/Call Adjustment Value) or the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) set forth in the Dundon Holdco Objection. SHUSA and Dundon Holdco each agree to sign an engagement letter, in commercially reasonable form, if reasonably required by the Dundon Valuation Firm. Each party promptly shall, upon request, make available to each other and the Valuation Firm all relevant books and records, any work papers (including those of the parties’ respective accountants) and supporting documentation relating to the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value), in each case to the extent within the control of such party. The Dundon Valuation Firm’s determination of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) shall be

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final and binding on SHUSA and Dundon Holdco for purposes of the Employment Put Option, the Employment Call Option or the Loan Call Option, as applicable. In any case where the Dundon Valuation Firm is required to render an opinion of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value), such opinion shall be rendered within 30 days of being engaged and shall be in accordance with the methodology set forth in Section 5.2(a). All fees and disbursements of the Dundon Valuation Firm shall be borne by (i) Dundon Holdco, in the event that the Dundon Valuation Firm selects SHUSA’s Proposed Dundon Put/Call Fair Market Value (including SHUSA’s Proposed Dundon Put/Call Adjustment Value) or (ii) SHUSA, in the event that the Dundon Valuation Firm selects the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) set forth in the Dundon Holdco Objection.

(d) Dundon Holdco may revoke its election to exercise the Employment Put Option by providing written notice thereof to SHUSA if (i) Dundon Holdco delivers a Dundon Holdco Objection and SHUSA and Dundon Holdco cannot agree on the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) within the time period provided for in Section 5.2(c), or (ii) the closing of the purchase by SHUSA of Dundon Holdco’s Shares does not occur within 15 days after the final determination of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value), which 15 day period shall be extended until all necessary consents from applicable Governmental Authorities to the proposed purchase have been received (but in no event more than 90 days after the expiration of such 15 day period).

(e) SHUSA may revoke its election to exercise the Employment Call Option by providing written notice thereof to Dundon Holdco if (i) Dundon Holdco delivers a Dundon Holdco Objection and SHUSA and Dundon Holdco cannot agree on the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) within the time period provided for in Section 5.2(c), or (ii) the closing of the purchase by SHUSA of Dundon Holdco’s Shares does not occur within 15 days after the final determination of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value), which 15 day period shall be extended until all necessary consents from applicable Governmental Authorities to the proposed purchase have been received (but in no event more than 90 days after the expiration of such 15 day period).

(f) SHUSA may revoke its election to exercise the Loan Call Option by providing written notice thereof to Dundon Holdco if (i) Dundon Holdco delivers a Dundon Holdco Loan Call Objection and SHUSA and Dundon Holdco cannot agree on the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) within the time period provided for in Section 5.2(e), or (ii) the closing of the purchase by SHUSA of Dundon Holdco’s Shares does not occur within 15 days after the final determination of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value), which 15 day period shall be extended until all necessary consents from applicable Governmental Authorities to the proposed purchase have been received (but in no event more than 90 days after the expiration of such 15 day period).

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5.3. Dundon Put/Call Option Price, Employment Put/Call Option Notice and Closing.

(a) The aggregate price to be paid for Shares being purchased pursuant to Section 5.1(a), 5.1(b) or 5.1(c) shall be equal to (x) the Dundon Put/Call Fair Market Value as determined pursuant to Section 5.2(a) (which shall have been reduced by the Dundon Put/Call Adjustment Value as determined pursuant to Section 5.2), multiplied by (y) (A) the number of Shares being purchased, divided by (B) the outstanding number of shares of Common Stock on the day immediately preceding the date of the Employment Put Option Notice, Employment Call Option Notice or Loan Call Option Notice, as applicable (the “Dundon Put/Call Option Price”).

(b) If Dundon Holdco desires to exercise its Employment Put Option it shall deliver written notice thereof to the SHUSA during the applicable period specified in Section 5.1(a). Such notice (an “Employment Put Option Notice”) shall set forth the number of Shares subject to the put, the proposed date for closing such sale and a description of any consents, approvals or other conditions precedent to such closing known to Dundon Holdco. The closing of the purchase by SHUSA of Shares under this Article V shall take place not later than 15 days from the date of the determination of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) on a date mutually agreeable to SHUSA and Dundon Holdco (the “Employment Put Option Closing Date”); provided, however, if such Persons cannot agree on a mutually acceptable date, the closing of such sale shall occur at 10:00 a.m. (New York City time) on said 15th day; provided further, that the foregoing references to “15th day” shall mean such later day on which all necessary consents from applicable Governmental Authorities to such sale have been received if any such required consents were not received prior to such 15th day. The sale rights in Section 5.1(a) may only be exercised for 100% of the Shares then held by Dundon Holdco.

(c) Prior to exercising its Employment Call Option or Loan Call Option, as applicable, SHUSA will provide reasonable advance notice to, and consult with, the New Acquirer and will in good faith take into account the New Acquirer’s recommendation in making its decision whether to exercise its Employment Call Option or Loan Call Option, as applicable.

(d) If SHUSA desires to exercise its Employment Call Option (after taking into account the New Acquirer’s recommendation pursuant to Section 5.3(c)) it shall deliver written notice thereof to Dundon Holdco. Such notice (an “Employment Call Option Notice”) shall set forth the number of Shares subject to the call, the proposed date for closing such sale and a description of any consents, approvals or other conditions precedent to such closing known to SHUSA. The closing of the purchase by SHUSA of Shares under this Article V shall take place not later than 15 days from the date of the determination of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) on a date mutually agreeable to SHUSA and Dundon Holdco (the “Employment Call Option Closing Date”); provided, however, if such Persons cannot agree on a mutually acceptable date, the closing of such sale shall occur at 10:00 a.m. (New York City time) on said 15th day; provided further, that the foregoing references to “15th day” shall mean such later day on which all necessary consents from applicable Governmental Authorities to such sale have been received if any such required consents were not received prior to such 15th day. The purchase rights in Section 5.1(b) may only be exercised for 100% of the Shares then held by Dundon Holdco.

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(e) If SHUSA desires to exercise its Loan Call Option (after taking into account the New Acquirer’s recommendation pursuant to Section 5.3(c)) it shall deliver written notice thereof to Dundon Holdco. Such notice (a “Loan Call Option Notice”) shall set forth the number of Shares subject to the call, the proposed date for closing such sale and a description of any consents, approvals or other conditions precedent to such closing known to SHUSA. The closing of the purchase by SHUSA of Shares under this Article V shall take place not later than 15 days from the date of the determination of the Dundon Put/Call Fair Market Value (including the Dundon Put/Call Adjustment Value) on a date mutually agreeable to SHUSA and Dundon Holdco (the “Loan Call Option Closing Date”); provided, however, if such Persons cannot agree on a mutually acceptable date, the closing of such sale shall occur at 10:00 a.m. (New York City time) on said 15th day; provided further, that the foregoing references to “15th day” shall mean such later day on which all necessary consents from applicable Governmental Authorities to such sale have been received if any such required consents were not received prior to such 15th day. The purchase rights in Section 5.1(c) may only be exercised for 100% of the Shares then held by Dundon Holdco.

(f) Transfers of Shares under the terms of this Article V shall be made at the offices of the Company on the Employment Put Option Closing Date or Employment Call Option Closing Date, as applicable. In connection with any purchase and sale of Shares pursuant to this Article V, Dundon Holdco shall deliver to SHUSA on or before the Employment Put Option Closing Date, Employment Call Option Closing Date or Loan Call Option Closing Date, as applicable, certificates representing the number of Shares to be purchased and sold on such date, duly endorsed for transfer or accompanied by duly executed stock powers, free and clear of all Liens. Dundon Holdco and Executive shall also deliver a certificate which shall contain customary representations and warranties to the effect of the following: (i) Dundon Holdco has full power, right and authority to transfer the Shares to be transferred by it, (ii) such transfer will not conflict with, or result in a violation or breach of, any Law or judgment applicable to Dundon Holdco or Executive, (iii) no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver, authorization or approval of any Governmental Authority is necessary on the part of Dundon Holdco or Executive for the consummation of such purchase and sale, (iv) upon delivery of the Shares, SHUSA will acquire all of the rights of Dundon Holdco in such Shares and will acquire its interest in such Shares free of any “adverse claim” (as defined in Section 8-102 of the Uniform Commercial Code) and (v) delivery of such Shares to SHUSA will pass title to such Shares free and clear of any Liens.

(g) If (i) there is an Applicable Employment Termination and (ii) SHUSA, pursuant to its Deadlock Call Option, purchases the Shares of the New Acquirer during the one-year period following the date of the termination of Executive’s employment, SHUSA shall make a payment to Dundon Holdco in an amount equal to the product of (x) 0.20 and (y) the Dundon Put/Call Option Price which was paid in connection with the exercise by SHUSA of the Employment Call Option.

(h) Each of the parties to this Agreement shall use commercially reasonable efforts to secure any necessary consent from applicable Governmental Authorities and to comply with any applicable Law necessary in connection with the exercise of an Employment Put Option or an Employment Call Option.

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ARTICLE VI

ADDITIONAL AGREEMENTS

6.1. Board of Directors.

(a) SHUSA shall have the right to nominate seven individuals for election or reelection to the Board of Directors (the “SHUSA Directors”) and the Acquirer Group shall have the right to nominate five individuals for election or reelection to the Board of Directors (the “Acquirer Group Directors”). For so long as Executive is the CEO of the Company, Executive shall be nominated by the Acquirer Group as an Acquirer Group Director. No Shareholder shall nominate any individual for election to the Board of Directors except as set forth in this Article VI or the by-laws of the Company. Except as set forth in Section 6.9, in the event the Board of Directors appoints a committee of the Board of Directors, such committee shall consist of at least (i) four Acquirer Group Directors, if Executive is a member of such committee and (ii) three Acquirer Group Directors, if Executive is not a member of such committee. Each Acquirer Group Director shall be entitled to receive from the Company the same compensation and same rights to indemnification in connection with his or her role as a director as the other members of the Board of Directors, and each Acquirer Group Director shall be entitled to reimbursement for reasonable out-of-pocket expenses incurred in performing his or her duties as a member of the Board of Directors or any committees thereof to the same extent as the other members of the Board of Directors. The Company shall notify the Acquirer Group Directors of all regular and special meetings of the Board of Directors and of all regular and special meetings of any committee of the Board of Directors. The Company shall provide the Acquirer Group Directors with copies of all notices, minutes, consents and other materials provided by the Company to all other members of the Board of Directors concurrently and in the same form as such materials are provided to the other members.

(b) The Shareholders shall vote their Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company at which action is to be taken with respect to the election of directors, or in any written consent in lieu of such a meeting of shareholders, to cause the election or reelection, as applicable, of the SHUSA Directors and the Acquirer Group Directors, and, if requested by a Shareholder, the Company and the other Shareholders shall take all necessary action to call and hold such meeting of the shareholders of the Company, and shall take all other actions necessary to ensure the continued election to the Board of Directors of the SHUSA Directors and the Acquirer Group Directors and shall not take any actions which are inconsistent with the intent and purpose of the foregoing. The Company shall take all actions necessary to cause the SHUSA Directors and the Acquirer Group Directors to be elected or reelected, as applicable, to the Board of Directors and to ensure the continued election to the Board of Directors of the SHUSA Directors and the Acquirer Group Directors and shall not take any actions which are inconsistent with the intent and purpose of the foregoing.

(c) The Shareholders shall vote their Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company, or in any written consent in lieu of such a meeting of shareholders, to cause the removal of a SHUSA Director or an Acquirer Group Director if

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SHUSA or the Acquirer Group, as applicable, designates such director for removal and shall take all other actions necessary to cause such removal and shall not take any actions which are inconsistent with the intent and purpose of the foregoing. Except in accordance with the foregoing, no Shareholder shall vote its Shares or any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company, or in any written consent in lieu of such a meeting of shareholders, to cause the removal of a SHUSA Director or an Acquirer Director.

(d) Upon the death, resignation, retirement, incapacity, disqualification or removal (with or without cause) for any other reason of any SHUSA Director, SHUSA shall have the right to nominate the individual to fill the resulting vacancy. Upon the death, resignation, retirement, incapacity, disqualification or removal (with or without cause) for any other reason of any Acquirer Group Director, the Acquirer Group shall have the right to nominate the individual to fill the resulting vacancy. The Shareholders shall vote their Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company, or in any written consent in lieu of such a meeting of shareholders, to cause the individual so nominated to fill such vacancy and shall take all other actions necessary to cause such individual to fill such vacancy and shall not take any actions which are inconsistent with the intent and purpose of the foregoing.

(e) This Section 6.1 (other than Section 6.1(f)) shall terminate and be of no further force and effect if and when either (i) if Dundon Holdco’s Proportionate Percentage (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan) is at least 8.5%, then the total number of Shares owned by the Acquirer Group divided by the total number of Shares outstanding as of the date of this Agreement (as adjusted from time to time for any reorganization, reclassification, stock split, stock dividend, reverse stock split, or other like changes in the Company’s capitalization since the date hereof) is less than 21.0% or (ii) if Dundon Holdco’s Proportionate Percentage (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan) is less than 8.5%, the total number of Shares owned by the New Acquirer divided by the total number of Shares outstanding as of the date of this Agreement (as adjusted from time to time for any reorganization, reclassification, stock split, stock dividend, reverse stock split, or other like changes in the Company’s capitalization since the date of this Agreement) is less than 12.5% (an “Acquirer Group Termination”).

(f) From and after an Acquirer Group Termination, the Acquirer Group shall have the right to designate three non-voting observers (the “Board Observers”) to the Board of Directors for as long as (i) the total number of Shares owned by the Acquirer Group (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan) divided by the total number of Shares outstanding as of the date of this Agreement (as adjusted from time to time for any reorganization, reclassification, stock split, stock dividend, reverse stock split, or other like changes in the Company’s capitalization since the date hereof) is greater than 5% and (ii) such Board Observers are required for one or more of the Original Investors to qualify as a “venture capital operating company” within the meaning of 29 C.F.R. Section 2510.3-101(d). The Company shall notify the Board Observers of all regular and special meetings of the Board of Directors, including all regular and special meetings of any committee of the Board of Directors, at the same time and in

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the same manner as the members of the Board of Directors and shall also provide the Board Observers with copies of all notices, minutes, consents and other materials provided to such members concurrently as such materials are provided to such members.

6.2. Shareholder Reserved Matters.

(a) The Company and the Shareholders agree that the following matters (the “Shareholder Reserved Matters”) will require the affirmative vote of the holders of 100% of the combined voting power of the then outstanding shares of all classes and series of the Corporation then held by SHUSA, Dundon Holdco and the New Acquirer:

(i) Commencement of any proceeding for the voluntary dissolution, winding up or bankruptcy of the Company.

(ii) Any non-pro rata reduction to the share capital of the Company, except as required by law.

(iii) Any amendment to the articles of incorporation or by-laws of the Company, which amendment would change (a) the name of the Company, (b) the jurisdiction of incorporation of the Company, (c) the purpose or purposes for which the Company is organized, (d) the size of the Board of Directors or (e) the shareholder approval requirements for Shareholder Reserved Matters.

(iv) Any appointment to the Board of Directors contrary to the provisions regarding appointment of directors set forth in the by-laws of the Company or Section 6.1. (v) Any merger, amalgamation or consolidation of the Company with any other entity or the spinoff of a substantial portion of the business of the Company.

(vi) The sale, conveyance, transfer or other disposition of all or substantially all of the assets of the Company, whether in a single transaction or a series of related transactions.

(vii) Any change in the principal line of business of the Company.

(b) Without the prior approval of the holders of 100% of the combined voting power of the then outstanding shares of all classes and series of the Company held by SHUSA, Dundon Holdco and the New Acquirer, the Company shall not take any Shareholder Reserved Matter.

(c) Each Shareholder shall only vote its Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company at which action is to be taken with respect to any Shareholder Reserved Matter, or in any written consent in lieu of such a meeting of shareholders, in favor of any Shareholder Reserved Matter if each other Shareholder has given advance written notice to such Shareholder that it is in favor of the approval of such Shareholder Reserved Matter. Each Shareholder will vote its Shares and any other Securities of the Company (to the extent such

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Securities have voting rights) at any regular or special meeting of the shareholders of the Company at which action is to be taken with respect to any Shareholder Reserved Matter, or in any written consent in lieu of such a meeting of shareholders, against any Shareholder Reserved Matter unless each other Shareholder has given advance written notice to such Shareholder that it is in favor of the approval of such Shareholder Reserved Matter. The Company and the Shareholders shall take all actions necessary to ensure that no Shareholder Reserved Matter is approved by the shareholders of the Company unless each of the Shareholders approve of such Shareholder Reserved Matter.

(d) This Section 6.2 shall terminate and be of no further force and effect upon the occurrence of an Acquirer Group Termination.

6.3. Acquirer Group Termination.

(a) (i) Following the occurrence of an Acquirer Group Termination, so long as Executive is CEO of the Company (such period, the “CEO Applicable Period’) or (ii) if at any time (A) Executive is not CEO but Dundon Holdco’s Proportionate Percentage (excluding any Shares acquired by Dundon Holdco or Executive after the date of this Agreement pursuant to any equity-based compensation plan) is at least 5.0% and (B) Executive’s employment under the Employment Agreement was not terminated by the Company for Cause or by Executive without Good Reason (other than a termination by Executive without Good Reason on or after the fifth anniversary of the Closing Date, so long as Executive does not engage in any Restricted Activities (as defined in the Employment Agreement) (such period in this clause (ii), the “Shareholder Applicable Period” and, together with the CEO Applicable Period, the “Applicable Periods”), Executive shall serve as a member of the Board of Directors.

(b) During the Shareholder Applicable Period, the Board of Directors shall be comprised of thirteen directors, of which seven shall be SHUSA Directors, five shall be Acquirer Group Directors and one shall be Executive. The Shareholders agree that they will take, and cause their Affiliates (including any directors nominated by such Shareholder) to take, any and all actions necessary to give effect to the foregoing, including voting their Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company, or in any written consent in lieu of such a meeting of shareholders, to cause the amendment of by-laws of the Company to reflect the foregoing.

(c) During the Applicable Periods, the Board of Directors, or any committee of the Board of Directors responsible for designating nominees for election or reelection to the Board of Directors, shall cause Executive to be included in the slate of nominees for each shareholders’ meeting at which directors are elected and, subject to Section 6.3(d), shall recommend Executive for election or reelection, as applicable, to the Board of Directors.

(d) During the Applicable Periods, the Shareholders shall vote their Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company at which action is to be taken with respect to the election of directors, or in any written consent in lieu of such a meeting of shareholders, to cause the election or reelection, as applicable, of Executive, and shall not take

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any actions which are inconsistent with the intent and purpose of the foregoing. During the Applicable Periods, the Company shall take all actions necessary to cause Executive to be elected or reelected, as applicable, to the Board of Directors and to ensure the continued election to the Board of Directors of Executive and shall not take any actions which are inconsistent with the intent and purpose of the foregoing.

(e) Nothing in this Section 6.3 shall require the Board of Directors, any director or any committee or member thereof to take any action or refrain from taking any action, nor shall a breach of this Section 6.3 result by reason of the failure to take such action or the failure to refrain from taking such action, as the case may be, if the Board of Directors, a committee of the Board of Directors or any director determines in good faith that taking such action or refraining from taking such action, as the case may be, would cause a violation of his or her fiduciary duties to shareholders under applicable Law. This Section 6.3(d) shall not be interpreted to create any fiduciary obligation that would not exist in the absence of this Section 6.3).

6.4. Matters with Respect to the Acquirer Group.

(a) When any action is to be taken or any notice is to be given or delivered, then, except as expressly set forth in this Agreement, the Acquirer Group shall act as a single Person for purposes of this Agreement and, for all purposes of this Agreement, any action, notice or other writing taken, given or delivered by or on behalf of a duly authorized representative of the New Acquirer shall be deemed to be taken, given or delivered on behalf of the Acquirer Group. The initial duly authorized representative is the New Acquirer (the “Acquirer Group Representative”). The Acquirer Group Representative shall have the power and authority to bind the Acquirer Group (but may not bind any member of the Acquirer Group except to the extent it is so bound in accordance with the terms of this Agreement solely because it is a member of the Acquirer Group and the Acquirer Group is so bound) in accordance with this Agreement. Each of the other parties hereto may rely on the appointment and authority of the foregoing Acquirer Group Representative until the receipt of notice from each member of the Acquirer Group of the appointment of a successor or additional Acquirer Group Representative upon 30 days’ prior written notice to each party hereto.

(b) The members of the Acquirer Group agree that, for so long Executive is the CEO of the Company, he shall be an Acquirer Group Director and they shall take all actions reasonably necessary to cause Executive, so long as he is CEO of the Company, to be an Acquirer Group Director. This Section 6.4 shall terminate and be of no further force and effect upon the occurrence of an Acquirer Group Termination.

6.5. Matters with Respect to Management.

(a) The parties hereto acknowledge and agree, after careful consideration, that (i) for the period beginning on the date of this Agreement and ending on May 31, 2015, Executive will serve as CEO unless removed for Cause, and (ii) Jason Kulas will be initially appointed as CFO, Jason Grubb will be initially appointed as COO, and Steve Zemaitis will be initially appointed as CCO. The Shareholders agree that, in their capacity as Shareholders, they will not take any action, or fail to take any action, which action or failure to act could reasonably

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be expected to result in the removal of Executive as CEO, prior to May 31, 2015, except “for cause” as permitted by the Employment Agreement. Neither SHUSA nor any of its Affiliates shall, without the prior written consent of the New Acquirer (i) employ Executive as an officer or employee of, or hire Executive as an advisor or consultant to, SHUSA or any of its Affiliates, other than the Company and its Subsidiaries or (ii) permit Executive to invest or receive equity in SHUSA or any of its Affiliates (other than the Company and its Subsidiaries), except for (x) investments existing, and Securities held, on the date of this Agreement and (y) investments in publicly traded Securities. This Section 6.5(a) shall terminate and be of no further force and effect upon the occurrence of an Acquirer Group Termination.

(b) The Shareholders acknowledge and agree that the Chairman will be nominated by SHUSA and the Vice Chairman will be nominated by the Acquirer Group. The Shareholders shall vote their Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company at which action is to be taken with respect to the appointment of the Chairman or the Vice Chairman, or in any written consent in lieu of such a meeting of shareholders, to cause the appointment of the Chairman and the Vice Chairman, and shall take all other actions necessary to ensure the continued appointment of the Chairman and the Vice Chairman and shall not take any actions which are inconsistent with the intent and purpose of the foregoing. The Shareholders shall vote their Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company, or in any written consent in lieu of such a meeting of shareholders, to cause the removal of the Chairman or the Vice Chairman if SHUSA or the Acquirer Group, as applicable, designates such person for removal and shall take all other actions necessary to cause such removal and shall not take any actions which are inconsistent with the intent and purpose of the foregoing. Except in accordance with the foregoing, no Shareholder shall vote its Shares or any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company, or in any written consent in lieu of such a meeting of shareholders, to cause the removal of the Chairman or the Vice Chairman. Upon the death, resignation, retirement, incapacity, disqualification or removal for any other reason of the Chairman, SHUSA shall have the right to nominate the individual to fill the resulting vacancy. Upon the death, resignation, retirement, incapacity, disqualification or removal for any other reason of the Vice Chairman, the Acquirer Group shall have the right to nominate the individual to fill the resulting vacancy. The Shareholders shall vote their Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company, or in any written consent in lieu of such a meeting of shareholders, to cause the individual so nominated to fill such vacancy and shall take all other actions necessary to cause such individual to fill such vacancy and shall not take any actions which are inconsistent with the intent and purpose of the foregoing. This Section 6.5(b) shall terminate and be of no further force and effect upon the occurrence of an Acquirer Group Termination.

(c) Upon the occurrence of an Article IV Termination, Article IV of the by-laws of the Company shall be replaced with a new Article IV substantially in the form of Appendix A. The Shareholders shall take, and cause their Affiliates (including any directors nominated by such Shareholder) to take, any and all actions necessary to give effect to the foregoing, including voting their Shares and any other Securities of the Company (to the extent

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such Securities have voting rights) at any regular or special meeting of the shareholders of the Company, or in any written consent in lieu of such a meeting of shareholders, in favor of such amendment. The Shareholders shall take all other actions necessary to cause such amendment and shall not take any actions which are inconsistent with the intent and purpose of the foregoing. The Company shall take all actions necessary to cause such amendment and shall not take any actions which are inconsistent with the intent and purpose of the foregoing.

(d) The Shareholders agree that any alteration, amendment or repeal of Sections 2.04(a), 3.02, 3.03, 3.05, 3.07, 3.08, 3.10, 3.11, 3.12, 3.14(b) and 3.15, Article VI and Article VIII of the bylaws of the Company (the “Designated Sections”) shall require the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of all classes and series of the Company then held by SHUSA and a majority of the combined voting power of the then outstanding shares of all classes and series of the Company then held by the Acquirer Group (such holders, the “Designated Holders”), in addition to any other requirements of applicable Law or the articles of incorporation or bylaws of the Company. Without the prior approval of the Designated Holders, the Company shall not alter, amend or repeal any of the Designated Sections. Each Shareholder shall only vote its Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company at which action is to be taken to alter, amend or repeal any of the Designated Sections (any such alteration, amendment or repeal, a “Designated Amendment”) or in any written consent in lieu of such a meeting of shareholders, in favor of any Designated Amendment if the Designated Holders have given advance written notice to such Shareholder that it is in favor of the approval of such Designated Amendment. Each Shareholder will vote its Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company at which action is to be taken with respect to any Designated Amendment, or in any written consent in lieu of such a meeting of shareholders, against any Designated Amendment unless the Designated Holders have given advance written notice to such Shareholder that it is in favor of the approval of such Designated Amendment. The Company and the Shareholders shall take all actions necessary to ensure that no Designated Amendment is approved by the shareholders of the Company unless the Designated Holders approve of such Designated Amendment This Section 6.5(d) shall terminate and be of no further force and effect upon the occurrence of an Acquirer Group Termination. This Section 6.5(d) shall not apply to any alteration, amendment or repeal of any section of the bylaws of the Company approved and adopted pursuant to Section 6.15.

6.6. Matters with Respect to Significant Subsidiaries.

(a) The composition of the board of directors (or similar governing body) of any Significant Subsidiary shall be comprised of the same Persons that then comprise the Board of Directors. In furtherance of the foregoing, the Company shall take all actions necessary to cause each individual at any time serving as a member of the Board of Directors to also serve as a member of the board of directors (or similar governing body) of each Significant Subsidiary and as a member of each corresponding committee of the board of directors (or similar governing body) of each Significant Subsidiary to the extent such individual is a member of the corresponding committee of the Board of Directors.

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(b) Without the prior approval of the holders of 100% of the combined voting power of the then outstanding shares of all classes and series of the Company held by SHUSA, Dundon Holdco and the New Acquirer, the Company shall not:

(i) commence any proceeding for the voluntary dissolution, winding up or bankruptcy of any Significant Subsidiary;

(ii) effect any non-pro rata reduction to the share capital of any Significant Subsidiary, except as required by law;

(iii) amend the organizational documents of any Significant Subsidiary, if such amendment would change (A) the purpose or purposes for which such Significant Subsidiary is organized, (B) the size of the board of directors (or similar governing body) of such Significant Subsidiary or (C) the approval requirements for the matters set out in this Section 6.6(b);

(iv) appoint any individual to the board of directors (or similar governing body) of any Significant Subsidiary contrary to the provisions regarding appointment of directors set forth in Section 6.6(a);

(v) effect any merger, amalgamation or consolidation of any Significant Subsidiary with any other Person or the spinoff of a substantial portion of the business of any Significant Subsidiary;

(vi) sell, convey, transfer or otherwise dispose of all or substantially all of the assets of any Significant Subsidiary, whether in a single transaction or series of related transactions; or (vii) make any change in the principal line of business of any Significant Subsidiary.

(c) This Section 6.6 shall terminate and be of no further force and effect upon the occurrence of an Acquirer Group Termination.

6.7. Provisions Concerning Executive and Dundon Holdco.

(a) Business and Assets. Dundon Holdco shall not, and Executive shall cause Dundon Holdco not to, have any assets or liabilities other than (i) Shares of the Company, (ii) its rights and obligations under this Agreement and the Dundon Loan Agreement, (iii) cash and cash equivalents and (iv) receivables from one or more of its Affiliates.

(b) Ownership of Dundon Holdco. Executive and Dundon Holdco represent and warrant to the Company, SHUSA and the Acquirers that, as of the date hereof, (i) Executive owns all of the outstanding Securities of DDFS Management Company LLC and a majority of the outstanding limited partner interests of DDFS Partnership LP and (ii) DDFS Partnership LP owns all of the outstanding Securities of Dundon Holdco. Executive and Dundon Holdco represent and warrant to SHUSA that, as the date hereof, Dundon Holdco owns approximately 10% of the outstanding Shares free and clear of any Liens (other than Liens created by this

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Agreement, the Dundon Purchase Agreement or the Dundon Loan Agreement). Executive shall not, without the prior written consent of SHUSA, Transfer any of the limited partnership interests of DDFS Partnership LP if the result thereof is that Executive does not beneficially own and control a majority of the outstanding limited partnership interests of DDFS Partnership LP (with the remaining interests held by, or by trusts for the benefit of, members of Executive’s family), or Transfer any of the Securities of DDFS Management Company LLC, or cause or permit DDFS Partnership LP to Transfer any Securities of Dundon Holdco, or cause or permit DDFS Management Company LLC, DDFS Partnership LP or Dundon Holdco (i) to enter into any merger, consolidation or amalgamation, (ii) liquidate, wind up or become dissolved or (iii) engage in any other transaction if the result thereof is that Executive does not beneficially own and control 100% of the outstanding Securities of DDFS Management Company LLC and a majority interest of the outstanding limited partner interests of DDFS Partnership LP (with the remaining interests held by, or by trusts for the benefit of, members of Executive’s family) or DDFS Partnership LP does not beneficially own and control 100% of the outstanding Securities of Dundon Holdco following the consummation thereof.

(c) Compliance with Obligations. Executive shall cause Dundon Holdco to comply with its obligations under this Agreement.

6.8. Provisions Concerning the New Acquirer.

(a) Business and Assets. The New Acquirer shall not have any assets or liabilities other than (i) Shares or other Securities of the Company, (ii) its rights and obligations under this Agreement, the New Acquirer Investment Agreement, the Note Purchase Agreement and the Notes (iii) cash and cash equivalents and other investments permitted under the Note Documents, including the Notes, and letters of credit (in form and substance reasonable satisfactory to SHUSA) and financing guarantees from the Original Investors (in form and substance reasonable satisfactory to SHUSA) and (iv) other immaterial liabilities and obligations incidental to the foregoing.

(b) Ownership of the New Acquirer. The New Acquirer represents and warrants to the other parties hereto that, as of the date hereof, all of the outstanding Securities of the New Acquirer (other than the Notes) are owned and controlled by the Investors. The New Acquirer shall ensure that, at all times prior to the consummation of an IPO, all Securities of the New Acquirer (other than the Notes) are owned by one or more of the Investors or investment funds Affiliated with the Original Investors.

(c) Liens. Prior to the consummation of an IPO, the New Acquirer shall not permit any holder of any Security issued by the New Acquirer to, directly or indirectly, create, incur, issue, assume, suffer to exist or permit to become effective any Lien upon any of the Securities of the New Acquirer, now owned or hereafter acquired, other than Permitted Liens.

6.9. Governance Committee.

(a) The Shareholders have agreed to create, and hereby form, a governance committee (the “Governance Committee”) which will be responsible for evaluating the development of relationships among the Shareholders and compliance with this Agreement. The

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number of members of the Governance Committee will be agreed to by the Shareholders from time to time and will consist of an equal number of representatives of SHUSA, on the one hand, and the Acquirers, on the other hand. The chairman of the Governance Committee will be appointed by the Acquirers and the vice chairman of the Governance Committee will be appointed by SHUSA. The chairman and the vice chairman of the Governance Committee shall have the same powers.

(b) The Governance Committee will initially consist of eight members. The initial members of the Governance Committee appointed by SHUSA are Gonzalo de Las Heras, Jorge Moran, Javier San Felix and Alberto Sanchez. The initial members of the Governance Committee appointed by the Acquirers are Executive, Matthew Kabaker, Tagar Olson and Daniel Zilberman. The initial chairman of the Governance Committee is Executive and the initial vice chairman of the Governance Committee is Jorge Moran.

(c) This Section 6.9 shall terminate and be of no further force and effect upon the occurrence of an Acquirer Group Termination.

6.10. Non-Compete.

(a) Subject to Section 6.10(b), for so long as SHUSA or its Affiliates own at least a majority of the combined voting power of the then outstanding shares of all classes and series of the Company, none of Banco Santander or any of its Affiliates shall acquire any Person or business if more than 50% of the total assets of such Person or business, determined by reference to the most recently available balance sheet of such Person or business, consist of loans made to individuals in the United States of America who have on average, at origination, FICO scores of less than 660 (a “Subprime Business”).

(b) The foregoing shall not restrict the ability of Banco Santander or any of its Affiliates to (i) engage in any business in which it engages as of the date of this Agreement, or own any Person or business which it owns as of the date of this Agreement, (ii) engage in a transaction pursuant to which the provisions described under Section 6.11 are applicable, (iii) invest in, or acquire the Securities of, any Subprime Business so long as, as a result of such investment or acquisition, Banco Santander and its Affiliates (other than the Company) do not, at the time of such investment or acquisition, collectively own more than 9.9% of the outstanding capital stock or other Securities of such Subprime Business, (iv) acquire an instrument of indebtedness of any Subprime Business (other than interests in Subprime Loans or Subprime Loan Portfolios) or otherwise engage in debt financing transactions with any Subprime Business or (v) acquire any loans that are not Subprime Loans or loan portfolios that are not Subprime Loan Portfolios.

6.11. Potential Acquisition.

(a) Subject to Section 6.17, SHUSA and the Company shall use commercially reasonable efforts to make the acquisition of the Target through the Company or one of its Subsidiaries.

(b) In the event that SHUSA or one of its Affiliates (other than the Company or one of its Subsidiaries) decides to acquire, in its sole discretion, the Target, such acquisition

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shall be made through a newly formed special purpose acquisition vehicle (“Newco”) and each of the Acquirers shall have the opportunity to subscribe for a number of shares of equity Securities in Newco such that its percentage ownership of each class of equity Securities of Newco is equal to its Proportionate Percentage. If an Acquirer subscribes for its full pro rata share of the equity Securities of a Newco (or such lesser amount as it is permitted to acquire in order to comply with the regulations specified in the proviso to this sentence), then SHUSA or its Affiliate, as applicable, Newco and each such Acquirer shall negotiate in good faith to enter into, prior to the closing of such acquisition, a shareholders agreement with respect to Newco containing provisions comparable to those set forth in Sections 2.2, 2.3, 2.4, 6.1, Article VII and Article VIII and to cause Newco’s organizational documents to contain, prior to the closing of such acquisition, provisions comparable to the articles of incorporation and by-laws of the Company, except to the extent agreed by SHUSA or such Affiliate, as applicable, Newco and each other Acquirer; provided that, if, upon the closing of such acquisition, the Target will be regulated as a bank or other insured depository institution by any Governmental Authority, adjustment to such shareholders agreement, articles of incorporation and by-laws shall be made, to the minimum extent necessary, in order to (i) prevent such Acquirer from being required to register as a bank holding company under the Bank Holding Company Act or as a savings and loan holding company under the Home Owners Loan Act, and (ii) receive any necessary approvals of any Governmental Authority. If, notwithstanding any proposed adjustments to be made pursuant to the proviso to the immediately preceding sentence it is not possible for any Acquirer to subscribe for a number of shares of equity Securities of Newco such that its percentage ownership of each class of equity Securities of Newco is equal to its Proportionate Percentage (i) without such Acquirer being required to register or become regulated as a bank holding company under the Bank Holding Company Act or as a savings and loan holding company under the Home Owners Loan Act and (ii) without such Acquirer and Newco failing to receive any necessary approvals from any Governmental Authority for the acquisition of the Target, then such Acquirer shall be entitled to subscribe for the maximum amount of equity Securities it may acquire without triggering the consequences referred to in the preceding clauses (i) or (ii), and SHUSA or its Affiliate, as applicable, Newco and each such Acquirer that has elected to so subscribe for equity Securities of Newco shall negotiate in good faith to enter into alternative arrangements, prior to the closing of the applicable acquisition, to provide each such Acquirer a reasonably comparable opportunity to achieve the economic benefits of such acquisition that such Acquirer would have had if it had subscribed in full for such equity Securities.

(c) In the event that SHUSA or one of its Affiliates (other than the Company or one of its Subsidiaries) acquires the Target through a Newco, the Company may enter into one or more servicing agreements with such Newco pursuant to which the Company will service the assets of the Target on terms no less favorable to the Company than those that would have been obtained in a comparable transaction by the Company with an unrelated Person on an arm’s-length basis to the Company (a “Servicing Arrangement”), provided that in no event shall such Servicing Arrangement require the Company or any of its Subsidiaries to pay fees to such Newco or its Subsidiaries. The Acquirers and their respective Affiliates (including any directors nominated by the Acquirers) shall not take any action, or fail to take any action (including failing to approve any Board Reserved Matter or Shareholder Reserved Matter), which action or failure to act would prevent the Company from entering into such Servicing Arrangement.

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(d) Neither SHUSA nor any of its Affiliates shall acquire the Target, whether through a Newco or otherwise, or enter into a Servicing Arrangement, if such acquisition or entry into such Servicing Arrangement would cause the Company or New Acquirer to be required to register or become subject to regulation as a bank holding company under the Bank Holding Company Act, or a savings and loan holding company under the Home Owners’ Loan Act.

(e) In the event that SHUSA or one of its Affiliates (other than the Company or one of its Subsidiaries) acquires the Target through a Newco, New Acquirer may at its election assign its right to subscribe for shares of equity Securities in Newco pursuant to Section 6.11(b) to one or more entities Affiliated with some or all of the Original Investors (each such entity, a “Subscribing Investor”). If New Acquirer makes this election, (i) the Subscribing Investors shall have the same rights and obligations under this Section 6.11 as New Acquirer, (ii) whenever in this Section 6.11 a determination is required or permitted to be made or action taken by New Acquirer, such determination or action shall be made by New Acquirer on behalf of all Subscribing Investors and (iii) for purposes of the shareholders agreement and Newco’s organizational documents referred to in Section 6.11(b), the Subscribing Investors and, to the extent New Acquirer subscribes for shares of equity Securities in Newco, New Acquirer shall, collectively, be treated as a single equityholder.

6.12. Contingent Adjustments.

(a) If the Company’s actual Two Year Net Income is greater than $1,665,000,000.00, then the Company shall pay to SHUSA in cash an amount equal to the lesser of (a) 12.5% of the product of (i) the excess of (A) the Company’s actual Two Year Net Income over (B) $1,665,000,000.00 and (ii) 5.0 and (b) $595,000,000.00 (the amount payable to SHUSA, the “SHUSA Contingent Payment”). The parties hereto agree to treat the SHUSA Contingent Payment for Tax purposes as (i) a return of any capital contribution made by SHUSA to the Company after the date of this Agreement, then (ii) a return of the capital contribution made by SHUSA to the Company on or prior to the date of this Agreement and then (iii) as a dividend to SHUSA with respect to which all other shareholders of the Company have waived their proportionate share. The SHUSA Contingent Payment, if any, shall be paid no more than 30 days following the final determination of the amount of the SHUSA Contingent Payment (such date, the “SHUSA Contingent Payment Date”). To the extent that the SHUSA Contingent Payment, if any, is not paid in full on or before the SHUSA Contingent Payment Date, the Company will pay interest on the unpaid amount of the SHUSA Contingent Payment to the New Acquirer at a rate of 8.00% per annum. Any such interest will be computed on the basis of a 360-day year of twelve 30-day months. Notwithstanding the foregoing, no SHUSA Contingent Payment shall be paid if the difference between (i) the Company’s actual Two Year Net Income and (ii) $1,665,000,000.00 is less than $83,250,000.00.

(b) If the Company’s actual Two Year Net Income is less than $1,665,000,000.00, then the Company shall refund a portion of the Acquisition Price to the New Acquirer in cash in an amount equal to the lesser of (a) 12.5% of the excess, if any, of (i) the product of (A) the excess of (x) $1,665,000,000.00 over (y) the Company’s actual Two Year Net Income and (B) 5.0 over (ii) the Run-Off Portfolio NPV and (b) $595,000,000.00 (the “New Acquirer Acquisition Price Adjustment” and, together with the SHUSA Contingent Payment, the

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“Contingent Adjustments”). The parties hereto agree to treat the New Acquirer Acquisition Price Adjustment as a return of a portion of the Acquisition Price for Tax purposes. The New Acquirer Acquisition Price Adjustment, if any, shall be paid no more than 30 days following the final determination of the amount of the New Acquirer Acquisition Price Adjustment (such date, the “New Acquirer Acquisition Price Adjustment Payment Date”). To the extent that the New Acquirer Acquisition Price Adjustment, if any, is not paid in full on or before the New Acquirer Acquisition Price Adjustment Payment Date, the Company will pay interest on the unpaid amount of the New Acquirer Acquisition Price Adjustment to the New Acquirer at a rate of 8.00% per annum. Any such interest will be computed on the basis of a 360-day year of twelve 30-day months. Notwithstanding the foregoing, no New Acquirer Acquisition Price Adjustment shall be paid if the difference between (i) the Company’s actual Two Year Net Income and (ii) $1,665,000,000.00 is less than $83,250,000.00.

(c) “Run-Off Portfolio NPV” means the net present value of the expected future net income from Acquired Portfolios acquired by the Company or its consolidated Subsidiaries after the date of this Agreement (calculated in a manner consistent with the Company’s historical practices and procedures as in effect on the date of this Agreement, but net of expected credit costs, Allocated Interest Costs, servicing costs, and tax costs allocated by the Company to such portfolios in a manner consistent with the Company’s historical practices and procedures as in effect on the date of this Agreement and consistent with the practices used to allocate costs to the Acquired Portfolios excluded from Recurring Net Income) for periods following December 31, 2015. If an Acquired Portfolio included in the Run-Off Portfolio NPV is accounted for under a method other than ASC 310–30, then credit costs used in calculating the Run-Off Portfolio NPV shall be determined based upon net charge-offs which are expected to occur over the period following December 31, 2015 as opposed to when a provision for expected future losses would be recognized in the financial statements. The net present value of such expected future net income shall be calculated as of December 31, 2015, using an annualized discount rate of 20%. The projections used for estimating such expected future net income (the “Projections”) shall be prepared by the CFO in good faith and based on assumptions that are reasonable as of the date such projections are made. Such Projections, which must be mutually agreed upon by the Company, SHUSA and the New Acquirer, shall take into account historical collections and performance, current and expected economic conditions and the performance of comparable portfolios.

(d) The Company shall not declare or make any dividends or other distributions (other than making dividends or other distributions declared prior to the date on which any Contingent Adjustment has become payable) on its equity Securities, other than any Contingent Adjustment, unless and until the amount of any Contingent Adjustment (including any accrued interest thereon) that has become payable is paid in full and the Contingent Adjustment (including any interest thereon) shall rank pari passu with unsecured and unsubordinated obligations of the Company.

(e) Concurrent with the consummation of an IPO, any existing or potential future obligation of the Company to pay a SHUSA Contingent Payment shall be fully and irrevocably terminated and, to the extent that the Company, but for such termination, would have been obligated to pay a SHUSA Contingent Payment, the New Acquirer shall pay to SHUSA an amount equal to the product of (i) the SHUSA Contingent Payment and (ii) 0.25 (the “Post-IPO

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SHUSA Contingent Adjustment”) on the SHUSA Contingent Payment Date. To the extent that the Post-IPO SHUSA Contingent Adjustment, if any, is not paid in full if and when due, the New Acquirer will pay interest on the unpaid amount of the Post-IPO SHUSA Contingent Adjustment at a rate of 8.00% per annum. Any such interest will be computed on the basis of a 360-day year of twelve 30-day months. Any Post-IPO SHUSA Contingent Adjustment payments may be made by the New Acquirer in the form of cash or Shares (as long as the Common Stock is listed on a national securities exchange), at the option of the New Acquirer. In the event that the New Acquirer elects to make any Post-IPO SHUSA Contingent Adjustment payment in the form of Shares, such payment shall be made in accordance with the provisions of Section 6.12(h). The obligation to pay any Post-IPO SHUSA Contingent Adjustment shall, except to the extent set forth in the following sentence, be a senior obligation of the New Acquirer ranking pari passu with its unsecured and unsubordinated obligations. SHUSA agrees that all its right, title and interest in, to and under any Post-IPO SHUSA Contingent Adjustment payment shall be subordinate, and junior in right of payment, to the rights of the Lender in respect of the obligations of the New Acquirer under the Note Purchase Agreement and the Notes such that no payment in respect of any Post-IPO SHUSA Contingent Adjustment shall be made at any time during which any Note is outstanding or any amount is payable by New Acquirer under the Note Purchase Agreement. The parties hereto agree to treat any Post-IPO SHUSA Contingent Adjustment for Tax purposes as a capital contribution of cash or Shares, as applicable, by the New Acquirers to the Company followed by a distribution by the Company to SHUSA of such cash or Shares, as applicable, that is treated in the same manner as the SHUSA Contingent Payment is treated pursuant to the second sentence of Section 6.12(a).

