UNITED STATES OF AMERICA SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File: 001-15849

SANTANDER BANCORP

(Exact name of Corporation as specified in its charter)

Commonwealth of Puerto Rico		66-0573723
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
B7 Tabonuco Street, 18th Floor, San Patricio, Guaynabo, Puerto Rico		00968-3028
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:
(787) 777-4100

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 þ No o

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 o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o Noþ

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock as of the last practicable date.

Title of each class		Outstanding as of March 31, 2010
Common Stock, $2.50 par value		46,639,104

 

 

SANTANDER BANCORP

CONTENTS

		Page No.
Part I: Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets		1
Condensed Consolidated Statements of Operations		2
Condensed Consolidated Statements of Changes in Stockholders’ Equity		3
Condensed Consolidated Statements of Comprehensive Income (Loss)		4
Condensed Consolidated Statements of Cash Flows		5
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		46
Item 3. Quantitative and Qualitative Disclosures About Market Risk		68
Item 4. Controls and Procedures		79
Part II: Other Information
Item 1. Legal Proceedings		80
Item 1A. Risk Factors		80
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		80
Item 3. Defaults Upon Senior Securities		80
Item 4. Submission of Matters to a Vote of Security Holders		80
Item 5. Other Information		80
Item 6. Exhibits		81
Signatures		82
EX-12 Computation of Ratio of Earnings to Fixed Charges
EX-31.1 Section 302, Certification of the CEO
EX-31.2 Section 302, Certifiation of the CAO
EX-32.1 Section 906, Certification of the CEO and CAO

Forward-Looking Statements. When used in this Form 10-Q or future filings by Santander BanCorp (the “Corporation”) with the Securities and Exchange Commission, in the Corporation’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the word or phrases “would be”, “will allow”, “intends to”, “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project”, “believe”, or similar expressions are intended to identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

     The future results of the Corporation could be affected by subsequent events and could differ materially from those expressed in forward-looking statements. If future events and actual performance differ from the Corporation’s assumptions, the actual results could vary significantly from the performance projected in the forward-looking statements.

     The Corporation wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities, competitive and regulatory factors and legislative changes, could affect the Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from those anticipated or projected. The Corporation does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

PART I – ITEM 1

FINANCIAL STATEMENTS (UNAUDITED)

SANTANDER BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF MARCH 31, 2010 AND DECEMBER 31, 2009
(Dollars in thousands, except share data)

		March 31,				December 31,
		2010				2009
ASSETS
Cash and Cash Equivalents:
Cash and due from banks		$	372,869			$	296,425
Interest-bearing deposits			10,517				10,467
Federal funds sold			18,978				22,146
Total cash and cash equivalents			402,364				329,038
Interest-Bearing Deposits			1,750				1,909
Trading Securities, at fair value:			36,912				47,739
Investment Securities Available for Sale, at fair value:			417,306				417,608
Other Investment Securities, at amortized cost			51,381				55,431
Loans Held for Sale, net			25,351				26,726
Loans, net			5,160,038				5,246,444
Accrued Interest Receivable			37,544				32,651
Premises and Equipment, net			19,001				20,179
Real Estate Held for Sale			2,818				2,818
Goodwill			121,482				121,482
Intangible Assets			28,579				28,948
Other Assets			553,151				435,463
		$	6,857,677			$	6,766,436
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non interest-bearing		$	855,669			$	698,769
Interest-bearing, including $12.5 million at fair value in December 31, 2009			3,625,590				3,696,791
Total deposits			4,481,259				4,395,560
Federal Funds Purchased and Other Borrowings			55,000				50,000
Commercial Paper Issued			129,962				67,482
Federal Home Loan Bank Advances			970,000				1,060,000
Term Notes			15,913				20,581
Subordinated Capital Notes, including $124.2 million and $120.6 million at fair value in 2010 and 2009, respectively			312,325				308,691
Accrued Interest Payable			15,779				14,015
Other Liabilities			258,420				254,210
Total liabilities			6,238,658				6,170,539
Contingencies and Commitments (Notes 12, 13 and 16)
STOCKHOLDERS’ EQUITY:
Series A Preferred stock, $25 par value; 10,000,000 shares authorized, none issued and outstanding			—				—
Common stock, $2.50 par value; 200,000,000 shares authorized, 50,650,364 shares issued; 46,639,104 shares outstanding			126,626				126,626
Capital paid in excess of par value			318,634				318,263
Treasury stock at cost, 4,011,260 shares			(67,552	)			(67,552	)
Accumulated other comprehensive loss, net of taxes			(19,374	)			(20,695	)
Retained earnings:
Reserve fund			141,833				141,833
Undivided profits			118,852				97,422
Total stockholders’ equity			619,019				595,897
		$	6,857,677			$	6,766,436

The accompanying notes are an integral part of these condensed consolidated financial statements

SANTANDER BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Dollars in thousands, except per share data)

		For the three months ended
		March 31,				March 31,
		2010				2009
Interest Income:
Loans		$	109,687			$	119,527
Investment securities			3,778				8,944
Interest-bearing deposits			109				189
Federal funds sold			8				15
Total interest income			113,582				128,675
Interest Expense:
Deposits			8,653				27,788
Securities sold under agreements to repurchase and other borrowings			6,708				12,522
Subordinated capital notes			3,460				3,972
Total interest expense			18,821				44,282
Net interest income			94,761				84,393
Provision for Loan Losses			30,093				41,100
Net interest income after provision for loan losses			64,668				43,293
Other Income (Loss):
Bank service charges, fees and other			9,439				10,358
Broker-dealer, asset management and insurance fees			13,591				12,965
Gain on sale of securities available for sale			—				9,251
Gain on sale of loans			39				2,246
Other income (loss)			6,302				(9,452	)
Total other income			29,371				25,368
Other Operating Expenses:
Salaries and employee benefits			25,847				26,855
Occupancy costs			6,365				6,257
Equipment expenses			877				1,083
EDP servicing, amortization and technical assistance			9,847				10,254
Communication expenses			2,169				2,447
Business promotion			1,205				767
Other taxes			3,287				3,357
Other operating expenses			13,210				18,357
Total other operating expenses			62,807				69,377
Income (loss) before provision (benefit) income tax			31,232				(716	)
Provision (Benefit) for Income Tax			9,802				(685	)
Net Income (Loss) Available to Common Shareholders		$	21,430			$	(31	)
Basic and Diluted Earnings per Common Share		$	0.46			$	(0.00	)

The accompanying notes are an integral part of these condensed consolidated financial statements

SANTANDER BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND YEAR ENDED DECEMBER 31, 2009
(Dollars in thousands)

		For the three months ended				Year ended
		March 31, 2010				December 31, 2009
Common Stock:
Balance at beginning of period		$	126,626			$	126,626
Balance at end of period			126,626				126,626
Capital Paid in Excess of Par Value:
Balance at beginning of period			318,263				317,141
Share based compensation sponsored by the ultimate parent			371				2,406
Payments to ultimate parent for long-term incentive plan			—				(1,284	)
Balance at end of period			318,634				318,263
Treasury Stock at cost:
Balance at beginning of period			(67,552	)			(67,552	)
Balance at end of period			(67,552	)			(67,552	)
Accumulated Other Comprehensive Loss, net of tax:
Balance at beginning of period			(20,695	)			(22,563	)
Unrealized net gain (loss) on investment securities available for sale, net of tax			579				(3,130	)
Minimum pension benefit (liability), net of tax			742				4,998
Balance at end of the period			(19,374	)			(20,695	)
Reserve Fund:
Balance at beginning of period			141,833				139,250
Transfer from undivided profits			—				2,583
Balance at end of the period			141,833				141,833
Undivided Profits:
Balance at beginning of period			97,422				58,734
Net income			21,430				41,275
Transfer to reserve fund			—				(2,583	)
Deferred tax benefit amortization			—				(4	)
Balance at end of the period			118,852				97,422
Total stockholders’ equity		$	619,019			$	595,897

The accompanying notes are an integral part of these condensed consolidated financial statements

SANTANDER BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Dollars in thousands)