(f) Concurrent with the consummation of an IPO, any existing or potential future obligation of the Company to pay a New Acquirer Acquisition Price Adjustment shall be fully and irrevocably terminated and, to the extent that the Company, but for such termination, would have been obligated to pay a New Acquirer Acquisition Price Adjustment, SHUSA shall pay to the New Acquirer an amount equal to the product of (i) the New Acquirer Acquisition Price Adjustment and (ii) 0.75 (the “Post-IPO New Acquirer Contingent Adjustment” and, together with the Post-IPO SHUSA Contingent Adjustment, the “Post-IPO Contingent Adjustments”) on the New Acquirer Acquisition Price Adjustment Payment Date. To the extent that the Post-IPO New Acquirer Contingent Adjustment, if any, is not paid in full on or before the Post-IPO New Acquirer Contingent Adjustment Payment Date, SHUSA will pay interest on the unpaid amount of the Post-IPO New Acquirer Contingent Adjustment at a rate of 8.00% per annum. Any such interest will be computed on the basis of a 360-day year of twelve 30-day months. Any Post-IPO New Acquirer Contingent Adjustment payments shall be made by SHUSA in the form of cash to the extent of the total amount outstanding under the Notes, including accrued and unpaid interest. To the extent that the amount of the Post-IPO New Acquirer Contingent Adjustment is greater than the total amount outstanding under the Notes, including accrued and unpaid interest (such difference, the “Contingent Adjustment Shortfall”), SHUSA may, to the extent of the Contingent Adjustment Shortfall, also make Post-IPO New Acquirer Contingent Adjustment payments in the form of Shares (as long as the Common Stock is listed on a national securities exchange). In the event that SHUSA elects to make any Post-IPO New Acquirer Contingent Adjustment payment in the form of Shares, such payment shall be made in accordance with the provisions of Section 6.12(h). The obligation to pay any Post-IPO New Acquirer Contingent Adjustment shall be a senior obligation of SHUSA ranking pari passu with its unsecured and unsubordinated obligations. If paid in cash, the parties hereto agree to

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treat any Post-IPO New Acquirer Contingent Adjustment for Tax purposes as a capital contribution of cash by SHUSA to the Company followed by a distribution by the Company to the New Acquirers of such cash that is treated in the same manner as the New Acquirer Acquisition Price Adjustment is treated pursuant to the second sentence of Section 6.12(b). If paid in Shares, the parties hereto agree to treat any Post-IPO New Acquirer Contingent Adjustment for Tax purposes as a capital contribution of such Shares by SHUSA to the Company, followed by a distribution by the Company to the New Acquirer of such Shares that is treated as an acquisition of additional shares of Common Stock as part of the original purchase pursuant to the New Acquirer Investment Agreement.

(g) Banco Santander hereby unconditionally and irrevocably guarantees to the New Acquirer the full and punctual performance by (i) the Company of all obligations of the Company under Section 6.12(b) and (ii) SHUSA of all obligations of SHUSA under Section 6.12(f) (the “Contingent Adjustment Guaranteed Obligations”). The obligations of Banco Santander under this Section 6.12(g) shall not be affected by (A) the failure of the New Acquirer to assert any claim or demand or to enforce any right or remedy against the Company or SHUSA, as applicable, under this Agreement; (B) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement; or (C) any change in the ownership of Banco Santander. Without limiting the generality of the foregoing, Banco Santander agrees that if the Company or SHUSA, as applicable, shall fail in any manner whatsoever to perform or observe any of the Contingent Adjustment Guaranteed Obligations when the same shall be required to be performed or observed, then Banco Santander will itself duly and punctually perform or observe or cause to be performed or observed the Contingent Adjustment Guaranteed Obligations.

(h) If any Post-IPO Contingent Adjustment payment is made in the form of Shares then the per share value of the Shares used for such payment shall be equal to the Average Stock Price. In addition, if any Post-IPO Contingent Adjustment is made in the form of Shares then certificates representing the number of such Shares shall be delivered by SHUSA or the New Acquirer, as applicable, duly endorsed for Transfer or accompanied by duly executed stock powers, free and clear of all Liens. The Person delivering such Shares as payment of any Post-IPO Contingent Adjustment shall also deliver a certificate which shall contain the following representations and warranties: (i) such Person has full power, right and authority to Transfer the Shares to be Transferred by it, (ii) such Transfer will not conflict with, or result in a violation or breach of, any Law or Judgment applicable to such Person, (iii) no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver, authorization or approval of any Governmental Authority is necessary on the part of such Person for the consummation of such Transfer, (iv) upon delivery of the Shares, the transferee will acquire all of the rights of the transferor in such Shares and will acquire its interest in such Shares free of any “adverse claim” (as defined in Section 8-102 of the Uniform Commercial Code) and (v) delivery of such Shares to the Transferee will pass title to such Shares free and clear of any Liens.

(i) Sections 6.12(b) and 6.12(f) shall terminate and be of no further force and effect, Section 6.12(e) shall terminate and be of no further force and effect with respect to the New Acquirer, the Company shall have no further obligation to pay any New Acquirer Acquisition Price Adjustment and neither New Acquirer nor SHUSA shall have any further

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obligation to pay any Post-IPO Contingent Adjustments upon (i) the closing of the IPO Put Option or Deadlock Put Option with respect to the Shares held by the New Acquirer or (ii) the closing of the Deadlock Call Option with respect to the Shares held by the New Acquirer.

(j) The CFO shall conduct an appraisal of the Contingent Adjustments and Post-IPO Contingent Adjustments (i) semi-annually in each of fiscal years 2012, 2013 and 2014 and (b) quarterly in each of fiscal years 2015 and 2016, and shall notify each of SHUSA and the New Acquirer of the result of such appraisal. For purposes of determining each of the

Contingent Adjustments, the Post-IPO Contingent Adjustments, Bring-Along Contingent Acquisition Price Adjustment, IPO Put Option Fair Market Value, IPO Put Option Contingent Adjustment Value, Deadlock Fair Market Value and Deadlock Contingent Adjustment Value, the results of such appraisals shall not be given greater deference than any other appraisals or estimates.

(k) Within 20 days after the completion of the Company’s audit with respect to fiscal year 2015, the CFO shall deliver a notice certifying the Company’s calculation of its actual Two Year Net Income and the Run-Off Portfolio NPV and providing the underlying support for the calculations and assumptions underlying such calculations (including details regarding the Projections) (the “Contingent Adjustment Notice”). If either SHUSA or the New Acquirer disagrees with the Company’s calculation of Two Year Net Income or Run-Off Portfolio NPV (including the Projections), each of SHUSA and the New Acquirer shall be entitled, within ten days of receipt of the Contingent Adjustment Notice, to give notice to the Company and SHUSA or the New Acquirer, as applicable, of such disagreement which shall set forth SHUSA and/or the New Acquirer’s calculation of the actual Two Year Net Income and the Run-Off Portfolio NPV, the basis for SHUSA and/or the New Acquirer’s dispute or objections and the specific adjustments (including dollar amounts) that SHUSA and/or the New Acquirer believes in good faith should be made (any such written notice, a “Notice of Objection”) and, upon receipt thereof, the Company, the New Acquirer and SHUSA will negotiate reasonably and in good faith for five days in an effort to agree upon the Two Year Net Income and the Run-Off Portfolio NPV. If neither SHUSA nor the New Acquirer provides such notice to the Company within such five day period, then the Company’s determination of the Two Year Net Income and the Run-Off Portfolio NPV shall be final and binding on the Company, SHUSA and the New Acquirer for purposes of the Contingent Adjustment. If either SHUSA or the New Acquirer provides such notice and the Company, SHUSA and the New Acquirer fail to agree in writing upon the Two Year Net Income and/or the Run-Off Portfolio NPV within 25 days from the date of the Contingent Adjustment Notice, then the Contingent Adjustment Valuation Firm shall make a determination of the Two Year Net Income and/or Run-Off Portfolio NPV in accordance with the methodology set forth in Section 6.12(a)-(c) and, in accordance with such determination, shall select either (i) the Company’s proposed Two Year Net Income and Run-Off Portfolio NPV, (ii) SHUSA’s proposed Two Year Net Income and Run-Off Portfolio NPV (if SHUSA delivered a Notice of Objection) or (iii) the New Acquirer’s proposed Two Year Net Income and Run-Off Portfolio NPV (if the New Acquirer delivered a Notice of Objection). The Company, SHUSA and the New Acquirer each agree to sign an engagement letter, in commercially reasonable form, if reasonably required by the Contingent Adjustment Valuation Firm. Each party promptly shall, upon request, make available to each other and the Contingent Adjustment Valuation Firm all relevant books and records, any work papers (including those of the parties’ respective accountants) and supporting documentation relating to the Two Year Net

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Income and the Run-Off Portfolio NPV, in each case to the extent within the control of such party, and the Company shall provide access to the Company personnel who prepared such calculations. The Contingent Adjustment Valuation Firm’s determination of the Two Year Net Income and/or Run-Off Portfolio NPV shall be final and binding on the Company, SHUSA and the New Acquirer for purposes of the Contingent Adjustments. In any case where the Contingent Adjustment Valuation Firm is required to render an opinion of the Two Year Net Income and/or Run-Off Portfolio NPV, such opinion shall be rendered within 30 days of being engaged. All fees and disbursements of the Contingent Adjustment Valuation Firm shall be borne by (i) the New Acquirer, in the event that the New Acquirer delivered a Notice of Objection, and the Contingent Adjustment Valuation Firm selects the Company’s proposed Two Year Net Income and Run-Off Portfolio NPV or SHUSA’s proposed Two Year Net Income and Run-Off Portfolio NPV, (ii) SHUSA, in the event that SHUSA delivered a Notice of Objection and the New Acquirer did not deliver a Notice of Objection, (iii) the New Acquirer and SHUSA equally, in the event that both the New Acquirer and SHUSA delivered a Notice of Objection, and the Contingent Adjustment Valuation Firm selects the Company’s proposed Two Year Net Income and Run-Off Portfolio and (iv) SHUSA, in the event that the New Acquirer delivered a Notice of Objection, and the Contingent Adjustment Valuation Firm selects the New Acquirer’s proposed Two Year Net Income and Run-Off Portfolio.

(l) As of December 31, 2013, December 31, 2014 and December 31, 2015 the Company shall provide a schedule to the New Acquirer and SHUSA which summarizes the Company’s Credit Loss Allowance and Loss Coverage as of each respective date, in a form consistent with Exhibit C. Such Credit Loss Allowance shall be determined in accordance with the Company’s historical practices and in accordance with GAAP.

6.13. Dividends and Distributions.

(a) Upon the receipt of any cash dividend, distribution or other release of any cash proceeds or other amounts from the Company to Dundon Holdco, Dundon Holdco shall make all payments required to be made to Banco Santander or its Affiliates under the Dundon Loan Agreement. The Company may remit dividends, distributions and other amounts payable in respect of shares of Common Stock held by Dundon Holdco to Banco Santander so that such funds can be applied on behalf of Dundon Holdco to any amounts then payable by Dundon Holdco or Executive to Banco Santander or any of its Affiliates pursuant to the Dundon Loan Agreement.

(b) SHUSA may set-off, deduct and withhold from any amounts due to Dundon Holdco upon a purchase of Shares pursuant to Article III, IV or V any amounts then payable by Dundon Holdco or Executive to Banco Santander or any of its Affiliates pursuant to the Dundon Loan Agreement. SHUSA may remit such amounts to Banco Santander so that such funds can be applied on behalf of Dundon Holdco to any amounts then payable by Dundon Holdco or Executive to Banco Santander or any of its Affiliates pursuant to the Dundon Loan Agreement.

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6.14. Financing Matters.

(a) Each of the Company, Executive and the Shareholders acknowledges and agrees that, except as set forth in Section 6.14(b), none of Banco Santander, the Acquirers or their respective Affiliates has any obligation or commitment, under this Agreement or otherwise, to make any loan or loans, or provide any other financing, whether in the form of equity or debt, to the Company or any of its Subsidiaries, but will evaluate each request for a loan or other financing at the time made and will decide in such Person’s absolute and sole discretion whether to make the loan or provide the financing requested.

(b) The existing committed funding from Banco Santander and its Affiliates in favor of the Company shall be terminated and replaced with new committed lines of financing substantially in the forms set forth in Exhibit B. SHUSA agrees that, with respect to the Santander Financing, it (and its nominees to the Board of Directors) will act in good faith and will not take any action, or fail to take any action, in its or their capacity as a Shareholder or director for the purpose of causing the Company to breach any provision of, or default on its obligations or cause a failure of any condition under, the Santander Financing. Furthermore, subject to the then current Liquidity Policy, in the event that senior management of the Company, acting in good faith, determines it to be advisable to draw funds under the Santander Financing, then SHUSA and its respective Affiliates (including any directors nominated by SHUSA) shall not take any action, or fail to take any action (including failing to approve any Board Reserved Matter or Shareholder Reserved Matter), which action or failure to act would prevent the Company from borrowing under the Santander Financing; provided that the conditions to such borrowing are otherwise satisfied. In connection with any action to be taken by the Company pursuant to Exhibit H of the Santander Financing, the Company will act, or refrain from acting, at the written direction of the New Acquirer. Banco Santander agrees that it shall comply with its obligation under the Santander Financing.

(c) In the event that after the date of this Agreement, the New Acquirer and senior management of the Company reasonably determine in good faith that it is in the best interests of the Company for the Company to incur additional indebtedness for borrowed money and such financing is available from a third-party financing source which is not an Affiliate of the Company or any of the Shareholders (a “Third-Party Financing Source”) to the Company on terms which, in the reasonable, good faith determination of the New Acquirer and senior management of the Company, are commercially reasonable, in the best interests of the Company and are consistent with the Company’s then current business plan and budget (such financing, “Available Financing”), then SHUSA, the Acquirers and their respective Affiliates (including any directors nominated by SHUSA or the Acquirers) shall not take any action, or fail to take any action (including failing to approve any Board Reserved Matter or Shareholder Reserved Matter), which action or failure to act would prevent the Company from obtaining such Available Financing from such Third-Party Financing Source unless SHUSA, the Acquirers or their respective Affiliates, as applicable, are willing to provide equivalent financing on terms that, taken as a whole, are no less favorable to the Company than the terms of the Available Financing. This Section 6.14(c) shall terminate and be of no further force and effect upon the occurrence of an Acquirer Group Termination.

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(d) The Company, together with the Company Subsidiaries, shall by February 28, 2012, have the Required Financing. The Company shall use commercially reasonable efforts to, as promptly as practicable after increasing the total commitments under the Santander ABS Credit Agreement, enter into one or more Third Party Warehouse Agreements (the “Replacement Facilities”) with margins not in excess of the margins of the Comparable Facility by more than 40 basis points and otherwise on terms that are not materially less favorable to the Company in the aggregate than the terms of the Comparable Facility and, upon entry, into such Third Party Warehouse Agreements, the Company shall, at the request of Banco Santander, reduce the available amount under the Santander ABS Credit Agreement by a corresponding amount; provided, however, the Company shall not reduce the available amount under the Santander ABS Credit Agreement if, following such reduction, the Company, together with its Subsidiaries, would no longer have the Required Financing. The New Acquirer and its Affiliates (including any directors nominated by it) shall not take any action, or fail to take any action (including failing to approve any Board Reserved Matter or Shareholder Reserved Matter), which action or failure to act could prevent the Company satisfying the requirements of this Section 6.14(d), including preventing the Company from entering into any Third Party Warehouse Agreements or obtaining any Additional Financing, the entry into which, in the reasonable determination of senior management of the Company, is reasonably necessary for the Company to satisfy the requirements of this Section 6.14(d). In addition, the New Acquirer and its Affiliates (including any directors nominated by it) shall not take any action, or fail to take any action (including failing to approve any Board Reserved Matter or Shareholder Reserved Matter), which action or failure to act would prevent the Company from obtaining any Additional Financing to the extent necessary for the Company to comply with this Section 6.14(d) or entering into Replacement Facilities. In the event that the New Acquirer or its Affiliates (including any directors nominated by it) do not comply with their obligations under this Section 6.14(d), then neither the Company nor Banco Santander shall have any obligations under, or liabilities with respect to, this Section 6.14(d).

(e) Banco Santander hereby unconditionally and irrevocably guarantees to SHUSA and each Acquirer the full and punctual performance by the Company of all obligations of the Company under Section 6.14(d) (the “Required Financing Guaranteed Obligations”). The obligations of Banco Santander under this Section 6.14(e) shall not be affected by (1) the failure of SHUSA or any Acquirer to assert any claim or demand or to enforce any right or remedy against the Company under this Agreement; (2) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement; or (3) any change in the ownership of Banco Santander. Without limiting the generality of the foregoing, Banco Santander agrees that if the Company shall fail in any manner whatsoever to perform or observe any of the Required Financing Guaranteed Obligations when the same shall be required to be performed or observed, then Banco Santander will itself duly and punctually perform or observe or cause to be performed or observed the Required Financing Guaranteed Obligations.

(f) In the event that any Qualifying Payment is paid by any borrower under any of the Santander Three Year Credit Agreement, the Santander Five Year Credit Agreement or the Santander ABS Credit Agreement, upon written notice of such payment by the New Acquirer, Banco Santander shall promptly pay to the New Acquirer an amount equal to the product of (i) the amount of the Qualifying Payment and (ii) the New Acquirer’s Proportionate Percentage.

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6.15. IPO.

(a) In connection with an IPO, SHUSA and the Acquirers agree to negotiate in good faith, and with the advice of the lead underwriters for an IPO, to attempt to take advantage of “controlled company” or other exceptions to retain the voting rights and corporate governance provisions applicable to the Company as of the date hereof; provided, that such voting rights and corporate governance provisions shall not be required to be retained if following such good faith negotiations SHUSA and the Acquirers fail to agree on such provisions, in which case the provisions of Section 6.15(b) shall apply.

(b) In connection with an IPO in which SHUSA and the Acquirers fail to agree on voting rights and corporate governance provisions pursuant to Section 6.15(a), this Agreement, the articles of incorporation and by-laws of the Company and the organizational documents of each Significant Subsidiary shall be amended upon the recommendation of the lead underwriters for such IPO in order to maximize the per share value of the Shares sold or issued in such IPO to (i) eliminate or adjust the voting rights and corporate governance provisions set forth in this Agreement, the articles of incorporation or by-laws of the Company or the organizational documents of any Significant Subsidiary and (ii) include such other terms as are appropriate for a public company, so long as, following such changes, the Company complies with all applicable corporate governance and other listing requirements of the applicable exchange on which its shares will be listed without reliance on any “controlled company” or similar exception. Notwithstanding the foregoing, the New Acquirer’s voting and corporate governance rights shall not be eliminated or reduced without their consent, unless SHUSA’s voting and corporate governance rights are also adjusted to be no more favorable than those of the New Acquirer. In the event the Board Reserved Matters or Shareholder Reserved Matters are adjusted in an IPO pursuant to this Section 6.15(b), then the Company’s actual Two Year Net Income used for the calculation of the Post-IPO Contingent Adjustments shall be adjusted to be an amount equal to the product of (x) the quotient of (A) the Company’s actual Two Year Net Income divided by (B) the average number of Shares outstanding during fiscal years 2014 and 2015 (on a fully diluted basis based on the treasury stock method), multiplied by (y) the number of Shares outstanding immediately prior to the IPO (on a fully diluted basis based on the treasury stock method), in each case as adjusted from time to time for any reorganization, reclassification, stock split, stock dividend, reverse stock split, or other like changes in the Company’s capitalization since the date hereof. The Shareholders agree that they will take, and cause their Affiliates (including any directors nominated by such Shareholder) to take, any and all actions necessary to give effect to the foregoing, including voting their Shares and any other Securities of the Company (to the extent such Securities have voting rights) at any regular or special meeting of the shareholders of the Company, or in any written consent in lieu of such a meeting of shareholders, to cause the amendment of this Agreement, the articles of incorporation or by-laws of the Company or the organizational documents of any Significant Subsidiary, which amendments are necessary to give effect to the actions contemplated by the preceding clauses (i) and (ii) or with Section 6.15(a), as applicable. The Shareholders shall take all other actions necessary to ensure the amendment of this Agreement, the articles of incorporation or by-laws of the Company or the organizational documents of any Significant Subsidiary, which amendments are necessary to give effect to the actions contemplated by the preceding clauses (i) and (ii) or with Section 6.15(a), as applicable and shall not take any actions which are inconsistent with the intent and purpose of the foregoing. The Company shall take all actions necessary to cause the

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amendment of this Agreement, the articles of incorporation or by-laws of the Company or the organizational documents of any Significant Subsidiary, which amendments are necessary to give effect to the actions contemplated by the preceding clauses (i) and (ii) or with Section 6.15(a), as applicable, and shall not take any actions which are inconsistent with the intent and purpose of the foregoing.

6.16. Certain Tax Matters. Subject to Section 6.16(b), SHUSA shall indemnify and hold harmless the Company and its Subsidiaries or the New Acquirer, as applicable under Section 6.16(c), without duplication, from any Loss (which, for purposes of this Section 6.16, shall have the meaning assigned to such term in the New Acquirer Investment Agreement) arising from:

(i) any and all liability for Taxes of the Company or any of its Subsidiaries (or any predecessors) with respect to any Pre-Determination Date Tax Period,

(ii) any and all liability for Taxes of the Company or any of its Subsidiaries that arises from a transaction (such as an intercompany transaction under Treasury Regulation § 1.1502-13) before the Determination Date that results in taxable income or gain in the period after the Determination Date and on or before the Closing Date, and that would have arisen in a Pre-Determination Date Tax Period if the Closing had occurred on the Determination Date;

(iii) any breach of (A) any representation or warranty contained in Section 2.08 of the New Acquirer Investment Agreement (provided that, in the case of any representation or warranty contained in Section 2.08(i) of the New Acquirer Investment Agreement, the term Closing Date shall be replaced with the term Determination Date) or (B) any covenant set forth in Section 4.01(b)(iii) of the New Acquirer Investment Agreement; (iv) any payments made by the Company or any of its Subsidiaries after the Determination Date in violation of Section 5.01(c) of the New Acquirer Investment Agreement except as provided in this Agreement; and

(v) any Group Tax Liabilities.

(b) SHUSA shall not be responsible for any indemnification under Section 6.16(a) unless and until the aggregate amount of Losses of the Company and its Subsidiaries under clauses (i) through (v) of Section 6.16(a) exceeds the aggregate liability for Taxes (other than deferred taxes) included in the calculation of the Company’s Tangible Common Equity (as defined in the New Acquirer Investment Agreement) pursuant to Section 1.04 of the New Acquirer Investment Agreement.

(c) Losses of the Company subject to indemnification under Section 6.16(a) that exceed the threshold under Section 6.16(b) shall be indemnified as follows:

(i) if a Loss arises under Section 6.16(a)(i), 6.16(a)(ii), 6.16(a)(iv) or 6.16(a)(v), SHUSA shall pay the amount of such Loss to the Company; and

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(ii) if a Loss arises under Section 6.16(a)(iii), and not under any other clause of Section 6.16(a), SHUSA shall pay the New Acquirer all Losses that the New Acquirer may suffer, incur, or become subject to (including by reason of its indirect share of any Loss of the Company attributable to the New Acquirer’s ownership interest in the Company), as a result of such Loss of the Company.

(d) For purposes of Section 6.16(b), (A) any liability of the Company in the calculation of Tangible Common Equity (as of the Determination Date) under the line item of “Payable to Parent-Tax Sharing Agreement” relating to a Pre-Determination Date Tax Period shall be treated as a liability for Taxes for the Pre-Determination Date Tax Period, and (B) any liability of the Company for Taxes payable for a Post-Determination Date Tax Period included in the calculation of Tangible Common Equity (as of the Determination Date), such as those arising from an adjustment under Section 481 of the Internal Revenue Code for a change in accounting method arising before the Determination Date, shall not be taken into account.

(e) In the case of any Straddle Period, the amount of Taxes allocable to the portion of the Straddle Period ending on the Determination Date shall be deemed to be the amount of any such Taxes determined as if such taxable period ended as of the close of business on the Determination Date; provided that, in the case of any Straddle Period governed by the State Tax Sharing Agreement, the amount of Taxes allocable to the portion of such Straddle Period ending on the Determination Date shall be determined under the State Tax Sharing Agreement.

(f) The parties agree to treat all taxable periods of the Company and its Subsidiaries as ending on the Closing Date for U.S. federal income Tax purposes and, to the extent possible, state and local income Tax purposes.

(g) For purposes of Sections 6.16(a) and 6.16(b), in the case of an audit adjustment for a Pre-Determination Date Tax Period with respect to a consolidated or combined return that includes both the Company or its Subsidiaries, and SHUSA or its Subsidiaries (other than the Company or its Subsidiaries), the liability of the Company and its Subsidiaries for such Period shall be determined on the basis of intercompany agreements and practices in effect for the taxable year in question.

(h) Except as otherwise required by law, the Company and its Subsidiaries shall not amend any Tax Returns with respect to any Pre-Determination Date Tax Period without the prior written consent of SHUSA if such amendments would result in an amount of Tax for which SHUSA would have an indemnification obligation pursuant to this Section 6.16.

(i) In the event that the Company or its Subsidiaries receive notice of the assertion of any claim against it by any taxing authority, which, if successful, might result in an indemnity payment to the Company or the New Acquirer pursuant to this Section 6.16, it shall provide notice to SHUSA promptly after becoming aware of such claim; provided, however, that the failure of the Company or its Subsidiaries to provide such notice shall not affect the indemnification obligations under this Agreement except, and only to the extent that, SHUSA shall have been materially prejudiced as a result of such failure.

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(j) In the case of any liability for Taxes described in Section 6.16(b), including those referred to in Section 6.16(d)(A), the Company and its Subsidiaries shall pay the amount of such Tax liability to the relevant taxing authority, or, if any such Tax is owed by SHUSA or its Subsidiaries, to SHUSA at least 2 business days before such Tax is due.

(k) SHUSA shall, solely at its own cost and expense, exclusively control any audit, litigation or other proceeding relating to any Taxes for which an indemnity is provided by SHUSA under Section 6.16; provided, however, that no settlement, compromise or consent to entry of a judgment that fails to provide the Company and its Subsidiaries with a complete release of liability or that would impose material obligations on the Company or its Subsidiaries (including with respect to any Post-Determination Date Tax Period) shall be made without the prior written consent of the Company (which shall not be unreasonably withheld, conditioned or delayed).

(l) The Company and its Subsidiaries shall pay to SHUSA any refunds of Taxes (net of any Taxes thereon) received with respect to any Pre-Determination Date Tax Period within 5 days of receipt of such refund, except for any refund with respect to an item that was taken into account as an asset relating to Taxes in the calculation of the Company’s Tangible Common Equity (as defined in the New Acquirer Investment Agreement), which, if received by SHUSA, shall be paid to the Company within 5 days of receipt thereof; provided that any refund arising from a carryback of Tax attributes from a Post-Closing Tax Period shall be for the benefit of the Company, and if such a refund is received by SHUSA, SHUSA shall pay such refund over to the Company within 5 days of receipt thereof.

(m) Responsibility for Filing Tax Returns. Except to the extent provided in the State Tax Sharing Agreement, the following rules shall apply to any Tax Return for a Tax period that includes any date on or before the Closing Date and that is required to be filed after the Closing Date.

(i) SHUSA or the Company (in accordance with past practices) shall timely prepare or cause to be prepared, and file or cause to be filed (in a manner consistent with past practices) such Tax Return. The preparing party shall provide the other party with the portion(s) of any such Tax Return described in the preceding sentence relating to the other party at least 20 Business Days prior to the filing of such Tax Return and shall permit the other party to review and provide reasonable comments on any such Tax Return within 10 Business Days of receipt thereof. The parties shall cooperate in good faith to resolve any disagreements with respect to any comments provided on any such Tax Return.

(ii) The party filing any such Tax Return shall pay all Taxes due with respect to such Tax Return. The party making such payment shall be reimbursed by the other party for Taxes (x) in accordance with the indemnity principles in Section 6.16 for Tax periods through the Determination Date, and (y) on the basis of intercompany agreements and past practice for the Federal consolidated tax return and for state combined tax returns for periods between the Determination Date and the Closing Date.

(n) Without limiting the obligations of SHUSA under this Section 6.16:

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(i) Dundon Holdco shall reimburse SHUSA for 8.5% of any payment made by SHUSA under Section 6.16(c) as soon as reasonably practicable after such payment is made by SHUSA; and

(ii) SHUSA shall pay to Dundon Holdco 8.5% of any refunds of Taxes received by SHUSA pursuant to Section 6.16(l) as soon as reasonably practicable after such refund is received by SHUSA or paid by the Company to SHUSA.

(o) Any payment made pursuant to Section 6.16(c) from SHUSA to the Company shall be treated for Tax purposes as a capital contribution by SHUSA to the Company. Any payment made pursuant to Section 6.16(c) from SHUSA to the New Investors shall be treated for Tax purposes as a capital contribution by SHUSA to the Company followed by a distribution by the Company to the New Acquirers that is treated as a return of a portion of the Acquisition Price. Any payment made by Dundon Holdco to SHUSA pursuant to Section 6.16(n) shall be treated for Tax purposes as a capital contribution by Dundon Holdco to the Company followed by a return of the corresponding amount treated as a capital contribution under this Section 6.16(o).

6.17. Regulatory and Compliance Matters.

(a) Neither the Company nor SHUSA shall, and each shall cause its Affiliates to not, take any action that would cause any Acquirer to be required to register as a bank holding company under the Bank Holding Company Act, or a savings and loan holding company under the Home Owners’ Loan Act.

(b) The Company and the Shareholders agree that (i) the Company will pursue best-in-class standards in the areas of risk-management, human resources, compliance, fair lending and other areas designated by the Board of Directors from time to time and (ii) management of the Company will work to develop and implement procedures and internal controls designed to achieve such standards. Management of the Company shall report to the Board of Directors on a regular basis (but not less frequently than quarterly) as to the specific standards adopted, compliance or deviation from those standards and any remediation programs being implemented to address any failures to meet or comply with those standards. In addition, the Company shall use reasonable best efforts to appoint a risk management officer with appropriate resources and responsibilities consistent with best industry practices.

(c) With respect to the State License Approvals (as defined in the New Acquirer Investment Agreement), by February 14, 2012, (i) the Company, together with the Company Subsidiaries, shall have obtained all authorizations, consents, orders, approvals and declarations and made all filings and (ii) all applicable waiting periods shall have expired.

6.18. Information and Access.

(a) At any time during which the Company does not file reports with a securities regulatory authority that are publicly available that contain such information, the Company shall deliver to the New Acquirer and SHUSA (a) the most recent audited annual financial statements of the Company and (b) the most recent unaudited quarterly financial

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statements of the Company, in each case, as promptly as practicable after each applicable period end, but no later than they otherwise become available. The Company shall, and shall cause each of its Subsidiaries, (i) at any and all reasonable times during normal business hours on reasonable notice and in such manner as is not reasonably likely to adversely affect the operations of the Company or any of its Subsidiaries, as the case may be, to permit each of the New Acquirer and SHUSA and their respective authorized representatives to examine, at the New Acquirer’s or SHUSA’s, as applicable, expense, all books of account, records, reports documents, data and papers, and to make copies and take extracts and to discuss its business, affairs, finances and accounts with its senior employees, accountants and other advisors and (ii) to permit the New Acquirer and SHUSA to consult with the officers of the Company and its Subsidiaries periodically and at such times as reasonably requested by the New Acquirer or SHUSA, as applicable, on significant corporate actions involving the Company and its Subsidiaries, including extraordinary dividends, mergers, acquisitions or dispositions of assets, issuances of significant amounts of debt or equity and material amendments to the organizational documents of the Company, in each case, to the extent consistent with applicable Law (and with respect to any information which would require public disclosure pursuant to the foregoing, only following the Company’s public disclosure thereof through applicable securities law filings or otherwise). The Company agrees to consider, in good faith, the recommendations of the New Acquirer and SHUSA or its designated representative in connection with the matters on which it is consulted as set forth in clause (ii) above, recognizing that the ultimate discretion with respect to all such matters shall be retained by the Company. The provisions of this Section 6.18(a) shall apply for so long as any one or more of the Original Investors seek to qualify as a “venture capital operating company” within the meaning of C.F.R. Section 2510.3-101(d).

(b) The Company shall, and shall cause each of its Subsidiaries to, deliver to the New Acquirer simultaneously with any delivery to SHUSA or its Affiliates, all information (in the same form as delivered to SHUSA or its Affiliates, as applicable) regarding the Company delivered by the Company to SHUSA or any of its Affiliates (other than the Company). The provisions of this Section 6.18(b) shall apply until the occurrence of an Acquirer Group Termination.

6.19. Outside Activities.

Subject to applicable Law, Affiliates of the Shareholders (including their respective equityholders and their respective Affiliates, but excluding any member of the Board of Directors who is also an officer of the Company) may engage in or possess any interest in other investments, business ventures or Persons of any nature or description, independently or with others, similar or dissimilar to, or that competes with, the investments or business of the Company and its Subsidiaries (collectively, “Outside Activities”), and may provide advice and other assistance to any such investment, business venture or Person engaged in Outside Activities, (b) the Company and the Shareholders shall have no rights in and to such Outside Activities or the income or profits derived therefrom, and (c) the pursuit of any such Outside Activities, even if competitive with the business of the Company and its Subsidiaries, shall not be deemed wrongful or improper. Subject to applicable Law, the Shareholders and their respective Affiliates (including their respective equityholders and their respective Affiliates, but excluding any member of the Board of Directors who is also an officer of the Company) (i) shall not be obligated to present any particular investment or business opportunity to the Company

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even if such opportunity is of a character that, if presented to the Company, could be pursued by the Company, and (ii) shall have the right to pursue for their own account (individually or as a partner or a fiduciary) or to recommend to any other Person any such investment opportunity. Notwithstanding the foregoing, nothing in this Section 6.19 shall be deemed or construed to permit any member of the Board of Directors to use any confidential, proprietary or nonpublic information obtained in his or her capacity as a member of the Board of Directors for the personal benefit of such director or of any entity with which such director may be affiliated or to the detriment of the Company, to the extent such use would not have been permitted under applicable Law in the absence of this Section 6.19.

6.20. SHUSA Swap Adjustment Payment.

(a) If on December 31, 2012 (the “Swap Determination Date”) the Swap Recorded Value, as determined in accordance with Section 6.20(d), as of the Swap Determination Date is a liability then SHUSA shall make a payment to the Company in an amount equal to the lesser of (X) the sum of (1) the absolute value of the Swap Recorded Value, as determined in accordance with Section 6.20(d), as of the Swap Determination Date, plus (2) the amount of Swap Payments, minus (3) the amount of Swap Receipts; and (Y) the absolute value of the Swap Recorded Value used to calculate the Pro Forma Capitalization as of the Determination Date; provided, however, if the calculation results in a zero or negative value, then no such payment shall be made. If on the Swap Determination Date the Swap Recorded Value, as determined in accordance with Section 6.20(d) as of the Swap Determination Date is an asset or is zero, then SHUSA shall make a payment to the Company in an amount equal to the sum of (X) the amount of Swap Payments minus (Y) the amount of Swap Receipts, minus (Z) the amount of the Swap Recorded Value, as determined in accordance with Section 6.20(d), as of the Swap Determination Date; provided, however, if the calculation results in a zero or negative number, then no such payment shall be made.

(b) If Section 6.20 (a) results in a Swap Adjustment Payment, then the amount of the Swap Adjustment Payment as determined in Section 6.20 (a) shall be reduced by the lesser of (i) the amount of the net unrealized gains on Determination Date Investment Securities recorded in other comprehensive income as of the Determination Date; and (ii) the Cumulative Investment Securities Gains; provided, however, if the calculation results in a zero or negative number, then no such payment shall be made.

(c) The amount of any payment determined pursuant to Section 6.20(a) or 6.20(b) shall be net of the value of the Tax deduction for amounts payable on the Swap equal to the amount of the Swap Adjustment Payment before applying this sentence (as if the Tax deduction arose on the date that the Swap Adjustment Payment is received). The parties agree to treat any payments pursuant to this Section 6.20 for Tax purposes as a capital contribution by SHUSA to the Company.

(d) Within 20 days of the Swap Determination Date, the CFO shall deliver a notice certifying the Company’s calculation of its Swap Recorded Value as of the Swap Determination Date and providing the underlying support for the calculations (the “Swap Determination Notice”). If either SHUSA or the New Acquirer disagrees with the Company’s calculation of the Swap Recorded Value, each of SHUSA and the New Acquirer shall be

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entitled, within ten days of receipt of the Swap Determination Notice, to give notice to the Company and SHUSA or the New Acquirer, as applicable, of such disagreement which shall set forth SHUSA and/or the New Acquirer’s calculation of the Swap Recorded Value, the basis for SHUSA and/or the New Acquirer’s dispute or objections and the specific adjustments (including dollar amounts) that SHUSA and/or the New Acquirer believes in good faith should be made (any such written notice, a “Notice of Swap Determination Objection”) and, upon receipt thereof, the Company, the New Acquirer and SHUSA will negotiate reasonably and in good faith in an effort to agree upon the Swap Recorded Value. If neither SHUSA nor the New Acquirer provides such notice to the Company within such five day period, then the Company’s determination of the Swap Recorded Value shall be final and binding on the Company, SHUSA and the New Acquirer for purposes of Section 6.20(a). If either SHUSA or the New Acquirer provides such notice and the Company, SHUSA and the New Acquirer fail to agree in writing upon the Swap Recorded Value within 25 days from the date of the Swap Determination Notice, then the Swap Valuation Firm shall make a determination of the Swap Recorded Value and, in accordance with such determination, shall select either (i) the Company’s proposed Swap Recorded Value, (ii) SHUSA’s proposed Swap Recorded Value (if SHUSA delivered a Notice of Swap Determination Objection) or (iii) the New Acquirer’s proposed Swap Recorded Value (if the New Acquirer delivered a Notice of Swap Determination Objection). The Company, SHUSA and the New Acquirer each agree to sign an engagement letter, in commercially reasonable form, if reasonably required by the Swap Valuation Firm. Each party promptly shall, upon request, make available to each other and the Swap Valuation Firm all relevant books and records, any work papers (including those of the parties’ respective accountants) and supporting documentation relating to the Swap Recorded Value, in each case to the extent within the control of such party. The Swap Valuation Firm’s determination of the Swap Recorded Value shall be final and binding on the Company, SHUSA and the New Acquirer for purposes of Section 6.20(a). In any case where the Swap Valuation Firm is required to render an opinion of the Swap Recorded Value, such opinion shall be rendered within 30 days of being engaged. All fees and disbursements of the Swap Valuation Firm shall be borne by (i) the New Acquirer, in the event that the New Acquirer delivered a Swap Determination Objection, and the Swap Valuation Firm selects the Company’s proposed Swap Recorded Value or SHUSA’s proposed Swap Recorded Value, (ii) SHUSA, in the event that SHUSA delivered a Swap Determination Objection and the New Acquirer did not deliver a Swap Determination Objection, (iii) the New Acquirer and SHUSA equally, in the event that both the New Acquirer and SHUSA delivered a Swap Determination Objection, and the Swap Valuation Firm selects the Company’s proposed Swap Recorded Value and (iv) SHUSA, in the event that the New Acquirer delivered a Swap Determination Objection, and the Swap Valuation Firm selects the New Acquirer’s proposed Swap Recorded Value.

6.21. Reincorporation.

The Company and Shareholders shall take, and cause their Affiliates (including any directors nominated by such Shareholder) to begin to take, following the date hereof, any and all actions necessary to cause the Company to be incorporated under the Delaware General Corporation Law (whether through a merger of the Company into a Person incorporated under the Delaware General Corporation Law or otherwise); provided that the Company shall not be required to take any actions to the extent taking such actions could, in the reasonable judgment of the Company, interfere with the operation of the business of the Company. Notwithstanding the foregoing, the Company shall be required to be incorporated under the Delaware General Corporation Law upon the consummation of an IPO.

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6.22. Servicer Guarantees.

(a) At the written request of the CEO or CFO, Banco Santander will guarantee, in form and substance not less favorable to Banco Santander than the form and substance of the servicing guarantees provided by Banco Santander as of the date of this Agreement, the servicing obligations of the Company pursuant to any warehouse financing arrangements which the Company or any Subsidiary of the Company enters into with a third party following the date of this Agreement; provided, however, that Banco Santander will not be required to provide any such guarantee unless providing such guarantee would not be a violation of applicable Law, in which case, Banco Santander shall use all reasonable efforts to restructure the guarantee so that Banco Santander shall be permitted to make such guarantee.

(b) Prior to the consummation of an IPO, if Banco Santander and its Affiliates’ Proportionate Percentage is less than 50.0% this Section 6.22(a) shall terminate and be of no further force and effect on the first date on which Banco Santander and its Affiliates’ Proportionate Percentage is less than 50.0%. After the consummation of an IPO, this Section 6.22(a) shall terminate and be of no further force and effect upon the earlier of (i) the occurrence of a Change of Control, and (ii) the date that is three years after the consummation of the IPO.

6.23. New Acquirer Funding Obligation.

Following the consummation of an IPO, the New Acquirer shall not make any dividend or distribution on its equity interests (in cash, Securities or other property) or make any other payment to or for the benefit of its controlling Affiliates, unless immediately after giving effect to such payment the New Acquirer holds a combination of cash, cash equivalents, letters of credit (in form and substance reasonable satisfactory to SHUSA), financing guarantees from the Original Investors (in form and substance reasonable satisfactory to SHUSA) and Shares in an aggregate amount equal to or greater than the sum of (i) $250,000,000.00 and (ii) the aggregate amount of the New Acquirer’s outstanding indebtedness. The per share value of the Shares used for purposes of the preceding determination shall be equal to the Average Stock Price. The covenant set forth in this Section 6.23, and any guarantees or other instruments issued in connection herewith, shall terminate upon the payment in full by the New Acquirer of the Post-IPO Contingent Adjustment on the SHUSA Contingent Payment Date, or the final determination that a Post-IPO New Acquirer Contingent Adjustment will be payable instead.

6.24. Dundon Holdco Adjustments.

(a) In the event that any SHUSA Contingent Payment, New Acquirer Acquisition Price Adjustment, Bring-Along Contingent Acquisition Price Adjustment, IPO Put Option Contingent Adjustment Value payment or Deadlock Contingent Adjustment Value payment (each a “Dundon Contingent Payment”) is paid by the Company, at the same time as the payment of the Dundon Contingent Payment the Company shall pay to Dundon Holdco an amount equal to (X) in the event that the Dundon Contingent Payment is an Applicable Dundon Contingent Payment, the product of (a) the sum of (i) the amount of the Dundon Contingent

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Payment and (ii) the amount of the Additional Financing Costs and (b) Dundon Holdco’s Proportionate Percentage or (Y) in the event that the Dundon Contingent Payment is not an Applicable Dundon Contingent Payment, the product of (a) the amount of the Dundon Contingent Payment and (b) Dundon Holdco’s Proportionate Percentage (any such payment, the “Dundon Holdco Adjustment”). If paid in cash, the parties hereto agree to treat the Dundon Holdco Adjustment for Tax purposes as (i) a return of a portion of the Acquisition Price and then (iii) a dividend to Dundon Holdco with respect to which all other shareholders of the Company have waived their proportionate share. If paid in Shares, the parties hereto agree to treat the Dundon Holdco Adjustment for Tax purposes as a capital contribution of such Shares by SHUSA to the Company, followed by a distribution by the Company to Dundon Holdco of such Shares that is treated as an acquisition of additional shares of Common Stock as part of the purchase pursuant to the Dundon Investment Agreement. Any Dundon Holdco Adjustment payments may be made by the Company in the form of cash or Shares, at the option of the Company. If any Dundon Holdco Adjustment payment is made in the form of Shares, then the per share value of the Shares shall be determined pursuant to Section 6.24(b). For the avoidance of doubt, the failure of Dundon Holdco to own shares of Common Stock or of Executive to be the CEO shall not impair Dundon Holdco’s right to receive a Dundon Holdco Adjustment.

(b) (i) If the Dundon Holdco Adjustment is paid as a result of the payment of an IPO Put Option Contingent Adjustment Value payment, the per share value of the Shares used to pay the Dundon Holdco Adjustment shall be determined by reference to the IPO Put Option Fair Market Value (and the IPO Put Option Fair Market Value, determined in accordance with Section 3.3 shall be final and binding on the Company and Dundon Holdco). (ii) If the Dundon Holdco Adjustment is paid as a result of the payment of a Deadlock Contingent Adjustment Value payment, the per share value of the Shares used to pay the Dundon Holdco Adjustment shall be determined by reference to the Deadlock Fair Market Value (and the Deadlock Fair Market Value, determined in accordance with Section 4.3 shall be final and binding on the Company and Dundon Holdco). (iii) If the Dundon Holdco Adjustment is paid as a result of the payment of a SHUSA Contingent Payment, New Acquirer Acquisition Price Adjustment or Bring-Along Contingent Acquisition Price Adjustment, the per share value of the Shares used to pay the Dundon Holdco Adjustment shall be an amount agreed to by SCUSA and Dundon Holdco. In the event that the Company and Dundon Holdco do not agree on such valuation, the Dundon Holdco Adjustment payment shall only be made in cash.

6.25. Assignments under the Note Purchase Agreement; Transfers of the Notes.

(a) The New Acquirer will not consent or agree to any assignment by the Lender of its rights, privileges or obligations under the Note Purchase Agreement or any transfer of the Notes without the prior written consent of each of Banco Santander and SHUSA, other than any assignment by the Lender to the New Acquirer.

(b) If the New Acquirer becomes the holder of any Notes, the New Acquirer will not consent or agree to any assignment of its rights, privileges or obligations under the Note Purchase Agreement or any transfer of the Notes without the prior written consent of each of Banco Santander and SHUSA.

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ARTICLE VII

PREEMPTIVE RIGHTS

7.1. Preemptive Rights.

(a) Each Shareholder (the “Preemptive Holders”), in connection with the issuance by the Company or its Subsidiaries of equity Securities of the Company or its Subsidiaries or Securities convertible into or exercisable for equity Securities of the Company or its Subsidiaries or that include an equity component (such as an “equity kicker”) (including any hybrid security) (a “Preemptive Issue”), shall have the right (a “Preemptive Right”) to purchase, on the same terms and at the price per Preemptive Issue offered to each offeree, its proportionate share (based on its Proportionate Ownership) of each class of Preemptive Issue to be issued other than a Preemptive Issue (i) pursuant to an IPO of the Company, (ii) pursuant to an employee stock option plan, management incentive plan, restricted stock plan, stock purchase plan or stock ownership plan or similar benefit plan, program or agreement or (iii) any issuance by a wholly owned, direct or indirect, Subsidiary of the Company to the Company or another wholly owned, direct or indirect, Subsidiary of the Company.

(b) In the case of a Preemptive Issue for a consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Board of Directors; provided, however, that such fair value as determined by the Board of Directors shall not exceed the aggregate market price of the securities being offered as of the date the Board of Directors authorizes the offering of such securities.

7.2. Preemptive Notice; Closing of Preemptive Issue.

(a) The Company shall deliver written notice (the “Preemptive Notice”) to each Preemptive Holder of any proposed Preemptive Issue in respect of which such Preemptive Holder has a Preemptive Right, which notice will include (i) the name of each class of Preemptive Issue to be issued, (ii) the aggregate number of Securities comprising each such class of Preemptive Issue to be issued, (iii) the number of Securities comprising each such class of Preemptive Issue offered to such Preemptive Holder, (iv) the price per Security, (v) the proposed closing date, (vi) the place and time for the issuance thereof and (vii) all other material terms and conditions of the Preemptive Issue. Within 15 days from the date of receipt of the Preemptive Notice, any such Preemptive Holder wishing to exercise its preemptive right concerning any such class of Preemptive Issue to be issued shall deliver written notice to the Company setting forth the portion of each class of Preemptive Issue so offered to such Preemptive Holder that such Preemptive Holder commits to purchase (which may be for all or any portion of such class of Preemptive Issue so offered to such Preemptive Holder) and the failure of any Preemptive Holder to respond within such 15 day period shall be deemed a waiver of such Preemptive Holder’s Preemptive Rights under this Article VII. Each Preemptive Holder so exercising its Preemptive Rights under this Article VII shall be entitled and obligated to purchase that portion of the Securities so offered to such Preemptive Holder specified in such Preemptive Holder’s notice on the terms and conditions set forth in the Preemptive Notice.

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(b) The closing of the sales to Preemptive Holders under this Article VII shall be made at the offices of the Company on a mutually satisfactory Business Day within 15 days after the expiration of the time period provided for in Section 7.2(a); provided, however, if the Company and the Preemptive Holder cannot agree on a mutually acceptable date, the closing of shall occur on said 15th day; provided further, that the foregoing references to “15th day” shall mean such later day on which all necessary consents from applicable Governmental Authorities to such sale have been received if any such required consents were not received prior to such 15th day.

(c) Any Preemptive Issue proposed to be issued by the Company or any of its Subsidiaries and not purchased by Preemptive Holders pursuant to this Section 7.2 may be sold by the Company or its Subsidiaries, as applicable, within 75 days to any Person at a price not lower and otherwise on terms, taken as a whole, not less favorable to the Company or its Subsidiaries, as applicable, than the proposed price and terms set forth in the Preemptive Notice. If the such sale is not consummated within such 75 days, such Preemptive Issue shall not be offered unless first reoffered to the Preemptive Holders.

(d) Each of the Shareholders and the Company shall use commercially reasonable efforts to secure any necessary consent from applicable Governmental Authorities and to comply with any applicable Law necessary in connection with the exercise of a Preemptive Issue and Preemptive Right.

ARTICLE VIII

REGISTRATION RIGHTS

8.1. Demand Registration.

(a) Subject to Section 8.1(b), at any time and from time to time, the New Acquirer or SHUSA (the “Requesting Demand Shareholder”) may, in a written notice (a “Demand Notice”) to the Company, request that the Company file a registration statement (a “Demand Registration Statement”) under the Securities Act covering the registration of all or a portion of such Requesting Demand Shareholder’s Registrable Securities, as specified in the Demand Notice. Upon the receipt of such Demand Notice, the Company shall use reasonable efforts to file a Demand Registration Statement providing for the registration under the Securities Act of the Registrable Securities which the Company has been so requested to register by such Requesting Demand Shareholders, to the extent necessary to permit the disposition of such Registrable Securities in accordance with the intended methods of distribution thereof specified in such request, and shall use its reasonable efforts to have such Demand Registration Statement declared effective by the Commission as soon as practicable thereafter and to keep such Demand Registration Statement continuously effective for a period of time necessary following the date on which such Demand Registration Statement is declared effective for 60 days or such shorter period which will terminate when all of the Registrable Securities covered by such Demand Registration Statement have been sold pursuant thereto (including, if necessary, by filing with the Commission a post-effective amendment or a supplement to the Demand Registration Statement or the related prospectus or any document incorporated therein by reference or by filing any other required document or otherwise supplementing or amending the Demand

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Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Demand Registration Statement or by the Securities Act, any state securities or “blue sky” laws, or any other rules and regulations thereunder). Within five days after receipt by the Company of a Demand Notice in accordance with this Section 8.1(a), the Company shall give written notice of such Demand Notice to all other holders of Registrable Securities.

(b) The Company will not be obligated to file any Demand Registration Statement within 180 days after the consummation of an IPO, within 180 days of the effective date of a previous Demand Registration Statement or, in the case of a Demand Notice given by the New Acquirer prior to the consummation of an IPO, prior to December 31, 2014. The maximum number of registrations that the Company is required to effect in response to Demand Notices given by (i) SHUSA is one and (ii) the New Acquirer is (x) before an IPO, one and (y) after an IPO, (A) four, if the Company did not effect a registration in response to a Demand Notice given by the New Acquirer before the consummation of an IPO or (B) three, if the Company effected a registration in response to a Demand Notice given by the New Acquirer before the consummation of an IPO (each, a “Demand Registration Right”). A Demand Registration Statement shall be deemed not to have become effective (and the related registration shall be deemed not to have been effected) unless it has been declared effective by the Commission and remains effective for the period required by Section 8.1(a); provided, however, that if, after it has been declared effective, the offering of any Registrable Securities pursuant to such Demand Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other Governmental Authority (other than any such stop order or injunction issued as a result of the inclusion in such Demand Registration Statement of any information supplied to the Company for inclusion therein by a Requesting Demand Shareholder), such Demand Registration Statement will be deemed not to have become effective.

(c) Notwithstanding anything in this Agreement to the contrary, with respect to any Demand Registration, if (A) (i) the Company is planning to prepare and file a registration statement for a primary offering by the Company of its Securities, or (ii) there is any pending or contemplated material acquisition, corporate reorganization or other material matter involving the Company or there is any pending or contemplated financing by the Company (each, a “Material Transaction”), and (B) the CEO or CFO of the Company notifies in writing each Requesting Demand Shareholder that such officer has reasonably concluded that under such circumstances it would be in the Company’s best interest to postpone the filing of a Demand Registration Statement, then the Company may postpone for up 60 days the filing or the effectiveness (but not the preparation) of a Demand Registration Statement (a “Blackout Period”); provided, that the Company may not on any of the foregoing grounds postpone the filing or effectiveness of Demand Registration Statement more than once during any 12-month period (unless the Requesting Demand Shareholders consent in writing to a longer postponement of the filing or effectiveness of such registration statement). Upon notice by the Company to the Requesting Demand Shareholder of any such determination, the Requesting Demand Shareholder covenants that it shall keep the fact of any such notice strictly confidential, and, in the case of a Blackout Period pursuant to clause (i) above, promptly halt any offer, sale, trading or other Transfer by it or any of its Affiliates of any Registrable Securities for the duration of the Blackout Period set forth in such notice (or until such Blackout Period shall be earlier terminated

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in writing by the Company) and promptly halt any use, publication, dissemination or distribution of the Demand Registration Statement, each prospectus included therein, and any amendment or supplement thereto by it and any of its Affiliates for the duration of the Blackout Period set forth in such notice (or until such Blackout Period shall be earlier terminated in writing by the Company) and, if so directed by the Company, will deliver to the Company any copies then in the Requesting Demand Shareholder’s possession of the prospectus covering such Registrable Securities that was in effect at the time of receipt of such notice. After the expiration of any Blackout Period and without further request from any Requesting Demand Shareholder, the Company shall effect the filing of the Demand Registration Statement and shall use its reasonable efforts to cause any such Demand Registration Statement to be declared effective as promptly as practicable unless the Requesting Demand Shareholder shall have, prior to the effective date of such Demand Registration Statement, withdrawn in writing its initial request, in which case such withdrawn request shall not constitute a Demand Registration Right for purposes of determining the number of Demand Registration Rights to which the New Acquirer or SHUSA is entitled under this Agreement.

(d) If at any time or from time to time any Requesting Demand Shareholder desires to sell Registrable Securities in an Underwritten Offering pursuant to a Demand Registration Statement, the managing underwriter and all other underwriters shall be selected by the Company. Notwithstanding the foregoing, (i) if the New Acquirer exercises its Demand Registration Rights, the New Acquirer shall have the right to select one of the joint lead managing underwriters and one of the co-managers and (ii) if SHUSA exercises its Demand Registration Rights, SHUSA, shall have the right to select one of the joint lead managing underwriters and one of the co-managers.

8.2. Piggyback Registration.

(a) If at any time following the consummation of an IPO or in connection with an IPO that involves, in whole or in part, a secondary offering of Shares, the Company intends to file a registration statement under the Securities Act covering a primary or secondary offering of any shares of Common Stock, whether in response to a valid Demand Notice or otherwise (other than any registration relating to any employee benefit or similar plan, any dividend reinvestment plan or any acquisition by the Company or pursuant to a registration statement filed in connection with an exchange offer), the Company shall give written notice to the New Acquirer, SHUSA and Dundon Holdco at least 15 days prior to the initial filing of a registration statement with the Commission pertaining thereto (an “Incidental Registration Statement”) informing such Person of its intent to file such Incidental Registration Statement and of such Person’s rights under this Section 8.2 to request the registration of the Registrable Securities held by such Person. Upon the written request of the New Acquirer, SHUSA or Dundon Holdco (each, a “Selling Incidental Shareholder”), made within 10 days after any such notice is given (which request shall specify the Registrable Securities intended to be disposed of by such Selling Incidental Shareholder and the intended method of distribution thereof), the Company shall use reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by such Selling Incidental Shareholders, to the extent required to permit the disposition of the Registrable Securities so requested to be registered, including, if necessary, by filing with the Commission a post-effective amendment or a supplement to the Incidental Registration Statement or the related

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prospectus or any document incorporated therein by reference or by filing any other required document or otherwise supplementing or amending the Incidental Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Incidental Registration Statement or by the Securities Act or by any other rules and regulations thereunder. The Company may postpone or withdraw the filing or effectiveness of an Incidental Registration Statement at any time in its sole discretion.

8.3. Underwritten Offering; Priority.

If a registration pursuant to Section 8.1 or 8.2 involves an underwritten offering of the securities being registered (an “Underwritten Offering”), which securities are to be distributed on a firm commitment basis by or through one or more underwriters of recognized standing under underwriting terms appropriate for such transaction, and the underwriter or the managing underwriter, as the case may be, of such Underwritten Offering shall inform the Company and the Requesting Demand Shareholders or Selling Incidental Shareholders, as applicable, that, in its opinion, the amount of securities requested to be included in such registration exceeds the amount which can be sold in (or during the time of) such offering within a proposed price range without adversely affecting the distribution of the securities being offered, then the Company will include in such registration only the amount of Registrable Securities and other Securities that the Company is so advised can be sold in (or during the time of) such offering within such price range; provided, however, that, in the case of a Demand Registration Statement, the Company shall be required to include in such registration: first, the amount of Registrable Securities requested to be included in such registration that the Company is so advised can be sold in (or during the time of) such offering, allocated pro rata among the holders of Registrable Securities, on the basis of the number of Registrable Securities requested to be included by all such holders, and second, the amount of other Securities requested to be included in such registration that the Company is so advised can be sold in (or during the time of) such offering, allocated pro rata among the Company and the other Shareholders requesting such registration, on the basis of the number of Securities requested to be included by the Company and all such other Shareholders; provided further, however, that, in the case of an Incidental Registration Statement, the Company shall be required to include in such registration: first, all the Securities proposed to be sold pursuant to such Incidental Registration Statement by the Company, and second, the amount of Registrable Securities requested to be included in such registration that the Company is so advised can be sold in (or during the time of) such offering, allocated pro rata among the Selling Incidental Shareholders requesting registration, on the basis of the number of Registrable Securities requested to be included by all such Selling Incidental Shareholders.

8.4. Shelf Registration Statement.

No later than one year after the consummation of an IPO, the Company will register all of the Registrable Securities held by the New Acquirer, SHUSA and Dundon Holdco by filing with the Commission a Shelf Registration Statement covering such Registrable Securities. The Company shall use its reasonable efforts to have such Shelf Registration Statement declared effective by the Commission as soon as practicable thereafter and to keep such Shelf Registration Statement continuously effective during the period from the date such Shelf Registration Statement is declared effective by the Commission until all Registrable Securities of the New Acquirer, SHUSA and Dundon Holdco have been sold, or can be sold

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without restriction, including volume and manner of sale restrictions, under the Securities Act. If at any time or from time to time the New Acquirer, SHUSA or Dundon Holdco desires to sell Registrable Securities in an Underwritten Offering pursuant to the Shelf Registration Statement, the underwriters, including the managing underwriter, shall be selected by the New Acquirer, SHUSA, or Dundon Holdco, as applicable, in its sole discretion.

8.5. Suspension of Resales.

The Company shall be entitled to (a) cause any Registration Statement to be withdrawn and its effectives terminated, (b) postpone amending or supplementing such Registration Statement or (c) suspend the use of the prospectus forming the part of any Registration Statement, including a Shelf Registration Statement, which has theretofore become effective, for up to 60 days (a “Suspension Period”), if, (A) a Material Transaction has occurred and (B) the CEO or CFO of the Company notifies in writing the holders of the Registrable Securities included in such registration statement and not previously sold thereunder that such officer has reasonably concluded that under such circumstances it would be in the Company’s best interest to suspend the use of such prospectus; provided, however, that the Company may not exercise its rights under this Section 8.5 more than once in any 12-month period and the duration of such suspension shall not exceed 60 days (unless the holders of a majority of the unsold Registrable Securities included in such Registration Statement and not previously sold thereunder consent in writing to a longer suspension). Upon notice by the Company to each holder of Registrable Securities included in any such Registration Statement and not previously sold thereunder of any such determination, such holder of Registrable Securities covenants that it shall keep the fact of any such notice strictly confidential, and, in the case of a Suspension Period pursuant to clause (ii) above, promptly halt any offer, sale, trading or other Transfer by it or any of its Affiliates of any Registrable Securities for the duration of the Suspension Period set forth in such notice (or until such Suspension Period shall be earlier terminated in writing by the Company) and promptly halt any use, publication, dissemination or distribution of such Registration Statement, each prospectus included therein, and any amendment or supplement thereto by it and any of its Affiliates for the duration of the Suspension Period set forth in such notice (or until such Suspension Period shall be earlier terminated in writing by the Company) and, if so directed by the Company, will deliver to the Company any copies then in such holder’s possession of the prospectus covering such Registrable Securities that was in effect at the time of receipt of such notice.

8.6. Registration Expenses.

The Company shall pay all Registration Expenses in connection with each registration pursuant to Sections 8.1, 8.2 and 8.3. Each Seller shall pay all discounts and commissions payable to underwriters, selling brokers, managers or other similar Persons related to the sale or disposition of such Seller’s Registrable Securities pursuant to any Registration Statement in proportion to the respective value of such Seller’s Registrable Securities included in the Registration Statement.

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8.7. Restrictions on Public Sale.

If requested by the Company, underwriter or managing underwriter in any Underwritten Offering of the Company’s securities, including an IPO, each party to this Agreement shall (i) agree not to, directly or indirectly, (A) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or lend or otherwise dispose of or Transfer any Shares or any securities convertible into or exchangeable or exercisable for Shares, whether then owned or thereafter acquired by such holder or with respect to which the holder has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”), or exercise any right with respect to the registration of any of the Lock-up Securities, or file or cause to be filed any registration statement in connection therewith, under the Securities Act, or (B) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction described in clause (A) or (B) above is to be settled by delivery of Shares or other securities, in cash or otherwise (other than those securities included by such holder in the offering in question, if any), without the prior written consent of the Company or such underwriters, as the case may be, during customary periods before and after the date of sale of securities in connection with such Underwritten Offering and (ii) enter into and be bound by the same form of agreement for all such holders with respect to the foregoing as the Company or such underwriter or managing underwriter may reasonably request; provided, that any release of the holders of Registrable Securities from a “lock-up” agreement shall be made pro rata among all holders of Registrable Securities on the basis of the number of Registrable Securities owned by each such holder.

8.8. Registration Procedures.

Subject to the provisions of Sections 8.1, 8.2 and 8.3, in connection with the registration of the sale of Registrable Securities pursuant to this Article VIII the Company shall:

(a) (i) prepare and file a Demand Registration Statement, Incidental Registration Statement or any other registration statement needed in order to permit the sale of Registrable Securities (a “Registration Statement”) with the Commission (within the time period specified in Sections 8.1 or 8.3, as applicable), which Registration Statement (x) shall be on a form selected by the Company for which the Company qualifies, (y) shall be available for the sale or exchange of the Registrable Securities in accordance with the intended method or methods of distribution, in the case of a Demand Registration Statement or Shelf Registration Statement, and (z) shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith, (ii) use its reasonable efforts to cause such Registration Statement to become effective and remain effective in accordance with Sections 8.1 or 8.3, as applicable, in the case of a Demand Registration Statement or Shelf Registration Statement, (iii) use its reasonable efforts to prevent the happening of any event that would cause a Registration Statement to contain a material misstatement or omission or to be not effective and usable for resale of the Registrable Securities registered pursuant thereto (during the period that such Registration Statement is required to be effective and usable), and (iv) cause each Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of such

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Registration Statement, amendment or supplement (x) to comply in all material respects with any requirements of the Securities Act and the rules and regulations of the Commission and (y) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading;

(b) in the case of a Demand Registration Statement or a Shelf Registration Statement, and subject to Section 8.8(j), prepare and file with the Commission such amendments and post-effective amendments to each such Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period; cause each prospectus forming part of such Registration Statement to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by each such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the applicable Sellers, as set forth in such Registration Statement;

(c) furnish to each Seller holding Registrable Securities covered by a Registration Statement and to each underwriter of an Underwritten Offering of Registrable Securities covered by a Registration Statement, if any, without charge, as many copies of each prospectus forming part of such Registration Statement, including each preliminary prospectus, and any amendment or supplement thereto and such other documents as such Seller or underwriter may reasonably request in order to facilitate the public sale or other disposition of such Registrable Securities; and the Company hereby consents to the use of such prospectus, including each such preliminary prospectus, by each such holder and underwriter, if any, in connection with the offering and sale of such Registrable Securities;

(d) (i) use its reasonable efforts to register or qualify the Registrable Securities covered by a Registration Statement, no later than the time such Registration Statement is declared effective by the Commission, under all applicable state securities or “blue sky” laws of such jurisdictions as each underwriter, if any, or any Seller shall reasonably request; (ii) keep each such registration or qualification effective during the period such Registration Statement is required to be kept effective (in the case of a Demand Registration Statement or a Shelf Registration Statement); and (iii) do any and all other acts and things which may be reasonably necessary or advisable to enable each such underwriter, if any, and Seller to consummate the disposition in each such jurisdiction of the Registrable Securities covered by such Registration Statement; provided, however, that the Company shall not be required to register or qualify any Registrable Securities in any jurisdiction if registration or qualification in such jurisdiction would subject the Company to unreasonable burden or expense or, in the case of an Underwritten Offering, would unreasonably delay the commencement of such Underwritten Offering; and provided further, that the Company shall not be obligated to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject or to consent to be subject to general service of process (other than service of process in connection with such registration or qualification or any sale of Registrable Securities in connection therewith) in any such jurisdiction;

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(e) notify each Seller promptly, and, if requested by such Seller, confirm such advice in writing, (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of the issuance by the Commission or any state securities authority of any stop order, injunction or other order or requirement suspending the effectiveness of a Registration Statement or the initiation of any proceeding for that purpose, (iii) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby pursuant to any agreement to which the Company is a party, the representations and warranties of the Company contained in such agreement cease to be true and correct in all material respects or if the Company receives any notification with respect to the suspension of the qualification of such Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, and (iv) of the happening of any event during the period a Registration Statement is required to be effective as a result of which such Registration Statement or the related prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

(f) furnish counsel for each underwriter, if any, and for the Sellers copies of (i) any request by the Commission or any state securities authority for amendments or supplements to a Registration Statement and prospectus or for additional information, and (ii) any comments from the Commission or any state securities authority with respect to such Registration Statement or prospectus;

(g) use reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible time;

(h) upon request, furnish to the underwriter or managing underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, at least one signed copy of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits; and furnish to each Seller, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested);

(i) cooperate with each Seller and the underwriter or managing underwriter of an Underwritten Offering of Registrable Securities, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations (consistent with the provisions of the governing documents thereof) and registered in such names as each Seller or the underwriter or managing underwriter of an Underwritten Offering of Registrable Securities, if any, may reasonably request at least three Business Days prior to any sale of Registrable Securities;

(j) upon the occurrence of any event contemplated by Section 8.8(e)(iv), during the period in which a Registration Statement is required to be kept in effect, use reasonable efforts to prepare a supplement or post-effective amendment to a Registration Statement or the related prospectus, or any document incorporated therein, as thereafter delivered to the purchasers of the Registrable Securities covered by such Registration Statement, such that such prospectus will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

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(k) enter into customary agreements (including, in the case of an Underwritten Offering, underwriting agreements in customary form) and, in the case of a Registration Statement relating to a secondary offering filed at the request of a Seller, take all other customary and appropriate actions in order to expedite or facilitate the disposition of the Registrable Securities covered by a Registration Statement as shall be requested by the Seller;

(l) use its commercially reasonable efforts to furnish to the underwriters opinions of counsel to the Company and updates thereof, addressed to each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings;

(m) obtain a “comfort letter” or “comfort letters” and updates thereof from the Company’s independent certified public accountants addressed to the underwriters, if any, which letters shall be customary in form and shall cover matters of the type customarily covered in “comfort letters” to underwriters in connection with underwritten offerings;

(n) subject to confidentiality agreements in form and substance acceptable to the Company, make available for inspection by representatives of the Sellers and any underwriters participating in any disposition pursuant to a Registration Statement and any counsel or accountant retained by such Sellers or underwriters all relevant financial and other records, pertinent corporate documents and properties of the Company and cause the respective officers, directors and employees of the Company to supply all information reasonably requested by any such representative, underwriter, counsel or accountant in connection with a Registration Statement;

(o) use reasonable efforts to cause all Registrable Securities covered by a Demand Registration Statement or Shelf Registration Statement to be listed on any securities exchange on which the Shares are then listed if so requested by any Seller;

(p) provide a CUSIP number for all Registrable Securities covered by a Registration Statement, no later than the effective date of such Registration Statement;

(q) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

(r) use its commercially reasonable efforts to cause all shares of Registrable Securities covered by such Registration Statement to be listed on a national securities exchange if shares of the particular class of Registrable Securities are at that time listed on such exchange, as the case may be, prior to the effectiveness of such Registration Statement (or, if such Registration is an IPO, use its reasonable best efforts to cause such Registrable Securities to be so listed within ten Business Days following the effectiveness of such Registration Statement);

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(s) with respect to Demand Registrations, make senior executives of the Company reasonably available to assist the managing underwriter(s) with respect to, and participate, in “road shows” in connection with the marketing efforts for the distribution and sale of Registrable Securities pursuant to a registration statement;

(t) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by any Registration Statement from and after a date not later than the effective date of such Registration Statement; and

(u) cooperate and assist in any filing required to be made with FINRA and in the performance of any due diligence investigation by any underwriter (including any qualified independent underwriter that is required to be retained in accordance with the rules and regulations of FINRA).

8.9. Obligations of Sellers.

(a) Each Seller shall furnish to the Company such information regarding such Seller, the ownership of Registrable Securities by such Seller and the proposed distribution by such Seller of such Registrable Securities as the Company may from time to time reasonably request.

(b) Upon receipt of any notice of the Company of the happening of any event of the kind described in Section 8.8(e)(iv), such Seller shall forthwith discontinue disposition of Registrable Securities pursuant to the affected Registration Statement until such Seller’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 8.8(j).

8.10. Free Writing Prospectuses.

No Shareholder shall use any “free writing prospectus” (as defined in Rule 405 under the Securities Act) in connection with the sale of Registrable Securities without the prior written consent of the Company. Notwithstanding the foregoing, the Shareholders may use any free writing prospectus prepared and distributed by the Company.

8.11. Indemnification and Contribution.

(a) Indemnification by the Company. The Company agrees to indemnify, to the extent permitted by law, each Seller and, as applicable, each of its trustees, stockholders, members, directors, managers, partners, officers and employees, and each Person who controls such holder, against all losses, claims, damages, liabilities and expenses (including, but not limited to, reasonable attorneys’ fees and expenses) (collectively, “Losses”) caused by any untrue or alleged untrue statement of material fact contained in any Registration Statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto (including, in each case, all documents incorporated therein by reference), or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such Seller expressly for use therein or by such Seller’s failure to deliver a copy of the prospectus or preliminary prospectus, or any amendments or supplements thereto after the Company has furnished such Seller with a

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sufficient number of copies of the same. In connection with an Underwritten Offering, the Company will indemnify such underwriters, their officers and directors and each Person who controls such underwriters to the same extent as provided above with respect to the indemnification of Sellers. The payments required by this Section 8.11 will be made periodically during the course of the investigation or defense, as and when bills are received or expenses incurred; provided, however, that if a final and non-appealable judicial determination shall be made that such Indemnified Party (as defined below) is not entitled to indemnification for any such Losses, such Indemnified Party shall repay to the Company the amount of such Losses for which the Company shall have paid or reimbursed such Indemnified Party.

(b) Indemnification by the Sellers. In connection with any Registration Statement in which a holder of Registrable Securities is participating, each such holder will furnish to the Company in writing such information relating to such holder as is reasonably necessary for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify the Company and, as applicable, each of its directors, employees and officers and each Person who controls the Company against any Losses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto (including, in each case, all documents incorporated therein by reference), or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in or omitted from any information furnished in writing by such holder for the acknowledged purpose of inclusion in such registration statement, prospectus or preliminary prospectus. In connection with any Underwritten Offering in which a holder of Registrable Securities is participating, such holder will indemnify such underwriters, their officers and directors and each Person who controls such underwriters to the same extent as provided above with respect to the indemnification of the Company; provided, however, that any obligation to indemnify under this Section 8.11 will be several, not joint and several, among such holders of Registrable Securities.

(c) Procedure. Each party entitled to indemnification under this Section 8.11 (the “Indemnified Party”) shall give written notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has received written notice of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, so long as the counsel for the Indemnifying Party who is to conduct the defense of such claim or litigation is reasonably satisfactory to the Indemnified Party (whose approval shall not be unreasonably withheld or delayed). The Indemnified Party may participate in such defense at such Indemnified Party’s expense; provided, however, that the Indemnifying Party shall bear the expense of such participation if (i) the Indemnifying Party has agreed in writing to pay such expenses, (ii) the Indemnifying Party shall have failed to assume the defense of such claim or to employ counsel reasonably satisfactory to the Indemnified Party or (iii) in the reasonable judgment of the Indemnified Party, based upon the written advice of such Indemnified Party’s counsel, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest; provided, further, that in no event shall the Indemnifying Party be liable for the fees and expenses of more than one counsel (excluding one local counsel per jurisdiction as necessary) for all Indemnified Parties in connection with any one action or

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separate but similar or related actions in the same jurisdiction arising out of the same event, allegations or circumstances. The Indemnified Party shall not enter into any settlement without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. The failure of any Indemnified Party to give notice as provided herein shall relieve the Indemnifying Party of its obligations under this Section 8.11 only to the extent that such failure to give notice shall materially prejudice the Indemnifying Party in the defense of any such claim or any such litigation. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the prior written consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement (a) that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation in form and substance reasonably satisfactory to such Indemnified Party or (b) that includes an admission of fault, culpability or a failure to act, by or on behalf of any Indemnified Party.

(d) Contribution. If the indemnification provided for in this Section 8.11 from the Indemnifying Party is unavailable to or unenforceable by the Indemnified Party in respect of any Losses, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Parties in connection with the actions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or Indemnified Parties, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Section 8.11, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The Company and the holders of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 8.11 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in this Section 8.11. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

(e) Survival. The indemnification and contribution provisions in this Section 8.11 will remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Party or any officer, director or controlling Person of such Indemnified Party and will survive the transfer of securities.

8.12. Transfer of Registration Rights.

Each of the New Acquirer, SHUSA and Dundon Holdco shall have the right to transfer, by written agreement, any or all of its rights and obligations granted under this Article VIII to any direct or indirect Transferee of its Registrable Securities so long as (a) (i) such Transferee is, at the time of such Transfer, a Permitted Transferee or (ii) such Transferee

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obtained Registrable Securities pursuant to a Transfer permitted by, and made in accordance with, this Agreement, (b) such Transferee agrees, in writing in form and substance reasonably satisfactory to the Company, to be bound by the terms and provisions of this Article VIII, which shall specify the rights under this Article VIII being assigned to such Transferee (provided that no such assignment shall expand the obligations of the Company under this Article VIII) and (c) such Transfer of Registrable Securities shall be effected in compliance with this Agreement. Following any transfer or assignment made pursuant to this Section 8.12 in connection with the Transfer by the New Acquirer, SHUSA or Dundon Holdco of a portion of its Registrable Securities, the New Acquirer, SHUSA or Dundon Holdco, as applicable, shall retain all rights under this Agreement with respect to the remaining portion of its Registrable Securities.

8.13. Rule 144.

After an IPO and for so long as the Company is subject to the requirements of Section 13, 14 or 15(d) of the Securities Act, at the request of any holder of Registrable Securities who proposes to sell securities in compliance with Rule 144, the Company will (a) furnish to such holder a written statement of compliance with the filing requirements of the Commission as set forth in Rule 144, and (ii) make available to the public and such holders such information, and take such action as is reasonably necessary, to enable the holders of Registrable Securities to make sales pursuant to Rule 144.

8.14. Termination of Registration Rights.

This Article VIII (other than Sections 8.6, 8.7 and 8.11) will terminate on the date on which all Securities subject to this Agreement cease to be Registrable Securities.

ARTICLE IX

SECURITIES LAW COMPLIANCE; LEGENDS

9.1. Restrictive Legends.

Each certificate representing the Shares subject to this Agreement shall be stamped or otherwise imprinted with a legend in substantially the following terms:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR ANY STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.”

9.2. Removal of Legends, Etc.

Notwithstanding the foregoing provisions of this Article IX, the restrictions imposed by Section 9.1 upon the transferability of the Shares shall cease and terminate when (i) such Shares are sold or otherwise disposed of in accordance with the intended method of

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disposition by the seller or sellers thereof set forth in a registration statement under the Securities Act or (ii) the holder of such Shares has met the requirement of Transfer of such Shares pursuant to subparagraph (b)(1) of Rule 144. Whenever the restrictions imposed by the legend set forth in Section 9.1 shall terminate as to any Shares, as herein provided, the holder of such Shares shall, upon furnishing the Company with an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Company, to the effect that the restrictions imposed by the legend set forth in Section 9.1 have terminated as to such Shares, be entitled to receive from the Company, without expense, a new certificate not bearing the restrictive legend set forth in Section 9.1 and not containing any other reference to the restrictions imposed by the legend set forth in Section 9.1.

9.3. Additional Legend.

(a) Each certificate evidencing Shares and each certificate issued in exchange for or upon the Transfer of any Shares (if such shares remain Shares as defined herein after such Transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A SHAREHOLDERS AGREEMENT. THE TERMS OF SUCH SHAREHOLDERS AGREEMENT INCLUDES, AMONG OTHER THINGS, RESTRICTIONS ON TRANSFERS.”

(b) The Company shall imprint such legends on certificates evidencing shares outstanding prior to the date hereof. The legend set forth above shall be removed from the certificates evidencing any Shares of any Shareholder when Transfers of Shares by such Shareholder are no longer subject to any restrictions under this Agreement.

ARTICLE X

AMENDMENT AND WAIVERS

10.1. Amendment.

Except as expressly set forth herein, the provisions of this Agreement may only be amended or waived with the prior written consent of (a) the Company, (b) Banco Santander and (c) each of SHUSA, Dundon Holdco and the New Acquirer, if in the case of this clause (c) such Person is still a Shareholder.

10.2. Waivers; Extensions.

No course of dealing between the Company, Banco Santander, Executive and the Shareholders (or any of them) or any delay in exercising any rights hereunder will operate as a waiver of any rights of any party to this Agreement. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

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ARTICLE XI

TERMINATION

11.1. Termination of Existing Shareholders Agreement.

The Company, Banco Santander, SHUSA, Dundon Holdco and Executive agree that the Existing Shareholders Agreement is hereby terminated and of no further force and effect.

11.2. Termination of this Agreement.

The provisions of this Agreement, except as otherwise expressly provided herein, shall terminate upon the first to occur of (a) the dissolution, liquidation or winding-up of the Company that has been approved, if required, pursuant to Section 6.2, (b) the written approval of such termination by (i) the Company and (ii) each of SHUSA, Dundon Holdco and the New Acquirer, if in the case of this clause (ii) such Person is still a Shareholder and (c) the date on which none of SHUSA, Dundon Holdco and the New Acquirer are shareholders in the Company; provided, however, that Sections 6.12 and 6.24 shall remain in full force and effect following the termination of this Agreement pursuant to this Section 11.2.

ARTICLE XII

MISCELLANEOUS

12.1. Severability.

It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

12.2. Entire Agreement.

This Agreement and the other agreements referred to herein and to be executed and delivered in connection herewith embody the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and thereof and supersede and preempt any and all prior and contemporaneous understandings, agreements, arrangements or representations by or among the parties, whether written or oral, which may relate to the subject matter hereof or thereof in any way. Other than this Agreement, and the other agreements referred to herein and to be executed and delivered in connection herewith, there are no other agreements continuing in effect relating to the subject matter hereof.

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12.3. Successors and Assigns.

Except as expressly permitted herein, no party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other parties. Except as otherwise provided herein, this Agreement will bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Shareholders and their Permitted Transferees.

12.4. Counterparts; Facsimile Signatures.

This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. Facsimile or other electronic counterpart signatures to this Agreement shall be acceptable and binding.

12.5. Remedies.

(a) Each party to hereto shall have all rights and remedies reserved for such party pursuant to this Agreement and all rights and remedies which such party has been granted at any time under any other agreement or contract and all of the rights which such holder has under any law or equity. Any Person having any rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law or equity.

(b) The parties hereto agree that if any parties seek to resolve any dispute arising under this Agreement pursuant to a legal proceeding, the prevailing parties to such proceeding shall be entitled to receive reasonable fees and expenses (including reasonable attorneys’ fees and expenses) incurred in connection with such proceedings.

(c) Each party hereto acknowledges that the other parties would be irreparably damaged in the event of a breach or a threatened breach by such party of any of its obligations under this Agreement. As a consequence, each party hereto agrees that, in the event of a breach or a threatened breach by any party of any obligation hereunder, any other party shall, in addition to any other rights and remedies available to it in respect of such breach, be entitled to an injunction from a court of competent jurisdiction (without any requirement to post bond) granting it specific performance by such Shareholder of its obligations under this Agreement.

12.6. Notices.

(a) All notices or other communications which are required or otherwise delivered hereunder shall be deemed to be sufficient and duly given if contained in a written instrument (a) personally delivered or sent by telecopier or other electronic delivery, (b) sent by nationally-recognized overnight courier guaranteeing next Business Day delivery or (c) sent by first class registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

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(i) if to the Company, to:

Santander Consumer USA Inc.

8585 N. Stemmons Frwy.

Suite 1100-North

Dallas, TX 75247

With a copy to Banco Santander and its counsel as set forth below.

(ii) if to SHUSA or Banco Santander, to:

Santander Holdings USA, Inc.

75 State Street

Boston, MA 02109

Attention: Christopher Pfirrman, Esq.

Facsimile: (617) 757-5657

and

Banco Santander, S.A.

Ciudad Grupo Santander

Arrecife, 1 Planta

Boadilla del Norte s/n – 28660

Madrid, Spain

Attention: Pablo Castilla Reparaz, Corporate Legal Counsel

Telephone: +34 91 257 01 15

With a copy (which copy shall not constitute notice) to each of:

Pablo Castilla Reparaz

Ciudad Grupo Santander

Edificio Pereda Planta 0

Avenida Cantabria

Boadilla del Monte s/n – 28660

Madrid, Spain

and

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

Attention: Joel F. Herold, Esq.

Facsimile: (212) 474-3700

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(iii) if to Executive or Dundon Holdco, to:

DDFS LLC

5103 Southbrook Drive

Dallas, Texas 75209

Attention: Thomas G. Dundon

Facsimile: (214) 237-3787

With a copy (which copy shall not constitute notice) to:

Bell Nunnally & Martin LLP

3232 McKinney Avenue, Suite 1400

Dallas, Texas 75204

Attention: James A. Skochdopole

Facsimile: (214) 740-1499

(iv) if to the New Acquirer, to:

Sponsor Auto Finance Holdings Series LP

c/o Warburg Pincus LLC

450 Lexington Ave

New York, NY 10017

Attention: Daniel Zilberman

Facsimile: (212) 716-8626

c/o Kohlberg Kravis Roberts & Co. L.P.

9 West 57th St., Suite 4200

New York, New York 10019

Attention: Tagar Olson

Facsimile: (212) 750-0003

c/o Centerbridge Partners L.P.

375 Park Avenue, 12th Floor

New York, NY 10152-0002

Attention: Matthew Kabaker

Facsimile: (212) 672-6471

With a copy (which copy shall not constitute notice) to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Attention: Lee Meyerson, Esq.

                  Elizabeth Cooper, Esq.

Facsimile: (212) 455-2502

(v) if to any other Shareholder, to him, her or it at his, her or its address set forth on the stock transfer books of the Company, or to such other address as the party to whom notice is to be given may have furnished to each other party in writing in accordance herewith.

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(b) Any such notice or communication shall be deemed to have been received (i) when delivered, if personally delivered or sent by telecopier or other electronic delivery, (ii) on the first Business Day after dispatch, if sent by nationally recognized, overnight courier guaranteeing next Business Day delivery and (iii) on the fifth Business Day following the date on which the piece of mail containing such communication is posted, if sent by mail.

12.7. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.

(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.

(b) EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF (A) THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY, AND (B) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. EACH PARTY FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO SUCH PARTY’S RESPECTIVE ADDRESS SET FORTH ABOVE SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING IN NEW YORK WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO JURISDICTION IN THIS SECTION 12.7. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN (I) THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY, OR (II) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND HEREBY AND THEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

(c) EACH PARTY HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. EACH PARTY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE ANCILLARY AGREEMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 12.7.

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12.8. Further Assurances.

Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments, and documents, not inconsistent herewith, as any other party hereto reasonably may request in order to carry out the provisions of this Agreement and the consummation of the transactions contemplated hereby.

12.9. Representations and Warranties of the Shareholders.

Each Shareholder (as to himself or itself only) represents and warrants to the Company and the other Shareholders that, as of the time such Shareholder becomes a party to this Agreement:

(a) this Agreement (or the separate Joinder Agreement executed by such Shareholder) has been duly and validly executed and delivered by such Shareholder and this Agreement constitutes a legal and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms; and

(b) the execution, delivery and performance by such Shareholder of this Agreement and the consummation by such Shareholder of the transactions contemplated hereby will not, with or without the giving of notice or lapse of time, or both (i) violate any Law applicable to it, or (ii) conflict with, or result in a breach or default under, any term or condition of any agreement or other instrument to which such Shareholder is a party or by which such Shareholder is bound, except for such violations, conflicts, breaches or defaults that would not, in the aggregate, materially affect the Shareholder’s ability to perform its obligations hereunder.

12.10. Brokers.

Each Shareholder (as to himself or itself only) represents and warrants to the Company and the other Shareholders that, as of the time such Shareholder becomes a party to this Agreement, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of such Shareholder or its Affiliates that is entitled to any fee or commission from the Company or any Subsidiary of the Company.

12.11. No Third Party Reliance.

Anything contained herein to the contrary notwithstanding, the covenants of the Company contained in this Agreement (a) are being given by the Company as an inducement to the Shareholders to enter into this Agreement (and the Company acknowledges that the Shareholders have expressly relied thereon) and (b) are solely for the benefit of the Shareholders. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any person, other than the parties hereto and such assigns, any legal or equitable rights hereunder, except that (i) the provisions of Article VIII shall inure to the benefit of the persons referred to in that Article and (ii) the penultimate sentence of Section 6.12(e) shall inure to the benefit of the Lender.

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12.12. Certain Waivers.

Each Shareholder agrees that it shall not, and shall cause each of its Affiliates not to, and hereby waivers any right to, bring or participate in (either as claimant or counterclaimant) any claim, suit, action, arbitration, complaint, charge, investigation or proceeding (each an “Action”) either on its own behalf or by or in the right of the Company, against any person who is or was serving as a director of the Company or a Subsidiary of the Company, for actions taken or omitted to be taken by such director in connection with (a) any Board Reserved Matters or Shareholder Reserved Matters and (b) any Outside Activities (including the income or profits derived from any Outside Activities), including without limitation in each clause (a) and (b) any claims based upon breaches or alleged breaches of fiduciary duties under the Illinois Business Corporation Act of 1983, as amended. The foregoing shall not limit the ability of any Shareholder to bring an Action to enforce its express rights under this Agreement.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Shareholders Agreement to be executed in counterparts as of the day and year first above written.