		For the three months ended
		March. 31,				March. 31,
		2010				2009
Comprehensive income (loss)
Net income (loss)		$	21,430			$	(31	)
Other comprehensive income (loss), net of tax:
Unrealized holding gain (losses) on investment securities available for sale, net of tax			579				(60	)
Reclassification adjustment for gains on investment securities available for sale included in net operations, net of tax			—				(4,612	)
Unrealized net gain (loss) on investment securities available for sale, net of tax			579				(4,672	)
Minimum pension benefit (liability), net of tax			742				(1,950	)
Total other comprehensive income (loss), net of tax			1,321				(6,622	)
Comprehensive income (loss)		$	22,751			$	(6,653	)

The accompanying notes are an integral part of these condensed consolidated financial statements

SANTANDER BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Dollars in thousands)

		For the three months ended
		March 31,				March 31,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	21,430			$	(31	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			2,737				3,216
Deferred tax provision (benefit)			686				(4,603	)
Provision for loan losses			30,093				41,100
Gain on sale of securities available for sale			—				(9,251	)
Gain on sale of loans			(39	)			(2,246	)
Loss on financial instruments measured at fair value			2,862				3,928
Gain on sale of trading securities			(939	)			(403	)
Net premium amortization on securities			31				309
Net premium amortization on loans			83				144
Accretion of debt discount			155				158
Share based compensation sponsored by the ultimate parent			371				483
Purchases and originations of loans held for sale			(31,290	)			(56,598	)
Proceeds from sales of loans			2,267				111,834
Repayments of loans held for sale			1,331				734
Proceeds from sales of trading securities			473,956				226,772
Purchases of trading securities			(442,735	)			(174,684	)
(Increase) decrease in accrued interest receivable			(4,893	)			4,052
(Increase) decrease in other assets			(108,516	)			27,636
Increase in accrued interest payable			1,764				6,326
Increase (decrease) in other liabilities			794				(2,033	)
Total adjustments			(71,282	)			176,874
Net cash (used in) provided by operating activities			(49,852	)			176,843
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase (decrease) in interest-bearing deposits			159				(1,163	)
Proceeds from sales of investment securities available for sale			—				450,258
Proceeds from maturities of investment securities available for sale			100,000				137,000
Purchases of investment securities available for sale			(99,851	)			(129,339	)
Proceeds from maturities of other investment securities			18,225				11,700
Purchases of other investments			(14,175	)			(2,025	)
Repayment of securities and securities called			605				23,850
Net decrease in loans			60,026				181,350
Purchases of premises and equipment			(175	)			(360	)
Net cash provided by investing activities			64,814				671,271

(Continued)

The accompanying notes are an integral part of these condensed consolidated financial statements

SANTANDER BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Dollars in thousands)

		For the three months ended
		March 31,				March 31,
		2010				2009
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits			85,699				84,779
Net decrease in federal funds purchased and other borrowings			(85,000	)			(216,150	)
Net decrease in securities sold under agreements to repurchase			—				(375,000	)
Net increase (decrease) in commercial paper issued			62,480				(16,901	)
Net decrease in term notes			(4,815	)			—
Net cash provided by (used in) financing activities			58,364				(523,272	)
NET CHANGE IN CASH AND CASH EQUIVALENTS			73,326				324,842
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			329,038				283,158
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	402,364			$	608,000

Concluded

Supplemental Disclosures of Cash Flow Information:

		For the three months ended
		March 31,				March 31,
		2010				2009
		(Dollars in thousands)
Cash paid during the period for:
Interest		$	16,900			$	37,457
Income taxes		$	25			$	4,268
Noncash transactions:
Minimum pension benefit		$	742			$	1,950
Loan securitizations		$	19,454			$	34,057
Assets received in full satisfaction of loans		$	5,855			$	6,699

The accompanying notes are an integral part of these condensed consolidated financial statements

SANTANDER BANCORP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2010 AND 2009

1. Summary of Significant Accounting Policies and other matters:

     The accounting and reporting policies of Santander BanCorp (the “Corporation”), a 91% owned subsidiary of Banco Santander, S.A. (“Santander Group”) conform with accounting principles generally accepted in the United States of America (hereinafter referred to as “generally accepted accounting principles” or “GAAP”) and with general practices within the financial services industry. The unaudited quarterly condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. The results of the operations and cash flows for the three month periods ended March 31, 2010 and 2009 are not necessarily indicative of the results to be expected for the full year.

     These statements should be read in conjunction with the consolidated financial statements included in the Corporation’s Form 10-K for the year ended December 31, 2009. The accounting policies used in preparing these condensed consolidated financial statements are substantially the same as those described in Note 1 to the 2009 consolidated financial statements in the Corporation’s Form 10-K.

Following is a summary of the Corporation’s most significant policies:

Nature of Operations and Use of Estimates

     The Corporation is a financial holding company offering a full range of financial services (including mortgage banking) through its wholly owned banking subsidiary Banco Santander Puerto Rico and subsidiary (the “Bank”). The Corporation also engages in broker-dealer, asset management, consumer finance, international banking, insurance agency services through its subsidiaries, Santander Securities Corporation, Santander Asset Management Corporation, Santander Financial Services, Inc. (“Island Finance”), Santander International Bank, Santander Insurance Agency and Island Insurance Corporation (currently inactive), respectively.

     The Corporation is subject to the Federal Bank Holding Company Act and to the regulations, supervision, and examination of the Federal Reserve Board.

     In preparing the condensed consolidated financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, impairment of goodwill and other intangibles, income taxes, and the valuation of foreclosed real estate, deferred tax assets and financial instruments.

Principles of Consolidation

     The condensed consolidated financial statements include the accounts of the Corporation, the Bank and the Bank’s wholly owned subsidiary, Santander International Bank; Santander Securities Corporation and its wholly owned subsidiary, Santander Asset Management Corporation; Santander Financial Services, Inc., Santander Insurance Agency and Island Insurance Corporation. All intercompany balances and transactions have been eliminated in consolidation.

Securities Purchased/Sold under Agreements to Resell/Repurchase

     Repurchase and resell agreements are treated as collateralized financing transactions and are carried at the amounts at which the assets will be reacquired or resold at the contractual maturity. The settlement of these agreements prior to maturity may be subject to early termination penalties.

     The counterparties to securities purchased under resell agreements maintain effective control over such securities and accordingly, those securities are not reflected in the Corporation’s consolidated balance sheets. The Corporation monitors the market value of the underlying securities as compared to the related receivable, including accrued interest, and requests additional collateral where deemed appropriate.

     The Corporation maintains effective control over assets sold under agreements to repurchase; accordingly, such securities continue to be carried on the consolidated balance sheets.

Investment Securities

Investment securities are classified in four categories and accounted for as follows:

	•		Debt securities that the Corporation has the intent and ability to hold to maturity are classified as securities held to maturity and reported at cost adjusted for premium amortization and discount accretion. The Corporation may not sell or transfer held to maturity securities without calling into question its intent to hold securities to maturity, unless a nonrecurring or unusual event that could not have been reasonably anticipated has occurred.
	•		Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value with unrealized gains and losses included in the consolidated statements of operations as part of other income. Financial instruments including, to a limited extent, derivatives, such as option contracts, are used by the Corporation in dealing and other trading activities and are carried at fair value. Interest revenue and expense arising from trading instruments are included in the consolidated statements of operations as part of net interest income.
	•		Debt and equity securities not classified as either securities held to maturity or trading securities, and which have a readily available fair value, are classified as securities available for sale and reported at fair value, with unrealized gains and losses reported, net of tax, in accumulated other comprehensive income (loss). The specific identification method is used to determine realized gains and losses on sales of securities available for sale, which are included in gain (loss) on sale of investment securities in the consolidated statements of operations.
	•		Investments in debt, equity or other securities, that do not have readily determinable fair values, are classified as other investment securities in the consolidated balance sheets. These securities are stated at cost. Stock that is owned by the Corporation to comply with regulatory requirements, such as Federal Home Loan Bank (FHLB) stock, is included in this category.

     The amortization of premiums is deducted and the accretion of discounts is added to net interest income based on a method which approximates the interest method, over the outstanding life of the related securities. The cost of securities sold is determined by specific identification. For securities available for sale, held to maturity and other investment securities, the Corporation reports separately in the consolidated statements of operations, net realized gains or losses on sales of investment securities and unrealized loss valuation adjustments considered other than temporary, if any.

Derivative Financial Instruments

     The Corporation uses derivative fi nancial instruments as part of its overall interest rate risk management strategy to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. All derivatives are recognized on the statement of condition at fair value.

     The Corporation’s policy is not to offset the fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement nor to offset the fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from the same master netting arrangement as the derivative instruments.

     When the Corporation enters into a derivative contract, the derivative instrument is designated as either a fair value hedge, cash fl ow hedge or as a free-standing derivative instrument. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability or of an unrecognized fi rm commitment attributable to the hedged risk are recorded in current period earnings. For a cash fl ow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded net of taxes in accumulated other comprehensive income and subsequently reclassified to net income (loss) in the same period(s) that the hedged transaction impacts earnings. The ineffective portion of cash flow hedges is inmediately recognized in current earnings. For free-standing derivative instruments, changes in the fair values are reported in current period earnings.

     Prior to entering a hedge transaction, the Corporation formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash fl ow hedges to specific assets and

liabilities on the statement of condition or to specific forecasted transactions or firm commitments along with a formal assessment, at both inception of the hedge and on an ongoing basis, as to the effectiveness of the derivative instrument in offsetting changes in fair values or cash fl ows of the hedged item. Hedge accounting is discontinued when the derivative instrument is not highly effective as a hedge, a derivative expires, is sold, terminated, when it is unlikely that a forecasted transaction will occur or when it is determined that is no longer appropriate. When hedge accounting is discontinued the derivative continues to be carried at fair value with changes in fair value included in earnings.

     For non-exchange traded contracts, fair value is based on dealer quotes, pricing models, discounted cash fl ow methodologies, or similar techniques for which the determination of fair value may require significant management judgment or estimation. The fair value of derivative instruments considers the risk of nonperformance by the counterparty or the Corporation, as applicable. The Corporation obtains or pledges collateral in connection with its derivative activities when applicable under the agreement.

     The Corporation hedges certain callable brokered certificates of deposits and subordinated capital notes by using interest rate swaps. In connection with the adoption of Financial Accounting Standard Codification (“FASB ASC”) Topic 825, the Corporation carries certain callable brokered certificates of deposits and subordinated capital notes at fair value with changes in fair value included in other income in the consolidated statements of operations. The cost of funding of the Corporation’s borrowings, as well as derivatives, continues to be included in interest expense and income, as applicable, in the consolidated statements of operations. See Notes 12 and 18 to the condensed consolidated financial statements for more information.

     In the case of a qualifying cash flow hedge, changes in the value of the derivative instruments that have been highly effective are recognized in other comprehensive income, until such time as those earnings are affected by the variability of the cash flows of the underlying hedged item. If the hedge relationship is terminated, the net derivative gain or loss related to the discontinued cash flow hedge should continue to be reported in accumulated other comprehensive income (loss) and would be reclassified into earnings when the cash flows that were hedged occur, or when the forecasted transaction affects earnings or is no longer expected to occur. In either a fair value hedge or a cash flow hedge, net earnings may be impacted to the extent the changes in the value of the derivative instruments do not perfectly offset changes in the value of the hedged items. If the derivative is not designated as a hedging instrument, the changes in fair value of the derivative are recorded in consolidated statements of operations.

     Certain contracts contain embedded derivatives. When the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, it is bifurcated, carried at fair value, and designated as a trading or non-hedging derivative instrument.

Loans Held for Sale

     Loans held for sale are recorded at the lower of cost or market computed on the aggregate portfolio basis. The amount, by which cost exceeds market value, if any, is accounted for as a valuation allowance with changes included in the determination of results of operations for the period in which the change occurs. The amount of loan origination cost and fees are deferred at origination of the loans and recognized as part of the gain and loss on sale of the loans in the consolidated statement of operations as part of other income.

Loans

     Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses, unearned finance charges and any deferred fees or costs on originated loans.

     Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and amortized using methods that approximate the interest method over the term of the loans as an adjustment to interest yield. Discounts and premiums on purchased loans are amortized to results of operations over the expected lives of the loans using a method that approximates the interest method.

     The accrual of interest on commercial loans, construction loans, lease financing and closed-end consumer loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, but in no event is it recognized after 90 days in arrears on payments of principal or interest. Interest on mortgage loans is not recognized after four months in arrears on payments of principal or interest. Income is generally recognized on open-end (revolving credit) consumer loans until the loans are charged off. When interest accrual is discontinued, unpaid interest is reversed on all closed-end portfolios. Interest income is subsequently recognized only to the extent that it is collected. The non accrual status is discontinued when loans are made current by the borrower.

     The Corporation leases vehicles and equipment to individual and corporate customers. The finance method of accounting is used to recognize revenue on lease contracts that meet the criteria specified in FASB ASC Topic 840, “Leases,” as amended. Aggregate rentals due over the term of the leases less unearned income are included in lease receivable, which is part of “Loans, net” in the consolidated balance sheets. Unearned income is amortized to results of operations over the lease term so as to yield a constant rate of return on the principal amounts outstanding. Lease origination fees and costs are deferred and amortized over the average life of the portfolio as an adjustment to yield.

     During 2009, the Corporation commenced to restructure residential real estate loans whose terms have been modified. These loans were identified as a Trouble Debt Restructuring (TDR’s), as stated on FASB ASC Topic 310, “Receivables”. This FASB ASC Topic states that a restructuring of a debt constitutes a TDR’s if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Once a loan is determined to be a TDR, then various effects must be considered, such as: identifying the loan as impaired, performing an impairment analysis, applying proper revenue recognition accounting, and reviewing its regulatory credit risk grading. Total restructured mortgage loans under this program amounted $114.6 million as of March 31, 2010 and $95.1 million as of December 31, 2009. Refer to the Allowance for Loan Losses section for further information.

Off-Balance Sheet Instruments

     In the ordinary course of business, the Corporation enters into off-balance sheet instruments consisting of commitments to extend credit, stand by letters of credit and financial guarantees. Such financial instruments are recorded in the consolidated financial statements when they are funded or when related fees are incurred or received. The Corporation periodically evaluates the credit risks inherent in these commitments, and establishes loss allowances for such risks if and when these are deemed necessary.

     The Corporation recognized as liabilities the fair value of the obligations undertaken in issuing the guarantees under the standby letters of credit issued or modified after December 31, 2002, net of the related amortization at inception. The fair value approximates the unamortized fees received from the customers for issuing the standby letters of credit. The fees are deferred and recognized on a straight-line basis over the commitment period. Standby letters of credit outstanding at March 31, 2010 had terms ranging from one month to three years.

     Fees received for providing loan commitments and letters of credit that result in loans are typically deferred and amortized to interest income over the life of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized to other income as banking fees and commissions over the commitment period when funding is not expected.

Allowance for Loan Losses

     The allowance for loan losses is a current estimate of the losses inherent in the present portfolio based on management’s ongoing quarterly evaluations of the loan portfolio. Estimates of losses inherent in the loan portfolio involve the exercise of judgment and the use of assumptions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses. Because of uncertainties inherent in the estimation process, management’s estimate of credit losses in the loan portfolio and the related allowance may change in the near term.

     The Corporation follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan losses. This methodology consists of several key elements.

     Larger commercial, construction loans and certain mortgage loans that exhibit potential or observed credit weaknesses are subject to individual review. Where appropriate, allowances are allocated to individual loans based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flow and legal options available to the Corporation.

     Included in the review of individual loans are those that are impaired as defined by GAAP. Any allowances for loans deemed impaired are measured based on the present value of expected future cash flows discounted at the loans’ effective interest rate or on the fair value of the underlying collateral if the loan is collateral dependent. Commercial business, commercial real estate, construction and mortgage loans exceeding a predetermined monetary threshold are individually evaluated for impairment. Other loans are evaluated in homogeneous groups and collectively evaluated for impairment. Loans that are

recorded at fair value or at the lower of cost or fair value are not evaluated for impairment. The Corporation requests updated appraisal reports for loans that are considered impaired, either annually or every two years depending on the total exposure of the borrower and the type of loan. As a general procedure, the Corporation internally reviews appraisals as part of the underwriting and approval process and also for credits considered impaired. Impaired loans for which the discounted cash flows, collateral value or fair value exceeds its carrying value do not require an allowance. The Corporation evaluates the collectibity of both principal and interest when assessing the need for loss accrual.