SANTANDER HOLDINGS USA, INC.
By:	/s/ Juan Carles Alvarez
	Name: Juan Carles Alvarez
	Title: Treasurer and Executive Vice President
SANTANDER CONSUMER USA INC.
By:	/s/ Eldridge A. Burns, Jr.
	Name: Eldridge A. Burns, Jr.
	Title: Chief Legal Officer / Secretary
DDFS LLC
By:	/s/ Thomas G. Dundon
	Name: THOMAS G. DUNDON
	Title: CEO
THOMAS G. DUNDON
	/s/ Thomas G. Dundon

[Signature Page to Shareholders Agreement]

SPONSOR AUTO FINANCE HOLDINGS SERIES LP
By: Sponsor Auto Finance GP LLC, its general partner
By:	/s/ Tagar Olson
	Name: Tagar Olson
	Title:

SOLELY FOR PURPOSES OF SECTIONS 2.4, 3.2, 3.4, 3.5, 4.2, 5.1, 6.10, 6.12, 6.13, 6.14, 6.22, 6.25, 10.1, 10.2, 11.1, and 11.2 and Article XII:

BANCO SANTANDER, S.A.
By:	/s/ Juan Carlos Alvarez
	Name:
	Title:

[Signature Page to Shareholders Agreement]

EXHIBIT A

Form of Joinder Agreement

The undersigned is executing and delivering this Joinder Agreement dated as of [    ], (this “Agreement”), pursuant to the Shareholders Agreement dated as of December 31, 2011 (as amended or otherwise modified from time to time, the “Shareholders Agreement”), among Santander Consumer USA Inc., an Illinois corporation (the “Company”), Santander Holdings USA, Inc., a Virginia corporation, DDFS LLC, a Delaware limited liability company, Thomas G. Dundon, an individual, Sponsor Auto Finance Holdings Series LP, a Delaware limited partnership, and, solely for purposes of Sections 2.4, 3.2, 3.4, 3.5, 4.2, 6.10, 6.12, 6.13, 6.14, 6.22, 10.1, 10.2, 11.1 and Article XII of the Shareholders Agreement, Banco Santander, S.A., a Spanish sociedad anonima. Capitalized terms used but not defined in this Agreement have the meanings assigned to such terms in the Shareholders Agreement

By executing and delivering this Agreement to the Company, the undersigned hereby agrees as follows:

1. The undersigned (the “New Shareholder”), is hereby made a party to the Shareholders Agreement, and the New Shareholder hereby agrees to be bound by and obligated to comply with all the terms and provisions of the Shareholders Agreement, as a Shareholder thereunder.

2. The New Shareholder represents and warrants to the Company and the other Shareholders that:

a. this Agreement has been duly and validly executed and delivered by such New Shareholder and this Agreement and the Shareholders Agreement constitute legal and binding obligations of such New Shareholder, enforceable against such New Shareholder in accordance with its terms;

b. the execution delivery by such New Shareholder of this Agreement and performance by such New Shareholder of this Agreement and the Shareholders Agreement and the consummation by such New Shareholder of the transactions contemplated hereby and thereby will not, with or without the giving of notice or lapse of time, or both (A) violate any Law applicable to it, or (B) conflict with, or result in a breach or default under, any term or condition of any agreement or other instrument to which the New Shareholder is a party or by which the New Shareholder is bound, except for such violations, conflicts, breaches or defaults that would not, in the aggregate, materially affect the New Shareholder’s ability to perform its obligations hereunder and thereunder; and

c. there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of such New Shareholder or its Affiliates that is entitled to any fee or commission from the Company or any Subsidiary of the Company

3. All references in the Shareholders Agreement to “Shareholder” shall be deemed to include the New Shareholder.

4. The New Shareholder acknowledges and agrees that, in the event that it acquired its Shares from an existing Shareholder, unless it is a Permitted Transferee, except as expressly set forth in the Shareholders Agreement, it shall not have any of the rights or privileges of the applicable Transferor under this Agreement but will be bound by and obligated to comply with the terms and provisions of this Agreement as if were the Transferor.

5. All of the terms and conditions of the Shareholders Agreement are unmodified and shall continue in full force and effect and shall be binding upon the New Shareholder and its assigns in accordance with the terms thereof.

IN WITNESS WHEREOF, the New Shareholder has executed this Agreement as of the date first above written.

[NEW SHAREHOLDER]

By:

EXHIBIT B

Comparable Facility

EXHIBIT C

	September 30,
Exhibit C – Credit Loss Allowance
Organic Pool Allowance (“Allowance”)	a
Loss Coverage (number of months) under Stress Case
	b
	a + b

APPENDIX A

SECTION 4.01. General. The officers of the corporation shall be elected by the board of directors and shall include a chairman of the board (who must be a director), a chief executive officer, a chief financial officer, a secretary and or other officers as may be from time to time required by the IBCA. The board of directors, in its discretion, may also elect or appoint a president, a treasurer, and one or more vice-presidents, assistant secretaries, assistant treasurers and other offices. Any number of offices may be held by the same person (except the offices of president and secretary), unless otherwise prohibited by law or by the certificate of incorporation. Vice-presidents may be given distinctive designations such as executive vice-president or senior vice president. The officers of the corporation need not be shareholders of the corporation nor, except in the case of the chairman of the board, need such officers be directors of the corporation. No officer of the corporation is permitted to approve any Board Reserved Matter.

SECTION 4.02. Other Officers and Agents. The board of directors may also elect and appoint such other officers and agents as it shall deem necessary, who shall be elected and appointed for such terms and shall exercise such powers and perform such duties as may be determined from time to time by the board of directors.

SECTION 4.03. Resignation/Removal. Any officer may resign at any time by giving written notice of such resignation to the corporation. Unless otherwise specified in such written notice, such resignation shall take effect when the notice is delivered unless the notice specifies a later effective date, and the acceptance of such resignation shall not be necessary to make it effective. Subject to Section 3.11(b)(xii) herein, any officer elected by the board of directors may be removed at any time by the affirmative vote of the whole board of directors. Subject to Section 3.11(b)(xii) herein, any vacancy occurring in any office of the corporation may be filled by the term board of directors.

SECTION 4.04. Securities Owned by the Corporation. Powers of attorney, proxies, consents and other instruments relating to securities owned by the corporation may be executed in the name of and on behalf of the corporation by the chief executive officer, if any, the president, if any, any vice-presidents, the secretary, or any other officer authorized to do so by the board of directors and any such officer may, in the name of and on behalf of the corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the corporation might have exercised and possessed if present.

SECTION 4.05. The Chairman of the Board. The chairman of the board shall, if present, preside at all meetings of the shareholders and of the board of directors and shall have such other powers and perform such other duties as may from time to time be assigned to the chairman by the board of directors. Except where by the law the signature of the chief executive officer or president is required, the chairman shall possess the same power as the chief executive officer and the president to sign all contracts, certificates and other instruments of the corporation that may be authorized by the board of directors.

SECTION 4.06. The Chief Executive Officer. The chief executive officer shall have, subject to the board of directors, general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect, and shall perform such duties as are conferred upon the chief executive officer by these bylaws or as may from time to time be assigned to the chief executive officer by the chairman of the board or the board of directors. The chief executive officer may sign, execute and deliver in the name of the corporation all deeds, mortgages, bonds, leases, contracts or other instruments either when specially authorized by the board of directors or when required or deemed necessary or advisable by the chief executive officer in the ordinary conduct of the corporation’s normal business, except in cases where the signing and execution thereof is expressly delegated by these bylaws solely to some other officer(s) or agent(s) of the corporation or is required by law or otherwise to be signed or executed by some other officer or agent. The chief executive officer may cause the seal of the corporation, if any, to be affixed to any instrument requiring the same. In the absence or disability of the chairman of the board, the chief executive officer shall preside at all meetings of the shareholders and the board of directors. The chief executive officer shall also perform such other duties and may exercise such other powers as may from time to time be assigned by the IBCA or the board of directors.

SECTION 4.07. The Chief Financial Officer. The chief financial officer shall have such duties as are customarily associated with such office.

SECTION 4.08 The President. The president, if any, shall perform such other duties as are conferred upon the president by these bylaws or as may from time to time be assigned to the president by the chairman of the board, if any, the chief executive officer, if any, or the board of directors. The president may sign, execute and deliver in the name of the corporation all deeds, mortgages, bonds, leases, contracts or other instruments either when specially authorized by the board of directors or when required or deemed necessary or advisable by the president in the ordinary conduct of the corporation’s normal business, except in cases where the signing and execution thereof shall be expressly delegated by these bylaws to some other officer or agent of the corporation or shall be required by law or otherwise to be signed or executed by some other officer or agent. In the absence or disability of the chairman of the board and the chief executive officer, the president shall preside at all meetings of the shareholders and the board of directors.

SECTION 4.09. Vice-Presidents. The vice-presidents, if any, shall perform such duties as are conferred upon them by these bylaws or as may from time to time be assigned to them by the board of directors, the chairman of the board, the chief executive officer or the president, if any.

SECTION 4.10. The Secretary. The secretary shall attend all meetings of the board of directors and shareholders and shall record and keep the minutes of all such meetings. The secretary shall be the custodian of, and shall make or cause to be made the proper entries in, the minutes of the corporation and such other books and records as the board of directors may direct. The secretary shall be the custodian of the seal of the corporation, if any, and shall have authority to affix the same to any instrument requiring it and shall affix such seal to such contracts, instruments and other documents as the board of directors or any committee thereof may direct. The secretary shall have such other powers and shall perform such other duties as may from time to time be assigned to the secretary by the board of directors or the chairman of the board.

SECTION 4.11. The Treasurer. The treasurer, if any, shall be the custodian of all funds and securities of the corporation. Whenever so directed by the board of directors, the treasurer shall render a statement of the cash and other accounts of the corporation, and the treasurer shall cause to be entered regularly in the books and records of the corporation, and to be kept for such purpose, full and accurate accounts of the corporation’s receipts and disbursements. The treasurer shall have such other powers and shall perform such other duties as may from time to time be assigned to the treasurer by the board of directors or the chairman of the board.

SECTION 4.12. Assistant Secretaries. Assistant secretaries, if any, shall perform such duties and have such powers as from time to time may be assigned to them by the board of directors, the chairman of the board, the chief executive officer, if any, the president, if any, any vice-president, if any, or the secretary, and in the absence of the secretary or in the event of the secretary’s disability or refusal to act, shall perform the duties of the secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the secretary.

SECTION 4.13. Assistant Treasurers. Assistant treasurers, if any, shall perform such duties and have such powers as from time to time may be assigned to them by the board of directors, the chairman of the board, the chief executive officer, if any, the president, if any, any vice-president, if any, or the treasurer, if any, and in the absence of the treasurer or in the event of the treasurer’s disability or refusal to act, shall perform the duties of the treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the treasurer.

SECTION 4.14. Other Officers. Such other officers as the board of directors may choose, if any, shall perform such duties and have such powers as from time to time may be assigned to them by the board of directors. The board of directors may delegate to any officer of the corporation the power to choose such other officers and to prescribe their respective duties and powers.

SECTION 4.15. Power to Delegate. Unless otherwise restricted by the board of directors, the chairman of the board or the chief executive officer shall have the authority to implement such policies as he or she deems advisable with respect to the delegation of his or her respective signature or voting authority, and is authorized to delegate such authority under policies or other writing; however, none of the authority granted in this sentence will constitute a delegation of, or change in, the limits of authority otherwise imposed on the specified officers or delegates or in any manner be permitted to operate in derogation of such limits of authority.

EX-21

EXHIBIT 21

SANTANDER HOLDINGS USA, INC.

Direct and Indirect Subsidiaries of Santander Holdings USA, Inc. at December 31, 2011.

Subsidiary	State or other jurisdiction of Incorporation
Sovereign Bank	United States of America
195 Montague Street, L.P.	New York
Bee Cave (TX) — HC Apartments Syndicated Holdings, LLC	Texas
Capital Street Delaware LP	Delaware
Capital Street S.A.	Luxembourg
Drive Residual Holdings GP LLC	Delaware
Drive Residual Holdings LP	Delaware
Drive Trademark Holdings LP	Delaware
Independence Community Bank Corp.	Delaware
Independence Community Commercial Reinvestment Corp.	Delaware
Meridian Capital Group, LLC	Delaware
PBE Companies, LLC	Delaware
Santander Consumer ABS Funding LLC	Delaware
Santander Consumer Auto Receivables Funding 2011-A LLC	Delaware
Santander Consumer Funding 3 LLC	Delaware
Santander Consumer Funding 5 LLC	Delaware
Santander Consumer Receivables Funding LLC	Delaware
Santander Consumer Receivables 3 LLC	Delaware
Santander Consumer Receivables 4 LLC	Delaware
Santander Consumer Receivables 5 LLC	Delaware
Santander Consumer Receivables 7 LLC	Delaware
Santander Consumer Receivables 8 LLC	Delaware
Santander Consumer Receivables 9 LLC	Delaware
Santander Consumer Receivables 10 LLC	Delaware
Santander Consumer USA Inc.	Illinois
Santander Drive Auto Receivables LLC	Delaware
Santander Insurance Agency, U.S., LLC	Massachusetts
SC Littleton HH LLC	Delaware
SOV APEX LLC	Delaware
Sovereign Community Development Company	Delaware
Sovereign Delaware Investment Corporation	Delaware
Sovereign Leasing, LLC	Delaware
Sovereign Precious Metals, LLC	Pennsylvania
Sovereign Real Estate Investment Trust	Delaware
Sovereign REIT Holdings, Inc.	Delaware
Sovereign Securities Corporation, LLC	Pennsylvania
Synergy Abstract, LP	Pennsylvania
Triad Financial Residual Special Purpose LLC	Delaware
Triad Financial Special Purpose LLC	Delaware
Waypoint Insurance Group, Inc.	Pennsylvania

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the registration statements, as enumerated below, of our reports dated March 16, 2012, relating to the consolidated financial statements of Santander Holdings USA, Inc., and the effectiveness of the Santander Holdings USA, Inc.’s internal control over financial reporting, appearing in the Annual Report on Form 10-K of Santander Holdings USA, Inc. for the year ended December 31, 2011.

(1) Registration Statement (Form S-8 No. 33-29038) pertaining to the Sovereign Bancorp, Inc. Retirement Plan,

(2) Registration Statement (Form S-8 No. 33-78474) pertaining to the Sovereign Bancorp, Inc. 1993 Stock Option Plan,

(3) Registration Statement (Form S-8 No. 333-05309) pertaining to the Sovereign Bancorp, Inc. 1996 Stock Option Plan,

(4) Registration Statement (Form S-8 No. 333-64530) pertaining to the Sovereign Bancorp, Inc. 2001 Stock Incentive Plan,

(5) Registration Statement (Form S-8 No. 333-112825) pertaining to the First Essex Bancorp, Inc. 1987 Stock Option Plan, the First Essex Bancorp, Inc. 1997 Stock Incentive Plan, and the First Essex Bancorp, Inc. 2002 Stock Incentive Plan,

(6) Registration Statement (Form S-8 No. 333-115528) pertaining to the Sovereign Bancorp, Inc. Employee Stock Purchase Plan, the Sovereign Bancorp, Inc. 2004 Broad-Based Stock Incentive Plan and the Sovereign Bancorp, Inc. Bonus Recognition and Retention Plan,

(7) Registration Statement (Form S-8 No. 333-117621) pertaining to the Seacoast Financial Services Corporation 2003 Stock Incentive Plan, the Seacoast Financial Services Corporation 1999 Stock Incentive Plan, the Abington Bancorp, Inc. 2000 Incentive and Nonqualified Stock Option Plan, the Abington Bancorp, Inc. 1997 Incentive and Nonqualified Stock Option Plan, the Abington Bancorp, Inc. 1986 Incentive and Nonqualified Stock Option Plan and the Massachusetts Fincorp, Inc. 1999 Stock-Based Incentive Plan,

(8) Registration Statement (Form S-8 No. 333-122274) pertaining to the Waypoint Financial Corp. Retirement Savings Incentive Plan, the Waypoint Financial Corp. 2001 Stock Option Plan, the Harris Financial, Inc. 1999 Incentive Stock Option Plan, the Harris Financial, Inc. 1999 Stock Option Plan for Outside Directors, the York Financial Corp. 1997 Stock Option and Incentive Plan, the Harris Savings Bank 1996 Incentive Stock Option Plan, the York Financial Corp. 1995 Non-Qualified Stock Option Plan for Directors, the Harris Savings Bank 1994 Incentive Stock Option Plan, the Harris Savings Bank 1994 Stock Option Plan for Outside Directors, and the York Financial Corp. Non-Incentive Stock Option Plan for Directors,

(9) Registration Statement (Form S-8 No. 333-134976) pertaining to the Independence Community Bank Corp. 2005 Stock Incentive Plan and Trust

(10) Registration Statement (Form S-3 No. 333-143515) of Sovereign Bancorp, Inc.,

(11) Registration Statement (Form S-8 No. 333-144700) pertaining to the Sovereign Bancorp, Inc. 2006 Non-Employee Director Compensation Plan, and

(12) Registration Statement (Form S-3 No. 333-172807) of Santander Holdings USA, Inc.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

March 16, 2012

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a) OF THE SECURITIES

EXCHANGE ACT, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jorge Morán, Chief Executive Officer of Santander Holdings USA, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Santander Holdings USA, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Jorge Morán
	Name: Jorge Morán Title: Chief Executive Officer
March 16, 2012

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a) OF THE SECURITIES

EXCHANGE ACT, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Guillermo Sabater, Chief Financial Officer of Santander Holdings USA, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Santander Holdings USA, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13)-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Guillermo Sabater
	Name: Guillermo Sabater Title: Chief Financial Officer
March 16, 2012

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the period ended December 31, 2011 of Santander Holdings USA, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jorge Morán, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all in material respects, the financial condition and results of operations of the Company.

	/s/ Jorge Morán
	Name: Jorge Morán Title: Chief Executive Officer
March 16, 2012

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the period ended December 31, 2011 of Santander Holdings USA, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Guillermo Sabater, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Guillermo Sabater
	Name: Guillermo Sabater Title: Chief Financial Officer
March 16, 2012

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Related Party Transactions

12 Months Ended

Dec. 31, 2011

Related Party Transactions [Abstract]

Related Party Transactions

Note 27 — Related Party Transactions

See Note 13 for a description of the various debt agreements SHUSA has with Santander.

In March 2009, SHUSA, issued to Santander, parent company of SHUSA, 72,000 shares of SHUSA’s Series D Non-Cumulative Perpetual Convertible Preferred Stock, without par value (the “Series D Preferred Stock”), having a liquidation amount per share equal to $25,000, for a total price of $1.8 billion. The Series D Preferred Stock pays non-cumulative dividends at a rate of 10% per year. SHUSA may not redeem the Series D Preferred Stock during the first five years. The Series D Preferred Stock is generally non-voting. Each share of Series D Preferred Stock is convertible into 100 shares of common stock, without par value, of SHUSA. The Company contributed the proceeds from this offering to the Bank in order to increase the Bank’s regulatory capital ratios. On July 20, 2009, Santander converted all of its investment in the Series D preferred stock of $1.8 billion into 7.2 million shares of SHUSA common stock. This action further demonstrates the support of Santander to SHUSA and reduces the cash obligations of the Company with respect to Series D 10% preferred stock dividend.

In March 2010, the Company issued 3.0 million shares of common stock to Santander, raising proceeds of $750.0 million.

In December 2010, the Company issued 3.0 million shares of common stock to Santander, which raised proceeds of $750.0 million, and declared a $750.0 million dividend to Santander. This was a non-cash transaction.

In December 2011, the Company issued 3.2 million shares of common stock to Santander, which raised proceeds of $800.0 million, and declared a $800.0 million dividend to Santander. This was a non-cash transaction.

The Company has $2.1 billion of public securities that consists of various senior note obligations, trust preferred security obligations and preferred stock issuances. Santander owns approximately 34.8% of these securities as of December 31, 2011.

The Company has entered into derivative agreements with Santander with a notional value of $4.5 billion, which consists primarily of interest rate swap agreements to hedge interest rate risk and foreign currency exposure.

In 2006, Santander extended a total of $425.0 million in unsecured lines of credit to the Bank for federal funds and Eurodollar borrowings and for the confirmation of standby letters of credit issued by the Bank. This line is at a market rate and in the ordinary course of business and can be cancelled by either the Bank or Santander at any time and can be replaced by the Bank at any time. In the first quarter of 2009, this line was increased to $2.5 billion, during the third quarter of 2011 this line was decreased to $1.5 billion and during the fourth quarter of 2011 this line was further decreased to $1.0 billion. During the year ended December 31, 2011 and 2010, respectively, the average unfunded balance outstanding under these commitments was $1.4 billion and $1.6 billion. The Bank paid approximately $10.5 million in fees to Santander for the year ended December 31, 2011 in connection with these commitments compared to $12.4 million in fees in the corresponding period in the prior year. Santander also extended a line of credit to SHUSA in the amount of $1.5 billion, which matures in September 2012. There was no outstanding balance on this line at December 31, 2011 and 2010.

During the ordinary course of business, certain directors and executive officers of the Company became indebted to the Company in the form of loans for various business and personal interests. The outstanding balance of these loans was $6.2 million and $4.2 million at December 31, 2011 and 2010, respectively.

The Company and its affiliates have entered into various service agreements with Santander and its affiliates. Each of the agreements was done in the ordinary course of business and on market terms. The agreements are as follows:

• Nw Services Co., a Santander affiliate doing business as Aquanima, is under contract with the Bank to provide procurement services, with fees paid in 2011 in the amount of $3.4 million, $2.2 million in 2010 and $2.0 million in 2009.

• Geoban, S.A., a Santander affiliate, is under contract with the Bank to provide administrative services, consulting and professional services, application support and back-office services, including debit card disputes and claims support, and consumer and mortgage loan set-up and review, with fees paid in 2011 in the amount of $15.3 million. Fees in the amount of $9.8 million were paid under this agreement in 2010. There were no fees paid related to this agreement in 2009.

• Ingenieria De Software Bancario S.L., a Santander affiliate, is under contract with the Bank to provide information technology development, support and administration, with fees paid in 2011 in the amount of $113.7 million, $121.0 million in 2010 and $5.7 million in 2009.

• Produban Servicios Informaticos Generales S.L., a Santander affiliate, is under contract with the Bank to provide professional services, and administration and support of information technology production systems, telecommunications and internal/external applications, with fees paid in 2011 in the amount of $82.6 million, $58.1 million in 2010 and $3.4 million in 2009.

• Santander Back-Offices Globales Mayoristas S.A., a Santander affiliate, is under contract with the Bank to provide administrative services and back-office support for the Bank’s derivative, foreign exchange and hedging transactions and programs, with fees paid in 2011 in the amount of $0.4 million. Fees in the amount of $0.1 million were paid in 2010 with respect to this agreement. There were no fees paid in 2009 related to this agreement.

• Santander Global Facilities (“SGF”), a Santander affiliate, is under contract with the Bank to provide: (i) administration and management of employee benefits and payroll functions for the Bank and other affiliates, including employee benefits and payroll processing services provided by third party sponsorship by SGF: and (ii) property management and related services; with fees paid in 2011 in the amount of $10.8 million, $10.0 million in 2010 and $0.5 million in 2009.

In 2010, the Company extended a $10.0 million unsecured loan to Servicios de Cobranza, Recuperacion y Seguimiento, S.A. DE C.V. At December 31, 2011 and 2010, the principal balance was $2.0 million and $10.0 million, respectively.

During the year ended December 31, 2011, 2010 and 2009, the Company recorded income of $32.4 thousand, $586.6 thousand and $0, respectively, and expenses of $39.8 million, $29.1 million and $21.2 million, respectively, related to transactions with SCUSA. In addition, as of December 31, 2011 and 2010, the Company had receivables and prepaid expenses with SCUSA of $99.1 million and $473.9 million, respectively. The activity is primarily related to SCUSA’s servicing of certain SHUSA outstanding loan portfolios and dividends paid by SCUSA to SHUSA. As these transactions occurred prior to the deconsolidation of SCUSA on December 31, 2011, they have been eliminated from the consolidated statement of operations as intercompany transactions.

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Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

Note 19 — Income Taxes

The provision (benefit) for income taxes in the consolidated statement of operations is comprised of the following components (in thousands):

		September 30,		September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011		2010			2009
Current:
Foreign	$	80	$	93		$	108
Federal		269,797		287,169			160,844
State		141,056		41,775			17,436
Total current		410,933		329,037			178,388
Deferred:
Federal		453,456		(280,280	)		(1,434,236	)
State		43,890		(89,147	)		(28,616	)
Total deferred		497,346		(369,427	)		(1,462,852	)
Total income tax provision (benefit)	$	908,279	$	(40,390	)	$	(1,284,464	)

The following is a reconciliation of the United States federal statutory rate of 35.0% to the company’s effective tax rate for each of the years indicated:

		September 30,			September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011			2010			2009
Federal income tax at statutory rate		35.0	%		35.0	%		(35.0	)%
Increase/(decrease) in taxes resulting from:
Valuation allowance		0.3			(37.3	)		(83.2	)
Tax-exempt income		(1.0	)		(2.6	)		(2.6	)
Bank owned life insurance		(0.9	)		(1.9	)		0.4
State income taxes, net of federal tax benefit		5.2			2.9			0.3
Low income housing credits		(1.4	)		(3.9	)		(3.7	)
Accelerated discount accretion		4.5			—			—
Disallowed interest deductions		—			—			6.7
Other		0.3			3.8			2.8
Effective tax rate		42.0	%		(4.0	)%		(114.3	)%

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below (in thousands):

		September 30,			September 30,
	AT DECEMBER 31,
	2011			2010
Deferred tax assets:
Allowance for loan losses	$	325,380		$	614,323
Unrealized loss on available for sale portfolio		—			55,536
Unrealized loss on derivatives		57,878			73,242
Net operating loss carry forwards		477,774			175,845
Non-solicitation payments		30,247			39,188
Employee benefits		26,760			52,012
General business credit carry forwards		209,982			266,317
Foreign tax credit carry forwards		60,688			60,688
Broker commissions paid on originated mortgage loans		29,668			34,227
Minimum tax credit carry forward		134,806			167,452
IRC Section 382 recognized built in losses		30,583			330,323
Other-than-temporary impairment on investments and equity method investments		12,084			94,943
Deferred interest expense		117,601			111,330
Other		242,011			318,991
Total gross deferred tax assets		1,755,462			2,394,417
Deferred tax liabilities:
Purchase accounting adjustments		1,661			22,427
Deferred income		27,516			132,320
Originated mortgage servicing rights		49,464			69,186
Unrealized gain on available for sale portfolio		61,153			—
SCUSA Transaction Deferred Gain		381,645			—
Depreciation and amortization		179,059			166,950
Other		252,790			245,976
Total gross deferred tax liabilities		953,288			636,859
Valuation allowance		(106,576	)		(99,296	)
Net deferred tax asset	$	695,598		$	1,658,262

Periodic reviews of the carrying amount of deferred tax assets are made to determine if the establishment of a valuation allowance is necessary. If based on the available evidence in future periods, it is more likely that not that all or a portion of the Company’s deferred tax assets will not be realized, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.

Items considered in this evaluation include historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. The evaluation is based on current tax laws as well as expectations of future performance.

During 2009, Santander contributed the operation of SCUSA into the Company. As a result of this contribution, the Company updated its deferred tax realizability analysis in 2009 by incorporating future projections of taxable income that would be generated by SCUSA and reduced its deferred tax valuation allowance by $1.3 billion for the year ended December 31, 2009. Due to the profitability of the Company in 2010 and expected future growth in profits of the Company by the end of 2010, the Company considered the projected taxable income of the Company and all subsidiaries in its 2010 realizability analysis. As a result, the Company reduced its deferred tax valuation allowance by $309.0 million for the year ended December 31, 2010. As of December 31, 2011, the Company demonstrated further positive evidence because the Company does not have a cumulative pre-tax loss for the three years ended December 31, 2011. Due to additional deferred tax assets that were created during the quarter ended September 30, 2011, which will remain unused after the carry forward periods have expired, the Company increased its deferred tax allowance by $7.3 million. As of December 31, 2011, the Company continues to maintain a valuation allowance of $106.6 million related to deferred tax assets subject to carry forward periods where Management has determined it is more likely than not these deferred tax assets will remain unused after the carry forward periods have expired.

At December 31, 2011, the Company had net unrecognized tax benefit reserves related to uncertain tax positions of $112.7 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

		September 30,			September 30,			September 30,
	Federal State and Local Tax			Accrued Interest and Penalties			Unrecognized Income Tax Benefits
	(in thousands)
Gross unrecognized tax benefits at January 1, 2009	$	90,801		$	14,904		$	105,705
Additions based on tax positions related to 2009		—			1,448			1,448
Additions for tax positions of prior years		—			1,664			1,664
Reductions for tax positions of prior years		(731	)		(1,745	)		(2,476	)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations		(6,671	)		(1,722	)		(8,393	)
Settlement		(669	)		(231	)		(900	)
Gross unrecognized tax benefits at January 1, 2010		82,730			14,318			97,048
Additions based on tax positions related to the current year		2,370			5,882			8,252
Additions for tax positions of prior years		34,580			8,621			43,201
Reductions for tax positions of prior years		(4,150	)		(163	)		(4,313	)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations		(4,752	)		(1,899	)		(6,651	)
Settlements		(415	)		(171	)		(586	)
Gross unrecognized tax benefits at January 1, 2011		110,363			26,588			136,951
SCUSA Transaction		—			(5,998	)		(5,998	)
Additions based on tax positions related to the current year		12,275			—			12,275
Additions for tax positions of prior years		2,079			2,099			4,178
Reductions for tax positions of prior years		—			(842	)		(842	)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations		(3,343	)		(441	)		(3,784	)
Settlements		(13,691	)		(1,861	)		(15,552	)
Gross unrecognized tax benefits at December 31, 2011	$	107,683		$	19,545			127,228
Less: Federal, state and local income tax benefits								(14,487	)
Net unrecognized tax benefits that if recognized would impact the effective tax rate at December 31, 2011							$	112,741

The Company recognizes penalties and interest accrued related to unrecognized tax benefits within income tax expense on the Consolidated Statement of Operations.

At December 31, 2011, the Company has recorded a deferred tax asset of $416.2 million related to federal net operating loss carry-forwards, which may be offset against future taxable income. If not utilized in future years, these will expire in varying amounts through 2029. The Company has recorded a deferred tax asset of $61.6 million related to state net operating loss carry-forwards, which may be used against future taxable income. If not utilized in future years, these will expire in varying amounts through 2031. The Company also has recorded a deferred tax asset of $210.0 million related to tax credit carry forwards and a deferred tax asset of $60.7 million related to foreign tax credit carry-forwards, which may be offset against future taxable income. If not utilized in future years, these will expire in varying amounts through 2031 and 2017 respectively. The Company has concluded that it is more likely than not that $12.8 million of the deferred tax asset related to the state net operating loss carry-forwards, $7.3 million of the deferred tax asset related to tax credit carry-forwards and the entire deferred tax asset related to the foreign tax credit carry-forwards will not be realized. The Company has not recognized a deferred tax liability of $46.4 million related to earnings that are considered permanently reinvested in a consolidated foreign entity.

The Company is subject to the income tax laws of the U.S., its states and municipalities and certain foreign countries. These tax laws are complex and are potentially subject to different interpretations by the taxpayer and the relevant Governmental taxing authorities. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws.

Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. The Company reviews the tax balances quarterly and as new information becomes available, the balances are adjusted, as appropriate. The Company is subject to ongoing tax examinations and assessments in various jurisdictions. On June 17, 2009, the Company filed a lawsuit against the United States in Federal District Court seeking a refund of assessed taxes paid for tax years 2003-2005 related to two separate financing transactions with an international bank totaling $1.2 billion. As a result of these two financing transactions, the Company was subject to foreign taxes of $154.0 million during the years 2003 through 2005 and claimed a corresponding foreign tax credit for foreign taxes paid during those years, which the IRS disallowed. The IRS also disallowed the Company’s deductions for interest expense and transaction costs, totaling $24.9 million in tax liability, and assessed interest and penalties totaling approximately $69.6 million. In 2006 and 2007, the Company was subject to an additional $87.6 million and $22.5 million of foreign taxes, respectively, as a result of the two financing transactions, and the Company’s entitlement to foreign tax credits in these amounts will be determined by the outcome of the 2003-2005 litigation. In addition, the outcome of the litigation will determine whether the Company is subject to an additional tax liability of $49.8 million related to interest expense and transaction cost deductions, and whether the Company will be subject to $12.1 million in interest and $12.5 million in penalties for 2006 and 2007. The Company continues to believe that it is entitled to claim these foreign tax credits taken with respect to the transactions and also continues to believe the Company is entitled to tax deductions for the related issuance costs and interest deductions based on tax law. The Company maintains a tax reserve of $96.9 million as of December 31, 2011 for this matter. The Company believes this reserve amount adequately provides for potential exposure to the IRS related to these items. However, as the Company continues to go through the litigation process, management will continue to evaluate the appropriate tax reserve levels for this position and any changes made to the tax reserves may materially affect the Company’s income tax provision, net income and regulatory capital in future periods.

The IRS recently concluded the exam of the Company’s 2006 and 2007 tax returns. In addition to the adjustments for items related to the two financing transactions discussed above, the IRS has proposed to recharacterize ordinary losses related to the sale of certain assets as capital losses. The Company has paid the tax assessment resulting from the recharacterization from capital to ordinary losses, and will contest the adjustment through the administrative appeals process. The Company is confident that its position related to its ordinary tax treatment of the losses will ultimately be upheld, therefore no amounts have been accrued related to this matter. If the Company is not successful in defending its position, the maximum potential tax liability resulting from this IRS adjustment would be approximately $95.0 million. Additionally, with respect to the 2006-2007 tax periods, the Company faces potential interest and penalties resulting from the recharacterization adjustment and other unrelated adjustments of approximately $11.1 million in interest and $14.5 million in penalties.

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SCUSA Transaction

12 Months Ended

Dec. 31, 2011

Equity Method Investment Transaction FN [Abstract]

Subsidiary Transaction FN

Note 3 — SCUSA Transaction

On October 20, 2011, the Company and SCUSA entered into an investment agreement with Sponsor Auto Finance Holdings Series LP, a Delaware limited partnership (“Auto Finance Holdings”). Auto Finance Holdings is jointly owned by investment funds affiliated with Warburg Pincus LLC, Kohlberg Kravis Roberts & Co. L.P. and Centerbridge Partners L.P. (collectively, the “New Investors”), as well as DFS Sponsor Investments LLC, a Delaware limited liability company affiliated with Thomas G. Dundon, the Chief Executive Officer of SCUSA and a Director of SHUSA, and Jason Kulas, Chief Financial Officer of SCUSA. On October 20, 2011, SCUSA also entered into an investment agreement with DDFS LLC (f/k/a, Dundon DFS LLC), (“DDFS”), a Delaware limited liability company affiliated with Thomas G. Dundon. Auto Finance Holdings is an unrelated third party of the Company.

On December 31, 2011, SCUSA completed the sale to Auto Finance Holdings of an aggregate number of 32,438,127.19 shares of common stock for an aggregate purchase price of $1.0 billion. On December 31, 2011, SCUSA also completed the sale to DDFS of 5,140,468.58 additional shares of common stock for aggregate consideration of $158.2 million. In addition, on December 31, 2011, SCUSA completed the sale to certain members of SCUSA’s management of 67,373.99 shares of common stock for an aggregate consideration of approximately $2.1 million.

The Company, the New Investors (indirectly through Auto Finance Holdings) and Mr. Dundon (indirectly through DDFS and DFS Sponsor Investments LLC) own approximately 65%, 24% and 11% of SCUSA, respectively, as of December 31, 2011. The consideration paid by DDFS and SCUSA management was determined by the share price negotiated by SCUSA and Auto Finance Holdings.

On December 31, 2011, the Company, SCUSA, Auto Financing Holdings, DDFS, Thomas G. Dundon and Banco Santander, S.A. entered into a shareholders’ agreement (the “Shareholders Agreement”). The Shareholders Agreement established certain board representation, governance, registration and other rights for each investor with respect to their ownership interests in SCUSA. The Shareholders Agreement also requires unanimous approval of all shareholders for certain board reserved matters. These board reserved matters represent the activities that most significantly impact SCUSA’s economic performance.

Pursuant to the Shareholders Agreement, depending on SCUSA’s performance during 2014 and 2015, if SCUSA exceeds certain performance targets, SCUSA may be required to make a payment of up to $595.0 million in favor of SHUSA. If SCUSA does not meet such performance targets during 2014 and 2015, SCUSA may be required to make a payment to Auto Finance Holdings of up to the same amount.

The Shareholders Agreement also provides that each of Auto Finance Holdings and DDFS will have the right to sell, and SHUSA will be required to purchase, their respective shares of SCUSA common stock, at its then fair market value, and Auto Finance Holdings and DDFS, if applicable, will receive the payment referred to above at that time (i) at the fourth, fifth and seventh anniversaries of the closing of the investments, unless an initial public offering of SCUSA common stock has been previously consummated or (ii) in the event there is a deadlock with respect to certain specified matters which require the approval of the board of directors or shareholders of SCUSA.

The Company is required to consolidate any entity in which it has a controlling financial interest. Determining whether the Company has a controlling financial interest is dependent on factors including voting rights, and the power to direct the entity’s most significant economic activities. The SCUSA Transaction reduced the Company’s ownership interest in SCUSA and resulted in shared control with the New Investors such that no one party has the power to direct activities that most significantly impact SCUSA’s economic performance.

As a result, the Company no longer has a controlling interest in SCUSA. This required the Company to account for SCUSA as an equity investment and deconsolidate SCUSA by removing SCUSA’s assets, liabilities and its non-controlling interest in SCUSA from its consolidated financial statements as of December 31, 2011. The difference between the fair value of the Company’s retained non-controlling interest in SCUSA and the carrying amount of its former controlling interest SCUSA’s net assets was recognized as a gain in the Company’s Consolidated Statements of Operations for the year ended December 31, 2011.

As of December 31, 2011, the fair value of the Company’s equity investment in SCUSA was determined to be $2.7 billion. The fair value of the Company’s equity investment in SCUSA was determined through the use of market comparables, review of precedent transactions, dividend discount analysis and consideration of the contingent payment. The carrying value of SCUSA’s net assets was $1.7 billion prior to the transaction. As a result of the deconsolidation of SCUSA, the Company measured its retained equity investment at fair value and recognized a pre-tax gain of $987.7 million, net of expenses of $21 million, in the consolidated statement of operations for the year ended December 31, 2011.

The following table illustrates the calculation of the gain on the SCUSA Transaction (amounts in thousands):

		September 30,
Fair value of retained noncontrolling investment	$	2,650,651
Less: Carrying value of SCUSA’s net assets		1,663,001
Gain on SCUSA Transaction	$	987,650

See further discussion on other transactions with SCUSA in Note 27.

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Fair Value Disclosures

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value Disclosures

Note 23 — Fair Value Disclosures

The following tables present the assets and liabilities that are measured at fair value on a recurring basis by major product category and fair value hierarchy.

		September 30,		September 30,		September 30,		September 30,
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2011
	(in thousands)
Financial assets:
US Treasury and government agency securities	$	—	$	44,090	$	—	$	44,090
Debentures of FHLB, FNMA and FHLMC		—		20,000		—		20,000
Corporate debt		—		2,049,520		—		2,049,520
Asset-backed securities		—		2,587,993		52,297		2,640,290
State and municipal securities		—		1,784,778		—		1,784,778
Mortgage backed securities		—		9,039,880		18		9,039,898
Total investment securities available-for-sale		—		15,526,261		52,315		15,578,576
Loans held for sale		—		352,471		—		352,471
Derivatives:
Fair value		—		3,888		—		3,888
Mortgage banking		—		—		7,323		7,323
Customer related		—		361,349		—		361,349
Foreign exchange		—		11,950		—		11,950
Trading		—		12,098		—		12,098
Total financial assets	$	—	$	16,268,017	$	59,638	$	16,327,655

		September 30,		September 30,		September 30,		September 30,
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2011
	(in thousands)
Financial liabilities:
Derivatives:
Fair value	$	—	$	3,346	$	—	$	3,346
Cash flow		—		158,174		—		158,174
Mortgage banking		—		8,574		—		8,574
Customer related		—		383,532		—		383,532
Risk participations		—		—		720		720
Total return swap		—		—		5,460		5,460
Foreign exchange		—		11,930		—		11,930
Trading		—		11,655		—		11,655
Total financial liabilities	$	—	$	577,211	$	6,180	$	583,391
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2010
	(in thousands)
Financial assets:
US Treasury and government agency securities	$	—	$	12,997	$	—	$	12,997
Debentures of FHLB, FNMA and FHLMC		—		24,999		—		24,999
Corporate debt		—		2,202,787		—		2,202,787
Asset-backed securities		—		3,073,194		51,409		3,124,603
State and municipal securities		—		1,882,280		—		1,882,280
Mortgage backed securities		—		4,663,744		1,460,438		6,124,182
Total investment securities available-for-sale		—		11,860,001		1,511,847		13,371,848
Loans held for sale		—		150,063		—		150,063
Derivatives:
Mortgage banking		—		3,488		734		4,222
Customer related		—		307,292		—		307,292
Foreign exchange		—		20,707		—		20,707
Trading		—		21,149		—		21,149
Total financial assets	$	—	$	12,362,700	$	1,512,581	$	13,875,281
Financial liabilities:
Derivatives:
Cash flow	$	—	$	169,758	$	4,604	$	174,362
Customer related		—		308,130		—		308,130
Total return swap		—		—		4,081		4,081
Foreign exchange		—		13,349		—		13,349
Trading		—		43,345		—		43,345
Total financial liabilities	$	—	$	534,582	$	8,685	$	543,267

There were no transfers between Level 1 and Level 2 or Level 2 and Level 3 of the fair value hierarchy during the year ended December 31, 2011 and 2010.

As of December 31, 2011, approximately $16.3 billion of the Company’s total assets consisted of financial instruments measured at fair value on a recurring basis, including financial instruments for which the Company elected the fair value option. Approximately $16.3 billion of these financial instruments, net of counterparty and cash collateral balances, were measured using valuation methodologies involving market-based or market-derived information. Approximately $59.6 million of these financial instruments were measured using model-based techniques, or using Level 3 inputs, and represented approximately 0.4% of the total assets measured at fair value and approximately 0.1% of the total consolidated assets.

The valuation technique to measure the fair values for the items in the tables above are as follows:

Investments securities available-for-sale

Quoted market prices for the investments in securities available for sale held at the Company, such as government agency bonds, corporate debt, state and municipal securities, etc, are not readily available. The Company’s principal markets for its investment securities are the secondary institutional markets with an exit price that is predominantly reflective of bid level pricing in these markets.

Loans held for sale

The Company adopted the fair value option on residential mortgage loans classified as held for sale which allows the Company to record the mortgage loan held for sale portfolio at fair market value versus the lower of cost or market. The Company economically hedges its residential loans held for sale portfolio with forward sale agreements which are reported at fair value. A lower of cost or market accounting treatment would not allow the Company to record the excess of the fair market value over book value but would require the Company to record the corresponding reduction in value on the hedges. Both the loans and related hedges are carried at fair value which reduces earnings volatility as the amounts more closely offset, particularly in environments when interest rates are declining.

The Company’s residential loan held for sale portfolio had an aggregate fair value of $352.5 million at December 31, 2011. The contractual principal amount of these loans totaled $340.0 million at December 31, 2011. The difference in fair value compared to principal balance of $12.5 million was recorded in mortgage banking revenues during the year ended December 31, 2011. Substantially all of these loans are current and none are in non-accrual status. Interest income on these loans is credited to interest income as earned. The fair value of these loans is estimated based upon the anticipated exit price for these loans in the secondary market to agency buyers such as Fannie Mae and Freddie Mac. The majority of the residential loan held for sale portfolio is sold to these two agencies.

Derivatives

Currently, the Company uses derivative instruments to manage its interest rate risk, equity risk and foreign exchange currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable and unobservable market-based inputs.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurement of its derivatives. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations are primarily classified in Level 2 of the fair value hierarchy.

The Company’s Level 3 assets are primarily comprised of certain sale-lease back securities. These investments are thinly traded and the Company determined the estimated fair values for these securities by evaluating pricing information from a combination of sources such as third party pricing services, third party broker quotes for certain securities and from other independent third party valuation sources. These quotes are benchmarked against similar securities that are more actively traded in order to assess the reasonableness of the estimated fair values. The fair market value estimates assigned to these securities assume liquidation in an orderly fashion and not under distressed circumstances. Due to the continued illiquidity and credit risk of certain securities, the market value of these securities is highly sensitive to assumption changes and market volatility.

Gains and losses on investments and mortgage servicing rights are recognized on the Consolidated Statements of Operations through the “Net gain on sale of investment securities” and “Mortgage banking income, net”, respectively. Gains and losses related derivatives affect various line items on the Consolidated Statements of Operations. See Note 16 for the discussion of derivatives activity on the Consolidated Statements of Operations.