     Historical loss rates for commercial and consumer loans may also be adjusted for significant factors that, in management’s judgment, reflect the impact of any current condition on loss recognition. Factors which management considers in the analysis include the effect of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs, non-accrual and problem loans), changes in the internal lending policies and credit standards, collection practices, and examination results from bank regulatory agencies and the Corporation’s internal credit examiners.

     Allowances on individual loans and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions, actual collection, charge-off experience and other factor that, based on management judgment, reflect the impact of any current condition.

     The Corporation considers in its allowance for loan and lease losses, debt’s modification of terms that may be identified as TDRs, as stated on FASB ASC Topic 310. This FASB ASC Topic states that a restructuring of a debt constitutes a troubled debt restructuring if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. TDRs represent loans where concessions have been granted to borrowers experiencing financial difficulties that the creditor would not otherwise consider. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. These concessions stem from an agreement between the creditor and the debtor or are imposed by law or a court. Classification of loan modifications as TDRs involves a degree of judgment. Indicators that the debtor is experiencing financial difficulties include, for example: (i) the debtor is currently in default on any of its debt; (ii) the debtor has declared or is in the process of declaring bankruptcy; (iii) there is significant doubt as to whether the debtor will continue to be a going concern; (iv) currently, the debtor has securities that have been delisted, are in the process of being delisted, or are under threat of being delisted from an exchange; and (v) based on estimates and projections that only encompass the current business capabilities, the debtor forecasts that its entity-specific cash flows will be insufficient to service the debt (both interest and principal) in accordance with the contractual terms of the existing agreement through maturity; and absent the current modification, the debtor cannot obtain funds from sources other than the existing creditors at an effective interest rate equal to the current market interest rate for similar debt for a nontroubled debtor. The identification of TDRs is critical in the determination of the adequacy of the allowance for loan losses. Loans classified as TDRs are reported in non-accrual status if the loan was in non-accruing status at the time of the modification. The TDR loan should continue in non-accrual status until the borrower has demonstrated a willingness and ability to make the restructured loan payments (at least six months of sustained performance after classified as TDR). Loans classified as TDRs are excluded from TDR status if performance under the restructured terms exists for a reasonable period (at least twelve months of sustained performance after classified) and the loan yields a market rate. The Corporation identifies as TDRs and impaired, residential real estate loans whose terms have been modified under the conditions set forth in FASB ASC Topic 310, as mentioned previously. Although the accounting codification guidance for specific impairment of a loan excludes large groups of smaller balance homogeneous loans that are collectively evaluated for impairment (e.g., mortgage loans), it specifically requires that loan modifications considered TDR’s be analyzed under its provisions.

     For purposes of determining the impairment analysis to be applied on TDR’s, the Corporation stratifies these loans into performing loans and non-performing loans. Impairment measure in performing loans was based on the present value of future cash flows discounted at the loan’s original contractual rate. The impairment measure on non-performing loans is based on the fair value of the collateral net of dispositions cost. The Corporation had $114.6 million and $95.1 million of restructured residential mortgage loans with allowance for loan losses of $6.8 million and $6.1 million as of March 31, 2010 and December 31, 2009, respectively.

     An unallocated allowance is maintained to recognize the imprecision in estimating and measuring losses when estimating the allowance for individual loans or pools of loans.

Transfers and Servicing of Financial Assets and Extinguishments of Liabilities

     Transfers of financial assets are accounted for as sales, when control over the transferred assets is deemed to be surrendered: (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. The Corporation recognizes the financial assets and servicing assets it controls and the liabilities it has incurred. At the same time, it ceases to recognize financial assets when control has been surrendered and liabilities when they are extinguished.

Goodwill and Intangible Assets

     The Corporation accounts for goodwill in accordance with FASB ASC Topic 350, “Intangible-Goodwill and Others.” The reporting units are tested for impairment annually to determine whether their carrying value exceeds their fair market value. Should this be the case, the value of goodwill or indefinite-lived intangibles may be impaired and written down. Goodwill and other indefinite lived intangible assets are also tested for impairment on an interim basis if an event occurs or circumstances change between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount. If there is a determination that the fair value of the goodwill or other identifiable intangible asset is less than the carrying value, an impairment loss is recognized in an amount equal to the difference. Impairment losses, if any, are reflected in operating expenses in the consolidated statements of operations.

     In accordance with FASB ASC Topic 360 “Property, Plant and Equipment”, the Corporation reviews finite-lived intangible assets for impairment whenever an event occurs or circumstances change which indicates that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on the estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. If the fair value of the asset is determined to be less that the carrying value, an impairment loss is incurred in the amount equal to the difference. Impairment losses, if any, are reflected in operating expenses in the consolidated statements of operations.

     The Corporation uses judgment in assessing goodwill and intangible assets for impairment. Estimates of fair value are based on projections of revenues, operating costs and cash flows of each reporting unit considering historical and anticipated future results, general economic and market conditions as well as the impact of planned business or operational strategies. The valuations employ a combination of present value techniques to measure fair value and consider market factors. Generally, the Corporation engages third party specialists to assist with its valuations. Additionally, judgment is used in determining the useful lives of finite-lived intangible assets. Changes in judgments and projections could result in a significantly different estimate of the fair value of the reporting units and could result in an impairment of goodwill. Effective January 1, 2009, the Corporation adopted FASB ASC Topic 820-65, “Transition related to FASB Staff Position FAS 157-2, Effective date of FASB Statement No. 157” for fair value measurement of goodwill, intangible assets and non-recurring measurements. The adoption of this accounting standard for nonfinancial assets and nonfinancial liabilities did not have a material impact on the Corporation’s consolidated financial statements and disclosures.

     As a result of the purchase price allocations from prior acquisitions and the Corporation’s decentralized structure, goodwill is included in multiple reporting units. Due to certain factors such as the highly competitive environment, cyclical nature of the business in some of the reporting units, general economic and market conditions as well as planned business or operational strategies, among others, the profitability of the Corporation’s individual reporting units may periodically suffer from downturns in these factors. These factors may have a relatively more pronounced impact on the individual reporting units as compared to the Corporation as a whole and might adversely affect the fair value of the reporting units. If material adverse conditions occur that impact the Corporation’s reporting units, the Corporation’s reporting units, and the related goodwill would need to be written down to an amount considered recoverable.

Mortgage-servicing Rights

     Mortgage-servicing rights (“MSRs”) represent the cost of acquiring the contractual rights to service loans for others. On a quarterly basis the Corporation evaluates its MSRs for impairment and charges any such impairment to current period earnings. In order to evaluate its MSRs, the Corporation stratifies the related mortgage loans on the basis of their risk characteristics which have been determined to be: type of loan (government-guaranteed, conventional, conforming and non-conforming), interest rates and maturities. Impairment of MSRs is determined by estimating the fair value of each stratum and comparing it to its carrying value. No impairment loss was recognized for the three-month periods ended March 31, 2010 and 2009.

     MSRs are also subject to periodic amortization. The amortization of MSRs is based on the amount and timing of estimated cash flows to be recovered with respect to the MSRs over their expected lives. Amortization may be accelerated or decelerated to the extent that changes in interest rates or prepayment rates warrant.

Mortgage Banking

     Mortgage loan servicing includes collecting monthly mortgagor payments, forwarding payments and related accounting reports to investors, collecting escrow deposits for the payment of mortgagor property taxes and insurance, and paying taxes and insurance from escrow funds when due. No asset or liability is recorded by the Corporation for mortgages serviced, except for mortgage-servicing rights arising from the sale of mortgages, advances to investors and escrow advances.

     The Corporation recognizes as a separate asset the right to service mortgage loans for others whenever those servicing rights are acquired. The Corporation acquires MSRs by purchasing or originating loans and selling or securitizing those loans (with the servicing rights retained) and allocates the total cost of the mortgage loans sold to the MSRs (included in intangible assets in the accompanying condensed consolidated balance sheets) and the loans based on their relative fair values. Further, mortgage-servicing rights are assessed for impairment based on the fair value of those rights. MSRs are amortized over the estimated life of the related servicing income. Mortgage loan-servicing fees, which are based on a percentage of the principal balances of the mortgages serviced, are credited to income as mortgage payments are collected.

     Mortgage loans serviced for others are not included in the accompanying condensed consolidated balance sheets. At March 31, 2010 and December 31, 2009, the unpaid principal balances of mortgage loans serviced for others amounted to approximately $1,356,000,000 and $1,357,000,000, respectively. In connection with these mortgage-servicing activities, the Corporation administered escrow and other custodial funds which amounted to approximately $3,410,000 and $3,874,000 at March 31, 2010 and December 31, 2009, respectively.

Trust Services

     In connection with its trust activities, the Corporation administers and is custodian of assets amounting to approximately $125,000,000 and $131,000,000 at March 31, 2010 and December 31, 2009, respectively. Due to the nature of trust activities, these assets are not included in the Corporation’s consolidated balance sheets. The Corporation’s Trust Division is focusing its efforts on transfer and paying agent and Individual Retirement Account (IRA) services.

Broker-dealer and Asset Management Commissions

     Commissions of the Corporation’s broker-dealer operations are composed of brokerage commission income and expenses recorded on a trade date basis and proprietary securities transactions recorded on a trade date basis. Investment banking revenues include gains, losses and fees net of syndicate expenses, arising from securities offerings in which the Corporation acts as an underwriter or agent. Investment banking management fees are recorded on offering date, sales concessions on trade date, and underwriting fees at the time the underwriting is completed and the income is reasonably determinable. Revenues from portfolio and other management and advisory fees include fees and advisory charges resulting from the asset management of certain funds and are recognized over the period when services are rendered.

Insurance Commissions

     The Corporation’s insurance agency operation earns commissions on the sale of insurance policies issued by unaffiliated insurance companies. Commission revenue is reported net of the provision for commission returns on insurance policy cancellations and commission expense, which is based on management’s estimate of future insurance policy cancellations as a result of historical turnover rates by types of credit facilities subject to insurance.

Income Taxes

     The Corporation uses the asset and liability balance sheet method for the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Corporation’s financial statements or tax returns. Deferred income tax assets and liabilities are determined for differences between financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. The computation is based on enacted tax laws and rates applicable to periods in which the temporary differences are expected to be recovered or settled. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized.

          The Corporation accounts for uncertain tax positions in accordance with FASB ASC Topic 740, “Income Taxes”. Accordingly, the Corporation reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Corporation recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Variable Interest Entities

          Variable interest entities (VIE’s) are entities that either have a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions, through voting rights, right to receive the expected residual returns of the entity, and obligation to absorb the expected losses of the entity). The FASB amended on June 2009 the guidance applicable to VIE’s and changed how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

          Currently, the Corporation owned a Trust preferred security subsidiary. Even though this Trust is still considered a VIE under the new accounting guidance, the Corporation does not consolidated this subsidiary since its sole asset is a receivable from the Corporation. This transaction is described in Note 10.

          The Corporation has variable interests in certain investments that have the attributes of investment companies. However, in January 2010, the FASB decided to make official the deferral of ASC Subtopic 860-10 for certain investment entities. The deferral allows asset managers that have no obligation to fund potentially significant losses of an investment entity to continue to apply the previous accounting guidance to investment entities that have the attributes of entities subject to ASC Topic 946 (the “Investment Company Guide”). The FASB also decided to defer the application of this guidance for money market funds subject to Rule 2a-7 of the Investment Company Act of 1940. Asset managers would continue to apply the applicable existing guidance to those entities that qualify for the deferral.

          On January 2010, the joint agencies issued a final rule regarding risk-based capital and the impact of adoption of the new consolidation guidance issued by the FASB. The final rule allows for a phase-in period for a maximum of one year for the effect on risk-weighted assets and the regulatory limit on the inclusion of the allowance for loan losses in Tier 2 capital related to the assets that are consolidated. There is no impact in the Corporation Tier 1 and 2 capital ratios.

Earnings Per Common Share

          Basic and diluted earnings per common share are computed by dividing net income available to common stockholders, by the weighted average number of common shares outstanding during the period. The Corporation’s average number of common shares outstanding, used in the computation of earnings per common share was 46,639,104 for each of the quarters ended March 31, 2010 and 2009. Basic and diluted earnings per common share are the same since no stock options or other potentially dilutive common shares were outstanding during the periods ended March 31, 2010 and 2009.

Recent Accounting Pronouncements that Affect the Corporation

     The adoption of these accounting pronouncements had the following impact on the Corporation’s consolidated statements of financial condition and operations:

•

Update No.2010-02, “Accounting and Reporting for Decreases in Ownership of a Subsidiary”, an Accounting Standard Update. In January 2010, the FASB issued this Update to address the implementation issues related to the changes in ownership provisions in the consolidation process. This Update establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. This update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. This update also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The guidance in this Update also improves the disclosures for fair value

			measurements relating to retained investments in a deconsolidated subsidiary or a preexisting interest held by an acquirer in a business combination. This Update is effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this Update should be applied retrospectively to the first period that an entity adopted Statement 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51”. The adoption of this update did not have a material impact on the Corporation’s consolidated financial statements.
	•		Update No. 2009-16, “Accounting for Transfer of Financial Assets”. In June 2009, the FASB issued additional guidance under FASB ASC Topic 860, “Accounting for Transfer and Servicing of Financial Assets and Extinguishment of Liabilities”, which improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. The Board undertook this project to address (i) practices that have developed since the issuance of FASB ASC Topic 860, that are not consistent with the original intent and key requirements of that statement and (ii) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. This additional guidance requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. Enhanced disclosures are required to provide financial statement users with greater transparency about transfers of financial assets and a transferor’s continuing involvement with transferred financial assets. This additional guidance must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. This additional guidance must be applied to transfers occurring on or after the effective date. The adoption of this update did not have a material impact on the Corporation’s consolidated financial statements.
	•		Update No.2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”. In June 2009, the FASB issued FASB ASC Topic 810, which requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics (i)The power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (ii)The obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance. This FASB Topic requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, which was based on determining which enterprise absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both. This FASB ASC Topic shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The adoption of this update did not have a material impact on the Corporation’s consolidated financial statements.
	•		Update No.2010-06, “Improving Disclosures about Fair Value Measurements”. In January 2010, the FASB issued an updated of FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” to address new disclosures regards transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. Also, this update require a reconciliation for fair value measurements using significant unobservable inputs (Level 3), in which a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This Update provides amendments to Subtopic 820-10 which required that a reporting entity provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. Also required that a reporting entity provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. This Update also includes conforming amendments to the guidance on employers disclosures about postretirement benefit plan assets (Subtopic 715- 20, “Defined Benefits Plan”). The conforming amendments to Subtopic 715-20, change the terminology from major categories of assets to classes of assets and provide a cross reference to the