The tables below present the changes in the Level 3 balances for the year ended December 31, 2011 and 2010. All balances are presented in thousands.

		September 30,			September 30,			September 30,			September 30,
For the year ended December 31, 2011:
	Investments Available-for-Sale			Mortgage Servicing  Rights			Derivatives			Total
Balance at December 31, 2010	$	1,511,847		$	146,028		$	(7,951	)	$	1,649,924
Gains/(losses) in other comprehensive income		55,187			—			(216	)		54,971
Loss reclassified from OCI to earnings		93,934			—			—			93,934
Gains /(losses) recognized in earnings		—			(37,789	)		5,606			(32,183	)
Purchases		—			—			—			—
Issuances		—			27,230			—			27,230
Sales		(1,312,648	)		—			—			(1,312,648	)
Settlements		(296,005	)		—			3,704			(292,301	)
Amortization		—			(43,783	)		—			(43,783	)
Transfers into/out of level 3		—			—			—			—
Balance at December 31, 2011	$	52,315		$	91,686		$	1,143		$	145,144

		September 30,			September 30,			September 30,			September 30,
For the year ended December 31, 2010:
	Investments Available-for-Sale			Mortgage Servicing  Rights			Derivatives			Total
Balance at December 31, 2009	$	1,928,343		$	136,874		$	(24,625	)	$	2,040,592
Gains/(losses) in other comprehensive income		203,972			—			3,156			207,128
Loss reclassified from OCI to earnings		3,480			—			—			3,480
Gains/(losses) recognized in earnings		—			24,664			(5,250	)		19,414
Purchases		—			—			(5,240	)		(5,240	)
Issuances		—			41,840			—			41,840
Sales		—			—			—			—
Settlements		(623,948	)		—			24,008			(599,940	)
Amortization		—			(57,350	)		—			(57,350	)
Transfers into/out of level 3		—			—			—			—
Balance at December 31, 2010	$	1,511,847		$	146,028		$	(7,951	)	$	1,649,924

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at year-end, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios at quarter end.

		September 30,		September 30,		September 30,		September 30,
	Quoted Prices in  Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
December 31, 2011
Loans (1)	$	—	$	1,388,268	$	—	$	1,388,268
Foreclosed assets (2)		—		74,031		—		74,031
Mortgage servicing rights (3)		—		—		91,686		91,686
December 31, 2010
Loans (1)	$	—	$	2,148,261	$	—	$	2,148,261
Foreclosed assets (2)		—		114,198		—		114,198
Mortgage servicing rights (3)		—		—		146,028		146,028

(1) These balances are measured at fair value on a non-recurring basis using the fair value of the underlying collateral.

(2) Assets taken in foreclosure of defaulted loans are primarily comprised of commercial and residential real property and are generally measured at the lower of cost or fair value less costs to sell. The fair value of the real property is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2.

(3) These balances are measured at fair value on a non-recurring basis. Mortgage servicing rights are stratified for purposes of the impairment testing.

The following table presents the increases and decrease in value of certain assets that are measured at fair value on a nonrecurring basis for which a fair value adjustment has been included in the Statements of Operations, relating to assets held at period end. All balances are presented in thousands.

		September 30,		September 30,			September 30,
	Statements of Operations		For the Year Ended December 31,
	Location		2011			2010
Loans		Provision for credit losses	$	165,317		$	(52,947	)
Foreclosed assets		Other administrative expense		(14,657	)		(10,869	)
Mortgage servicing rights		Mortgage banking income		(37,789	)		24,665
			$	112,871		$	(39,151	)

The following table presents disclosures about the fair value of financial instruments. These fair values for certain instruments are presented based upon subjective estimates of relevant market conditions at a specific point in time and information about each financial instrument. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties resulting in variability in estimates affected by changes in assumptions and risks of the financial instruments at a certain point in time. Therefore, the derived fair value estimates presented below for certain instruments cannot be substantiated by comparison to independent markets. In addition, the fair values do not reflect any premium or discount that could result from offering for sale at one time an entity’s entire holdings of a particular financial instrument nor does it reflect potential taxes and the expenses that would be incurred in an actual sale or settlement. Accordingly, the aggregate fair value amounts presented below do not represent the underlying value to the Company:

		September 30,		September 30,		September 30,		September 30,
	December 31, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Financial assets:
Cash and amounts due from depository institutions	$	2,623,963	$	2,623,963	$	1,705,895	$	1,705,895
Available-for-sale investment securities		15,578,576		15,578,576		13,371,848		13,371,848
Loans held for investment, net		50,223,888		49,286,606		62,820,434		61,453,371
Loans held for sale		352,471		352,471		150,063		150,063
Mortgage servicing rights		91,686		99,556		146,028		148,746
Derivatives:
Fair value		3,888		3,888		—		—
Mortgage banking		7,323		7,323		4,222		4,222
Customer related		361,349		361,349		307,292		307,292
Foreign exchange		11,950		11,950		20,707		20,707
Trading		12,098		12,098		21,149		21,149
Financial liabilities:
Deposits		47,797,515		47,330,243		42,673,293		42,592,642
Borrowings and other debt obligations		18,278,433		19,372,350		33,630,117		34,764,709
Derivatives:
Fair value		3,346		3,346		—		—
Cash flow		158,174		158,174		174,362		174,362
Mortgage banking		8,574		8,574		—		—
Customer related		383,532		383,532		308,130		308,130
Risk participations		720		720		—		—
Total return swap		5,460		5,460		4,081		4,081
Foreign exchange		11,930		11,930		13,349		13,349
Trading		11,655		11,655		43,345		43,345

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and amounts due from depository institutions

Cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits in other banks, federal funds sold, and securities purchased under agreements to resell. Cash and cash equivalents have maturities of three months or less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.

Investment securities available for sale

Generally, the fair value of investment securities available-for-sale is based on a third party pricing service which utilizes matrix pricing on securities that actively trade in the marketplace. For investment securities that do not actively trade in the marketplace, fair value is obtained from third party broker quotes. For certain non-agency mortgage backed securities, SHUSA determines the estimated fair value for these securities by evaluating pricing information from a combination of sources such as third party pricing services, third party broker quotes for certain securities and from another independent third party valuation source. These quotes are benchmarked against similar securities that are more actively traded in order to assess the reasonableness of the estimated fair values. The fair market value estimates the Company assigns to these securities assume liquidation in an orderly fashion and not under distressed circumstances. Changes in fair value are reflected in the carrying value of the asset and are shown as a separate component of stockholders’ equity.

Loans held for investment

Fair value is estimated by discounting cash flows using estimated market discount rates, reflecting the credit risk and interest rate risk for loans of similar maturities.

Loans held for sale

The Company has mortgage loans held for sale on its balance sheet which are recorded at fair market value estimated using security prices for similar product types.

Mortgage servicing rights

The fair value of mortgage servicing rights are estimated using a discounted cash flow model. For additional discussion see Note 10.

Mortgage interest rate lock commitment

Fair value is estimated based on a net present value analysis of the anticipated cash flows associated with the rate lock commitments.

Deposits

The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, interest bearing demand deposit accounts, savings accounts and certain money market accounts, is equal to the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated by discounting cash flows using currently offered rates for deposits of similar remaining maturities.

Borrowings and other debt obligations

Fair value is estimated by discounting cash flows using rates currently available to SHUSA for other borrowings with similar terms and remaining maturities. Certain other debt obligations instruments are valued using available market quotes which contemplates issuer default risk.

Derivative Instruments

The Company generally determines the fair value of its derivative instruments using pricing models based on market observable inputs, non-observable inputs, and the current creditworthiness of the counterparties to calculate the price to terminate the contracts or agreement. For interest rate lock commitments, fair value is generally estimated based on a net present value analysis of the anticipated cash flows associated with the product.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 22 — Commitments and Contingencies

Financial Instruments

The Company is a party to financial instruments in the normal course of business, including instruments with off-balance sheet exposure, to meet the financing needs of customers and to manage its exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, loans sold with recourse, forward contracts and interest rate swaps, caps and floors. These financial instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheet. The contract or notional amounts of these financial instruments reflect the extent of involvement SHUSA has in particular classes of financial instruments.

The following schedule summarizes the Company’s off-balance sheet financial instruments (in thousands):

		September 30,		September 30,
	CONTRACT OR NOTIONAL AMOUNT AT DECEMBER 31,
	2011		2010
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	20,108,165	$	16,443,257
Standby letters of credit		2,199,489		3,280,899
Loans sold with recourse		230,107		268,195
Forward buy commitments		505,905		2,930,265

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral required is based on management’s evaluation of the credit of the counterparty. Collateral usually consists of real estate but may include securities, accounts receivable, inventory and property, plant and equipment.

The Company’s standby letters of credit meet the definition of a guarantee under the FASB Accounting Standards Codification. These transactions are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The guarantees are primarily issued to support public and private borrowing arrangements. The weighted average term of these commitments is 1.5 years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending a loan to customers. In the event of a draw by the beneficiary that complies with the terms of the letter of credit, The Company would be required to honor the commitment. The Company has various forms of collateral, such as real estate assets and customers’ business assets. The maximum undiscounted exposure related to these commitments at December 31, 2011 was $2.2 billion, and the approximate value of the underlying collateral upon liquidation that would be expected to cover this maximum potential exposure was $1.6 billion. Substantially all the fees related to standby letters of credits are deferred and are immaterial to the Company’s financial position. Management believes that the utilization rate of these standby letters of credit will continue to be substantially less than the amount of these commitments, as has been the experience to date.

Loans sold with recourse primarily represent single-family residential loans and multi-family loans. See further discussion regarding these loans in Note 10.

The Company’s forward buy commitments primarily represent commitments to purchase loans, investment securities and derivative instruments for customers.

Litigation

In the ordinary course of business, the Company and its subsidiaries are routinely defendants in or parties to pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of consumer protection, securities, environmental, banking, employment and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company and its subsidiaries. In the ordinary course of business, the Company and its subsidiaries are also subject to regulatory examinations, information gathering requests, inquiries and investigations.

In view of the inherent difficulty of predicting the outcome of such litigation and regulatory matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable at which time an accrued liability is established with respect to such loss contingency. The Company continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. For certain legal matters in which the Company is involved, the Company is able to estimate a range of reasonably possible losses. For other matters for which a loss is probable or reasonably possible, such an estimate is not possible. Excluding the matters discussed below, management currently estimates that it is reasonably possible that the Company could incur losses in an aggregate amount up to approximately $60.0 million in excess of the accrued liability, if any, with it also being reasonably possible that the Company could incur no such losses at all in these matters. This estimated range of reasonably possible losses represents the estimate of possible losses over the life of such legal matters, which may span an indeterminable number of years, and is based on information available as of December 31, 2011.

Trust PIERS

On December 17, 2010, The Bank of New York Mellon Trust Company, National Association (the “Trustee”) filed a complaint in the U.S. District Court for the Southern District of New York solely as the Trustee for the Trust PIERS under an Indenture dated September 1, 1999, as amended, against SHUSA. The complaint asserts that the acquisition by Santander of SHUSA on January 31, 2009, constituted a “change of control” under the Trust PIERS.

If the acquisition constituted a “change of control” under the definitions applicable to the Trust PIERS, SHUSA would be required to pay a significantly higher rate of interest on subordinated debentures of SHUSA held in trust for the holders of Trust PIERS and the principal amount of the debentures would accrete to $50 per debenture as of the effective date of the “change of control”. There is no “change in control” under the Trust PIERS, among other reasons, if the consideration in the acquisition consisted of shares of common stock traded on a national securities exchange. Santander issued American Depositary Shares in connection with the acquisition which were and are listed on the New York Stock Exchange.

The complaint asks the Court to declare that the acquisition of the Company was a “change of control” under the Indenture and seeks damages equal to the interest that the complaint alleges should have been paid by the Company for the benefit of holders of Trust PIERS. On December 13, 2011, the Court issued its decision granting the Trustee’s motion for summary judgment and denying the Bank’s cross-motion. The Court ruled that the term “common stock” used in the Indenture’s “change of control” provision does not include ADSs and, therefore, a Change of Control has occurred. The Court referred the matter of damages to a magistrate judge for an inquest. The damages inquest is unlikely to be completed before June 2012. A final appealable judgment will not enter until damages are determined.

As a result of the December 13, 2011 decision by the Court, at December 31, 2011, SHUSA recorded a reduction of pre-tax income of $344.2 million for the Trust PIERS litigation. Of that total, $70.8 million represents the liability for accrued interest at the rate of 7.410% from January 31, 2009 to December 31, 2011. The remaining $273.4 million was recorded as Other Expense on Statement of Operations and a credit to the debt obligation to accrete the principal amount of each Trust PIERS security to $50. The trustee has argued that the reset rate should be 12.77% or higher, which if accepted by the Court, would increase the impact of the unfavorable outcome noted above.

The Company continues to believe the acquisition by Santander was not a “change of control” and that the Trustee’s damages are overstated. The Company intends to appeal the Court’s finding that the acquisition was a “change of control” and the damages assessment, upon completion of the inquest and entry of final judgment against the Company.

Fabrikant & Sons Bankruptcy Adversary Proceeding

In October 2007, the official committee of unsecured creditors of the debtors, M. Fabrikant & Sons (“MFS”) and a related company, Fabrikant-Leer International, Ltd. (“FLI”), filed an adversary proceeding against Sovereign Precious Metals, LLC (“SPM”), a wholly owned subsidiary of the Bank, and the Bank in the United States Bankruptcy Court for the Southern District of New York. The proceeding seeks to avoid $22.0 million in obligations otherwise due to the Bank (and formerly SPM) with respect to gold previously consigned to debtor by the Bank. In addition, the adversary proceeding seeks to recover over $9.8 million in payments made to the Bank by an affiliate of the debtors. Several other financial institutions were named as defendants based upon other alleged fraudulent transfers. Defendants’ motions to dismiss were denied in part and allowed in part. Claims remain against the Bank for approximately $33.0 million.

The plaintiff has appealed the court’s dismissal of its claims, including those claims based on “actual fraud”. The appeal has been fully briefed. Discovery has been stayed in the case pending a ruling on the appeal. The disposition of the appeal will not affect the Bank’s exposure in the case.

Overdraft Litigation

The putative class action litigation filed against the Bank by Diane Lewis, on behalf of herself and others similarly situated, in the United States District Court for the District of Maryland has been transferred to and consolidated for pre-trial proceedings in the United States District Court for the Southern District of Florida (the “MDL Court”) under the caption In re Checking Account Overdraft Litigation. The complaint alleges violations of law in connection with the Bank’s overdraft/transaction ordering and fees practices. The Bank has filed a motion seeking dismissal of the complaint. The complaint seeks unspecified damages.

Foreclosure Matters

On April 13, 2011, the Bank consented to the issuance of a consent order by the Bank’s previous primary federal banking regulator, the Office of Thrift Supervision (“OTS”), as part of an interagency horizontal review of foreclosure practices at 14 mortgage servicers. The Bank, upon its conversion to a national bank on January 26, 2012, entered into a stipulation consenting to the issuance of a Consent Order (the “Order”) issued by the Office of the Comptroller of the Currency, which contains the same terms as the OTS consent order. The Order requires the Bank to take a number of actions, including designating a Board committee to monitor and coordinate the Bank’s compliance with the provisions of the Order, developing and implementing plans to improve the Bank’s mortgage servicing and foreclosure practices, designating a single point of contact for borrowers throughout the loss mitigation and foreclosure processes and taking certain other remedial actions. Under the Consent Order, the Bank has retained an independent consultant to conduct a review of certain foreclosure actions or proceedings for loans serviced by the Bank.

The Company incurred $24.7 million of costs in 2011 relating to compliance with the Order. The estimated costs for 2012 include $12 million of costs related to files review that were previously expected to be incurred in 2011. Recurring legal and operational expenses to comply with the Order are estimated to be approximately $7.0 million annually. The Company and the Bank may incur further expenses related to compliance with the Order. The Order and any other proceedings and investigations could adversely affect the Company’s reputation.

In addition, the Company incurred $196 thousand of costs in 2011 related to compensatory fees as a result of foreclosure delays. The Company expects to incur additional compensatory fees in 2012.

The Order will remain in effect until modified or terminated by the OCC. Any material failure to comply with the provisions of the Order could result in enforcement actions by the OCC. While the Bank intends to take such actions as may be necessary to enable the Bank to comply fully with the provisions of the Order, and management is not aware of any impediments that may prevent the Bank from achieving full compliance with the Order, there can be no assurance that the Bank will be able to comply fully with the provisions of the Order, or to do so within the timeframes required, or that compliance with the Order will not be more time consuming, more expensive, or require more managerial time than anticipated. The Bank may also be subject to remediation costs and civil money penalties under the Order or it could be subject to other proceedings or investigations with respect to its foreclosure activities, however, management is unable to determine at this time the likelihood or amount of such costs or penalties under the Order or with respect to any other such events and accordingly, no accrual has been recorded.

Other

Reference should be made to Note 19 for disclosure regarding the lawsuit filed by SHUSA against the Internal Revenue Service/United States. In addition to the proceeding described above and the litigation described in Note 19 above, SHUSA in the normal course of business is subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. The Company does not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material effect on the Company’s financial position. However, the Company cannot now determine whether or not any claims asserted against the Company, whether in the proceeding specifically described above, the matter described in Note 19 above, or otherwise, will have a material effect on the Company’s results of operations in any future reporting period, which will depend on, among other things, the amount of any loss resulting from the claim and the amount of income otherwise reported for the reporting period.

Leases

The Company is committed under various non-cancelable operating leases relating to branch facilities having initial or remaining terms in excess of one year. Renewal options exist for the majority of the lease agreements.

Future minimum annual rentals under non-cancelable operating leases and sale-leaseback leases, net of expected sublease income, at December 31, 2011, are summarized as follows (in thousands):

		September 30,		September 30,			September 30,
	AT DECEMBER 31, 2011
	Lease Payments		Future Minimum Expected  Sublease Income			Net Payments
2012	$	104,181	$	(10,772	)	$	93,409
2013		97,009		(6,105	)		90,904
2014		87,160		(4,560	)		82,600
2015		78,166		(3,544	)		74,622
2016		69,544		(2,529	)		67,015
Thereafter		250,609		(5,226	)		245,383
Total	$	686,669	$	(32,736	)	$	653,933

The Company recorded rental expense of $132.3 million, $126.6 million and $117.7 million, net of $13.7 million, $12.5 million and $12.2 million of sublease income, in 2011, 2010 and 2009, respectively. These expenses are included in occupancy and equipment expense.

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Regulatory Matters

12 Months Ended

Dec. 31, 2011

Deposits and Regulatory Matters [Abstract]

Regulatory Matters

Note 24 — Regulatory Matters

The minimum U.S. regulatory capital ratios for banks under Basel I are 4% for Tier 1 Risk-Based Capital Ratio and 4% for Tier 1 Leverage Capital Ratio. To qualify as “well-capitalized”, regulators require banks to maintain capital ratios of at least 6% for Tier 1 Risk-Based Capital Ratio, 10% for Total Risk-based Capital Ratio, and 5% for Tier 1 Leverage Capital Ratio. At December 31, 2011 and 2010, Sovereign Bank met the well-capitalized capital ratio requirements.

All bank holding companies are required to maintain Tier 1 Risk-Based Capital Ratios of at least 4%, Total Risk-Based Capital Ratios of 8%, and Tier 1 Leverage Capital Ratios of at least 3%. While the Company was not subject to these minimum requirements as of December 31, 2011, the Company’s capital levels exceeded the ratios required for bank holding companies.

The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) established five capital tiers: well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. A depository institution’s capital tier depends upon its capital levels in relation to various relevant capital measures, which include leverage and risk-based capital measures and certain other factors. Depository institutions that are not classified as well-capitalized or adequately-capitalized are subject to various restrictions regarding capital distributions, payment of management fees, acceptance of brokered deposits and other operating activities.

Federal banking laws, regulations and policies also limit the Bank’s ability to pay dividends and make other distributions to SHUSA. The Bank must obtain prior OCC approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the Bank’s total distributions to the holding company within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years; (2) the Bank would not meet capital levels imposed by the OCC in connection with any order, or (3) if the Bank is not adequately capitalized at the time. In addition, OCC prior approval would be required if the Bank’s examination or CRA ratings fall below certain levels or the Bank is notified by the OCC that it is a problem association or an association in troubled condition. During the three years following the period-ended September 30, 2010, the Bank must obtain the written non-objection of the OCC to declare a dividend or make any other capital distribution.

Any dividends declared and paid have the effect of reducing the Bank’s Tier 1 leverage capital to tangible assets and Tier 1 risk-based capital ratios. There were no dividends paid by the Bank during the years ended December 31, 2011 and 2010.

The following schedule summarizes the actual capital balances of the Bank and SHUSA at December 31, 2011 and 2010:

		September 30,			September 30,			September 30,			September 30,
	REGULATORY CAPITAL (IN THOUSANDS)
	Tier 1 Leverage Capital Ratio			Tier 1 Risk-Based Capital Ratio			Total Risk-Based Capital Ratio			Tier 1 Common Capital Ratio
Sovereign Bank at December 31, 2011:
Regulatory capital	$	8,216,477		$	8,158,889		$	9,430,050		$	8,066,237
Capital ratio		11.15	%		14.24	%		16.45	%		14.07	%
SHUSA at December 31, 2011:
Regulatory Capital	$	8,233,662		$	8,176,074		$	9,925,524		$	7,496,691
Capital ratio		10.88	%		13.75	%		16.69	%		12.61	%
Sovereign Bank at December 31, 2010:
Regulatory capital	$	7,736,164		$	7,680,472		$	9,092,918		$	7,587,241
Capital ratio		11.43	%		13.45	%		15.93	%		13.29	%
SHUSA at December 31, 2010
Regulatory Capital	$	6,907,153		$	6,851,461		$	9,215,914		$	5,435,855
Capital ratio		8.22	%		9.31	%		12.52	%		7.39	%

(1) As defined by OCC Regulations.

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Parent Company Financial Information

12 Months Ended

Dec. 31, 2011

Parent Company Financial Information [Abstract]

Parent Company Financial Information

Note 25 — Parent Company Financial Information

BALANCE SHEET

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Assets
Cash and due from banks	$	283,251	$	304,786
Available for sale investment securities		39,382		44,832
Loans to non-bank subsidiaries		2,000		10,000
Investment in subsidiaries:
Bank subsidiary		8,410,362		6,206,852
Non-bank subsidiaries (1)		4,252,195		7,486,648
Other assets (1)		2,986,789		799,713
Total assets	$	15,973,979	$	14,852,831
Liabilities and stockholder’s equity
Borrowings and other debt obligations	$	2,749,643	$	3,392,216
Borrowings from non-bank subsidiaries		136,605		136,039
Other liabilities		491,568		63,906
Total liabilities		3,377,816		3,592,161
Stockholder’s equity		12,596,163		11,260,670
Total liabilities and stockholder’s equity	$	15,973,979	$	14,852,831

⁽¹⁾  The activity in these accounts is due to the effects of the SCUSA Transaction. See further discussion in Note 3. A pre-tax gain of $987.7 million was recognized in Other Income related to the SCUSA Transaction and an equity method investment of $2.65 billion was recognized in Other Assets.

STATEMENT OF OPERATIONS

		September 30,		September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011		2010			2009
	(in thousands)
Dividends from bank subsidiary	$	—	$	—		$	—
Dividends from non-bank subsidiaries		425,762		366,000			—
Interest income		3,676		8,256			6,971
Other income (1)		988,327		268			517
Total income		1,417,765		374,524			7,488
Interest expense		148,937		147,548			116,308
Other expense		380,829		1,605			45,555
Total expense		529,766		149,153			161,863
Income/(loss) before income taxes and equity in earnings of subsidiaries		887,999		225,371			(154,375	)
Income tax (benefit)/provision		307,412		(11,717	)		6,152
Income/(loss) before equity in earnings of subsidiaries		580,587		237,088			(160,527	)
Equity in undistributed earnings of:
Bank subsidiary		316,934		677,997			48,644
Non-bank subsidiaries		360,725		144,290			273,448
Net income	$	1,258,246	$	1,059,375		$	161,565

⁽¹⁾  The activity in these accounts is due to the effects of the SCUSA Transaction. See further discussion in Note 3. A pre-tax gain of $987.7 million was recognized in Other Income related to the SCUSA Transaction and an equity method investment of $2.65 billion was recognized in Other Assets.

STATEMENT OF CASH FLOWS

		September 30,			September 30,			September 30,
	FOR THE YEAR ENDED DECEMBER 31
	2011			2010			2009
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,258,246		$	1,059,375		$	161,565
Adjustments to reconcile net income to net cash provided by / (paid in) operating activities:
Undistributed earnings of:
Bank subsidiary		(316,934	)		(677,997	)		(48,644	)
Non-bank subsidiaries		(360,725	)		(144,290	)		(273,448	)
Stock based compensation expense		4,054			2,227			47,181
Remittance to Santander for stock based compensation		(4,333	)		(1,800	)		—
SCUSA Transaction		(987,650	)		—			—
Other, net		550, 541			(361,253	)		(281,690	)
Net cash provided by / (paid in) operating activities		143,199			(123,738	)		(395,036	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Adjustments to reconcile net cash provided by / (used in) investing activities:
Net capital returned from/(contributed to) subsidiaries		806,094			(1,961,634	)		(1,683,629	)
Net (increase)/decrease in loans to subsidiaries		8,000			1,404,300			(1,138,787	)
Cash paid related to the SCUSA Transaction		(10,000	)		—			—
Net cash provided by / (used in) investing activities		804,094			(557,334	)		(2,822,416	)
CASH FLOWS FROM FINANCIAL ACTIVITIES:
Adjustments to reconcile net cash provided by / (used in) financing activities:
Repayment of other debt obligations		(463,740	)		(2,203,700	)		(200,000	)
Net proceeds received from senior notes and senior credit facility		500,000			1,375,000			1,140,000
Net change in commercial paper		(951,502	)		968,355			—
Net change in borrowings from non-bank subsidiaries		566			1,330			1,800
Dividends to preferred stockholders		(14,600	)		(14,600	)		(14,600	)
Dividends to non-controlling interest		(39,552	)		—			—
Net proceeds from the issuance of preferred stock		—			750,000			1,800,000
Net cash provided by/(used in) financing activities		(968,828	)		876,385			2,727,200
(Decrease)/Increase in cash and cash equivalents		(21,535	)		195,313			(490,252	)
Cash and cash equivalents at beginning of period		304,786			109,473			599,725
Cash and cash equivalents at end of period	$	283,251		$	304,786		$	109,473

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Recent Accounting Pronouncements

12 Months Ended

Dec. 31, 2011

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 2 — Recent Accounting Pronouncements

In December 2010, the FASB issued ASU 2010-28, an update to Topic 350, “Intangibles – Goodwill and Other: When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The amendments to Topic 350 modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining this, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. These amendments were effective for the Company on January 1, 2011. The implementation of this guidance did not have an impact on the Company’s financial position or results of operations.

In September 2011, the FASB issued ASU 2011-08, an update to ASC 350, “Intangibles – Goodwill and Other”, which requires companies to perform goodwill and indefinite-life intangible asset impairment testing using a two-step process. The amendments to the ASU permits companies to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as basis for determining whether it is necessary to perform the two-step impairment test. The amendments to ASC 350 are effective for interim and annual periods beginning after December 15, 2011 for the Company. The implementation of this guidance is not expected to have a significant impact on the Company’s financial position or results of operations.

In April 2011, the FASB issued ASU 2011-02, an update to ASC 310-40, “Receivables – Troubled Debt Restructurings by Creditors.” The amendments to Topic 310 were effective on July 1, 2011 for the Company, and should be applied retrospectively to the beginning of the annual period of adoption. In evaluating whether a restructuring constitutes a troubled debt restructuring, the Company must separately conclude that the restructuring constitutes a concession as well as the debtor must be experiencing financial difficulties. The amendments to Topic 310 clarify the guidance on a creditor’s evaluation of whether it has granted a concession and the debtor is experiencing financial difficulties. The implementation of this guidance did not have a significant impact on the Company’s financial position or results of operations.

In April 2011, the FASB issued ASU 2011-03, an update to ASC 860, “Transfers and Servicing” to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments in this update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments to ASC 860 are effective for the Company beginning January 1, 2012. The implementation of this guidance is not expected to have an impact on the Company’s financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04, an update to ASC 820, “Fair Value Measurement” to provide guidance about how fair value should be determined where it is already required or permitted under U.S. GAAP. The guidance clarifies how a principal market is determined, addresses the fair value measurement of instruments with offsetting market or counterparty credit risks and the concept of valuation premise and highest and best use, extends the prohibition on blockage factors to all three levels of the fair value hierarchy, and requires additional disclosures. The amendments to ASC 820 are effective for the first interim and annual periods beginning January 1, 2012 for the Company, and should be applied prospectively. The implementation of this guidance is not expected to have a significant impact on the Company’s financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, an update to ASC 220, “Comprehensive Income”, which requires comprehensive income to be reported in either a single statement or in two consecutive statements reporting net income and other comprehensive income. The amendments do not change what items are reported in other comprehensive income or the requirement to report classification of items from other comprehensive income to net income. The amendments to ASC 220 are effective for the first interim and annual period beginning January 1, 2012 for the Company, and should be applied retrospectively to the beginning of the first annual period presented. The implementation of this guidance is not expected to have a significant impact on the Company’s financial position or results of operations. In December 2011, FASB issued ASU 2011-12 which deferred certain aspects of ASC 2011-05. These deferred aspects did not include the requirement to report comprehensive income in either a single statement or in two consecutive statements reporting net income and other comprehensive income. The deferral period will begin for the Company on January 1, 2012 and would remain in effect indefinitely.

In December 2011, the FASB issued ASU 2011-11, an update to ASC 210, “Balance Sheet”, which requires entities to disclose both gross information and net information about both financial instruments and transactions eligible for offset in the statement of financial position (“Balance Sheet”) and transactions subject to an agreement similar to a master netting arrangement. The amendment is designed to enhance disclosures about the financial instruments and derivatives, which will allow the users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The scope includes derivatives, repurchase agreements and security borrowings. The amendments to ASC 210 are effective for interim and annual periods beginning January 1, 2013 for the Company, and should be applied retrospectively to the beginning of the first annual period presented. The Company has not yet determined the impact of this guidance on the Company’s financial position or results of operations.

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Business Segment Information

12 Months Ended

Dec. 31, 2011

Business Segment Information [Abstract]

Business Segment Information

Note 26 — Business Segment Information

The Company’s segments are focused principally around the customers that the Bank serves. The Retail banking segment is primarily comprised of the branch locations and the residential mortgage business. The branches offer a wide range of products and services to customers and each attracts deposits by offering a variety of deposit instruments including demand and interest bearing demand deposit accounts, money market and savings accounts, certificates of deposits and retirement savings products. The branches also offer consumer loans such as home equity loans and lines of credit. The Retail banking segment also includes business banking loans and small business loans to individuals. The Specialized Business segment is primarily comprised of non-strategic lending groups which include indirect automobile, aviation and continuing care retirement communities. The Corporate banking segment provides the majority of the Company’s commercial lending platforms such as commercial real estate loans, multi-family loans, commercial and industrial loans and the Company’s related commercial deposits. The Global Banking and Markets (“Global Banking”) segment includes businesses with large corporate domestic and foreign clients. The Other category includes investment portfolio activity, intangibles and certain unallocated corporate income and expenses.

SCUSA is a specialized consumer finance company engaged in the purchase, securitization and servicing of retail installment contracts originated by automobile dealers and direct origination of retail installment contracts over the internet. In July 2009, Santander contributed SCUSA, a majority owned subsidiary, into the Company. SCUSA’s results of operations were consolidated from January 1, 2009 until December 31, 2011. SCUSA will subsequently be accounted for as an equity method investment. Refer to Note 3 of the Notes to Consolidated Financial Statements for additional information. SCUSA was managed as a separate segment throughout 2011 and SHUSA’s 2011 statement of operations includes a full year of SCUSA’s results. Therefore, SCUSA continues to be reported as a separate segment as of December 31, 2011.

For segment reporting purposes, SCUSA continues to be managed as a separate business unit with its own systems and processes. With the exception of this segment, the Company’s segment results are derived from the Company’s business unit profitability reporting system by specifically attributing managed balance sheet assets, deposits and other liabilities and their related interest income or expense to each of the segments. Funds transfer pricing methodologies are utilized to allocate a cost for funds used or a credit for funds provided to business line deposits, loans and selected other assets using a matched funding concept.

The provision for credit losses recorded by each segment is based on the net charge-offs of each line of business and changes in specific reserve levels for loans in the segment (except for changes in Specific Valuation Allowances made during the third quarter of 2011– see (4) in the following table) and the difference between the provision for credit losses recognized by the Company on a consolidated basis and the provision recorded by the business line is recorded in the Other category.

Other income and expenses directly managed by each business line, including fees, service charges, salaries and benefits, and other direct expenses as well as certain allocated corporate expenses are accounted for within each segment’s financial results. Accounting policies for the lines of business are the same as those used in preparation of the consolidated financial statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses and other financial elements to each line of business. Expenses are allocated to the business segments in accordance with the management reporting system, which includes the allocation of the majority of expenses including overhead costs which is not necessarily comparable with similar information published by other financial institutions. Where practical, the results are adjusted to present consistent methodologies for the segments.

During 2011, the multi-family and large corporate commercial specialty groups were merged into the Corporate banking segment from the Specialized Business segment, which, for 2010, resulted in approximately $8.9 billion of average assets and $30.0 million of pretax income allocated to the Corporate banking segment that had previously been allocated to the Specialized Business segment. For 2009, approximately $10.1 billion of average assets and $256.8 million of pretax loss were allocated to the Corporate banking segment that had previously been allocated to the Specialized Business segment. Since the Specialized Business segment had no goodwill allocated to it, this reporting structure change had no impact on the amount of goodwill assigned to other segments. Prior period results were recast to conform to current methodologies for the segments.

The following tables present certain information regarding the Company’s segments (in thousands):

		xxxxxx			xxxxxx			xxxxxx			xxxxxx			xxxxxx		xxxxxx			xxxxxx
For the year ended December 31, 2011	Retail(1)			Specialized Business			Corporate			Global Banking			SCUSA		Other(3)			Total
Net interest income/(expense)	$	776,915		$	77,230		$	489,714		$	61,315		$	2,185,315	$	274,325		$	3,864,814
Fees and other income		380,363			16,546			77,225			29,213			440,525		978,203			1,922,075
Provision for credit losses (4)		254,159			189,713			190,168			21,264			819,221		(154,574	)		1,319,951
General and administrative expenses		1,139,238			41,524			144,583			16,572			550,108		(49,801	)		1,842,224
Income/(loss) before income taxes		(271,662	)		(137,665	)		221,163			52,127			1,252,232		1,050,330			2,166,525
Intersegment revenue/(expense) (5)		(153,113	)		(87,741	)		(390,315	)		(5,261	)		—		636,430			—
Total average assets (6)	$	24,544,236		$	3,755,590		$	20,274,100		$	3,074,731		$	15,815,394	$	24,613,997		$	92,078,048
For the year ended December 31, 2010	Retail(1)			Specialized Business			Corporate			Global Banking			SCUSA		Other(3)			Total
Net interest income/(expense)	$	719,678		$	114,272		$	459,536		$	26,209		$	1,755,440	$	323,504		$	3,398,639
Fees and other income		451,300			30,518			68,912			11,388			245,598		21,197			828,913
Provision for credit losses		250,681			229,561			229,429			6,675			888,225		22,455			1,627,026
General and administrative expenses		1,030,022			39,872			142,773			14,916			391,815		(46,298	)		1,573,100
Income/(loss) before income taxes		(172,386	)		(124,927	)		144,635			15,932			716,055		439,676			1,018,985
Intersegment revenue/(expense) (5)		(181,645	)		(155,585	)		(424,629	)		(4,714	)		—		766,573			—
Total average assets	$	22,994,886		$	5,288,736		$	19,894,648			1,725,628		$	11,959,260	$	22,980,213		$	84,843,371
For the year ended December 31, 2009	Retail			Specialized Business			Corporate(2)			Global Banking			SCUSA		Other(3)			Total
Net interest income/(expense)	$	639,956		$	160,274		$	435,146		$	11,096		$	1,277,358	$	119,674		$	2,643,504
Fees and other income		456,540			31,379			(114,348	)		17,265			51,873		57,435			500,144
Provision for credit losses		201,464			469,719			415,145			9,825			720,937		167,447			1,984,537
General and administrative expenses		1,069,404			14,652			225,597			6,181			253,031		(48,405	)		1,520,460
Income/(loss) before income taxes		(284,316	)		(293,939	)		(336,716	)		12,354			353,355		(573,637	)		(1,122,899	)
Intersegment revenue/(expense) (5)		24,876			(264,309	)		(487,253	)		(2,128	)		—		728,814			—
Total average assets	$	22,863,020		$	7,470,550		$	22,729,303			917,563		$	6,911,119	$	21,457,227		$	82,348,782

(1) The Retail segment fees and other income includes residential servicing rights impairments of $42.5 million for 2011 compared to a decrease in impairments of $24.6 million for 2010. See Note 10 for further discussion on these items.

(2) The Corporate segment fees and other income includes charges of $188.9 million associated with increasing multi-family recourse reserves for loans sold to Fannie Mae for the twelve months ended December 31, 2009.

(3) The Other category includes earnings from the investment portfolio (excluding any investments purchased by SCUSA), interest expense on the Bank’s borrowings and other debt obligations (excluding any borrowings held by SCUSA), amortization of intangible assets and certain unallocated corporate income and expenses. In 2011, fees and other income in the Other category also includes a $987.7 million gain related to the SCUSA Transaction. Included in Other in 2009 were OTTI charges of $36.9 million on FNMA and FHLMC preferred stock, OTTI charges of $143.3 million on non-agency mortgage backed securities, net transaction related, integration charges and other restructuring costs of $299.1 million and a deferred tax valuation allowance reversal of $1.3 billion.

(4) In certain circumstances Specific Valuation Allowances (SVAs) were permitted to be used instead of partial charge-offs by the OTS, the Company’s former regulator. The OCC does not permit the establishment of SVAs. Accordingly, the Bank charged-off $103.7 million of mortgage loans during the third quarter 2011. These charge-offs did not have an impact on the results of operations for the segment or in consolidation.

(5) 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).

(6) Average assets for the Other category include a $2.7 billion equity investment in SCUSA, which was effective 12/31/11.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011		Dec. 31, 2010
ASSETS
Cash and amounts due from depository institutions	$ 2,623,963		$ 1,705,895
Investment securities:
Available-for-sale at fair value	15,578,576		13,371,848
Other investments	555,370		614,241
Loans held for investment	51,307,380		65,017,884
Allowance for loan losses	(1,083,492)		(2,197,450)
Net loans held for investment	50,223,888		62,820,434
Loans held for sale at fair value (1)	352,471	[1]	150,063	[1]
Premises and equipment, net	669,143		595,951
Accrued interest receivable	209,010		406,617
Equity method investments	2,884,008		185,357
Goodwill	3,431,481		4,124,351
Core deposit intangibles and other intangibles, net	99,171		188,940
Bank owned life insurance	1,560,675		1,519,462
Restricted cash	36,660		583,637
Other assets	2,340,783		3,385,019
TOTAL ASSETS	80,565,199		89,651,815
LIABILITIES
Deposits and other customer accounts	47,797,515		42,673,293
Borrowings and other debt obligations	18,278,433		33,630,117
Advance payments by borrowers for taxes and insurance	150,397		104,125
Other liabilities	1,742,691		1,983,610
TOTAL LIABILITIES	67,969,036		78,391,145
STOCKHOLDER'S EQUITY
Preferred stock (no par value; $25,000 liquidation preference; 7,500,000 shares authorized; 8,000 shares outstanding at December 31, 2011 and 2010)	195,445		195,445
Common stock (no par value; 800,000,000 shares authorized; 520,307,043 and 517,107,043 shares issued at December 31, 2011 and 2010, respectively)	12,213,484		11,117,328
Warrants	0		285,435
Accumulated other comprehensive loss	(46,718)		(234,190)
Retained earnings/(deficit)	233,952		(128,984)
TOTAL SHUSA STOCKHOLDER'S EQUITY	12,596,163		11,235,034
Noncontrolling interest	0		25,636
TOTAL STOCKHOLDER'S EQUITY	12,596,163		11,260,670
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$ 80,565,199		$ 89,651,815

[1] Amounts represent items for which the Company has elected the fair value option.

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Consolidated Statement of Stockholder's Equity (USD $) In Thousands, unless otherwise specified	Total	Common Stock	Preferred Stock	Warrants	Accumulated Other Comprehensive Loss	Retained Earnings (Deficit)	Treasury Stock	Non-controlling Interest
Beginning balance at Dec. 31, 2008 (Scenario, Previously Reported)	$ 5,596,714	$ 7,718,771	$ 195,445	$ 350,572	$ (785,814)	$ (1,872,881)	$ (9,379)	$ 0
Beginning balance at Dec. 31, 2008	5,684,904	7,718,771	195,445	350,572	(943,708)	(1,626,797)	(9,379)	0
Beginning balance, shares at Dec. 31, 2008 (Scenario, Previously Reported)		663,946
Beginning balance, shares at Dec. 31, 2008		663,946
Cumulative effect from change in accounting principle	(3,747)					(3,747)
Cumulative effect from change in accounting principle at Jan. 01, 2009 (Scenario, Previously Reported)	88,190				(157,894)	246,084
Comprehensive income:
Net income	161,565					143,756		17,809
Change in unrealized gain/(loss), net of tax:
Pension liabilities	5,140				5,140
Investment securities available-for-sale	487,461				487,461
Cash flow hedges	141,234				141,234
Total comprehensive income	795,400				633,835	143,756		17,809
Contribution of SCUSA from Santander/Issuance of common stock to Santander	1,089,614	773,830			(39,996)	350,268		5,512
Issuance of preferred stock	1,800,000		1,800,000
Conversion of preferred stock to common stock, Shares		7,200
Conversion of preferred stock to common stock		1,800,000	(1,800,000)
Paydown of noncontrolling interest	(924)							(924)
Stock issued in connection with employee benefit and incentive compensation plans, Shares		4
Stock issued in connection with employee benefit and incentive compensation plans	47,193	46,800		346			47
Employee stock options issued	(14,042)	42,099		(65,483)			9,342
Stock repurchased, Shares		(5)
Stock repurchased	(10)						(10)
Shares cancelled by Santander		(160,038)
Dividends paid on preferred stock	(14,600)					(14,600)
Ending balance at Dec. 31, 2009 (Scenario, Previously Reported)	9,387,535	10,381,500	195,445	285,435	(349,869)	(1,147,373)	0	22,397
Ending balance at Dec. 31, 2009	9,383,788	10,381,500	195,445	285,435	(349,869)	(1,151,120)	0	22,397
Ending balance, shares at Dec. 31, 2009 (Scenario, Previously Reported)		511,107
Ending balance, shares at Dec. 31, 2009		511,107
Comprehensive income:
Net income	1,059,375					1,022,136		37,239
Change in unrealized gain/(loss), net of tax:
Pension liabilities	(581)				(581)
Investment securities available-for-sale	83,624				83,624
Cash flow hedges	32,636				32,636
Total comprehensive income	1,175,054				115,679	1,022,136		37,239
Contribution of SCUSA from Santander/Issuance of common stock to Santander, Shares		6,000
Contribution of SCUSA from Santander/Issuance of common stock to Santander	1,500,000	1,500,000
Stock issued in connection with employee benefit and incentive compensation plans	428	428
Dividends paid to Santander	(750,000)	(750,000)
Dividends paid to noncontrolling interest	(34,000)							(34,000)
Dividends paid on preferred stock	(14,600)	(14,600)
Ending balance at Dec. 31, 2010	11,260,670	11,117,328	195,445	285,435	(234,190)	(128,984)	0	25,636
Ending balance, shares at Dec. 31, 2010		517,107
Comprehensive income:
Net income	1,258,246					1,172,642		85,604
Change in unrealized gain/(loss), net of tax:
Pension liabilities	(10,000)				(10,000)
Investment securities available-for-sale	188,720				188,720
Cash flow hedges	(2,744)				(2,744)
Total comprehensive income	1,434,222				175,976	1,172,642		85,604
Contribution of SCUSA from Santander/Issuance of common stock to Santander, Shares		3,200
Contribution of SCUSA from Santander/Issuance of common stock to Santander	800,000	800,000
Capital contribution from Santander	11,000	11,000
Stock issued in connection with employee benefit and incentive compensation plans	(279)	(279)
Dividends paid to Santander	(800,000)					(800,000)
Dividends paid to noncontrolling interest	(39,552)							(39,552)
Dividends paid on preferred stock	(14,600)					(14,600)
Termination of warrants		285,435		(285,435)
SCUSA Transaction	(55,298)				11,496	4,894		(71,688)
Ending balance at Dec. 31, 2011	$ 12,596,163	$ 12,213,484	$ 195,445	$ 0	$ (46,718)	$ 233,952	$ 0	$ 0
Ending balance, shares at Dec. 31, 2011		520,307

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Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2011

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Note 16 — Derivative Instruments and Hedging Activities

See additional discussion regarding the derivative accounting policy in Note 1.