			guidance in Subtopic 820-10 on how to determine appropriate classes to present fair value disclosures. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this update did not have a material impact on the Corporation’s consolidated financial statements.
	•		Update No.2010-09,“Amendments to Certain Recognition and Disclosure Requirements”. In January 2010, the FASB issued an updated to amend the Sub-topic 855-10, Subsequent Events. This Update provides amendments to Subtopic 855-10 as follows: (1) an entity that either (a) is an SEC filer or (b) is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets) is required to evaluate subsequent events through the date that the financial statements are issued. If an entity meets neither of those criteria, then it should evaluate subsequent events through the date the financial statements are available to be issued; (2) the glossary of Topic 855 is amended to include the definition of SEC filer. An SEC filer is an entity that is required to file or furnish its financial statements with either the SEC or, with respect to an entity subject to Section 120) of the Securities Exchange Act of 1934, as amended, the appropriate agency under that Section. It does not include an entity that is not otherwise an SEC filer whose financial statements are included in a submission by another SEC filer; (3) an entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC’s requirements; (4) the glossary of Topic 855 is amended to remove the definition of public entity. The definition of a public entity in Topic 855 was used to determine the date through which subsequent events should be evaluated. Based on the amendments, that definition is no longer necessary for purposes of Topic 855; (5) the scope of the reissuance disclosure requirements is refined to include revised financial statements only. The term revised financial statements is added to the glossary of Topic 855. Revised financial statements include financial statements revised either as a result of correction of an error or retrospective application of U.S. generally accepted accounting principles. The amendments remove the requirement for an SEC filer to disclose a date in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. Additionally, the Board has clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. Those amendments remove potential conflicts with the SEC’s literature. All of the amendments in this Update are effective upon issuance of the final Update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The adoption of this update did not have a material impact on the Corporation’s consolidated financial statements.
	•		Update No.2010-01, “Accounting for Distribution to Shareholders with Components of Stock and Cash”, an EITF Developed Accounting Standard Update. In January 2010, the FASB issued a ASC Topic 505 to address diversity in practice related to the accounting for a distribution to shareholders that offers them the ability to elect to receive their entire distribution in cash or shares of equivalent value with a potential limitation on the total amount of cash that shareholders can elect to receive in the aggregate. Historically, some entities have accounted for the stock portion of the distribution as a new share issuance that is reflected in earning per share (EPS) prospectively. Other entities have accounted for the stock portion of the distribution as a stock dividend by retroactively restating shares outstanding and EPS for all periods presented. This Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or shares with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance thus eliminating the diversity in practice. This Update affect entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate. Such a scenario is common for real estate investment trusts, but this Update apply to other kinds of entities as well. This Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). Those distributions should be accounted for and included in EPS calculations in accordance with paragraphs 480-10-25- 14 and 260-10-45-45 through 45-47 of the FASB ASC. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this update did not have a material impact on the Corporation’s consolidated financial statements.
	•		Update No.2010-10 “Consolidated Financial Statements”. In January 2010, the FASB issued an updated to amend the ASC Topic 810, “Consolidation”. The amendments to the consolidation requirements of Topic 810 resulting from the issuance of Statement 167 are deferred for a reporting entity’s interest in an entity (1) that has all the attributes of an

investment company or (2) for which it is industry practice to apply measurement principles for financial reporting purposes that are consistent with those followed by investment companies. The deferral does not apply in situations in which a reporting entity has the explicit or implicit obligation to kind losses of an entity that could potentially be significant to the entity. The deferral also does not apply to interests in securitization entities, asset-backed financing entities, or entities formerly considered qualifying special- purpose entities. In addition, the deferral applies to a reporting entity’s interest in an entity that is required to comply or operate in accordance with requirements similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. An entity that qualifies for the deferral will continue to be assessed under the overall guidance on the consolidation of variable interest entities in Subtopic 810-10 (before the Statement 167 amendments) or other applicable consolidation guidance, such as the guidance for the consolidation of partnerships in Subtopic 810-20. The amendments in this Update also clarify that for entities that do not qualify for the deferral, related parties should be considered when evaluating each of the criteria in paragraph 810-10-55-37, as amended by Statement 167 for determining whether a decision maker or service provider fee represents a variable interest. In addition, the requirements for evaluating whether a decision makers or service providers fee is a variable interest are modified to clarify the Board’s intention that a quantitative calculation should not be the sole basis for this evaluation. The amendments in this Update do not defer the disclosure requirements in the Statement 167 amendments to Topic 810. Accordingly, both public and nonpublic companies are required to provide the disclosures included in Topic 810, as amended by Statement 167, for all variable interest entities in which they hold a variable interest. This includes variable interests in entities that qualify for the deferral but are considered VIEs under the provisions in Topic 810 (before the Statement 167 amendments). The amendments in this Update are effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009, and for interim periods within that first annual reporting period. The effective date coincides with the effective date for the Statement 167 amendments to Topic 810. Early application is not permitted. The adoption of this update did not have a material impact on the Corporation’s consolidated financial statements.

     The Corporation is evaluating the impact that the following recently issued accounting pronouncements may have on its consolidated financial statements and disclosures.

•

Accounting Standard Update (Update) No.2010-11 “Derivatives and Hedging-Embedded Derivatives”. In March 2010, the FASB issued an updated to amend the ASC Sub Topic 815-15, “Derivatives and Hedging—Embedded Derivatives”, This Update provides amendments to: (i) clarify the scope exception under paragraphs 815-15-15-8 through 15-9 for embedded credit derivative features related to the transfer of credit risk in the form of subordination of one financial instrument to another. The amendments address how to determine which embedded credit derivative features, including those in collateralized debt obligations and synthetic collateralized debt obligations, are considered to be embedded derivatives that should not be analyzed under Section 815-15-25 for potential bifurcation and separate accounting; (ii) The embedded credit derivative feature related to the transfer of credit risk that is only in the form of subordination of one financial instrument to another is not subject to the application of Section 815-15-2; (iii) Other embedded credit derivative features, including those in some collateralized debt obligations and synthetic collateralized debt obligations, are considered embedded derivatives subject to the application of Section 815-15-25 (which involves an analysis of whether the economic characteristics and risks of the embedded credit derivative features are clearly and closely related to the economic characteristics and risks of the host contract), provided that the overall contract is not a derivative in its entirety under Section 815-10-1. The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update.

•

Accounting Standard Update (Update) No.2010-18 “Receivables-Effect of a Loan Modification when the loan is part of a Pool”. In April 2010, the FASB issued an updated to amend the ASC Sub Topic 310-30. This update provides guidance on accounting for acquired loans that have evidence of credit deterioration upon acquisition. Paragraph 310-30-15-6 allows acquired assets with common risk characteristics to be accounted for in the aggregate as a pool. Upon establishment of the pool, the pool becomes the unit of accounting. When loans are accounted for as a pool, the purchase discount is not allocated to individual loans; thus, all of the loans in the pool accrete at a single pool rate (based on cash flow projections for the pool). Under Subtopic 310-30, the impairment analysis also is performed on the pool as a whole as opposed to each individual loan. Paragraphs 310-40-15-4 through 15-12 establish the criteria for evaluating whether a loan modification should be classified as a troubled debt restructuring. Specifically, paragraph 310-40-15-5 states that ‘a restructuring of a debt constitutes a troubled debt restructuring for purposes of this Subtopic if the creditor for economic or legal reasons related to the debtors financial difficulties grants a concession to the debtor that it would not otherwise consider. Diversity in practice has developed on whether a loan that is part of a pool of loans accounted for as a single asset should be removed from that pool upon a modification that would constitute a troubled debt restructuring. In the view of certain entities, accounting for troubled debt restructuring does not apply to individual loans within a pool, and modified loans should remain within the pool. In the view of other entities, each modified loan should be evaluated against the troubled debt restructuring criteria, and if the loan modification is a

troubled debt restructuring, the modified loan should be removed from the pool and accounted for as a separate asset. The objective of the amendments in this Update is to address the diversity in practice regarding such modifications. The amendments in this Update affect any entity that acquires loans subject to Subtopic 310-30, that accounts for some or all of those loans within pools, and that subsequently modifies one or more of those loans after acquisition. The amendments in this Update improve comparability by eliminating diversity in practice about the treatment of modifications of loans accounted for within pools under Subtopic 310-30. Furthermore, the amendments clarify guidance about maintaining the integrity of a pool as the unit of accounting for acquired loans with credit deterioration. The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted.