SHUSA uses derivative instruments as part of its interest rate risk management process to manage risk associated with its financial assets and liabilities, its mortgage banking activities, and to assist its commercial banking customers with their risk management strategies and for certain other market exposures. The Company also uses cross currency swaps in order to hedge foreign currency exchange risk on certain Euro denominated investments.

One of SHUSA’s primary market risks is interest rate risk. Management uses derivative instruments to mitigate the impact of interest rate movements on the value of certain liabilities, assets and on probable forecasted cash flows. These instruments primarily include interest rate swaps that have underlying interest rates based on key benchmark indices and forward sale or purchase commitments. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated interest rate environment.

Interest rate swaps are generally used to convert fixed rate assets and liabilities to variable rate assets and liabilities and vice versa. SHUSA utilizes interest rate swaps that have a high degree of correlation to the related financial instrument.

As part of its overall business strategy, the Bank originates fixed rate residential mortgages. It sells a portion of this production to Federal Home Loan Mortgage Corporation (“FHLMC”), Fannie National Mortgage Association (“FNMA”), and private investors. The loans are exchanged for cash or marketable fixed rate mortgage-backed securities which are generally sold. This helps insulate SHUSA from the interest rate risk associated with these fixed rate assets. SHUSA uses forward sales, cash sales and options on mortgage-backed securities as a means of hedging against changes in interest rate on the mortgages that are originated for sale and on interest rate lock commitments.

To accommodate customer needs, SHUSA enters into customer-related financial derivative transactions primarily consisting of interest rate swaps, caps, floors and foreign exchange contracts. Risk exposure from customer positions is managed through transactions with other dealers including Santander.

The Company has entered into risk participation agreements that provide for the assumption of credit and market risk by the Company for the benefit of one party in a derivative transaction upon the occurrence of an event of default by the other party to the transaction. The Company’s participation in risk participation agreements has been in conjunction with its participation in an underlying credit agreement led by another financial institution. The term of the performance guarantee will typically match the term of the underlying credit and derivative agreements, which range from 2 to 10 years for transactions outstanding as of December 31, 2011. The Company estimates the maximum undiscounted exposure on these agreements at $35.2 million and the total carrying value of liabilities associated with these commitments was $0.7 million at December 31, 2011.

Through the Company’s capital markets, mortgage-banking and prior year precious metals activities, it is subject to trading risk. The Company employs various tools to measure and manage price risk in its trading portfolios. In addition, the Board of Directors has established certain limits relative to positions and activities. The level of price risk exposure at any given point in time depends on the market environment and expectations of future price and market movements, and will vary from period to period.

The fair value of all derivative balances are recorded within Other Assets and Other Liabilities on the Consolidated Balance Sheet.

Fair Value Hedges

During 2011, SHUSA entered into cross currency swaps in order to hedge the Company’s foreign currency exchange risk on certain Euro denominated investments. SHUSA includes all components of each derivatives gain or loss in the assessment of hedge effectiveness. The earnings impact of the ineffective portion of these hedges was not material for the year-end December 31, 2011.

SHUSA has in the past entered into pay-variable, receive-fixed interest rate swaps to hedge changes in fair values of certain brokered certificate of deposits and certain debt obligations. For the year ended December 31, 2009, hedge ineffectiveness of $4.2 million was recorded in deposit insurance and other costs within other expenses associated with fair value hedges. SHUSA has $22.1 million of deferred net after tax losses on terminated derivative instruments that were hedging fair value changes. These losses will continue to be deferred in other liabilities and will be reclassified into interest expense over the remaining lives of the hedged assets and liabilities. In 2011, $12.1 million of the losses were recognized in the Consolidated Statement of Operations.

Cash Flow Hedges

SHUSA hedges exposure to changes in cash flows associated with forecasted interest payments on variable-rate liabilities through the use of pay-fixed, receive variable interest rate swaps. The last of the hedges is scheduled to expire in January 2016. SHUSA includes all components of each derivatives gain or loss in the assessment of hedge effectiveness. For the years ended December 31, 2011 and 2010, no hedge ineffectiveness was recognized in earnings associated with cash flow hedges. SHUSA has $6.6 million of deferred net losses on terminated derivative instruments that were hedging the future cash flows on certain borrowings. These losses will continue to be deferred in accumulated other comprehensive income (“AOCI”) and will be reclassified into interest expense as the future cash flows occur, unless it becomes probable that the forecasted interest payments will not occur, in which case, the losses in AOCI will be recognized immediately. In 2011, $12.7 million of the losses were recognized within Interest Expense on the Consolidated Statement of Operations. As of December 31, 2011, SHUSA expects approximately $4.0 million of the deferred net after-tax loss on derivative instruments included in accumulated other comprehensive income will be reclassified to earnings during the next 12 months.

See Note 15 for discussion of the activity related to cash flow hedges in accumulated other comprehensive income.

Other Derivative Activities

SHUSA’s derivative portfolio also includes mortgage banking interest rate lock commitments and forward sale commitments used for risk management purposes, and derivatives executed with commercial banking customers, primarily interest rate swaps and foreign exchange futures, to facilitate customer risk management strategies. Prior to 2011, the Company entered into precious metals customer forward agreements and forward sale agreements.

In June 2010, the Company sold the Visa Inc. Class B common shares. In conjunction with the sale of the Visa, Inc. Class B shares, the Company entered into a total return swap in which the Company will make or receive payments based on subsequent changes in the conversion rate of the Class B shares into Class A shares. This total return swap is accounted for as a free standing derivative. The fair value of the total return swap was calculated using a discounted cash flow model based on unobservable inputs consisting of management’s estimate of the probability of certain litigation scenarios, timing of litigation settlements and payments related to the swap.

SCUSA has entered into interest rate swap agreements to hedge variable rate liabilities associated with securitization trust agreements.

Additionally, the Bank had derivative positions with the notional amounts totaling $13.5 billion and $13.3 billion at December 31, 2011 and 2010, respectively and SCUSA had derivative positions with notional amounts totaling $1.7 billion at December 31, 2010 which were not designated to obtain hedge accounting treatment.

All derivative contracts are valued using either cash flow projection models or observable market prices. Pricing models used for valuing derivative instruments are regularly validated by testing through comparison with third parties.

Following is a summary of the derivatives designated as accounting hedges at December 31, 2011 and 2010 (in thousands):

		September 30,		September 30,		September 30,		September 30,			September 30,			September 30,
							Weighted Average
	Notional Amount		Asset		Liability		Receive Rate			Pay Rate			Life (Years)
December 31, 2011
Fair value hedges:
Cross currency swaps	$	33,367	$	3,888	$	3,346		3.93	%		3.90	%		4.8
Cash flow hedges:
Pay fixed—receive floating interest rate swaps		3,900,000		—		158,174		0.46	%		2.68	%		2.3
Total derivatives designated as accounting hedges	$	3,933,367	$	3,888	$	161,520		0.49	%		2.69			2.3
December 31, 2010
Cash flow hedges:
Pay fixed—receive floating interest rate swaps	$	9,892,675	$	—	$	174,362		0.22	%		2.38	%		3.0

Summary information regarding other derivative activities at December 31, 2011 and 2010 follows:

		September 30,		September 30,		September 30,		September 30,
	Asset derivatives Fair value				Liability derivatives Fair value
	December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
	(in thousands)
Mortgage banking derivatives:
Forward commitments to sell loans	$	—	$	3,488	$	8,574	$	—
Interest rate lock commitments		7,323		734		—		—
Total mortgage banking risk management		7,323		4,222		8,574		—
Customer related derivatives:
Swaps receive fixed		357,062		297,637		95		2,803
Swaps pay fixed		126		4,750		379,423		300,485
Other		4,161		4,905		4,014		4,841
Total customer related derivatives		361,349		307,292		383,532		308,129
Other derivative activities
Risk participations		—		—		720		—
VISA total return swap		—		—		5,460		4,081
Foreign exchange contracts		11,950		20,707		11,930		13,349
Trading		12,098		21,149		11,655		43,345
Total derivatives not designated as hedging instruments	$	392,720	$	353,370	$	421,871	$	368,904

The following Statements of Operations line items were impacted by SHUSA’s open derivative activity for the twelve months ended, December 31, 2011 and 2010:

	Statements of Operations Effect For the Twelve-Month Period Ended
Derivative Activity	December 31, 2011	December 31, 2010
Fair value hedges:
Cross currency swaps	Increase in net interest income of $29 thousand.	No effect on income.
Cash flow hedges:
Pay fixed-receive variable interest rate swaps	Decrease in net interest income of $137.7 million.	Decrease in net interest income of $272.6 million.
Other derivative activities:
Forward commitments to sell loans	Decrease in mortgage banking revenues of $12.1 million.	Increase in mortgage banking revenues of $1.5 million.
Interest rate lock commitments	Increase in mortgage banking revenues of $6.6 million.	Increase in mortgage banking revenues of $0.4 million.
Customer related derivatives	Decrease in miscellaneous income of $21.3 million.	Decrease in miscellaneous income of $1.3 million.
Risk participations	Decrease to miscellaneous other income of $0.7 million.	No effect on income.
Total return swap associated with sale of Visa, Inc. Class B shares	Decrease in other non-interest income of $1.4 million	Decrease in other non-interest income of $4.1 million.
Foreign exchange	Decrease in commercial banking fees of $7.3 million.	Increase in commercial banking fees of $1.5 million.
Trading	Decrease to net interest income of $38.7 million.	Decrease to net interest income of $0.4 million.

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Transaction Related, Integration Charges and Other Restructuring Costs

12 Months Ended

Dec. 31, 2011

Transaction Related, Integration Charges and Other Restructuring Costs [Abstract]

Transaction Related, Integration Charges and Other Restructuring Costs

Note 18 — Transaction Related, Integration Charges and Other Restructuring Costs

The Company recognized $299.1 million of amounts charged to earnings related to the transaction with Santander which closed on January 30, 2009. No further amounts were recognized in 2010 or 2011.

During 2009, the Company recorded change in control and severance charges associated with executive officers, as well as severance charges associated with multiple reductions in force of $152.2 million and charges associated with the acceleration of vesting on employees restricted stock awards of $45.0 million. In connection with the branch consolidations, the Company recorded a charge of $32.2 million related to the estimated fair value of the remaining lease contract obligations. The Bank also recorded charges of $28.5 million on the write-off of fixed assets and information technology platforms. Finally, the Company paid fees of $26.4 million to third parties in connection with the transaction of Santander in 2009.

In 2009 there were debt extinguishment charges of $68.7 million on the termination of $1.4 billion of high cost FHLB advances related to the transaction with Santander.

A rollforward of the transaction related and integration charges and other restructuring cost accruals is summarized below:

		September 30,			September 30,			September 30,
	Contract Termination			Severance			Total
	(in thousands)
Accrued at December 31, 2009	$	27,805		$	46,900		$	74,705
Payments		(10,566	)		(31,695	)		(42,261	)
Charges recorded in earnings		—			—			—
Accrued at December 31, 2010	$	17,239		$	15,205		$	32,444
Payments		(4,367	)		(8,905	)		(13,272	)
Accrual reversal		—			(6,300	)		(6,300	)
Accrued at December 31, 2011	$	12,872		$	—		$	12,872

During 2011, management revised its estimate of severance costs related to the 2009 restructuring. This resulted in the Company recognizing the reversal of the accrual of $6.3 million as of December 31, 2011 which is included in the “Compensation and Benefit” line item of the consolidated statement of operations.

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1 — Summary of Significant Accounting Policies

Organization and Nature of Operations

Santander Holdings USA, Inc. (“SHUSA” or “the Company”), formerly Sovereign Bancorp Inc., is a Virginia corporation and is the holding company of Sovereign Bank (the “Bank”). SHUSA is headquartered in Boston, Massachusetts and the Bank has a home office in Wilmington, Delaware. On January 30, 2009, SHUSA was acquired by Banco Santander, S.A. (“Santander”) and as such, is a wholly owned subsidiary of Santander. SHUSA shareholders received .3206 shares of Santander ADS for each share of the Company’s stock.

Effective on January 26, 2012, the Bank converted from a federal savings bank to a national banking association. In connection with the charter conversion, the Bank has changed its name to Sovereign Bank, National Association. Also effective on January 26, 2012, the Company has become a bank holding company.

The Bank’s primary business consists of attracting deposits from its network of community banking offices, located throughout eastern Pennsylvania, New Jersey, New York, New Hampshire, Massachusetts, Connecticut, Rhode Island, Delaware and Maryland, and originating commercial, home equity loans and residential mortgage loans in those communities.

Significant Accounting Policies

The following is a description of the significant accounting policies of the Company. Such accounting policies are in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”).

Certain prior period amounts have been reclassified to conform to the current period presentation.

In the second quarter of 2011, the Company reclassified amounts presented in the December 31, 2010 Consolidated Balance Sheet of $583.6 million from “Other Assets” to “Restricted Cash”. The Company believes that this presentation provides a more meaningful presentation of cash available for general operations. This reclassification had no effect on the consolidated statement of operations.

In the fourth quarter of 2011, the Company reclassified amounts presented in the December 31, 2010 Consolidated Balance Sheet of $185.4 million from “Other Assets” to “Equity Method Investments”. This reclassification had no effect on the consolidated statement of operations.

Basis of Presentation

The accompanying financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In July 2009, Santander contributed Santander Consumer USA Inc (“SCUSA”), a majority owned subsidiary, into the Company. SCUSA’s results of operations were consolidated from January 2009 until December 31, 2011. On December 31, 2011, the Company deconsolidated SCUSA as a result of certain agreements with investors entered into during the fourth quarter 2011 (“SCUSA Transaction”). The SCUSA Transaction reduced the Company’s ownership interest and its power to direct the activities that most significantly impact SCUSA’s economic performance so that SHUSA no longer has a controlling interest in SCUSA. Accordingly, as of December 31, 2011, SCUSA is accounted for as an equity method investment. Refer to Note 3 to for additional information.

The consolidated financial statements include any voting rights entities in which the Company has a controlling financial interest. In accordance with the applicable accounting guidance for consolidations, the Company consolidates a variable interest entity (“VIE”) if the Company is considered to be the primary beneficiary where it has: (i) a variable interest in the entity; (ii) the power to direct activities of the VIE that most significantly impact the entity’s economic performance; and (iii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. Variable interests can include equity interests, subordinated debt, derivative contracts, leases, service agreements, guarantees, standby letters of credit, loan commitments, and other contracts, agreements and financial instruments. See Note 8 for information on the Company’s involvement with VIEs.

The Company uses the equity method to account for unconsolidated investments in voting rights entities or VIEs if the Company has influence over the entity’s operating and financing decisions but does not maintain a controlling financial interest. Unconsolidated investments in voting rights entities or VIEs in which the Company has a voting or economic interest of less than 20% generally are carried at cost. These investments are included in Equity Method Investments on the Consolidated Balance Sheet, and the Company’s proportionate share of income or loss is included in other expenses.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates pertain to the consolidation, allowance for loan losses and reserve for unfunded lending commitments, goodwill, derivatives and hedge activities and income taxes. Actual results could differ from those estimates.

Subsequent Events

All material events that occurred after the date of the consolidated financial statements and before the consolidated financial statements were issued have been either recognized in the consolidated financial statements or disclosed in the Notes to the Consolidated Financial Statements.

The Company evaluated events from the date of the consolidated financial statements on December 31, 2011 through the issuance of those consolidated financial statements included in this Annual Report on Form 10-K.

Fair Value Measurements

The Company values assets and liabilities based on the principal market where each would be sold (in the case of assets) or transferred (in the case of liabilities) at the measurement date (i.e. exit price). The principal market is the forum with the greatest volume and level of activity.

In the absence of a principal market, valuation is based on the most advantageous market. In the absence of observable market transactions, the Company considers liquidity valuation adjustments to reflect the uncertainty in pricing the instruments. In measuring the fair value of an asset, the Company assumes the highest and best use of the asset by a market participant—not just the intended use—to maximize the value of the asset. The Company also considers whether any credit valuation adjustments are necessary based on the counterparty’s credit quality.

When measuring the fair value of a liability, the Company assumes that the transfer will not affect the nonperformance risk associated with the liability. The Company considers the effect of the credit risk on the fair value for any period in which fair value is measured. There are three acceptable techniques for measuring fair value: the market approach, the income approach and the cost approach. Selecting the appropriate technique for valuing a particular asset or liability depends on the exit price of the asset or liability being valued, and how a market participant would value the same asset or liability. Ultimately, selecting the appropriate valuation method requires significant judgment.

Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability. Inputs can be observable or unobservable. Observable inputs are assumptions based on market data obtained from an independent source. Unobservable inputs are assumptions based on the Company’s own information or assessment of assumptions used by other market participants in pricing the asset or liability. The unobservable inputs are based on the best and most current information available on the measurement date.

The Company applied the following fair value hierarchy:

• Level 1 – Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts.

• Level 2 – Assets and liabilities valued based on observable market data for similar instruments.

• Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

Typically, assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly. However, assets and liabilities are considered to be fair valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. This generally occurs when the entity applies accounting guidance that requires assets and liabilities to be recorded at the lower of cost or fair value, or assessed for impairment. At a minimum, the Company conducts the valuations of assets and liabilities on a quarterly basis.

Additional information regarding fair value measurements and disclosures is provided in Note 23, “Fair Value Measurements”.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits in other banks, federal funds sold, and securities purchased under agreements to resell. Cash and cash equivalents have maturities of three months or less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.

Investment Securities and Other Investments

Investment securities that the Company has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Securities expected to be held for an indefinite period of time are classified as available-for-sale and are carried at fair value with temporary unrealized gains and losses reported as a component of accumulated other comprehensive income within stockholder’s equity, net of estimated income taxes.

Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment (“OTTI”). For debt securities with market values below amortized cost, if the Company has the intent to sell or it is more likely than not that the Company will be required to sell the debt security before recovery of the entire amortized cost basis, then OTTI has occurred. If the Company does not intend to sell the debt security and will more likely than not be required to sell the debt security before recovery of its entire amortized cost basis, the Company evaluates expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, the credit component of the impairment is recognized within non-interest income, and the non-credit component is recognized through accumulated other comprehensive income.

Other investments include the Company’s investment in the stock of the Federal Home Loan Bank (FHLB) of New York and Pittsburgh. Although FHLB stock is an equity interest in a FHLB, it does not have a readily determinable fair value, because its ownership is restricted and is not readily marketable. FHLB stock can be sold back only at its par value of $100 per share and only to the FHLBs or to another member institution. Accordingly, FHLB stock is carried at cost. The Company evaluates this investment for impairment on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

Loans held for investment

Loans are reported net of loan origination fees, direct origination costs and discounts and premiums associated with purchased loans and unearned income. Interest on loans is credited to income as it is earned. Loan origination fees and certain direct loan origination costs are deferred and recognized as adjustments to interest income in the Consolidated Statements of Operations over the contractual life of the loan utilizing the effective interest rate method. Premiums and discounts associated with purchased loans by the Bank are deferred and amortized as adjustments to interest income utilizing the effective interest rate method using estimated prepayment speeds, which are updated on a quarterly basis. Interest income is not recognized on loans when the loan payment is 90 days or more delinquent for commercial loans and consumer loans, excluding auto loans and credit cards, or sooner if management believes the loan has become impaired. Generally, interest income is not recognized on auto loans that are 60 days or more delinquent. Credit Cards continue to accrue interest until it is 180 days delinquent at which point it is charged-off and interest is removed from interest income.

Certain loans acquired that result in recognition of a discount attributable, at least in part, to credit quality; and are not subsequently accounted for at fair value, are accounted for under the receivable topic of the FASB Accounting Standards Codification Section 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The excess of the estimated undiscounted principal, interest and other cash flows expected to be collected over the initial investment in the acquired loans is amortized to interest income over the expected life of the loans via the effective interest rate method. The amount amortized for the acquired loan pool is adjusted when there is an increase or decrease in the expected cash flows. Further, the Company assesses impairment on these acquired loan pools for which there has been a decrease in the expected cash flows. Impairment is measured based on the present value of the expected cash flows from the loan (including the estimated fair value of the underlying collateral) discounted using the loan’s effective interest rate.

A loan is determined to be non-accrual when it is probable that scheduled payments of principal and interest will not be received when due according to the contractual terms of the loan agreement. When a loan is placed on non-accrual status, all accrued yet uncollected interest is reversed from income. Payments received on non-accrual loans are generally applied to the outstanding principal balance.

Troubled debt restructurings (“TDRs”) are loans that have been modified whereby the Company has agreed to make certain concessions to customers to both meet the needs of the customers and to maximize the ultimate recovery of a loan. TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. TDRs are generally placed on non-accrual status until the Company believes repayment under the revised terms are reasonably assured and a sustained period of repayment performance has been achieved (typically defined as six months for a monthly amortizing loan). All costs incurred by the Company in connection with a TDR are expensed as incurred. The TDR classification will remain on the loan until it is paid in full or liquidated. Impaired loans are defined as all TDRs plus commercial non-accrual loans in excess of $1 million. The Company measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company may measure impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is a collateral-dependent loan.

Loans Held for Sale

Loans held for sale (LHFS) are carried at lower of cost or market (“LOCOM”) or at fair value. Generally, residential loans are valued on an aggregate portfolio basis, and commercial loans are valued on an individual loan basis. Gains and losses on LHFS which are accounted for at fair value are recorded in other non-interest income. For LHFS recorded at LOCOM, direct loan origination costs and fees are deferred at origination and are recognized in other non-interest income at time of sale. For loans recorded at fair value, direct loan origination costs and fees are recorded in other non-interest income at origination. The fair value of LHFS is based on what secondary markets are currently offering for portfolios with similar characteristics, and related gains and losses are recorded in non-interest income.

Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

The allowance for loan losses and reserve for unfunded lending commitments, collectively referred to as the “allowance for credit losses” are maintained at levels that management considers adequate to provide for losses based upon an evaluation of known and inherent risks in the loan portfolio. Management’s evaluation takes into consideration the risks inherent in the loan portfolio, past loan loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic conditions and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the allowance for credit losses may be necessary if conditions differ substantially from the assumptions used in making the evaluations.

The allowance for loan losses consists of two elements: (i) an allocated allowance, which is comprised of allowances established on specific loans, and classes of loans based on historical loan loss experience adjusted for current trends and adjusted for both general economic conditions and other risk factors in the Company’s loan portfolios, and (ii) an unallocated allowance to account for a level of imprecision in management’s estimation process.

Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated, considering factors such as historical loss experience, trends in delinquency and non-performing loans, changes in risk composition and underwriting standards, experience and ability of staff and regional and national economic conditions and trends.

For the commercial loan portfolios, the Bank has specialized credit officers and workout units that identify and manage potential problem loans. Changes in management factors, financial and operating performance, company behavior, industry factors and external events and circumstances are evaluated on an ongoing basis to determine whether potential impairment is evident and additional analysis is needed. For the commercial loan portfolios, risk ratings are assigned to each individual loan to differentiate risk within the portfolio and are reviewed on an ongoing basis by credit risk management and revised, if needed, to reflect the borrowers’ current risk profiles and the related collateral positions. The risk ratings consider factors such as financial condition, debt capacity and coverage ratios, market presence and quality of management. Generally, credit officers reassess a borrower’s risk rating on no less than an annual basis, and more frequently if warranted. This reassessment process is managed on a continual basis by the Credit Monitoring group to ensure consistency and accuracy in risk rating as well as appropriate frequency of risk rating review by the Bank’s credit officers. The Company’s Internal Audit group regularly performs loan reviews and assesses the appropriateness of assigned risk ratings. When a loan’s risk ratings are downgraded beyond a certain level, the Company’s workout department becomes responsible for managing the credit risk. Risk rating actions are generally reviewed formally by one or more Credit Committees depending on the size of the loan and the type of risk rating action being taken. Detailed analyses are completed that support the risk rating and management’s strategies for the customer relationship going forward.

The consumer loans and small business loan portfolios are monitored for credit risk and deterioration with statistical tools considering factors such as delinquency, loan to value, and credit scores. The Bank evaluates the consumer portfolios throughout their life cycle on a portfolio basis. When problem loans are identified that are secured with collateral, management examines the loan files to evaluate the nature and type of collateral supporting the loans. Management documents the collateral type, date of the most recent valuation, and whether any liens exist, to determine the value to compare against the committed loan amount. When the Bank determines that the value of an impaired loan is less than its carrying amount, the Bank recognizes impairment through a provision estimate or a charge-off to the allowance. Management performs these assessments on at least a quarterly basis.

For commercial loans, a charge-off is recorded when a loan, or portion thereof, is considered uncollectable and of such little value that its continuance on the Company’s books as an asset is not warranted, as outlined in accounting and regulatory guidance. Charge-offs are recorded on a monthly basis and partially charged-off loans continue to be evaluated on not less than a quarterly basis, with additional charge-offs or loan loss provisions taken on the remaining loan balance, if warranted, utilizing the same criteria.

The Company places residential mortgage loans on non-performing status at 90 days delinquent or sooner if management believes the loan has become impaired unless return to current status is expected imminently. A loan is considered to be impaired when, based upon current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay (e.g. less than 90 days) or insignificant shortfall in amount of payments does not necessarily result in the loan being identified as impaired.

Consumer loans (excluding auto loans and credit cards) and any portion of a consumer loan secured by real estate mortgage loans not adequately secured are generally charged-off when deemed to be uncollectible or delinquent 180 days or more (120 days for closed-end consumer loans not secured by real estate), whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Examples that would demonstrate repayment include; a loan that is secured by collateral and is in the process of collection; a loan supported by a valid guarantee or insurance; or a loan supported by a valid claim against a solvent estate. Auto loans are charged off when an account becomes 121 days delinquent if the Company has not repossessed the related vehicle. The Company charges off accounts in repossession when the automobile is repossessed and legally available for disposition. Credit cards that are 180 days delinquent are charged-off and all interest is removed from interest income.

For both residential and home equity loans, loss severity assumptions are incorporated into the loan loss reserve models to estimate loan balances that will ultimately charge-off. These assumptions are based on recent loss experience for six loan-to-value bands within the portfolios. Current loan-to-value ratios are updated based on movements in the state level Federal Housing Finance Agency House Pricing Indexes.

Additionally, the Company reserves for certain incurred, but undetected, losses within the loan portfolio. This is due to several factors, such as, but not limited to, inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions and the interpretation of economic trends. While this analysis is conducted at least quarterly, the Company has the ability to revise the allowance factors whenever necessary in order to address improving or deteriorating credit quality trends or specific risks associated with a loan pool classification.

Regardless of the extent of the Company’s analysis of customer performance, portfolio evaluations, trends or risk management processes established, a level of imprecision will always exist due to the judgmental nature of loan portfolio and/or individual loan evaluations. The Company maintains an unallocated allowance to recognize the existence of these exposures.

In addition to the allowance for loan losses, management also estimates probable losses related to unfunded lending commitments. Unfunded lending commitments for commercial customers are analyzed and segregated by risk according to the Company’s internal risk rating scale. These risk classifications, in conjunction with an analysis of historical loss experience, current economic conditions and performance trends within specific portfolio segments, and any other pertinent information result in the estimation of the reserve for unfunded lending commitments. Additions to the reserve for unfunded lending commitments are made by charges to the provision for credit losses and this reserve is classified within other liabilities on the Company’s Consolidated Balance Sheets.

Risk factors are continuously reviewed and revised by management when conditions warrant. A comprehensive analysis of the allowance for loan losses and reserve for unfunded lending commitments is performed by the Company on a quarterly basis. In addition, a review of allowance levels based on nationally published statistics is conducted on at least an annual basis.

The factors supporting the allowance for loan losses and the reserve for unfunded lending commitments do not diminish the fact that the entire allowance for loan losses and the reserve for unfunded lending commitments are available to absorb losses in the loan portfolio and related commitment portfolio, respectively. The Company’s principal focus, therefore, is on the adequacy of the total allowance for loan losses and reserve for unfunded lending commitments.

The allowance for loan losses and the reserve for unfunded lending commitments are subject to review by banking regulators. The Company’s primary bank regulators conduct examinations of the allowance for loan losses and reserve for unfunded lending commitments and make assessments regarding their adequacy and the methodology employed in their determination.

Premises and Equipment

Premises and equipment are carried at cost, less accumulated depreciation. Depreciation is calculated utilizing the straight-line method. Estimated useful lives are as follows:

	September 30,
Office buildings	10 to 30 years
Leasehold improvements	10 to 30  years(1)
Furniture, fixtures and equipment	3 to 10 years
Automobiles	5 years

Expenditures for maintenance and repairs are charged to expense as incurred.

⁽¹⁾  Leasehold improvements are depreciated over the shorter of the useful lives of the assets or the remaining term of the leases. The useful life of the leasehold improvements maybe extended beyond the base term of the lease contract when the lease contract includes renewal option period(s) that are reasonably assured of being exercised at the date the leasehold improvements are purchased. At no point does the depreciable life exceed the economic useful life of the leasehold improvement or the expected term of the lease contract.

Goodwill and Core Deposit Intangibles

Goodwill is the excess of the purchase price over the fair value of the tangible and identifiable intangible assets and liabilities of companies acquired through business combinations accounted for under the acquisition method. Core deposit intangibles are a measure of the value of checking, savings and other-low cost deposits acquired in business combinations accounted for under the acquisition method. Core deposit intangibles are amortized over the estimated useful lives of the existing deposit relationships acquired, but not exceeding 10 years. The Company evaluates the identifiable intangibles for impairment when an indicator of impairment exists, but not less than annually. Separable intangible assets that are not deemed to have an indefinite life continue to be amortized over their useful lives.

Goodwill and other indefinite lived intangible assets are not amortized on a recurring basis, but rather are subject to periodic impairment testing. Management performs an annual goodwill impairment test as of December 31 and whenever events occur or circumstances change that indicate the fair value of a reporting unit may be below its carrying value. The Company performed goodwill impairment testing as of December 31, 2011and December 31, 2010 and concluded goodwill was not impaired. See Note 9, “Goodwill and Other Intangible Assets”, for additional discussion. The Company does not have any indefinite lived intangible assets as of December 31, 2011.

Mortgage Servicing Rights

The Company sells mortgage loans in the secondary market and typically retains the right to service the loans sold. Upon the sale of the loan, a mortgage servicing right (“MSR”) asset is established, which represents the current fair value of future net cash flows expected to be realized for performing the servicing activities. MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization, or fair value. The carrying values of MSRs are amortized in proportion to, and over the period of, estimated net servicing income.

MSRs are evaluated for impairment by stratifying by certain risk characteristics and underlying loan strata that include, but are not limited to, interest rate bands, and further into residential real estate 30-year and 15-year fixed rate mortgage loans, adjustable rate mortgage loans and balloon loans. A valuation reserve is recorded in the period in which the impairment occurs through a charge to income equal to the amount by which the carrying value of the strata exceeds the fair value. If it is determined that all or a portion of the temporary impairment no longer exists for a particular strata, the valuation allowance is reduced with an offsetting credit to income.

MSRs are also reviewed for permanent impairment. Permanent impairment exists when the recoverability of a recorded valuation allowance is determined to be remote, taking into consideration historical and projected interest rates and loan pay-off activity. When this situation occurs, the unrecoverable portion of the valuation reserve is applied as a direct write-down to the carrying value of the MSR. Unlike a valuation allowance, a direct write-down permanently reduces the carrying value of the mortgage servicing asset and the valuation allowance, precluding subsequent recoveries. MSRs are classified in other assets on the Consolidated Balance Sheets. See Note 10 for additional discussion.

On January 1, 2012, the Bank elected to carry its class of MSRs consisting of residential MSRs established on or before December 31, 2011 at fair value. The implementation of this election is not expected to have a significant impact on the Company’s financial position or results of operations.

Bank Owned Life Insurance

Bank owned life insurance (“BOLI”) represents the cash surrender value for life insurance policies for current and former certain employees who have provided positive consent allowing the Bank to be the beneficiary of such policies. Increases in the net cash surrender value of the policies, as well as insurance proceeds received, are recorded in non-interest income, and are not subject to income taxes.

Other Real Estate Owned and Other Repossessed Assets

Other real estate owned (“OREO”) and other repossessed assets consist of properties and other assets acquired by, or in lieu of, foreclosure in partial or total satisfaction of non-performing loans. Assets obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value minus estimated costs to sell based upon the property’s appraisal value at the date of transfer. The excess of the carrying value of the loan over the fair value of the property minus estimated costs to sell are charged to the allowance for loan losses. Any decline in the estimated fair value of asset that occurs after the initial transfer from the loan portfolio and costs of holding the property are recorded as operating expenses, except for significant property improvements that are capitalized to the extent that carrying value does not exceed estimated fair value. OREO and other repossessed assets are classified within Other Assets on the Consolidated Balance Sheets and totaled $108.7 million and $223.2 million at December 31, 2011 and 2010, respectively.

Derivative Instruments and Hedging Activity

The Company uses derivative instruments as part of the interest rate risk management process to manage risk associated with financial assets and liabilities, mortgage banking activities, and to assist commercial banking customers with their risk management strategies and other market exposures. The Company also uses cross currency swaps in order to hedge foreign currency exchange risk on certain Euro denominated investments.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. The Company formally documents the relationships of certain qualifying hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking each hedge transaction.

Fair value hedges are accounted for by recording the change in the fair value of the derivative instrument and the related hedged asset, liability or firm commitment on the Consolidated Balance Sheet with the corresponding income or expense recorded in the consolidated statement of operations. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as an other asset or other liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense associated with the hedged asset or liability.

Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the Consolidated Balance Sheet as an asset or liability, with a corresponding charge or credit, net of tax, recorded in accumulated other comprehensive income within stockholders’ equity, in the accompanying Consolidated Balance Sheet. Amounts are reclassified from accumulated other comprehensive income to the consolidated statement of operations in the period or periods the hedged transaction affects earnings. In the case where certain cash flow hedging relationships have been terminated, the Company continues to defer the net gain or loss in accumulated other comprehensive income and reclassifies it into interest expense as the future cash flows occur, unless it becomes probable that the future cash flows will not occur.

The portion of gains and losses on derivative instruments not considered highly effective in hedging the change in fair value or expected cash flows of the hedged item, or derivatives not designated in hedging relationships, are recognized immediately in the consolidated statement of operations. See Note 16, “Derivative Instruments and Hedging Activities”, for further discussion.

Revenue Recognition

The Company earns interest and non-interest income from various sources, including:

• Lending,

• Investment securities,

• Customer deposit fees,

• BOLI,

• Loan sales and servicing,

• Securities and derivatives trading activities, including foreign exchange.

The principal source of revenue is interest income from loans and investment securities. Interest income is recognized on an accrual basis primarily according to non-discretionary formulas in written contracts, such as loan agreements or securities contracts. Revenue earned on interest-earning assets including unearned income and the accretion of discounts recognized on acquired or purchased loans is recognized based on the constant effective yield of the financial instrument.

Gains or losses on sales of investment securities are recognized on the trade date.

The Company recognizes revenue from servicing commercial mortgages and other consumer loans as earned. Mortgage banking results include fees associated with servicing loans for third parties based on the specific contractual terms, as well as amortization and changes in the fair value of mortgage servicing rights. Gains or losses on sales of mortgage, multi-family and home equity loans are included within mortgage banking revenues and are recognized when the sale is complete.

Service charges on deposit accounts are recognized when earned.

Income from BOLI represents increases in the cash surrender value of the policies, as well as insurance proceeds.

The Company recognizes revenue from securities, derivatives and foreign exchange trading, as well as securities underwriting activities as these transactions occur or as services are provided.

When appropriate, revenue is reported net of associated expenses, in accordance with U.S. GAAP.

Income Taxes

Deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

Periodic reviews of the carrying amount of deferred tax assets are made to determine if the establishment of a valuation allowance is necessary. If based on the available evidence in future periods, it is more likely that not that all or a portion of the Company’s deferred tax assets will not be realized, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. Items considered in this evaluation include historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. The evaluation is based on current tax laws, as well as expectations of future performance.

The Company is subject to the income tax laws of the U.S., its states and municipalities, as well as certain foreign countries. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws. Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. The Company reviews its tax balances quarterly and as new information becomes available, the balances are adjusted, as appropriate. The Company is subject to ongoing tax examinations and assessments in various jurisdictions.

Tax positions shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws. See Note 19, “Income Taxes”, for detail on the Company’s income taxes.

Asset Securitizations

The Company has historically securitized multi-family and commercial real estate loans, mortgage loans, home equity and other consumer loans, as well as automotive floor plan receivables that it originated and/or purchased from certain other financial institutions. After receivables or loans are securitized, the Company continues to maintain account relationships with its customers. The Company may provide administrative, liquidity facilities and/or other services to the resulting securitization entities, and may continue to service the financial assets sold to the securitization entity.

If the securitization transaction meets the accounting requirements for deconsolidation and sale treatment, the securitized receivables or loans are removed from the balance sheet and a net gain or loss is recognized in income at the time of initial sale and each subsequent sale. Net gains or losses resulting from securitizations are recorded in non-interest income. See further discussion on the Company’s securitizations in Note 17.

Stock Based Compensation

The Company, through Santander sponsors stock plans under which incentive and nonqualified stock options and restricted stock may be granted periodically to certain employees. The Company accounts for stock-based compensation under the fair value recognition provisions whereby the fair value of the award at grant date is expensed over the award’s vesting period. Additionally, the Company estimates the number of awards for which it is probable that service will be rendered and adjusts compensation cost accordingly. Estimated forfeitures are subsequently adjusted to reflect actual forfeitures. The required disclosures related to the Company’s stock based employee compensation plan are included in Note 20.

XML

Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2011	Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
Preferred Stock, no par value
Preferred Stock, shares authorized	7,500,000	7,500,000
Preferred Stock, shares outstanding	8,000	8,000
Preferred Stock, liquidation preference per share	$ 25,000	$ 25,000
Common Stock, no par value
Common Stock, shares authorized	800,000,000	800,000,000
Common Stock, shares issued	520,307,043	517,107,043

XML

Other Assets

12 Months Ended

Dec. 31, 2011

Other Assets [Abstract]

Other Assets

Note 11 — Other Assets

The following is a detail of items that comprise other assets at December 31, 2011 and 2010.

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Other real estate owned	$	103,026	$	143,149
Other repossessed assets		5,671		79,854
Deferred tax asset		695,598		1,658,262
Prepaid expenses		452,757		604,578
Accounts receivable		688,694		416,089
Derivative assets at fair value		361,145		328,747
Miscellaneous assets		33,892		154,340
Total other assets	$	2,340,783	$	3,385,019

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011	Feb. 28, 2012	Jun. 30, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	Santander Holdings USA, Inc.
Entity Central Index Key	0000811830
Document Type	10-K
Document Period End Date	Dec. 31, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Public Float			$ 0
Entity Common Stock, Shares Outstanding		520,307,043

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Deposits

12 Months Ended

Dec. 31, 2011

Deposits and Regulatory Matters [Abstract]

Deposits

Note 12 — Deposits

Deposits are summarized as follows (in thousands):

		September 30,		September 30,			September 30,			September 30,		September 30,			September 30,
	AT DECEMBER 31,
	2011								2010
	Amount		Percent of Total			Weighted Average Rate			Amount		Percent of Total			Weighted Average Rate
Non-interest bearing demand deposit accounts	$	7,822,892		16.4	%		—	%	$	7,141,527		16.7	%		—	%
Interest bearing demand deposit accounts		5,987,766		12.5			0.11			5,689,021		13.3			0.13
Money market accounts		16,630,039		34.8			0.51			14,272,645		33.5			0.66
Savings accounts		3,495,902		7.3			0.13			3,463,061		8.1			0.11
Certificates of deposit		8,454,817		17.7			1.37			7,827,485		18.4			1.25
Total retail and commercial deposits		42,391,416		88.7			0.50			38,393,739		90.0			0.53
Wholesale interest bearing demand deposit accounts		20,000		0.0			0.08			87,000		0.2			0.35
Wholesale money market accounts		607,691		1.3			0.28			—		—			—
Wholesale certificates of deposit		1,440,371		3.0			0.41			537,217		1.3			0.71
Total wholesale deposits		2,068,062		4.3			0.37			624,217		1.5			0.66
Government deposits		2,354,764		4.9			0.32			1,889,397		4.4			0.43
Customer repurchase agreements & Eurodollar deposits		983,273		2.1			0.23			1,765,940		4.1			0.27
Total deposits (1)	$	47,797,515		100.0	%		0.48	%	$	42,673,293		100.0	%		0.52	%

(1) Includes foreign deposits of $0.8 billion and $1.3 billion at December 31, 2011 and 2010, respectively.

Interest expense on deposits is summarized as follows (in thousands):

		September 30,		September 30,		September 30,
	YEAR ENDED DECEMBER 31,
	2011		2010		2009
Interest bearing demand deposit accounts	$	6,877	$	7,979	$	16,632
Money market accounts		98,760		88,375		153,961
Savings accounts		4,503		4,740		9,057
Certificates of deposit		116,787		100,000		366,116
Wholesale interest bearing demand deposit accounts		210		379		521
Wholesale money market accounts		424		228		3,383
Wholesale certificates of deposit		9,020		15,720		73,088
Total government deposits		8,185		7,355		12,244
Customer repurchase agreements & Eurodollar deposits		3,945		3,857		5,547
Total interest expense on deposits	$	248,711	$	228,633	$	640,549

The following table sets forth the maturity of the Company’s certificates of deposit of $100,000 or more at December 31, 2011 as scheduled to mature contractually (in thousands):

		September 30,
Three months or less	$	1,077,646
Over three through six months		531,875
Over six through twelve months		715,415
Over twelve months		1,555,753
Total	$	3,880,689

The following table sets forth the maturity of all of the Company’s certificates of deposit at December 31, 2011 as scheduled to mature contractually (in thousands):

		September 30,
2012	$	5,806,224
2013		2,359,356
2014		174,045
2015		402,326
2016		1,140,698
Thereafter		12,539
Total	$	9,895,188

Deposits collateralized by investment securities, loans, and other financial instruments totaled $1.9 billion and $2.3 billion at December 31, 2011 and 2010, respectively.