2. Investment Securities Available for Sale:

The amortized cost, gross unrealized gains and losses, fair value and weighted average yield of investment securities available for sale by contractual maturity are as follows:

		March 31, 2010
						Gross				Gross								Weighted
		Amortized				Unrealized				Unrealized				Fair				Average
		Cost				Gains				Losses				Value				Yield
						(Dollars in thousands)
Treasury and agencies of the United States Government:
Within one year		$	5,646			$	100			$	—			$	5,746				3.98	%
After one year to five years			174,799				829				229				175,399				1.35	%
			180,445				929				229				181,145				1.44	%
Commonwealth of Puerto Rico and its subdivisions:
Within one year			1,190				2				—				1,192				3.72	%
After one year to five years			71,538				417				4				71,951				5.10	%
After five years to ten years			5,355				94				—				5,449				5.64	%
Over ten years			4,370				43				—				4,413				5.55	%
			82,453				556				4				83,005				5.14	%
Corporate bonds:
After one year to five years			141,361				1,766				—				143,127				1.85	%
Mortgage-backed securities:
Over ten years			9,611				418				—				10,029				5.62	%
		$	413,870			$	3,669			$	233			$	417,306				2.42	%

		December 31, 2009
						Gross				Gross								Weighted
		Amortized				Unrealized				Unrealized				Fair				Average
		Cost				Gains				Losses				Value				Yield
						(Dollars in thousands)
Treasury and agencies of the United States Government:
Within one year		$	105,521			$	267			$	—			$	105,788				0.85	%
After one year to five years			74,939				414				20				75,333				1.58	%
			180,460				681				20				181,121				1.15	%
Corporate Bonds:
After one year to five years			141,513				1,004				—				142,517				1.85	%
Commonwealth of Puerto Rico and its subdivisions:
Within one year			1,190				3				—				1,193				3.72	%
After one year to five years			71,527				831				3				72,355				5.10	%
After five years to ten years			6,420				127				1				6,546				5.58	%
Over ten years			3,305				36				—				3,341				5.65	%
			82,442				997				4				83,435				5.14	%
Mortgage-backed securities:
Over ten years			10,239				296				—				10,535				5.62	%
		$	414,654			$	2,978			$	24			$	417,608				2.29	%

     The duration of long-term (over one year) investment securities in the available for sale portfolio is approximately 2.1 years at March 31, 2010, comprised of approximately 2.1 years for treasuries and agencies of the United States Government, 1.98 years for instruments of the Commonwealth of Puerto Rico and its subdivisions, 2.1 years for corporate bonds and 3.1 years for mortgage backed securities.

     The number of positions, fair value and unrealized losses at March 31, 2010 and December 31, 2009, of investment securities available for sale that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more, are as follows:

		March 31, 2010
		Less than 12 months												12 months or more												Total
		Number												Number												Number
		of				Fair				Unrealized				of				Fair				Unrealized				of				Fair				Unrealized
		Positions				Value				Losses				Positions				Value				Losses				Positions				Value				Losses
														(Dollars in thousands)
Treasury and agencies of the United States Government			2			$	99,625			$	229				—			$	—			$	—				2			$	99,625			$	229
Commonwealth of Puerto Rico and its subdivisions			—				—				—				2				6,996				4				2				6,996				4
			2			$	99,625			$	229				2			$	6,996			$	4				4			$	106,621			$	233

		December 31, 2009
		Less than 12 months												12 months or more												Total
		Number												Number												Number
		of				Fair				Unrealized				of				Fair				Unrealized				of				Fair				Unrealized
		Positions				Value				Losses				Positions				Value				Losses				Positions				Value				Losses
														(Dollars in thousands)
Treasury and agencies of the United States Government			3			$	20,028			$	20				—			$	—			$	—				3			$	20,028			$	20
Commonwealth of Puerto Rico and its subdivisions			1				355				1				2				6,997				3				3				7,352				4
			4			$	20,383			$	21				2			$	6,997			$	3				6			$	27,380			$	24

     The Corporation evaluates its investment securities for other-than-temporary impairment on a quarterly basis or earlier if other factors indicate that potential impairment exists. An impairment charge in the condensed consolidated statements of operations is recognized when the decline in the fair value of the securities below their cost basis is judged to be other-than-temporary. The Corporation considers various factors in determining whether it should recognize an impairment charge, including, but not limited to the length of time and extent to which the fair value has been less than its cost basis, expectation of recoverability of its original investment in the securities and the Corporation’s intent to sell and the situation that it most likely-than-not that the Corporation will be required to sell the security prior to recovery of the carrying amount of the investment.

     As of March 31, 2010 and December 31, 2009, management concluded that there was no other-than-temporary impairment in its investment securities portfolio.

     The unrealized losses in the Corporation’s investments in debt securities were caused by changes in market interest rates and not credit quality. All debt securities are investment grade, as rated by major rating agencies. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The Corporation evaluates debt securities for other than temporary impairment based on any of the following triggering events (1) the Corporation has the intent to sell the security, (2) it is more likely than not that the Corporation will be required to sell the security before recovery, or (3) the Corporation does not expect to recover the entire amortized cost basis of the security. Upon evaluation of these triggering events, the Corporation believes that none of such conditions are present at March 31, 2010 and December 31, 2009 because the Corporation has sufficient capital and liquidity to operate its business and it has no requirements or needs to sell such securities, and the Corporation is not subject to any contractual arrangements that would require the Corporation to sell such securities.

     Contractual maturities on certain securities, including mortgage-backed securities, could differ from actual maturities since certain issuers may have the right to call or prepay these securities.

     The weighted average yield on investment securities available for sale is based on amortized cost, therefore it does not give effect to changes in fair value.

3. Assets Pledged:

     At March 31, 2010 and December 31, 2009, investment securities and loans were pledged to secure deposits of public funds and Federal Home Loan Bank advances. The classification and carrying amount of pledged assets, which the secured parties are not permitted to sell or repledge as of March 31, and December 31 were as follows:

		March 31, 2010				December 31, 2009
		(Dollars in thousands)
Investment securities available for sale		$	145,995			$	156,982
Other investment securities			43,650				47,700
Loans			2,314,803				2,309,556
		$	2,504,448			$	2,514,238

4. Loans:

     The Corporation’s loan portfolio consists of the following:

		March 31, 2010				December 31, 2009
		(Dollars in thousands)
Commercial and industrial		$	1,914,143			$	1,947,809
Consumer			424,329				443,567
Consumer finance			747,907				783,510
Leasing			31,339				36,624
Construction			64,257				70,879
Mortgage			2,366,525				2,385,592
			5,548,500				5,667,981
Unearned income and deferred fees and costs:
Commercial, industrial and others			668				328
Consumer finance			(190,970	)			(224,562	)
Allowance for loan losses			(198,160	)			(197,303	)
Loans, net		$	5,160,038			$	5,246,444

     During the year ended December 31, 2009, the Corporation sold certain loans including some classified as impaired to an affiliate for $142.0 million in cash. These loans had a net book value of $142.0 million comprised of an outstanding principal balance of $149.2 million and a specific valuation allowance of $7.2 million. The type of loans sold, at net book value, was $65.5 million in construction loans, $61.2 million in commercial loans and $15.3 million in mortgage loans. No gain or loss was recorded on these transactions.

5. Allowance for Loan Losses:

     Changes in the allowance for loan losses are summarized as follows:

		For the three months ended
		March 31, 2010				March 31, 2009
		(Dollars in thousands)
Balance at beginning of period		$	197,303			$	191,889
Provision for loan losses			30,093				41,100
			227,396				232,989
Losses charged to the allowance:
Commercial and industrial			2,924				4,727
Construction			—				2,254
Mortgage			1,105				1,380
Consumer			12,476				13,067
Consumer finance			13,834				16,056
Leasing			126				313
			30,465				37,797
Recoveries:
Commercial and industrial			500				470
Construction			—				20
Consumer			443				333
Consumer finance			232				414
Leasing			54				81
			1,229				1,318
Net loans charged-off			29,236				36,479
Balance at end of period		$	198,160			$	196,510

6. Goodwill and Other Intangible Assets:

Goodwill

     The Corporation assigned goodwill to reporting units at the time of acquisition. Goodwill was allocated to the Commercial Banking segment, the Wealth Management segment and the Consumer Finance segment as follows:

		March 31, 2010				December 31, 2009
		(Dollars in thousands)
Commercial Banking		$	10,537			$	10,537
Wealth Management			24,254				24,254
Consumer Finance			86,691				86,691
		$	121,482			$	121,482

     Goodwill assigned to the Commercial Banking segment is related to the acquisition of Banco Central Hispano Puerto Rico in 1996, the goodwill assigned to the Wealth Management segment is related to the acquisition of Merrill Lynch’s retail brokerage business in Puerto Rico by Santander Securities Corporation in 2000 and the goodwill assigned to the Consumer Finance segment is related to the acquisition of Island Finance in 2006.