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Consolidated Statements of Operations (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
INTEREST INCOME:
Interest on loans	$ 4,834,039	$ 4,313,793	$ 4,029,785
Interest-earning deposits	6,044	3,320	8,114
Investment securities:
Available-for-sale	412,813	466,141	383,926
Other	117	1,235	1,761
TOTAL INTEREST INCOME	5,253,013	4,784,489	4,423,586
INTEREST EXPENSE:
Deposits and other customer accounts	248,711	228,633	640,549
Borrowings and other debt obligations	1,139,488	1,157,217	1,139,533
TOTAL INTEREST EXPENSE	1,388,199	1,385,850	1,780,082
Net interest income	3,864,814	3,398,639	2,643,504
Provision for credit losses	1,319,951	1,627,026	1,984,537
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	2,544,863	1,771,613	658,967
NON-INTEREST INCOME:
Consumer banking fees	637,482	531,337	369,845
Commercial banking fees	174,972	180,295	187,276
Mortgage banking revenue/(expense), net	(2,808)	47,955	(129,504)
Bank-owned life insurance	58,644	54,112	58,829
SCUSA Transaction	987,650
Miscellaneous income	66,135	15,214	13,698
TOTAL FEES AND OTHER INCOME	1,922,075	828,913	500,144
Total other-than-temporary impairment ("OTTI") losses	(325)	(58,526)	(604,489)
Portion of OTTI recognized in other comprehensive income (before taxes)		53,763	424,293
OTTI recognized in earnings	(325)	(4,763)	(180,196)
Net gain on the sale of investment securities	74,922	205,319	22,349
Net gain/(loss) on investment securities recognized in earnings	74,597	200,556	(157,847)
TOTAL NON-INTEREST INCOME	1,996,672	1,029,469	342,297
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and benefits	796,110	707,593	716,418
Occupancy and equipment	347,790	312,295	318,706
Technology expense	123,135	112,058	107,100
Outside services	151,731	123,958	119,238
Marketing expense	39,394	37,177	36,318
Loan expense	215,144	144,512	93,485
Other administrative	168,920	135,507	129,195
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES	1,842,224	1,573,100	1,520,460
OTHER EXPENSES:
Amortization of intangibles	55,542	63,401	75,692
Deposit insurance premiums and other costs	79,537	93,225	138,747
Equity method investments	14,849	26,613	21,412
Transaction related and integration charges and other restructuring costs			299,119
PIERS litigation accrual	344,163
Loss on debt extinguishment	38,695	25,758	68,733
TOTAL OTHER EXPENSES	532,786	208,997	603,703
INCOME/ (LOSS) BEFORE INCOME TAXES	2,166,525	1,018,985	(1,122,899)
Income tax provision/ (benefit)	908,279	(40,390)	(1,284,464)
NET INCOME	1,258,246	1,059,375	161,565
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	85,604	37,239	17,809
NET INCOME ATTRIBUTABLE TO SHUSA	$ 1,172,642	$ 1,022,136	$ 143,756

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Loans

12 Months Ended

Dec. 31, 2011

Restrictions on Cash and Amounts Due From Depository Institutions and Loans [Abstract]

Loans

Note 6 — Loans

The following table presents the composition of the loans held for investment portfolio by type of loan and by fixed and variable rates at the dates indicated:

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Commercial real estate loans	$	10,553,174	$	11,311,167
Commercial and industrial loans		11,084,292		9,931,143
Multi-family loans		7,100,620		6,746,558
Other		1,151,107		1,170,044
Total commercial loans held for investment		29,889,193		29,158,912
Residential mortgages		11,285,550		11,029,650
Home equity loans and lines of credit		6,868,939		7,005,539
Total consumer loans secured by real estate		18,154,489		18,035,189
Auto loans		958,345		16,714,124
Other		2,305,353		1,109,659
Total consumer loans held for investment		21,418,187		35,858,972
Total loans held for investment (1)	$	51,307,380	$	65,017,884
Total loans held for investment with:
Fixed rate	$	26,280,371	$	41,405,419
Variable rate		25,027,009		23,612,465
Total loans held for investment (1)	$	51,307,380	$	65,017,884

(1) Total loans held for investment includes deferred loan origination costs, net of deferred loan fees and unamortized purchase premiums, net of discounts as well as purchase accounting adjustments. These items resulted in a net increase in loan balances of $106.0 million and a net decrease of $920.7 million at December 31, 2011 and 2010, respectively.

Loans pledged as collateral for borrowings totaled $32.5 billion and $47.7 billion at December 31, 2011 and 2010, respectively.

At December 31, 2011 and 2010, there was $136.6 million and $323.7 million of loan accrued interest.

The entire loans held for sale portfolio at December 31, 2011 and 2010 consists of fixed rate residential mortgages. The balance at December 31, 2011 was $352.5 million compared to $150.1 million at December 31, 2010.

On January 5, 2011, the Bank purchased $1.7 billion of marine and recreational vehicle loans. On June 30, 2011, the Bank purchased a $181.9 million credit card receivable portfolio. On September 12, 2011, the Bank purchased $393.4 million of marine and recreational vehicle loans.

The following table presents the activity in the allowance for credit losses for the periods indicated:

		September 30,			September 30,		September 30,
	YEAR ENDED DECEMBER 31,
	2011			2010		2009
	(in thousands)
Allowance for loan losses balance, beginning of period	$	2,197,450		$	1,818,224	$	1,102,753
Allowance established in connection with reconsolidation of previously unconsolidated securitized assets		—			5,991		—
Acquired allowance for loan losses due to SCUSA contribution from Santander		—			—		347,302
Allowance change due to SCUSA Transaction		(1,208,474	)		—		—
Provision for loan losses (1)		1,364,087			1,585,545		1,790,559
Charge-offs:
Commercial		545,028			650,888		518,468
Consumer secured by real estate		250,992			108,253		110,732
Consumer not secured by real estate		818,017			753,016		1,121,338
Total charge-offs		1,614,037			1,512,157		1,750,538
Recoveries:
Commercial		42,059			54,768		11,288
Consumer secured by real estate		8,419			2,297		12,283
Consumer not secured by real estate		293,988			242,782		304,577
Total recoveries		344,466			299,847		328,148
Charge-offs, net of recoveries		1,269,571			1,212,310		1,422,390
Allowance for loan losses balance, end of period		1,083,492			2,197,450		1,818,224
Reserve for unfunded lending commitments, beginning of period		300,621			259,140		65,162
Provision for unfunded lending commitments (1)		(44,136	)		41,481		193,978
Reserve for unfunded lending commitments, end of period		256,485			300,621		259,140
Total allowance for credit losses	$	1,339,977		$	2,498,071	$	2,077,364

(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.

The following table presents the composition of non-performing assets at the dates indicated:

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Non-accrual loans:
Commercial:
Commercial real estate	$	459,692	$	653,221
Commercial and industrial		213,617		528,333
Multi-family		126,738		224,728
Total commercial loans		800,047		1,406,282
Consumer:
Residential mortgages		438,461		602,027
Consumer loans secured by real estate		108,075		125,310
Consumer not secured by real estate		12,883		592,650
Total consumer loans		559,419		1,319,987
Total non-accrual loans		1,359,466		2,726,269
Other real estate owned		103,026		143,149
Other repossessed assets		5,671		79,854
Total other real estate owned and other repossessed assets		108,697		223,003
Total non-performing assets	$	1,468,163	$	2,949,272

. Impaired loans are summarized as follows:

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Impaired loans with a related allowance	$	1,118,591	$	1,836,993
Impaired loans without a related allowance		269,677		299,501
Total impaired loans	$	1,388,268	$	2,136,494
Allowance for loan losses reserved for impaired loans	$	252,556	$	417,873

Prior to December 31, 2011, the Company, through the SCUSA subsidiary, acquired certain auto loans at a substantial discount from par from manufacturer-franchised dealers or other companies engaged in non-prime lending activities. Part of this discount is attributable to the expectation that not all contractual cash flows will be received from the borrowers. These loans are accounted for under the Receivable topic of the FASB Accounting Standards Codification (Section 310-30) “Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The excess of cash flows expected over the estimated fair value at acquisition is referred to as the accretable yield and is recognized in interest income over the remaining life of the loans using the constant effective yield method. The difference between contractually required payments and the undiscounted cash flows expected to be collected at acquisition is referred to as the nonaccretable difference.

Changes in the actual or expected cash flows of purchased impaired loans from the date of acquisition will either impact the accretable yield or result in an impairment charge to the provision for credit losses in the period in which the changes are deemed probable. Subsequent decreases to the net present value of expected cash flows will generally result in an impairment charge to the provision for credit losses, resulting in an increase to the Allowance for Loan Losses (“ALLL”), and a reclassification from accretable yield to nonaccretable difference. Subsequent increases in the net present value of cash flows will result in a recovery of any previously recorded provision, to the extent applicable, and a reclassification from nonaccretable difference to accretable yield, which is recognized prospectively over the remaining lives of the loans. Prepayments are treated as a reduction of cash flows expected to be collected and a reduction of projections of contractual cash flows such that the nonaccretable difference is not affected. Accordingly, for decreases in cash flows expected to be collected resulting from prepayments, the effect will be to reduce the yield prospectively.

A rollforward of SHUSA’s consolidation of SCUSA’s nonaccretable and accretable yield on loans accounted for under Section 310-30 is shown below for the year ended December 31, 2011 and 2010 (amounts in thousands):

		September 30,			September 30,			September 30,			September 30,
	Contractual Receivable  Amount			Nonaccretable Yield			Accretable Premium/(Yield)			Carrying Amount (1)
Balance at January 1, 2011	$	9,147,004		$	(966,463	)	$	210,459		$	8,391,000
Additions (loans acquired during the period)		4,082,745			(396,463	)		139,599			3,825,881
Principal reductions		(3,965,789	)		—			—			(3,965,789	)
Charge-offs, net		(573,788	)		573,788			—			—
Accretion of loan discount		—			—			(189,341	)		(189,341	)
Transfers between nonaccretable and accretable yield		—			(14,092	)		14,092			—
Settlement adjustments		10,288			(2,279	)		(263	)		7,746
Reduction due to SCUSA Transaction		(8,700,460	)		805,509			(174,546	)		(8,069,497	)
Balance at December 31, 2011	$	—		$	—		$	—		$	—

		September 30,			September 30,			September 30,			September 30,
	Contractual Receivable  Amount			Nonaccretable Yield			Accretable (Yield)/Premium			Carrying Amount
Balance at January 1, 2010	$	2,042,594		$	(225,949	)	$	(35,207	)	$	1,781,438
Additions (loans acquired during the period)		9,469,913			(989,010	)		291,309			8,772,212
Principal reductions		(2,088,158	)		—			—			(2,088,158	)
Charge-offs, net		(277,345	)		277,345			—			—
Accretion of loan discount		—			—			(74,492	)		(74,492	)
Transfers between nonaccretable and accretable yield		—			(28,849	)		28,849			—
Balance at December 31, 2010	$	9,147,004		$	(966,463	)	$	210,459		$	8,391,000

(1) Carrying amount includes principal and accrued interest

There is no ending balance in the nonaccretable and accretable yield as of December 31, 2011 as SCUSA is not consolidated as of December 31, 2011. See further discussion in Note 3.

U.S. GAAP requires that entities disclose information about the credit quality of its financing receivables at disaggregated levels, specifically defined as “portfolio segments” and “classes” based on management’s systematic methodology for determining its allowance for credit losses. As such, compared to the financial statement categorization of loans, the Company utilizes an alternate categorization for purposes of modeling and calculating the allowance for credit losses and for tracking the credit quality, delinquency and impairment status of the underlying commercial and consumer loan populations.

In disaggregating its financing receivables portfolio, the Company’s methodology starts with the commercial and consumer segments. The commercial segmentation reflects line of business distinctions. “Corporate Banking” includes the majority of commercial and industrial loans as well as related owner-occupied real estate. “Middle Market CRE” represents the portfolio of specialized lending for investment real estate. “Continuing care retirement communities” (“CCRC”) is the portfolio of financing for continuing care retirement communities. “Santander Real Estate Capital” (“SREC”) is the real estate portfolio of the specialized lending group in Brooklyn, NY. “Remaining Commercial” represents principally the Commercial Equipment and Vehicle Funding business (“CEVF”).

The consumer segmentation reflects product structure with minor variations from the financial statement categories. “Home mortgages” is generally residential mortgages, “Self-originated home equity” excludes purchased home equity portfolios, and “Indirect auto” excludes self-originated direct auto loans. “Indirect purchased” represents an acquired portfolio of marine and recreational vehicle contracts. Direct auto loans and purchased home equity loans make up the majority of balances in “Remaining consumer”. “Credit cards” includes all unsecured consumer credit cards.

Loans that have been classified as non-accrual generally remain classified as non-accrual until the loan is able to sustain a period of repayment which is typically defined as six months for a monthly amortizing loan at which time, accrual of interest resumes.

The activity in the allowance for loan losses for the years ended December 31, 2011 and 2010 was as follows (in thousands):

		September 30,			September 30,			September 30,		September 30,
2011	Commercial			Consumer			Unallocated		Total
Allowance for loan losses:
Allowance for loan losses balance, beginning of period	$	905,786		$	1,275,982		$	15,682	$	2,197,450
Allowance released due to SCUSA Transaction		—			(1,208,474	)		—		(1,208.474	)
Provision for loan losses		364,048			991,910			8,129		1,364,087
Charge-offs		(545,028	)		(1,069,009	)		—		(1,614,037	)
Recoveries		42,059			302,407			—		344,466
Charge-offs, net of recoveries		(502,969	)		(766,602	)		—		(1,269,571	)
Allowance for loan losses balance, end of period	$	766,865		$	292,816		$	23,811	$	1,083,492
Ending balance, individually evaluated for impairment	$	217,865		$	34,691		$	—	$	252,556
Ending balance, collectively evaluated for impairment		549,000			258,125			23,811		830,936
Financing receivables:
Ending balance	$	29,889,193		$	21,770,658		$	—	$	51,659,851
Ending balance, evaluated at fair value		—			352,471			—		352,471
Ending balance, individually evaluated for impairment		836,580			494,431			—		1,331,011
Ending balance, collectively evaluated for impairment		29,052,613			20,923,756			—		49,976,369
Purchased impaired loans		—			—			—		—

		September 30,			September 30,			September 30,		September 30,
2010	Commercial			Consumer			Unallocated		Total
Allowance for loan losses:
Allowance for loan losses balance, beginning of period	$	989,192		$	824,529		$	4,503	$	1,818,224
Allowance established in connection with reconsolidation of previously unconsolidated securitized assets		5,991			—			—		5,991
Provision for loan losses		506,723			1,067,643			11,179		1,585,545
Charge-offs		(650,888	)		(861,269	)		—		(1,512,157	)
Recoveries		54,768			245,079			—		299,847
Charge-offs, net of recoveries		(596,120	)		(616,190	)		—		(1,212,310	)
Allowance for loan losses balance, end of period	$	905,786		$	1,275,982		$	15,682	$	2,197,450
Ending balance, individually evaluated for impairment	$	280,219		$	137,654		$	—	$	417,873
Ending balance, collectively evaluated for impairment		625,567			1,016,410			—		1,641,977
Purchased impaired loans		—			137,600			—		137,600
Financing receivables:
Ending balance	$	29,158,912		$	36,009,035		$	—	$	65,167,947
Ending balance, individually evaluated for impairment		1,183,563			949,156			—		2,132,719
Ending balance, collectively evaluated for impairment		27,975,349			26,668,879			—		54,644,228
Purchased impaired loans		—			8,391,000			—		8,391,000

Non-accrual loans disaggregated by class of financing receivables are summarized as follows:

		September 30,		September 30,
	AT DECEMBER 31,
	2011		2010
	(in thousands)
Non-accrual loans:
Commercial:
Corporate banking	$	304,309	$	653,943
Middle market commercial real estate		167,446		379,898
Continuing care retirement communities		198,131		126,704
Santander real estate capital		127,537		203,802
Remaining commercial		2,624		41,935
Total commercial loans		800,047		1,406,282
Consumer:
Home mortgages		438,461		602,027
Self-originated home equity		64,481		63,686
Indirect auto		3,062		563,002
Indirect purchased		2,005		—
Remaining consumer		51,410		91,272
Total consumer loans		559,419		1,319,987
Total non-accrual loans	$	1,359,466	$	2,726,269

Delinquencies disaggregated by class of financing receivables are summarized as follows:

		Septe		Septe		Septe		Septe		Septe		Septe		Septe
December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables(1)		Recorded Investment >90 Days and Accruing
	(in thousands)
Commercial:
Corporate banking	$	38,347	$	36,498	$	180,017	$	254,862	$	14,989,498	$	15,244,360	$	1,211
Middle market commercial real estate		14,862		16,508		79,160		110,530		3,743,790		3,854,320		—
Continuing care retirement communities		4,632		2,812		6,491		13,935		216,010		229,945		—
Santander real estate capital		8,383		24,214		89,885		122,482		9,175,480		9,297,962		—
Remaining commercial		2,568		13,765		132,741		149,074		1,113,532		1,262,606		—
Consumer:
Home mortgages		224,957		110,007		438,461		773,425		10,863,152		11,636,577		—
Self-originated home equity		22,026		13,272		64,482		99,780		6,404,702		6,504,482		—
Indirect auto		43,386		10,624		3,062		57,072		704,518		761,590		—
Indirect purchased		11,101		4,683		2,005		17,789		1,814,509		1,832,298		—
Credit cards		1,867		1,491		3,697		7,055		180,940		187,995		3,697
Remaining consumer		26,879		12,881		51,410		91,170		756,546		847,716		—
Total	$	399,008	$	246,755	$	1,051,411	$	1,697,174	$	49,962,677	$	51,659,851	$	4,908

		Septe		Septe		Septe		Septe		Septe		Septe		Septe
December 31, 2010	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables(1)		Recorded Investment >90 Days and Accruing
	(in thousands)
Commercial:
Corporate banking	$	83,039	$	51,675	$	425,824	$	560,538	$	14,192,156	$	14,752,694	$	—
Middle market commercial real estate		37,619		24,980		187,393		249,992		3,530,116		3,780,108		169
Continuing care retirement communities		13,300		—		107,579		120,879		460,168		581,047		—
Santander real estate capital		119,795		27,819		161,583		309,197		8,881,740		9,190,937		—
Remaining commercial		5,491		32,982		8,312		46,785		807,341		854,126		—
Consumer:
Home mortgages		238,829		106,756		602,027		947,612		10,230,512		11,178,124		—
Self-originated home equity		18,540		12,774		63,686		95,000		6,461,605		6,556,605		—
Indirect auto		1,455,595		412,774		140,238		2,008,607		14,762,568		16,771,175		—
Remaining consumer		52,751		26,116		71,492		150,359		1,352,772		1,503,131		—
Total	$	2,024,959	$	695,876	$	1,768,134	$	4,488,969	$	60,678,978	$	65,167,947	$	169

(1) Financing Receivables includes loans held for sale.

Impaired loans disaggregated by class of financing receivables are summarized as follows:

		September 30,		September 30,		September 30,		September 30,
December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Specific Reserves		Average Recorded Investment
	(in thousands)
With no related allowance recorded:
Commercial:
Corporate banking	$	42,639	$	55,673	$	—	$	88,397
Middle market commercial real estate		82,104		102,788		—		72,053
Continuing care retirement communities		46,897		63,210		—		23,940
Santander real estate capital		23,723		24,731		—		29,164
Remaining commercial		17,057		17,057		—		8,529
Consumer:
Home mortgages		—		—		—		33,879
Self-originated home equity		38,322		38,699		—		19,161
Remaining consumer		18,935		19,684		—		9,468
With an allowance recorded:
Commercial:
Corporate banking		203,430		260,620		100,551		195,363
Middle market commercial real estate		132,115		169,361		27,473		194,877
Continuing care retirement communities		169,554		270,470		60,632		136,819
Santander real estate capital		117,103		125,114		28,494		106,843
Remaining commercial		1,958		2,553		715		13,978
Consumer:
Home mortgages		494,431		507,898		34,691		519,754
Indirect auto		—		—		—		101,222
Total:
Commercial	$	836,580	$	1,091,577	$	217,865	$	869,963
Consumer		551,688		566,281		34,691		683,484
Total	$	1,388,268	$	1,657,858	$	252,556	$	1,553,447

The Company recognized interest income of $ 17.6 million on approximately $527.6 million of TDRs that were returned to performing status as of December 31, 2011.

		September 30,		September 30,		September 30,
December 31, 2010	Recorded Investment		Unpaid Principal Balance		Related Specific Reserves
	(in thousands)
With no related allowance recorded:
Commercial:
Corporate banking	$	134,154	$	134,154	$	—
Middle market commercial real estate		62,002		62,002		—
Continuing care retirement communities		983		983		—
Santander real estate capital		34,605		34,605		—
Remaining commercial		—		—		—
Consumer:
Home mortgages		67,757		67,757		—
With an allowance recorded:
Commercial:
Corporate banking		187,296		345,322		158,026
Middle market commercial real estate		257,639		317,378		59,739
Continuing care retirement communities		104,084		125,720		21,636
Santander real estate capital		96,583		123,581		26,998
Remaining commercial		25,998		39,818		13,820
Consumer:
Home mortgages		545,077		678,956		133,879
Indirect auto		202,443		206,218		3,775
Total:
Commercial	$	903,344	$	1,183,563	$	280,219
Consumer		815,277		952,931		137,654
Total	$	1,718,621	$	2,136,494	$	417,873

Commercial credit quality disaggregated by class of financing receivables is summarized according to standard regulatory classifications as follows:

PASS. Asset is well protected by the current net worth and paying capacity of the obligor or guarantors, if any, or by the fair value, less costs to acquire and sell any underlying collateral in a timely manner.

SPECIAL MENTION. Asset has potential weaknesses that deserve management’s close attention, which, if left uncorrected, may result in deterioration of the repayment prospects for an asset at some future date. Special Mention assets are not adversely classified.

SUBSTANDARD. Asset is inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Characterized by distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

DOUBTFUL. Exhibits the inherent weaknesses of a substandard credit. Additional characteristics that make collection or liquidation in full highly questionable and improbable, on the basis of currently known facts, conditions and values. Possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the credit, an estimated loss cannot yet be determined.

LOSS. Credit is considered uncollectible and of such little value that it does not warrant consideration as an active asset. There may be some recovery or salvage value, but there is doubt as to whether, how much or when the recovery would occur.

The Company places consumer loans, excluding auto loans and credit card loans, on non-performing status at 90 days delinquent. For the majority of auto loans, the Company places them on non-performing status at 60 days delinquent. Credit cards remain performing until they are 180 days delinquent, at which point they are charged-off and all interest is removed from interest income.

Regulatory classifications by class of financing receivables are summarized as follows:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
December 31, 2011	Corporate banking		Middle market commercial real estate		Continuing care retirement communities		Santander real estate capital		Remaining commercial		Total
	(in thousands)
Regulatory Rating:
Pass	$	13,907,745	$	2,625,160	$	186,914	$	8,750,869	$	921,325	$	26,392,013
Special Mention		531,205		639,258		29,480		284,757		38,293		1,522,993
Substandard		690,303		485,994		10,460		228,210		104,802		1,519,769
Doubtful		115,107		103,908		3,091		34,126		198,186		454,418
Total commercial loans	$	15,244,360	$	3,854,320	$	229,945	$	9,297,962	$	1,262,606	$	29,889,193

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
December 31, 2010	Corporate banking		Middle market commercial real estate		Continuing care retirement communities		Santander real estate capital		Remaining commercial		Total
	(in thousands)
Regulatory Rating:
Pass	$	12,709,769	$	2,306,926	$	307,890	$	8,482,219	$	765,492	$	24,572,296
Special Mention		796,484		652,330		55,886		320,727		12,488		1,837,915
Substandard		1,043,379		632,901		90,567		312,130		74,629		2,153,606
Doubtful		201,248		187,951		126,704		75,861		1,517		593,281
Loss		1,814		—		—		—		—		1,814
Total commercial loans	$	14,752,694	$	3,780,108	$	581,047	$	9,190,937	$	854,126	$	29,158,912

Consumer credit quality disaggregated by class of financing receivables is summarized as follows:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
December 31, 2011	Home mortgages		Self-originated home equity		Indirect auto		Indirect purchased		Credit cards		Remaining consumer		Total (1)
	(in thousands)
Performing	$	11,198,116	$	6,440,001	$	758,528	$	1,830,293	$	187,995	$	796,306	$	21,211,239
Nonperforming		438,461		64,481		3,062		2,005		—		51,410		559,419
Total consumer loans	$	11,636,577	$	6,504,482	$	761,590	$	1,832,298	$	187,995	$	847,716	$	21,770,658

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
December 31, 2010	Home mortgages		Self-originated home equity		Indirect auto		Indirect purchased		Credit cards		Remaining consumer		Total (1)
	(in thousands)
Performing	$	10,576,097	$	6,492,919	$	15,931,345	$	—	$	—	$	1,688,687	$	34,689,048
Nonperforming		602,027		63,686		563,002		—		—		91,272		1,319,987
Total consumer loans	$	11,178,124	$	6,556,605	$	16,494,347	$	—	$	—	$	1,779,959	$	36,009,035

(1) Financing Receivables includes loans held for sale.

TROUBLED DEBT RESTRUCTURINGS

Troubled debt restructurings (“TDRs”) are loans that have been modified whereby the Company has agreed to make certain concessions to customers to both meet the needs of the customers and to maximize the ultimate recovery of a loan. TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted are generally interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.

The following table summarizes the Company’s performing and non-performing TDRs at the dates indicated:

		September 30,		September 30,
	December 31,		December 31,
	2011		2010
	(in thousands)
Performing	$	527,646	$	456,044
Non-performing		217,255		245,114
Total	$	744,901	$	701,158

Commercial Loan TDRs

All of the Company’s commercial loan modifications are based on the facts of the individual customer, including their complete relationship with the Company. Loan terms are modified to meet each borrower’s specific circumstances at a point in time. Modifications for commercial loan TDRs generally, though not always, result in bifurcation of the original loan into A and B notes. The A note is restructured to allow for upgraded risk rating and return to accrual status after a sustained period of payment performance has been achieved (typically six months for monthly payment schedules). Any B note is structured as a deficiency note; the balance is charged off but the debt is usually not forgiven. As TDRs, they will be subject to analysis for specific reserves by either calculating the present value of expected future cash flows or, if collateral dependent, calculating the fair value of the collateral less its estimated cost to sell. The TDR classification will remain on the loan until it is paid in full or liquidated.

Consumer Loan TDRs

The primary modification program for the Company’s home mortgage and self-originated home equity portfolios is a proprietary program designed to keep customers in their homes and when appropriate prevent them from entering into foreclosure. The program is available to all customers facing a financial hardship regardless of their delinquency status. The main goal of the modification program is to review the customer’s entire financial condition to ensure that the proposed modified payment solution is affordable according to a specific debt-to-income ratio (“DTI”) range. The main modification benefits of the program allow for a limit on accrued interest charged; term extensions; interest rate reductions; or deferment of principal. The Company will review each customer on a case-by-case basis to determine which benefit or combination of benefits will be offered to achieve the target DTI range.

For the Company’s other consumer portfolios (indirect auto, indirect purchased, and remaining consumer) the terms of the modifications include one or a combination of the following; a reduction of the stated interest rate of the loan at a rate of interest lower than the current market rate for new debt with similar risk; an extension of the maturity date.

Consumer TDRs are generally placed on non-accrual status until the Company believes repayment under the revised terms are reasonably assured and a sustained period of repayment performance has been achieved (typically defined as six months for a monthly amortizing loan). However, any loan that has remained current for the six months immediately prior to modification will remain on accrual status after the modification is enacted. The TDR classification will remain on the loan until it is paid in full or liquidated.

TDR Impact to Allowance for Loan Losses

Allowance for loan losses are established to recognize losses inherent in funded loans intended to be held-for-investment that are probable and can be reasonable estimated. Prior to a TDR modification, the Company generally measures its allowance under a loss contingency methodology whereby consumer loans with similar risk characteristics are pooled and loss experience information are monitored for credit risk and deterioration with statistical tools considering factors such as delinquency, loan to values, and credit scores.

Upon TDR modification, the Company generally measures impairment based on a present value of expected future cash flows methodology considering all available evidence. The amount of the required valuation allowance is equal to the difference between the loan’s impaired value and the recorded investment.

When a consumer TDR subsequently defaults, the Company generally measures impairment based on the fair value of the collateral less its estimated cost to sell.

Typically, commercial loans whose terms are modified in a TDR will have previously been identified as impaired prior to modification and accounted for generally using a present value of expected future cash flows methodology unless the loan is considered collateral dependent. Loans considered collateral dependent are measured for impairment based on their fair values of collateral less its estimated cost to sell. Accordingly, upon TDR modification, the allowance methodology remains unchanged. When a commercial TDR subsequently defaults, the Company generally measures impairment based on the fair value of the collateral less its estimated cost to sell.

The following tables detail the activity of TDRs for the twelve-month period ended December 31, 2011 (dollars in thousands):

		September 30,		September 30,		September 30,
	Twelve-month period ended December 31, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment (1)		Post-Modification Outstanding Recorded Investment (2)
Commercial:
Middle market commercial real estate		3	$	43,503	$	43,518
Continuing care retirement communities		3		55,204		56,061
Santander real estate capital		2		11,415		11,104
Remaining commercial		10		22,303		22,910
Consumer:
Home mortgages		616		170,083		173,045
Self-originated home equity		199		18,316		18,816
Indirect purchased		1		167		168
Remaining consumer		2		118		121
Total		836	$	321,109	$	325,743

(1) Pre-Modification Outstanding Recorded Investment amount is the month-end balance prior to the month the modification occurred.

(2) Post-Modification Outstanding Recorded Investment amount is the month-end balance for the month that the modification occurred. Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized interest, escrow arrearages and fees.

The following table details TDRs that were modified during the past twelve-month period and have subsequently defaulted during the twelve-month periods ended December 31, 2011 (dollars in thousands):

		September 30,		September 30,
	Twelve-month period ended December 31, 2011
	Number of Contracts		Recorded Investment  (1)
Consumer:
Home mortgages		3	$	1,546
Total		3	$	1,546

(1) The recorded investment represents the period-end balance as of December 31, 2011

XML

Investment Securities

12 Months Ended

Dec. 31, 2011

Investment Securities [Abstract]

Investment Securities

Note 5 — Investment Securities

The amortized cost and estimated fair value of the Company’s investment securities are as follows:

		September 30,		September 30,		September 30,			September 30,
	December 31, 2011
	Amortized		Gross Unrealized		Gross Unrealized			Fair
	Cost		Gains		Loss			Value
	(in thousands)
Investment securities:
U.S. Treasury and government agency securities	$	44,070	$	20	$	—		$	44,090
Debentures of FHLB, FNMA, and FHLMC		19,482		518		—			20,000
Corporate debt securities		2,070,255		16,249		(36,984	)		2,049,520
Asset-backed securities		2,639,397		8,191		(7,298	)		2,640,290
State and municipal securities		1,735,465		53,013		(3,700	)		1,784,778
Mortgage-backed securities:
U.S. government agencies		3,904,933		50,049		(4,022	)		3,950,960
FHLMC and FNMA debt securities		5,012,584		77,822		(1,760	)		5,088,646
Non-agency securities		290		2		—			292
Total investment securities available-for-sale	$	15,426,476	$	205,864	$	(53,764	)	$	15,578,576

		September 30,		September 30,		September 30,			September 30,
	December 31, 2010
	Amortized		Gross Unrealized		Gross Unrealized			Fair
	Cost		Gains		Loss			Value
	(in thousands)
Investment securities:
U.S. Treasury and government agency securities	$	12,997	$	—	$	—		$	12,997
Debentures of FHLB, FNMA, and FHLMC		24,291		708		—			24,999
Corporate debt securities		2,148,919		66,924		(13,056	)		2,202,787
Asset-backed securities		3,097,959		37,849		(11,205	)		3,124,603
State and municipal securities		2,000,974		1,609		(120,303	)		1,882,280
Mortgage-backed securities:
U.S. government agencies		364,331		75		(10	)		364,396
FHLMC and FNMA debt securities		4,254,734		51,473		(7,204	)		4,299,003
Non-agency securities		1,607,514		260		(146,991	)		1,460,783
Total investment securities available-for-sale	$	13,511,719	$	158,898	$	(298,769	)	$	13,371,848

Investment securities with an estimated fair value of $3.6 billion and $5.7 billion were pledged as collateral for borrowings, standby letters of credit, interest rate agreements and public deposits at December 31, 2011 and 2010.

At December 31, 2011 and 2010, there was $72.4 million and $82.9 million of investment securities accrued interest.

The state and municipal bond portfolio consists of primarily general obligation bonds of states, cities, counties and school districts. The portfolio has a weighted average underlying credit risk rating of AA. These bonds are insured with various companies and as such, carry additional credit protection. The largest geographic concentrations of the state and local municipal bonds are in California, which represented 23% of the total portfolio. No other state had more than 20% of the total portfolio.

Contractual maturities and yields of the Company’s investment securities available-for-sale at December 31, 2011 are as follows (in thousands):

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Due Within One Year			Due After 1 Within 5 Yrs			Due After 5 Within 10 Yrs			Due After 10 Years/No Maturity			Total(1)			Weighted Average Yield (2)
U.S. Treasury and government agency	$	44,090		$	—		$	—		$	—		$	44,090			0.15	%
Debentures of FHLB, FNMA and FHLMC		—			20,000			—			—			20,000			5.66	%
Corporate debt securities		245,762			1,629,012			174,746			—			2,049,520			2.80	%
Asset backed securities		196,705			1,302,923			417,244			723,418			2,640,290			1.40	%
State and municipal securities		360			10			20,673			1,763,735			1,784,778			4.25	%
Mortgage-backed securities:
U.S. government agencies		—			—			4,186			3,946,774			3,950,960			1.99	%
FHLMC and FNMA securities		—			14,706			129,457			4,944,483			5,088,646			2.20	%
Non-agencies		—			17			275			—			292			4.48	%
Total fair value	$	486,917		$	2,966,668		$	746,581		$	11,378,410		$	15,578,576			2.34	%
Weighted average yield		1.86	%		2.02	%		2.69	%		2.42	%		2.34	%
Total amortized cost	$	487,079		$	2,970,413		$	755,400		$	11,213,584		$	15,426,476

(1) The maturities above do not represent the effective duration of the Company’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) Yields on tax-exempt securities are calculated on a tax equivalent basis and are based on an effective tax rate of 35%.

The following table discloses the age of gross unrealized losses in the portfolio as of December 31, 2011 and 2010:

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
	AT DECEMBER 31, 2011
	Less than 12 months					12 months or longer					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
	(in thousands)
U.S. Treasury and government agency securities	$	13,099	$	—		$	—	$	—		$	13,099	$	—
Corporate debt securities		1,129,751		(23,499	)		108,931		(13,485	)		1,238,682		(36,984	)
Asset-backed securities		602,183		(2,754	)		219,016		(4,544	)		821,199		(7,298	)
State and municipal securities		26,910		(204	)		191,597		(3,496	)		218,507		(3,700	)
Mortgage-backed securities:
U.S. government agencies		856,687		(4,022	)		—		—			856,687		(4,022	)
FHLMC and FNMA securities		590,740		(1,667	)		6,847		(93	)		597,587		(1,760	)
Total investment securities	$	3,219,370	$	(32,146	)	$	526,391	$	(21,618	)	$	3,745,761	$	(53,764	)

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
	AT DECEMBER 31, 2010
	Less than 12 months					12 months or longer					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
	(in thousands)
Corporate debt securities		535,892		(12,356	)		9,426		(700	)		545,318		(13,056	)
Asset-backed securities		660,683		(4,498	)		96,005		(6,707	)		756,688		(11,205	)
State and municipal securities		1,420,899		(83,641	)		245,067		(36,662	)		1,665,966		(120,303	)
Mortgage-backed securities:
U.S. government agencies		5,380		(10	)		—		—			5,380		(10	)
FHLMC and FNMA securities		947,311		(7,078	)		13,537		(126	)		960,848		(7,204	)
Non-agencies		62,744		(3,879	)		1,358,715		(143,112	)		1,421,459		(146,991	)
Total investment securities	$	3,632,909	$	(111,462	)	$	1,722,750	$	(187,307	)	$	5,355,659	$	(298,769	)

On November 16, 2011, the Company sold the majority of its non-agency mortgage backed securities portfolio resulting in the recognition of $103.3 million in realized losses. Prior to the sale, the Company held investments in these non-agency mortgage backed securities with an ending book value of $613.3 million for which the Company did not expect to collect the entire scheduled principal. At December 31, 2010, the book value of this class of investments securities was $874.3 million. The Company used the specific identification method to determine the cost of the securities sold and the loss recognized. The sale was the result of management’s strategic decision in the fourth quarter of 2011 to exit certain asset classes in light of changing capital and liquidity requirements expected. In addition, economic conditions have significantly impacted the fair value of certain non-agency mortgage backed securities. The Company is continuously evaluating its investment strategies in light of changes in the regulatory environment that could have an impact on capital and liquidity. Based on this evaluation, it is reasonably possible the Company may elect to pursue other strategies relative to the remaining investment securities portfolio.

The following table displays changes in credit losses for debt securities recognized in earnings for the year ended December 31, 2011 and 2010, and expected to be recognized in earnings over the remaining life of the securities.

		September 30,			September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011			2010			2009
	(in thousands)
Cumulative credit loss recognized on non-agency securities at the beginning of the period	$	210,919		$	206,156		$	62,834
Cumulative reduction as of the beginning of the period for accretion into interest income for the expected increase in cash flow on certain non-agency securities		(9,631	)		—			—
Current period accretion into interest income for the expected increase in cash flow on certain non-agency securities		(8,375	)		(9,631	)		—
Additions for amount related to credit loss for which an other-than-temporary-impairment was not previously recognized		325			4,763			143,322
Reductions for securities sold during the period		(193,238	)		—			—
Net cumulative credit loss recognized on non-agency securities as of the end of the period		—			201,288			206,156
Reductions for increases in cash flows expected to be collected and recognized over the remaining life of security		—			(70,762	)		—
Projected ending balance of the amount related to credit losses on debt securities at the end of the period for which a portion of an other-than-temporary impairment was recognized in other comprehensive income	$	—		$	130,525		$	206,156

Based upon the analysis performed above, the Company recognized other-than-temporary impairment losses of $0.3 million and $4.8 million in earnings during the year ended December 31, 2011 and 2010, respectively. Excluding the securities above, management has concluded that the unrealized losses on the remaining investment securities (which totaled 120 individual securities) are temporary in nature since (1) they are not related to the underlying credit quality of the issuers, (2) the principal and interest on these securities are from investment grade issuers, (3) the Company does not intend to sell these investments, and (4) it is more likely than not that the Company will not be required to sell the investments before recovery of the amortized cost basis, which may be maturity.

Management evaluates all securities for other-than-temporary impairment on at least a quarterly basis. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and (4) the ability to collect the future expected cash flow. Key assumptions utilized to forecast expected cash flows include loss severity, expected cumulative loss percentage, cumulative loss percentage to date, weighted average FICO and weighted average LTV.

Proceeds from sales of investment securities and the realized gross gains and losses from those sales are as follows:

		September 30,			September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011			2010			2009
	(in thousands)
Proceeds from sales	$	6,892,337		$	5,075,900		$	2,673,370
Gross realized gains		178,364			192,161			23,176
Gross realized losses		(103,442	)		(965	)		(827	)
Net realized gains	$	74,922		$	191,196		$	22,349

During 2010, the Company sold its Visa Inc. Class B common shares for proceeds of $19.5 million, resulting in a pre-tax gain of $14.0 million. As part of this transaction, the Company entered into a total return swap in which the Company will make or receive payments based on subsequent changes in the conversion rate of the Class B shares into Class A shares. The swap terminates on the later of the third anniversary of Visa’s IPO or the date on which certain pre-specified litigation is finally settled. As a result of the sale of Class B shares and entering into the swap contract, the Company recognized a free standing derivative liability with an initial fair value of $5.5 million. The sale of the Class B shares, recognition of the derivative liability and reversal of the net litigation reserve liability resulted in a pre-tax benefit of $14.0 million ($9.6 million after-tax) recognized by the Company in 2010.

Nontaxable interest and dividend income earned on investment securities was $67.0 million, $78.5 million and $81.5 million for years ended December 31, 2011, 2010 and 2009, respectively. Tax expenses related to net realized gains and losses from sales of investment securities for the years ended 2011, 2010 and 2009 were $29.4 million, $69.6 million and $8.1 million, respectively.

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Asset securitizations

12 Months Ended

Dec. 31, 2011

Asset securitizations [Abstract]

Asset securitizations

Note 17 — Asset securitizations

Asset Securitizations

During 2010, the Company sold the controlling class certificates in commercial mortgage backed securitization (“CMBS”) and as such no longer has the risks and rewards of owning the subordinated certificates. Additionally, the Company no longer had the ability to decide which party should service problem loans in order to maximize cash flows of the underlying trust. As such, the Company was no longer considered the primary beneficiary of the CMBS securitization trust and as a result, deconsolidated the net assets and liabilities of this vehicle which totaled $860.5 million in 2010.

As part of previously reported mergers, the Company inherited several home equity loans securitizations. These home equity securitizations are determined to be a variable interest entities (“VIE”) because the holders of the equity investment at risk do not have any obligation to absorb credit losses on the loans within the home equity securitizations. The Company has determined that it is not the primary beneficiary of home equity securitization because it does not have any obligation to absorb credit losses on the loans within the home equity securitizations. The Company does not hold any assets or liabilities related to the home equity loans securitizations. The total principal amount of securitized home equity loans was $55.1 million and $64.0 million for the year-ended December 31, 2011 and 2010, respectively. As of December 31, 2011, the portion of principal 90 days past due was $3.1 million and net credit losses were $1.2 million. As of December 31, 2010, the portion of principal 90 days past due was $582 thousand and net credit losses were $1.5 million.

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Borrowings and Other Debt Obligations

12 Months Ended

Dec. 31, 2011

Borrowings and Other Debt Obligations [Abstract]

Borrowings and Other Debt Obligations

Note 13 — Borrowings and Other Debt Obligations

All the Bank obligations have priority over Holding Company obligations.

The following table presents information regarding the Bank borrowings and other debt obligations at the dates indicated:

		September 30,		September 30,			September 30,		September 30,
	December 31, 2011					December 31, 2010
	Balance		Effective Rate			Balance		Effective Rate
	(in thousands)
Sovereign Bank borrowings and other debt obligations:
Overnight federal funds purchased	$	1,166,000		0.08	%	$	954,000		0.19	%
Federal Home Loan Bank (FHLB) advances, maturing through August 2018 (1)		11,076,773		3.40			9,849,041		4.10
Securities sold under repurchase agreements (2)		1,030,300		0.38			1,389,382		0.31
Reit preferred (3)		148,966		14.08			147,530		14.20
2.75% senior notes, due January 2012 (4)		1,349,920		3.92			1,348,111		3.92
3.750% subordinated debentures, due March 2014 (5)		—		—			219,530		3.75
5.125% subordinated debentures, due March 2013 (5)		260,277		5.21			485,276		5.28
4.375% subordinated debentures, due August 2013 (5)		—		—			271,945		4.38
8.750% subordinated debentures, due May 2018 (5)		496,554		8.81			496,170		8.82
Total Sovereign Bank borrowings and other debt obligations	$	15,528,790		3.30	%	$	15,160,985		3.78	%

⁽¹⁾  During 2011, the Company terminated $330.0 million of FHLB callable advances. As a consequence, the Company incurred costs of $22.8 million through loss on debt extinguishment in 2011. FHLB Advances include the off-setting effect of the value of terminated fair value hedges.

⁽²⁾  Included in borrowings and other debt obligations are sales of securities under repurchase agreements. Repurchase agreements are treated as financings with the obligations to repurchase securities sold reflected as a liability in the balance sheet. The dollar amount of securities underlying the agreements remains recorded as an asset, although the securities underlying the agreements are delivered to the brokers who arranged the transactions. In certain instances, the broker may have sold, loaned, or disposed of the securities to other parties in the normal course of their operations, and have agreed to deliver to SHUSA substantially similar securities at the maturity of the agreements. The broker/dealers who participate with SHUSA in these agreements are primarily broker/dealers reporting to the Federal Reserve Bank of New York.

⁽³⁾  On August 21, 2000, SHUSA received approximately $140 million of net proceeds from the issuance of $161.8 million of 12% Series A Noncumulative Preferred Interests in Sovereign Real Estate Investment Trust (“SREIT”), a subsidiary of the Bank, that holds primarily residential real estate loans. The preferred stock was issued at a discount, and is being amortized over the life of the preferred shares using the effective yield method. The preferred shares may be redeemed at any time on or after May 16, 2020, at the option of SHUSA subject to the approval of the OCC. Under certain circumstances, the preferred shares are automatically exchangeable into preferred stock of the Bank. The offering was made exclusively to institutional investors. The proceeds of this offering were principally used to repay corporate debt.

⁽⁴⁾  In December 2008, the Bank issued $1.4 billion in 3 year fixed rate FDIC-guaranteed senior unsecured notes under the TLG Program. The fixed rate note bears interest at a rate of 2.75% and matures on January 17, 2012.

⁽⁵⁾  The Bank has issued various subordinated notes. Prior to December 31, 2010, the Company received approval from the Company’s primary regulator to repurchase $271.9 million of 4.375% fixed rate/floating rate subordinated bank notes due August 1, 2013 and $219.5 million of 3.75% fixed rate/floating rate subordinated bank notes due April 1, 2014. These notes were subsequently repurchased during the first quarter of 2011. The 4.375% notes were redeemable in whole or in part as of August 1, 2008 and the 3.75% notes were redeemable in whole or in part as of April 1, 2009. In anticipation of this repurchase, the Company wrote off $5.2 million of unamortized discounts, purchase marks and deferred issuance costs through loss on debt extinguishment at December 31, 2010. During 2011, the Company made a fixed price tender offer on its 5.125% subordinated notes and accepted for purchase $234.9 million of the outstanding notes. The aggregate consideration for the notes accepted for purchase, including accrued and unpaid interest was $242.6 million. Consequently, the Company wrote-off a proportionate amount of loss on associated derivative transactions and incurred other expenses totaling $8.4 million through loss on debt extinguishment in 2011. The balance includes the off-setting effect of the value of terminated fair value hedges.

The following table presents information regarding SCUSA borrowings and other debt obligations as of December 31, 2010 (2011 amounts are not presented as SCUSA is not consolidated as of December 31, 2011. See further discussion in Note 3). Amounts are presented in thousands.

		September 30,		September 30,
	December 31, 2010
	Balance		Effective Rate
SCUSA borrowings and other debt obligations:
SCUSA Subordinated revolving credit facility, due December 2011	$	100,000		2.01	%
SCUSA Subordinated revolving credit facility, due December 2011		150,000		2.05
SCUSA Warehouse lines with Santander and related subsidiaries		4,148,355		1.57
SCUSA Warehouse line, due May 2011		475,825		1.62
SCUSA Warehouse line, due October 2011		209,390		5.85
SCUSA Warehouse line, due March 2012		516,000		1.71
SCUSA Warehouse line, due March 2012		—		—
SCUSA Warehouse line, due May 2012		129,600		3.40
SCUSA Warehouse line, due May 2012		—		—
SCUSA Warehouse line, due September 2012		23,660		3.11
SCUSA Warehouse line, due September 2017		1,077,475		1.96
Asset-backed notes		8,050,022		2.35
TALF loan		196,589		2.22
Total SCUSA borrowings and other debt obligations	$	15,076,916		2.11	%

The following table presents information regarding holding company borrowings and other debt obligations at the dates indicated:

		September 30,		September 30,			September 30,		September 30,
	December 31, 2011					December 31, 2010
	Balance		Effective Rate			Balance		Effective Rate
	(in thousands)
Holding company borrowings and other debt obligations:
Commercial paper (1)	$	18,082		0.87	%	$	968,355		0.98	%
Subordinated notes, due March 2020 (2)		753,072		5.96			751,355		5.96
2.75% senior notes, due June 2012 (3)		249,786		3.73			249,332		3.73
4.625% senior notes, due April 2016 (4)		496,761		4.66			—		—
Santander senior line of credit, due September 2012 (5)		—		—			250,000		0.69
Junior subordinated debentures – Capital Trust IV (6)		824,742		7.41			546,784		6.60
Junior subordinated debentures – Capital Trust V (6)		—		—			180,450		7.75
Junior subordinated debentures – Capital Trust VI (6)		252,560		7.91			291,300		7.91
Junior subordinated debentures – Capital Trust IX		154,640		2.15			154,640		2.04
Total holding company borrowings and other debt obligations	$	2,749,643		5.89	%	$	3,392,216		4.17	%

⁽¹⁾  During 2010, SHUSA initiated a holding company level commercial paper issuance program, which is backed by committed lines from Santander, which at December 31, 2011 had an outstanding balance of $18.1 million and an effective rate of 0.87%. The Company is shifting away from issuing commercial paper as a form of financing and therefore, has decreased the amount of commercial paper outstanding during the year.

⁽²⁾ In March 2010, the Company issued a $750 million subordinated note to Santander, which matures in March 2020. This subordinated note bears interest at 5.75% until March 2015 and then bears interest at 6.25% until maturity. Interest is being recognized at the effective interest rate of 5.96%.

⁽³⁾ In December 2008, SHUSA issued $250 million in 3.5 year fixed rate senior unsecured notes with the FDIC-guarantee under the TLG Program at a rate of 2.50% which mature on June 15, 2012.

⁽⁴⁾  During April 2011, the Company issued $500.0 million in 5 year fixed rate senior unsecured notes at a rate of 4.625% which mature on April 19, 2016.

⁽⁵⁾ The Company has a line of credit agreement with Banco Santander with a total borrowing capacity of up to $1.5 billion maturing in September 2012. As of December 31, 2011, there was no outstanding balance on this line. During 2011, the Company terminated a $1.0 billion line with Banco Santander originally maturing in September 2011. The Company is in compliance with all covenants of the credit agreements with Santander.

⁽⁶⁾ On June 15, 2011, the Company redeemed Sovereign Capital Trust V at a par value of $175.0 million. As a consequence, the Company wrote off unamortized deferred issuance costs and incurred other expense totaling $4.8 million related to the redemption of the Capital Trust V through loss on debt extinguishment in 2011.

In 2011, the Company redeemed Sovereign Capital Trust VI at a par value of $35.8 million. As a consequence, the Company wrote off unamortized deferred issuance costs and incurred other expenses totaling $2.0 million related to the redemption of the Capital Trust VI through loss on debt extinguishment in 2011.

The total balance of junior subordinated debentures due to Capital Trust Entities at December 31, 2011 was $1.2 billion. Included in this balance is the Trust PIERS. On February 26, 2004, SHUSA completed the offering of $700 million of Trust PIERS, and in March 2004, the Company raised an additional $100 million of Trust PIERS under this offering. The offering was completed through Sovereign Capital Trust IV (the “Trust”), a special purpose entity established to issue the Trust PIERS. Each Trust PIERS had an issue price of $50 and represents an undivided beneficial ownership interest in the assets of the Trust, which consist of:

• Junior subordinated debentures issued by SHUSA, each of which will have a principal amount at maturity of $50, and which have a stated maturity of March 1, 2034; and

• Warrants to purchase shares of common stock from SHUSA at any time prior to the close of business on March 1, 2034, by delivering junior subordinated debentures (or, in the case of warrant exercises before March 5, 2007, cash equal to the accreted principal amount of a junior subordinated debenture).

The proceeds from the Trust PIERS of $800 million, net of transaction costs of approximately $16.3 million, were allocated pro rata between “Junior Subordinated debentures due Capital Trust Entities” in the amount of $498.3 million and “Warrants and employee stock options issued” in the amount of $285.4 million based on estimated fair values. Prior to December 31, 2011, the difference between the carrying amount of the subordinated debentures and the principal amount due at maturity was being accreted into interest expense using the effective interest method over the period to maturity of the Trust PIERS which is March 2, 2034. The effective interest rate of the subordinated debentures is 7.41% for December 31, 2011.

On December 17, 2010, The Bank of New York Mellon Trust Company, National Association (the “Trustee”) filed a complaint in the U.S. District Court for the Southern District of New York solely as the Trustee for the Trust PIERS under an Indenture dated September 1, 1999, as amended, against SHUSA. The complaint asks the Court to declare that the acquisition of the Company was a “change of control” under the Indenture and seeks damages equal to the interest that the complaint alleges should have been paid by the Company for the benefit of holders of Trust PIERS. On December 13, 2011, the Court issued its decision granting the Trustee’s motion for summary judgment and denying Sovereign’s cross-motion. The Court ruled that the term “common stock” used in the Indenture’s “change of control” provision does not include ADSs and, therefore, a Change of Control has occurred.

As a result of the December 13, 2011 decision by the Court, SHUSA recorded a reduction of pre-tax income of $344.2 million for the Trust PIERS litigation. Of the total, $70.8 million represents the liability for accrued interest at the rate of 7.410% from January 31, 2009, the date Santander completed the acquisition of 100% of the Company, to December 31, 2011. The remaining $273.4 million was recorded as a credit to liability to accrete the Trust PIERS to PAR ($50).

Please refer to Note 22 for further discussion on the Trust PIERS matter.

The following table sets forth the maturities of the Company’s borrowings and debt obligations (including the impact of expected cash flows on interest rate swaps) at December 31, 2011 (in thousands):

		September 30,
2012	$	6,309,981
2013		1,548,158
2014		1,257,930
2015		3,139,833
2016		1,994,297
Thereafter		4,028,234
Total	$	18,278,433

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Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2011

Goodwill and Other Intangible Assets [Abstract]

Goodwill and Other Intangible Assets

Note 9 — Goodwill and Other Intangible Assets

The Company conducts its evaluation of goodwill impairment as of December 31 each year, and more frequently if events or circumstances indicate that there may be impairment. The Company completed its annual goodwill impairment test as of December 31, 2011 and determined that no impairment existed. The Company evaluates goodwill for impairment at the reporting unit level. The fair value of the reporting units is determined by using discounted cash flow and market comparability methodologies.

Goodwill is assigned to reporting units, which are operating segments or one level below an operating segment, as of the acquisition date. As of December 31, 2011, the reporting units with assigned goodwill were Retail Banking and Corporate.

The following table shows the allocation of goodwill to the operating segments for purposes of goodwill impairment testing:

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Retail Banking		Specialized Business		Corporate		Global Banking and Markets		SCUSA			Total
	(in thousands)
Goodwill at December 31, 2010	$	2,259,179	$	—	$	1,172,302	$	—	$	692,870		$	4,124,351
Effect of SCUSA Transaction		—		—		—		—		(692,870	)		(692,870	)
Goodwill at December 31, 2011	$	2,259,179	$	—	$	1,172,302	$	—	$	—		$	3,431,481

The following table details amounts related to the intangible assets as of December 31, 2011 and 2010:

		September 30,		September 30,		September 30,		September 30,		September 30,
	Weighted		December 31, 2011				December 31, 2010
	Average Life (years)		Net Carrying Amount		Accumulated Amortization		Net Carrying Amount		Accumulated Amortization
			(in thousands)
Core deposit intangibles		4.3	$	79,389	$	159,711	$	124,352	$	466,748
Purchased credit card relationships (“PCCR”)		4.5		9,636		4,568		—		—
Operating lease agreements		12.9		10,146		5,558		11,736		3,827
SCUSA trademarks		—		—		—		39,669		978
SCUSA customer relationships		—		—		—		9,197		3,203
Other		—		—		—		3,986		3,508
Total		5.2	$	99,171	$	169,837	$	188,940	$	478,264

Intangibles decreased as a result of amortization and the effects of the SCUSA Transaction (Refer to Note 3 for additional information on the SCUSA Transaction), which was offset by the recognition of a new PCCR intangible asset in the amount of $14.2 million related to the credit card portfolio acquisition in the second quarter of 2011. Accumulated amortization of core deposit intangibles decreased during the third quarter due to a fully amortized asset being removed from the books. Amortization expense on intangible assets for the years ended December 31, 2011 and 2010 was $55.5 million and $63.4 million, respectively. These amounts include amortization expense related to SCUSA. The estimated aggregate amortization expense related to intangibles for each of the five succeeding calendar years ending December 31 is (in thousands):

		September 30,
YEAR	AMOUNT
2012	$	37,222
2013		27,335
2014		18,177
2015		10,221
2016		2,949
Thereafter		3,267

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Premises and Equipment

12 Months Ended

Dec. 31, 2011

Premises and Equipment [Abstract]

Premises and Equipment

Note 7 — Premises and Equipment

A summary of premises and equipment, less accumulated depreciation and amortization, follows:

		September 30,			September 30,
	AT DECEMBER 31,
	2011			2010
	(in thousands)
Land	$	56,788		$	57,101
Office buildings		197,912			203,447
Furniture, fixtures, and equipment		195,591			249,639
Leasehold improvements		312,761			310,680
Computer Software		382,582			217,573
Automobiles and other		1,998			2,739
Total premise and equipment		1,147,632			1,041,179
Less accumulated depreciation		(478,489	)		(445,228	)
Total premises and equipment, net	$	669,143		$	595,951

Included in occupancy and equipment expense for 2011, 2010 and 2009 was depreciation expense of $91.0 million, $73.6 million and $87.9 million, respectively.

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Equity Method Investments and Variable Interest Entities

12 Months Ended

Dec. 31, 2011

Equity Method Investments and Variable Interest Entities [Abstract]

Equity Method Investments and Variable Interest Entities

Note 8 — Equity Method Investments and Variable Interest Entities

Investments in unconsolidated entities as of December 31, 2011 and 2010 include the following:

		September 30,			September 30,		September 30,
	Ownership			December 31,		December 31,
	Interest			2011		2010
				(in thousands)
Santander Consumer, USA (“SCUSA”)		65.0	%	$	2,650,651	$	—
Commercial property partnerships		17.0 – 33.3	%		9,681		—
Community reinvestment projects		2.0 – 99.9	%		156,462		117,516
Other		various			67,214		67,841
Total				$	2,884,008	$	185,357

Net losses related to equity method investments for 2011, 2010 and 2009 were $14.8 million, $26.6 million and $21.4 million, respectively.

Refer to Note 3 of the Notes to Consolidated Financial Statements for additional information on SCUSA.

As part of its lending activities, the Company is involved in several loan participations which involve commercial property. If the loan becomes nonperforming and is subsequently foreclosed, the financial institutions involved in the commercial property may create a partnership to run or sell the commercial property. The Company has an interest in the partnerships, but does not have controlling interest in the entities. The equity investment in the partnership is equal to the fair value of the proportion of the property that is controlled by the partnership. The fair value of the property is reviewed on a regular basis to ensure the value of the equity investment is not impaired. The fair value is determined based on property appraisals and other factors affecting the properties.

Community reinvestment projects are investments into partnerships that are involved in construction and development of low-income housing (“LIH”) and new market investments (“NMTC”). The Company has a significant interest in the partnerships, but does not have a controlling interest in the entities. See further discussion below.

Other equity investments primarily consist of small investments in capital trusts, a commercial real estate finance company and other joint ventures where the Company has an interest in the partnerships, but does not have a controlling interest.

Below is the summarized financial information for significant equity investments presented as a stand-alone entity. Currently, the Company only considers its investment in SCUSA to be a significant equity investment. The Company’s Consolidated Balance Sheet as of December 31, 2010 includes the financial position of SCUSA.

		September 30,		September 30,
	December 31,		December 31,
	2011		2010
	(in thousands)
Cash and amounts due from depository institutions	$	54,409	$	59,001
Investments securities		188,299		313,537
Net loans held for investment		16,715,703		15,032,046
Other assets		2,443,733		1,368,437
Total assets	$	19,402,144	$	16,773,021
Total liabilities	$	17,165,459	$	16,005,404
Stockholders’ equity attributable to SCUSA		2,216,684		767,617
Minority Interest		20,001		—
Total liabilities and stockholders’ equity	$	19,402,144	$	16,773,021

As of December 31, 2011 and 2010, the Company had receivables and prepaid expenses with SCUSA of $99.1 million and $473.9 million, respectively.

The Company’s consolidated statement of operations for the year ended December 31, 2011 includes SCUSA’s results of operations from January 1 through December 31, 2011. The following summary of financial information of SCUSA presented below on as a stand-alone entity for the year ended December 31, 2011, 2010 and 2009, respectively:

		September 30,		September 30,		September 30,
	YEAR ENDED DECEMBER 31,
	2011		2010		2009
	(in thousands)
Interest income	$	2,594,513	$	2,076,578	$	1,510,240
Interest expenses		418,526		316,486		235,031
Net interest income		2,175,987		1,760,092		1,275,209
Provision for credit loss		819,221		888,225		720,938
Other income		452,529		249,028		48,096
Other expenses		557,083		404,840		249,012
Income before income taxes		1,252,212		716,055		353,355
Income tax provision		464,034		277,944		143,834
Net income	$	788,178	$	438,111	$	209,521

During the year ended December 31, 2011, 2010 and 2009, the Company recorded income of $32.4 thousand, $586.6 thousand and $0, respectively, and expenses of $39.8 million, $29.1 million and $21.2 million, respectively, related to transactions with SCUSA. The activity is primarily related to SCUSA’s servicing of certain SHUSA outstanding loan portfolios. As these transactions occurred prior to the deconsolidation of SCUSA on December 31, 2011, they have been eliminated from the consolidated statement of operations as intercompany transactions.

Variable Interest Entities

The Company, through an acquisition in 2005, acquired a 70.0% interest in a real estate title company in Pennsylvania. The real estate title company is determined to be a VIE because the holders of the equity investment at risk do not have the power through voting rights or similar rights to direct the activities of the entity that most significantly impact the entity’s economic performance. The partnership is structured with one investor being the general partner and the Company as limited partner. The Company has determined that it is not the primary beneficiary of real estate title company because it does not have the power to direct the activities of the real estate title company that most significantly impact its economic performance. The entity is recorded as an equity investment on the financial statements. The risk of loss is limited to the investment in the partnerships, which totaled $8.9 million and $4.6 million at December 31, 2011 and 2010, respectively. There are no future cash obligations.

As part of the community reinvestment initiatives, the Company invests into partnerships of construction and development of LIH and NMTC, which are determined to be VIEs because the holders of the equity investment at risk do not have the power through voting rights or similar rights to direct the activities of the entity that most significantly impact the entity’s economic performance. The partnerships are structured with the real estate developer or sponsor as the general partner and the Company as the limited partner. The Company has determined that it is not the primary beneficiary of these partnerships because it does not have the power to direct the activities of the LIH and NMTC that most significantly impact the entity’s economic performance. The entities are recorded as an equity investment on the financial statements. The risk of loss is limited to the investment in the partnerships, which totaled $156.5 million and $117.5 million at December 31, 2011 and 2010, respectively, and any future cash obligations that the Company is committed to the partnerships. Future cash obligations related to these partnerships totaled $167 thousand at December 31, 2011. The Company does not provide financial or other support to the partnerships that is not contractually required. The Company accounts for its limited partner interests in accordance with the accounting guidance for investments in affordable housing projects.

The following table set forth the total assets and liabilities, and sources of maximum exposure of non-consolidated VIEs, including significant variable interests as well as sponsored entities with a variable interest (amounts in thousands):

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Carrying		Carrying		Investment		Commitments		Loans
	Amount of		Amount of		in		and		and
As of December 31, 2011	Assets(1)		Liabilities(1)		Entity		Guarantees		Investments			Total
Real estate title company	$	8,901	$	—	$	8,901	$	—	$	—	$	$	8,901
Low income housing partnerships		88,600		—		88,600		—		—			88,600
New market partnerships		67,802		—		67,802		167		—			67,969
Total	$	165,303	$	—	$	165,303	$	167	$	—	$	$	165,470

⁽¹⁾  Amount represents the carrying value of the VIE’s assets and liabilities on the Company’s consolidated financial statements which are classified within Equity Method Investments on the Consolidated Balance Sheet.

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Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2011

Mortgage Servicing Rights [Abstract]

Mortgage Servicing Rights

Note 10 — Mortgage Servicing Rights

At December 31, 2011, 2010 and 2009, the Company serviced residential real estate loans for the benefit of others totaling $13.7 billion, $14.7 billion and $14.8 billion, respectively. The following table presents a summary of the activity of the asset established for the Company’s mortgage servicing rights for the years indicated (in thousands):

		September 30,			September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011			2010			2009
Gross balance, beginning of year	$	173,549		$	179,643		$	161,288
Residential mortgage servicing assets recognized		27,230			41,840			74,240
Amortization of residential mortgage servicing rights		(39,488	)		(47,934	)		(55,885	)
Gross balance, end of year		161,291			173,549			179,643
Valuation allowance		(70,040	)		(27,525	)		(52,089	)
Balance, end of year	$	91,251		$	146,024		$	127,554

See discussion of the Company’s accounting policy for mortgage servicing rights in Note 1. The Company had net gains on the sales of residential mortgage loans and mortgage backed securities that were related to loans originated or purchased and held by the Company of $22.9 million, $35.8 million and $71.3 million in 2011, 2010 and 2009, respectively.

The fair value of the residential mortgage servicing rights is estimated using a discounted cash flow model. This model estimates the present value of the future net cash flows from mortgage servicing activities based on various assumptions. These cash flows include servicing and ancillary revenue offset by the estimated costs of performing servicing activities. Significant assumptions in the valuation of residential mortgage servicing rights are anticipated loan prepayment rates (CPR), the anticipated earnings rate on escrow and similar balances held by the Company in the normal course of mortgage servicing activities and the discount rate reflective of a market participants required return on investment for similar assets. Increases in prepayment speeds, as well as discount rate result in lower valuations of mortgage servicing rights. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of mortgage servicing rights. For each of these items, the Company makes assumptions based on current market information and future expectations. All of the assumptions are based on standards that the Company believes would be utilized by market participants in valuing mortgage servicing rights and are derived and/or benchmarked against independent public sources. Additionally, an independent appraisal of the fair value of the Company’s residential mortgage servicing rights is obtained annually and is used by management to evaluate the reasonableness of the assumptions used in the Company’s discounted cash flow model.

Listed below are the most significant assumptions that were utilized by the Company in its evaluation of residential mortgage servicing rights for the periods presented.

		September 30,			September 30,			September 30,
	December 31, 2011			December 31, 2010			December 31, 2009
CPR speed		24.12	%		16.82	%		24.44	%
Escrow credit spread		1.10	%		2.41	%		3.17	%
Discount Rate		10.01	%		10.21	%		10.22	%

A 10% and 20% increase in the CPR speed would decrease the fair value of the residential servicing asset by $5.2 million and $10.3 million respectively at December 31, 2011. A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $1.9 million and $3.9 million, respectively at December 31, 2011. These sensitivity calculations are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a particular assumption on the fair value of the mortgage servicing rights is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another, which may either magnify or counteract the effect of the change.

A valuation allowance is established for the excess of the cost of each residential mortgage servicing asset stratum over its estimated fair value. Activity in the valuation allowance for residential mortgage servicing rights for the years indicated consisted of the following (in thousands):

		September 30,		September 30,			September 30,
	YEAR ENDED DECEMBER 31,
	2011		2010			2009
Balance, beginning of year	$	27,525	$	52,089		$	48,815
Net change in valuation allowance for mortgage servicing rights		42,515		(24,564	)		3,274
Balance, end of year	$	70,040	$	27,525		$	52,089

The Company originates and has previously sold multi-family loans in the secondary market to Fannie Mae while retaining servicing. At December 31, 2011 and 2010, the Company serviced $9.3 billion and $11.2 billion of loans for Fannie Mae, respectively, and as a result has recorded servicing assets of $0.4 million and $3.7 thousand, respectively. The Company recorded servicing asset amortization related to the multi-family loans sold to Fannie Mae of $4.3 million and $9.4 million for the year ended December 31, 2011 and 2010, respectively. The Company recorded multi-family servicing recoveries of $4.8 million and $0.1 million for the years ended December 31, 2011 and 2010, respectively.

Historically, the Company originated and sold multi-family loans in the secondary market to Fannie Mae while retaining servicing. In 2009, the Company stopped selling loans to Fannie Mae. Under the terms of the multi-family sales program with Fannie Mae, the Company retained a portion of the credit risk associated with such loans. As a result of this agreement with Fannie Mae, the Company retained a 100% first loss position on each multi-family loan sold to Fannie Mae under such program until the earlier to occur of (i) the aggregate approved losses on the multi-family loans sold to Fannie Mae reaching the maximum loss exposure for the portfolio as a whole ($167.4 million as of December 31, 2011 which includes $24 million in losses yet to be approved by Fannie Mae) or (ii) until all of the loans sold to Fannie Mae under this program are fully paid off.

The Company has established a liability which represents the fair value of the retained credit exposure. This liability represents the amount that the Company estimates that it would have to pay a third party to assume the retained recourse obligation. The estimated liability represents the present value of the estimated losses that the portfolio is projected to incur based upon internal specific information and an industry-based default curve with a range of estimated losses. At December 31, 2011 and 2010, SHUSA had $135.5 million and $171.7 million of reserves classified in other liabilities related to the fair value of the retained credit exposure for loans sold to Fannie Mae under this sales program.

Mortgage servicing fee income was $51.2 million, $54.4 million and $53.9 million in 2011, 2010 and 2009, respectively. The Company had gains/(losses) on the sale of mortgage loans, multi-family loans and home equity loans of $21.0 million for the twelve-month period ended December 31, 2011, $25.7 million for the twelve-month period ended December 31, 2010 and $(112.0) million for the twelve-month period ended December 31, 2009.

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Other Comprehensive Income/(Loss)

12 Months Ended

Dec. 31, 2011

Stockholders' Equity and Other Comprehensive Income/(Loss) [Abstract]

Other Comprehensive Income/(Loss)

Note 15 — Other Comprehensive Income/ (Loss)

The following table presents the components of comprehensive income/ (loss), net of related tax, for the years indicated (in thousands):

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Total Other Comprehensive Income									Total Accumulated Other Comprehensive Income
2011	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity			Ending Balance
Change in accumulated (losses)/gains on cash flow hedge derivative financial instruments (1)	$	(66,196	)	$	25,514		$	(40,682	)
Reclassification adjustment for net gains on cash flow hedge derivative financial instruments (1)		61,311			(23,373	)		37,938
SCUSA Transaction		31,703			(12,015	)		19,688
Net unrealized losses on cash flow hedge derivative financial instruments		26,818			(9,874	)		16,944		$	(124,940	)	$	16,944		$	(107,996	)
Change in unrealized gains/(losses) on investment securities available-for-sale		231,531			(88,091	)		143,440
Reclassification adjustment for net gains included in net income		74,597			(29,317	)		45,280
SCUSA Transaction		(13,212	)		5,020			(8,192	)
Net unrealized gains/(losses) on investment securities available-for-sale		292,916			(112,388	)		180,528			(92,775	)		180,528			87,753
Amortization of defined benefit plans		(16,473	)		6,473			(10,000	)		(16,475	)		(10,000	)		(26,475	)
Total as of December 31, 2011	$	303,261		$	(115,789	)	$	187,472		$	(234,190	)	$	187,472		$	(46,718	)

(1) Amounts exclude interest payments of $139 million and the corresponding tax effect related to cash flow hedges in 2011.

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Total Other Comprehensive Income									Total Accumulated Other Comprehensive Income
2010	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity			Ending Balance
Change in accumulated losses/(gains) on cash flow hedge derivative financial instruments	$	63,141		$	(20,779	)	$	42,362
Reclassification adjustment for net gains on cash flow hedge derivative financial instruments		(14,963	)		5,237			(9,726	)
Net unrealized losses on cash flow hedge derivative financial instruments		48,178			(15,542	)		32,636		$	(157,576	)	$	32,636		$	(124,940	)
Change in unrealized gains/(losses) on investment securities available-for-sale		(68,488	)		25,122			(43,366	)
Reclassification adjustment for net gains included in net income		200,556			(73,566	)		126,990
Net unrealized gains/(losses) on investment securities available-for-sale		132,068			(48,444	)		83,624			(176,399	)		83,624			(92,775	)
Amortization of defined benefit plans		(916	)		335			(581	)		(15,894	)		(581	)		(16,475	)
Total as of December 31, 2010	$	179,330		$	(63,651	)	$	115,679		$	(349,869	)	$	115,679		$	(234,190	)

(1) Amounts exclude interest payments of $242.4 million and the corresponding tax effect related to cash flow hedges in 2011.

		September 30,			September 30,			September 30,			September 30,			September 30,		September 30,
	Total Other Comprehensive Income									Total Accumulated Other Comprehensive Income
2009	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity		Ending Balance
Change in accumulated losses/(gains) on cash flow hedge derivative financial instruments	$	190,962		$	(68,964	)	$	121,998
Reclassification adjustment for net gains on cash flow hedge derivative financial instruments		(31,939	)		11,179			(20,760	)
Net unrealized losses on cash flow hedge derivative financial instruments		159,023			(57,785	)		101,238		$	(258,814	)	$	101,238	$	(157,576	)
Change in unrealized gains/(losses) on investment securities available-for-sale		928,639			(341,353	)		587,286
Cumulative effect of change in accounting principle		(249,668	)		91,774			(157,894	)
Reclassification adjustment for net gains included in net income		(157,847	)		58,022			(99,825	)
Net unrealized gains/(losses) on investment securities available-for-sale		521,124			(191,557	)		329,567			(505,966	)		329,567		(176,399	)
Amortization of defined benefit plans		7,444			(2,304	)		5,140			(21,034	)		5,140		(15,894	)
Total as of December 31, 2009	$	687,591		$	(251,646	)	$	435,945		$	(785,814	)	$	435,945	$	(349,869	)

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 20 — Stock-Based Compensation

Effective January 30, 2009, all stock compensation awarded to employees will be paid in Santander ADS. All shares vest within three years of the authorization date by the Banco Santander Board of Directors. If an employee terminates prior to the end of the vesting period, shares granted are forfeited. The weighted-average period over which the total compensation cost related to non-vested awards not yet recognized is expected to be recognized is approximately one year.

The table below summarizes the changes in the Bank’s non-vested restricted stock during the past year.

		September 30,			September 30,
	Shares			Weighted average grant  date fair value
Total non-vested restricted stock at December 31, 2010		829,410		$	13.48
Santander performance shares granted in 2011		845,593			11.99
Non-vested shares forfeited during 2011		(100,245	)		12.86
Total non-vested restricted stock at December 31, 2011		1,574,758		$	12.72

Pre-tax compensation expense associated with restricted shares totaled $4.8 million, $2.1 million and $46.8 million in 2011, 2010 and 2009, respectively. The weighted average grant date fair value of restricted stock granted in 2011, 2010 and 2009 was $11.99 per share, $13.48 per share and $3.04 per share, respectively. All unvested restricted stock vested on January 30, 2009 in connection with the acquisition of the Company by Santander which resulted in a higher level of expense in 2009 compared to prior periods.

The Bank had plans, which were shareholder approved, that granted restricted stock and stock options for a fixed number of shares to key officers, certain employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. The Bank’s stock options expired not more than 10 years and one month after the date of grant and generally become fully vested and exercisable within a five year period after the date of grant and, in certain limited cases, based on the attainment of specified targets. Restricted stock awards vest over a period of three to five years. All of the Bank’s stock option and restricted stock awards vested upon acquisition of the Company by Santander.

The Bank estimated the fair value of option grants using a Black-Scholes option pricing model and expenses this value over the vesting period. Reductions in compensation expense associated with forfeited options were estimated at the date of grant, and this estimated forfeiture rate was adjusted quarterly based on actual forfeiture experience.

The fair value for the stock option grants were estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

		September 30,
	GRANT DATE YEAR
	2009
Expected volatility		.492
Expected life in years		6.00
Stock price on date of grant	$	3.04
Exercise price	$	3.04
Weighted average exercise price	$	3.04
Weighted average fair value	$	3.04
Expected dividend yield		N/A
Risk-free interest rate		2.32	%
Vesting period in years		3

Expected volatility is based on the historical volatility of the Company’s stock price. The Bank utilizes historical data to predict options’ expected lives. The risk-free interest rate is based on the yield on a U.S. treasury bond with a similar maturity of the expected life of the option.

In connection with the acquisition of the Company by Santander on January 30, 2009, all unvested stock options vested but were not exercised given the Company’s stock price was lower than the options’ exercise price at the acquisition date.

The following table provides a summary of SHUSA’s stock option activity for the year ended December 31, 2009 and stock options exercisable at the end of each year:

		September 30,			September 30,
	Shares			Price per share
Options outstanding December 31, 2008 (6,468,629 exercisable)		8,980,483		$	2.95 – 25.77
Granted		1,000,000		$	3.04 – 3.04
Forfeited		(9,978,848	)	$	2.95 – 25.77
Expired		(1,635	)	$	12.48 – 22.32
Options outstanding December 31, 2009		—			n/a

The weighted average grant date fair value of options granted during the year ended December 31, 2009 was $3.04. There were no options exercised during the year ended December 31, 2009. In connection with the transaction with Santander on January 30, 2009, any option holders whose awards had intrinsic value on January 30 ^th would have received cash proceeds equal to their intrinsic value. However, the Company’s stock price on the transaction date was $2.47, and as such, none of the awards had any intrinsic value and all expired unexercised.

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011		Dec. 31, 2010	Dec. 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 1,258,246		$ 1,059,375	$ 161,565
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	1,319,951		1,627,026	1,984,537
Deferred taxes	497,346		(369,427)	(1,462,852)
Depreciation and amortization	208,055		320,713	246,861
Net amortization/accretion of investment securities and loan premiums and discounts	82,964		(189,029)	(311,201)
Net gain on sale of loans	(22,911)		(39,983)	(76,765)
Net gain on sale of investment securities	(74,922)		(205,319)	(22,349)
OTTI recognized in earnings	325		4,763	180,196
Loss on debt extinguishment	38,695		25,758	68,733
Net loss on real estate owned and premises and equipment	13,788		13,502	37,844
Stock-based compensation	4,054		2,164	47,534
Remittance to Santander for stock-based compensation	(4,333)		(1,800)
Origination of loans held for sale, net of repayments	(1,587,753)		(1,696,782)	(5,971,514)
Proceeds from sales of loans held for sale	1,410,387		1,701,534	6,236,879
Gain recognized due to SCUSA Transaction	(987,650)
Net change in:
Accrued interest receivable	(16,937)		11,902	10,951
Other assets and bank owned life insurance	(24,131)		505,094	442,864
Other liabilities	97,379		(20,226)	(320,619)
Net cash provided by operating activities	2,212,553		2,749,265	1,250,515
Adjustments to reconcile net cash used in investing activities:
Proceeds from sales of available-for-sale investment securities	6,892,337		5,075,900	2,673,370
Proceeds from prepayments and maturities of available-for-sale investment securities	3,179,391		4,244,740	8,248,589
Purchases of available-for-sale investment securities	(11,344,659)		(7,030,167)	(14,653,872)
Net change in other investments	58,871		77,999	26,531
Net change in restricted cash	47,011		(41,678)
Proceeds from sales of loans held for investment	8,467		7,941	55,269
Purchase of loans held for investment	(2,840,465)		(8,458,298)	(2,765,449)
Net change in loans other than purchases and sales	(3,670,677)		(727,365)	8,173,134
Purchase of other assets from third party			(121,715)
Proceeds from sales of real estate owned and premises and equipment	159,943		55,448	61,626
Purchases of premises and equipment	(194,502)		(196,775)	(37,716)
SCUSA Transaction (1)	(64,409)	[1]
Net cash paid from acquisitions				(193,386)
Net cash (used in) / provided by investing activities	(7,768,692)		(7,113,970)	1,588,096
Adjustments to reconcile net cash provided by financing activities:
Net change in deposits and other customer accounts	5,124,222		(1,754,772)	(4,010,508)
Net change in borrowings	371,611		93,980	(2,915,106)
Net proceeds from senior notes, subordinated notes and credit facility	17,359,371		11,852,208	4,376,726
Repayments of borrowings and other debt obligations	(16,339,117)		(7,196,186)	(3,500,576)
Net change in advance payments by borrowers for taxes and insurance	46,272		16,680	(5,780)
Cash dividends paid to preferred stockholders	(14,600)		(14,600)	(14,600)
Cash dividends paid to noncontrolling interest	(73,552)
Proceeds from the issuance of common stock			750,000	1,800,000
Net cash provided by/(used in) financing activities	6,474,207		3,747,310	(4,269,844)
NET CHANGE IN CASH AND CASH EQUIVALENTS	918,068		(617,395)	(1,431,233)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,705,895		2,323,290	3,754,523
CASH AND CASH EQUIVALENTS, END OF PERIOD	2,623,963		1,705,895	2,323,290
SUPPLEMENTAL DISCLOSURE
Net income taxes paid	621,438		528,151	350,910
Interest paid	1,312,403		1,389,937	1,790,303
SCUSA Transaction--expenses paid by Santander on behalf of SHUSA	11,000
NON-CASH TRANSACTIONS
Consolidation of dealer floor plan securitization due to early amortization event				(855,000)
Assumption of securitized debt				855,000
Foreclosed real estate	122,912		134,830	79,730
Other repossessed assets	1,745,984		1,486,457	1,212,676
Receipt of available for sale mortgage-backed securities in exchange for mortgage loans held for investment	814,193		1,796,925
Consolidation of commercial mortgage-backed securitization portfolio			(860,486)
Sale of previously consolidated commercial mortgage backed securitization portfolio			860,486
Dividends declared	$ 800,000		$ 784,000

[1] Represents the cash paid as part of the SCUSA Transaction and the deconsolidation of SCUSA's cash also related to the SCUSA Transaction. See discussion on the SCUSA Transaction in Note 3 to the Consolidated Financial Statements.

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Restrictions on Cash and Amounts Due From Depository Institutions

12 Months Ended

Dec. 31, 2011

Restrictions on Cash and Amounts Due From Depository Institutions and Loans [Abstract]

Restrictions on Cash and Amounts Due From Depository Institutions

Note 4 — Restrictions on Cash and Amounts Due From Depository Institutions

The Bank is required to maintain certain average reserve balances as established by the Federal Reserve Board. The amounts of those reserve balances at December 31, 2011 and 2010 were $214.8 million and $152.9 million, respectively.

As of December 31, 2011 and 2010, the Company had $36.7 million and $583.6 million of restricted cash. Restricted cash at December 31, 2011 primarily related to cash restricted for investment purposes. Restricted cash at December 31, 2010 was primarily related to SCUSA securitization transactions and lockbox collections and cash restricted for investment purposes. Excess cash flows generated by the securitization trusts are added to restricted cash, creating additional over-collateralization until the contractual securitization requirement has been reached. Once the targeted reserve requirement is satisfied, additional excess cash flows generated by the Trusts are released to SCUSA as distributions from the trusts. Lockbox collections are added to restricted cash and released when transferred to the appropriate warehouse line of credit or trust. Certain cash is restricted for investment only and is not available for normal operational purposes.

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2011

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 21 — Employee Benefit Plans

Substantially, all employees of the Bank are eligible to participate in the 401(k) portion of the Retirement Plan following their completion of 30 days of service. There is no age requirement to join the 401(k) portion of the Retirement Plan. The Bank recognized expense for contributions to the 401(k) portion of the Retirement Plan of $12.6 million, $6.6 million and $5.7 million during 2011, 2010, and 2009, respectively. From June 2009 to June 2010, the Bank ceased matching employee contributions. In July 2010, the Bank resumed matching 100% of employee contributions up to 3% of their compensation and then 50% of employee contributions between 3% and 5%. The Company match is immediately vested and is allocated to the employee’s various 401(k) investment options in the same percentages of the employee’s own contributions.

SCUSA sponsors a defined contribution plan offered to qualifying employees. Employees participating in the plan may contribute up to 15% of their base salary, subject to federal limitations on absolute amounts contributed. SCUSA will match up to 6% of their base salary, with matching contributions of 100% of employee contributions. The total amount contributed by SCUSA in 2011 and 2010 was $3.9 million and $3.0 million, respectively.

The Company sponsors a supplemental executive retirement plan (“SERP”) for certain retired executives of SHUSA. The Company’s benefit obligation related to its SERP plan was $64.5 million and $51.0 million at December 31, 2011 and 2010, respectively. The primary reason for the increase in the SERP obligations from the prior year is due to market decreases in the investments underlying certain plans in 2011.

The Company’s benefit obligation related to its post-employment plans was $5.9 million and $4.6 million at December 31, 2011 and 2010, respectively. The SERP and the post-employment plans are unfunded plans and are reflected as liabilities on the Consolidated Balance Sheet.

The Company also acquired a pension plan from its acquisition of Independence (“the plan”). The plan is closed to new entrants. Effective July 1, 2007, the plan was frozen. Upon the plan being frozen, all participants became fully vested in their normal retirement benefits and ceased accruing benefits under the plan. Additionally, disability benefits were eliminated for disabilities occurring after the freeze date. Service cost includes administrative expenses of the plan which are paid from plan assets. The Company does not expect any plan assets to be returned in 2012. The Company expects to make contributions of $7.1 million to the plan in 2012.

The following tables summarizes the benefit obligation, change in plan assets and components of net periodic pension expense for the plan as of December 31, 2011 and 2010 (in thousands):

		September 30,			September 30,
	Year ended December 31,
	2011			2010
Change in benefit obligation:
Benefit obligation at beginning of year	$	87,377		$	82,207
Service cost		289			291
Interest cost		4,467			4,568
Actuarial gain		12,417			5,115
Annuity payments		(5,139	)		(4,804	)
Projected benefit obligation at year end	$	99,411		$	87,377
Change in plan assets:
Fair value at beginning of year	$	65,975		$	65,525
Actual return on plan assets		805			5,254
Annuity payments		(5,139	)		(4,804	)
Fair value at year end	$	61,641		$	65,975
Components of net periodic pension expense:
Service cost	$	289		$	291
Interest cost		4,467			4,568
Expected Return on plan assets		(4,439	)		(4,411	)
Amortization of unrecognized actuarial loss		2,583			2,113
Net periodic pension expense	$	2,900		$	2,561

The funded status of the plans was $(37.8) million and $(21.4) million at December 31, 2011 and 2010, respectively, which was recorded within Other Liabilities. The accumulated benefit obligation was $99.4 million and $87.4 million at December 31, 2011 and 2010, respectively.

Pension plan assets are required to be reported and disclosed at fair value in the financial statements. See Note 1 for discussion on the Company’s fair value policy. The assets are comprised of equity mutual funds, fixed income mutual funds and money market funds. The shares of the underlying mutual funds are fair valued using quoted market prices in an active market and therefore all of the assets are considered Level 1 within the fair value hierarchy as of December 31, 2011 and 2010. There have been no changes in the valuation methodologies used at December 31, 2011 and 2010.

Specific investments are made in accordance with the plan’s investment policy. The investment policy of the plan is to maintain full funding without creating an undue risk of increasing any unfunded liability. A secondary investment objective is, where possible, to reduce the contribution rate in future years. The plan’s allocation of assets is subject to periodic adjustment and rebalancing depending upon market conditions. In accordance with the Plan’s investment policy, the Plan’s assets were invested in the following allocation as of the end of the Plan year: 34% equity mutual funds, 32% fixed income mutual funds and 34% money market funds.

The assumptions utilized to calculate the projected benefit obligation and net periodic pension expense at December 31, 2011 and 2010 were:

		September 30,			September 30,
	2011			2010
Discount rate		4.25	%		5.25	%
Expected long-term return on plan assets		7.00	%		7.00	%
Salary increase rate		0.00	%		0.00	%

The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the project benefit obligation. The selected rate considers the historical and expected future investment trends of the present and expected assets in the plan.

The following table sets forth the expected benefit payments to be paid in future years:

		September 30,
2012	$	4,748,210
2013		4,800,215
2014		5,071,818
2015		5,134,741
2016		5,212,705
2017 to 2021		27,668,137
Total	$	52,635,826

Included in accumulated other comprehensive income at December 31, 2011 and 2010 are unrecognized actuarial losses of $26.5 million and $16.5 million that had not yet been recognized in net periodic pension cost. The actuarial loss included in accumulated other comprehensive income and expected to be recognized in net periodic pension cost during the fiscal year-ended December 31, 2012 is $2.3 million.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity and Other Comprehensive Income/(Loss) [Abstract]

Stockholders' Equity

Note 14 — Stockholder’s Equity

In March 2010, the Company issued 3.0 million shares of common stock to Santander which raised proceeds of $750.0 million.

In December 2010, the Company issued 3.0 million shares of common stock to Santander which raised proceeds of $750.0 million and declared a $750.0 million dividend to Santander during December 2010. This was a non-cash transaction.

In December 2011, the Company issued 3.2 million shares of common stock to Santander, which raised proceeds of $800.0 million, and declared an $800.0 million dividend to Santander. This was a non-cash transaction.

Following the acquisition of SHUSA by Santander, Santander contributed $3.3 billion to SHUSA through December 31, 2010, and Sovereign Bank’s capital has been increased by capital contributions from SHUSA of $3.7 billion through December 31, 2010.

Retained earnings at December 31, 2011 included $112.1 million in bad debt reserves, for which no deferred taxes have been provided due to the indefinite nature of the recapture provisions.

In March 2009, the Company issued to Santander, parent company of SHUSA, 72,000 shares of the Company’s Series D Non-Cumulative Perpetual Convertible Preferred Stock, without par value (the “Series D Preferred Stock”), having a liquidation amount per share equal to $25,000, for a total price of $1.8 billion. The Series D Preferred Stock pays non-cumulative dividends at a rate of 10% per year. SHUSA may not redeem the Series D Preferred Stock during the first five years. The Series D Preferred Stock is generally non-voting. Each share of Series D Preferred Stock is convertible into 100 shares of common stock, without par value, of SHUSA. SHUSA contributed the proceeds from this offering to the Bank in order to increase the Bank’s regulatory capital ratios. On July 20, 2009, Santander converted all of its investment in the Series D preferred stock of $1.8 billion into 7.2 million shares of SHUSA common stock.

On May 15, 2006, the Company issued 8,000 shares of Series C non-cumulative perpetual preferred stock and received net proceeds of $195.4 million. The perpetual preferred stock ranks senior to the common stock. The perpetual preferred stockholders are entitled to receive dividends when and if declared by the board of directors at the rate of 7.30% per annum, payable quarterly, before the board may declare or pay any dividend on the common stock. The dividends on the perpetual preferred stock are non-cumulative. The Series C preferred stock was not redeemable prior to May 15, 2011. On or after May 15, 2011, the Series C preferred stock is redeemable at par.

The Company’s debt agreements impose certain limitations on dividends, other payments and transactions. The Company is currently in compliance with these limitations.

At December 31, 2011, capital contribution from Santander includes $11.0 million of expenses paid by Santander on behalf of the Company in regards to the SCUSA Transaction. See Note 3 for further information related to this transaction.

In December 2011, the Capital Trust IV PIERS warrants were cancelled by SHUSA as a result of the Trust PIERS litigation decision. This balance was transferred from warrants to additional paid-in-capital in stockholder’s equity. See Note 22 for further discussion of the litigation.