The gross carrying value and accumulated impaired loss to goodwill at March 31, 2010 and December 31, 2009, are presented below:

						Accumulated
						Impairment
		Gross Amount				Charges				Carrying Amount
		(Dollars in thousands)
Balance at beginning of the period		$	148,300			$	26,818			$	121,482
Balance at end of the period		$	148,300			$	26,818			$	121,482

Other Intangible Assets

     Other intangible assets at March 31, 2010 and December 31, 2009 were as follows:

		March 31, 2010				December 31, 2009
		(Dollars in thousands)
Commercial Banking — Mortgage-servicing rights		$	9,390			$	9,686
Wealth Management — Advisory-servicing rights			889				962
Consumer Finance — Trade name			18,300				18,300
		$	28,579			$	28,948

     Mortgage-servicing rights arise from the right to service mortgages sold and have an estimated useful life of eight years. The advisory-servicing rights are related to the Corporation’s subsidiary acquisition of the right to serve as the investment advisor for First Puerto Rico Tax-Exempt Fund, Inc. acquired in 2002 and for First Puerto Rico Growth and Income Fund Inc. and First Puerto Rico Daily Liquidity Fund Inc. acquired in December 2006. These intangible assets are being amortized over a 10-year estimated useful life. Trade name is related to the acquisition of Island Finance and has an indefinite useful life and is therefore not being amortized but is tested for impairment at least annually.

     The following table reflects the components of other intangible assets at March 31, 2010 and December 31, 2009:

		March 31, 2010
										Accumulated
						Accumulated				Impairment
		Gross Amount				Amortization				Charges				Carrying Amount
						(Dollars in thousands)
Commercial Banking — Mortgage-servicing rights		$	20,557			$	11,167			$	—			$	9,390
Wealth Management — Advisory-servicing rights			3,050				2,161				—				889
Consumer Finance — Trade Name			23,700				—				5,400				18,300
		$	47,307			$	13,328			$	5,400			$	28,579

		December 31, 2009
										Accumulated
						Accumulated				Impairment
		Gross Amount				Amortization				Charges				Carrying Amount
						(Dollars in thousands)
Commercial Banking — Mortgage-servicing rights		$	20,286			$	10,600			$	—			$	9,686
Wealth Management — Advisory-servicing rights			3,050				2,088				—				962
Consumer Finance — Trade name			23,700				—				5,400				18,300
		$	47,036			$	12,688			$	5,400			$	28,948

     Amortization of the other intangibles assets for the three-month periods ended March 31, 2010 and 2009 was approximately $0.6 million and $0.8 million, respectively.

7. Other Assets:

     The Corporation’s other assets consist of the following:

		March 31, 2010				December 31, 2009
		(Dollars in thousands)
Deferred tax assets, net		$	56,408			$	54,793
Accounts receivable, net			36,433				45,368
Repossesed assets, net			34,974				34,486
Software, net			7,049				7,643
Prepaid expenses			8,523				13,272
Prepaid FDIC insurance			24,114				25,764
Income tax credits, net			12,557				15,350
Customers’ liabilities on acceptances			227				391
Derivative assets			123,217				118,788
Confirming advances			241,045				113,692
Other			8,604				5,916
		$	553,151			$	435,463

     Amortization of software assets for the three-month periods ended March 31, 2010 and 2009 was approximately $0.7 million and $0.9 million, respectively.

     The Law 197 of Puerto Rico (“Law 197”) of 2007 grants certain credits to home buyers on the purchase of certain qualified new or existing homes. The incentives were as follows: (a) for a newly constructed home that will constitute the

individuals principal residence, a credit equal to 20% of the sales price or $25,000, whichever is lower; (b) for newly constructed homes that will not constitute the individuals principal residence, a credit of 10% of the sales price or $15,000, whichever is lower; and (c) for existing homes a credit of 10% of the sales price or $10,000, whichever is lower. The loan tax credits were generally granted to home buyers by the financial institutions financing the home acquisition and later claimed on the financial institution’s tax return as a tax credit. Credits available under Law 197 needed to be certified by the Puerto Rico Secretary of Treasury and the total amount of credits available under the law was $220,000,000, which was depleted in December of 2008.

     The loan tax credits do not expire and may be used against income taxes, including estimated income taxes, for tax years commencing after December 31, 2007 in three installments, subject to certain limitations. In addition, the loan tax credits may be ceded, sold or otherwise transferred to any other person; and any tax credit not used in a given tax year, may be claimed as a refund but only for taxable years commencing after December 31, 2010. The Corporation had $12.6 million and $15.4 million of unused loan tax credits certified by the Secretary at March 31, 2010 and December 31, 2010, respectively

     The FDIC amended its regulations requiring insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. The Corporation had a prepaid assessment of $24.1 million and $25.8 million as of March 31, 2010 and December 31, 2009, respectively.

8. Other Borrowings:

     Following are summaries of borrowings as of and for the periods indicated:

		March 31, 2010
		Federal Funds				Securities Sold				Commercial
		Purchased and				Under Agreements				Paper
		Other Borrowings				to Repurchase				Issued
		(Dollars in thousands)
Amount outstanding at period-end		$	55,000			$	—			$	129,962
Average indebtedness outstanding during the period		$	50,111			$	—			$	115,024
Maximum amount outstanding during the period		$	55,000			$	—			$	140,000
Average interest rate for the period			0.21	%			—				0.48	%
Average interest rate at period-end			0.22	%			—				0.49	%

		December 31, 2009
		Federal Funds				Securities Sold				Commercial
		Purchased and				Under Agreements				Paper
		Other Borrowings				to Repurchase				Issued
		(Dollars in thousands)
Amount outstanding at year-end		$	50,000			$	—			$	67,482
Average indebtedness outstanding during the year		$	14,824			$	76,849			$	90,454
Maximum amount outstanding during the year		$	50,000			$	375,000			$	175,000
Average interest rate for the year			0.21	%			4.42	%			1.34	%
Average interest rate at year-end			0.21	%			0.00	%			0.48	%

     Federal funds purchased and other borrowings and commercial paper issued mature as follows:

		March 31, 2010				December 31, 2009
		(In thousands)
Federal funds purchased and other borrowings:
Within thirty days		$	55,000			$	50,000
Commercial paper issued:
Within thirty days		$	79,992			$	67,482
Thirty to ninety days			49,970				—
Total		$	129,962			$	67,482

     As of March 31, 2010, the weighted average maturity of Federal funds purchased and other borrowings over ninety days was 9.02 months.

9. Advances from Federal Home Loan Bank:

     Advances from Federal Home Loan Bank consisted of the following:

		March 31, 2010				December 31, 2009
		(Dollars in thousands)
Non-callable advances at 1.98% and 2.33% average fixed rate at March 31, 2010 and December 31, 2009 , respectively, with maturities during 2010		$	400,000			$	735,000
Non-callable advances at 2.90% and 3.85% average fixed rate at March 31, 2010 and December 31, 2009 , respectively, with maturities during 2011			470,000				325,000
Non-callable advances at 2.13% fixed rate at March 31, 2010 with maturity during 2011			100,000				—
		$	970,000			$	1,060,000

     The Corporation had approximately $1.9 billion and $2.0 billion in mortgage loans pledged as collateral for Federal Home Loan Bank advances as of March 31, 2010 and December 31, 2009.

10. Term Notes, Subordinated Capital Notes and Trust Preferred Securities:

Term Notes

     Term notes payable outstanding consisted of the following:

		March 31, 2010				December 31, 2009
		(Dollars in thousands)
Term notes maturing January 29, 2010 linked to the S&P 500 index		$	—			$	4,815
Term notes maturing May 31, 2011 with a spread of 0.25%:
Linked to the S&P 500			4,000				4,000
Linked to the Dow Jones Euro STOXX 50			3,000				3,000
Term notes maturing May 25, 2012 linked to the Euro STOXX 50			5,000				5,000
Term notes maturing May 25, 2012 linked to the NIKKEI			5,000				5,000
			17,000				21,815
Unamortized discount			(1,087	)			(1,234	)
		$	15,913			$	20,581

Subordinated Capital Notes

     Subordinated capital notes consisted of the following:

		March 31, 2010				December 31, 2009
		(Dollars in thousands)
Subordinated notes with fixed interest of 7.50% maturing December 10, 2028		$	60,000			$	60,000
Subordinated notes with fixed interest of 6.30% maturing June 1, 2032, at fair value			75,616				73,122
Subordinated notes with fixed interest of 6.10% maturing June 1, 2032, at fair value			48,561				47,429
Subordinated notes with fixed interest of 6.75% maturing July 1, 2036			129,000				129,000
			313,177				309,551
Unamortized discount			(852	)			(860	)
		$	312,325			$	308,691