UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

For the fiscal year ended December 31, 2012 

OR

For the transition period from                       to                     . 

Commission File Number: 001-16581

SANTANDER HOLDINGS USA, INC.

(Exact name of registrant as specified in its charter)

(617) 346-7200

Registrant’s telephone number including area code

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

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

None 

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

Yes o   No þ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    

Yes o   No þ 

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 ST (Section 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 þ No o* 

*Registrant is not subject to the requirements of Rule 405 of Regulation S-T at this time.

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Explanatory Note

This Amendment No. 1 to the Annual Report on Form 10-K/A (this “Amendment No. 1”) of Santander Holdings USA, Inc. (the “Company”) amends the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the U.S. Securities and Exchange Commission on March 15, 2013 (the “Original Filing”). The Company is filing this Amendment No. 1 solely to amend and restate Item 11 – Executive Compensation.  The amendment and restatement reflects the following changes:

     In addition, as required by Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), new certifications by our principal executive officer and principal financial officer are filed as exhibits to this Amendment No. 1.  Except as described above, no other amendments are being made to the Original Filing.  This Amendment No. 1 does not reflect events after the filing of the Original Filing or modify or update any disclosures that may have been affected by subsequent events.  Pursuant to Rule 12b-15 promulgated under the Exchange Act, the complete text of Part III, Item 11, and Part IV, Item 15, as amended, are set forth in this Amendment No. 1.

ITEM 11 - EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis relates to the executive officers included in the Summary Compensation Table, which we refer to collectively as the “named executive officers.”  We are a wholly owned subsidiary of Banco Santander, S.A., which we refer to as “Santander.”  This Compensation Discussion and Analysis explains our role and the role of Santander in setting the compensation of the named executive officers.

For 2012, our named executive officers were:

•          Jorge Morán, our President and Chief Executive Officer;

•          Guillermo Sabater, our Chief Financial Officer;

•          Nuno Matos, our Managing Director-Retail Banking;

•          Juan Yanes, our Chief Executive of Compliance and Internal Control; and

•          Edvaldo Morata, our Managing Director-Corporate Banking

General Philosophy and Objectives

The fundamental principles that Santander and we follow in designing and implementing compensation programs for the named executive officers are to:

•          attract, motivate, and retain highly skilled executives with the business experience and acumen necessary for achieving our long-term business objectives;

•          link pay to performance;

•          align, to an appropriate extent, the interests of management with those of Santander and its shareholders; and

•          use our compensation practices to support our core values and strategic mission and vision.

Santander aims to provide a total compensation package that is comparable to that of similar financial institutions in the country in which the executive officer is located.  Within this framework, Santander considers each component of each named executive officer's compensation package independently, that is, Santander does not evaluate what percentage each component equals with respect to the total compensation package.

In general, Santander took into account individual performance, level of responsibility, and track record within the organization in setting each of the named executive officer's compensation for 2012.

In general, we seek to maximize deductibility for tax purposes of all elements of the compensation of the named executive officers.  We review compensation plans in light of applicable tax provisions and revise compensation plans and arrangements from time to time to maximize deductibility.  We, however, may approve compensation or compensation arrangements for the named executive officers that do not qualify for maximum deductibility when we deem it to be in our best interest.

This section of the Compensation Discussion and Analysis provides information with respect to our named executive officers:

•          the general philosophy and objectives behind their compensation,

•          the role and involvement of the several parties in the analysis and decisions regarding their compensation,

•          the general process of determining their compensation,

•          each component of their compensation, and

•          the rationale behind the components of their compensation.

Since we are a wholly owned subsidiary of Santander and do not hold public shareholder meetings, we do not conduct shareholder advisory votes.

The Parties Involved in Determining Executive Compensation

The Role of Our Compensation Committee

As of the date of the filing of this Annual Report on Form 10-K, our Compensation Committee included Messrs. Morán and Schoellkopf and Ms. Heard, who is the Committee chair.  Our Compensation Committee has the responsibility of, among other things:

•          reviewing the terms of our incentive compensation programs, including the Executive Bonus Program in which our named executive officers participate;

•          reviewing and approving the risk assessment process to be utilized by our Compensation Risk Mitigation Committee (which we describe below) in connection with our incentive compensation programs, including the Executive Bonus Program;

•          monitoring the performance and regularly reviewing the design and function of the incentive compensation programs, including the Executive Bonus Program, to assess whether the overall design and performance of such programs are consistent with the Company's safety and soundness and do not encourage employees, including our named executive officers, to take excessive risk;

•          reviewing amounts paid under the incentive compensation programs, including the Executive Bonus Program;

•          overseeing the administration of our qualified retirement plan under which all eligible employees can participate, including the named executive officers, as well as certain deferred compensation plans; and

•          approving our affirmative action plan and reviewing, at least annually, the Company's hiring, termination, compensation, and other employment practices as they relate to the Company's affirmative action plan.

The fundamental authority and responsibilities of our Compensation Committee in 2012 with respect to compensation matters related to the named executive officers was to:

•          evaluate the standards of the Executive Bonus Program against the guidance issued by the regulatory authorities applicable to us;

•          review the incentive compensation proposed to be granted to our named executive officers; and

•          approve any required reports on executive compensation for inclusion in our filings with the SEC, including this Annual Report on Form 10-K.

Our Compensation Committee met six times in 2012.

The Role of Santander's Evaluation and Bonus Committee

Santander's Evaluation and Bonus Committee has the authority and responsibility to oversee the performance management reviews, and to prepare the bonus pools for management to present to Santander's Appointments and Remuneration Committee.  Santander's Evaluation and Bonus Committee also approves individual bonus awards that Santander's Board does not ultimately approve.

The Role of Santander's Appointments and Remuneration Committee

Santander's Appointments and Remuneration Committee has the authority and responsibility to, among other things, present to Santander's Board the compensation of Santander's senior executives, which group includes each of the named executive officers.

The Role of Santander's Board of Directors

Santander's Board of Directors approves the compensation of certain of Santander's management, including our named executive officers.  Santander's Board has delegated certain of its powers and responsibilities to its Executive Committee.

The Role of our Management

In 2010, we established a management advisory and consultation committee, which we call the Compensation Risk Mitigation Committee, to among other purposes, oversee our incentive compensation programs and make presentations to our Compensation Committee with respect to our incentive compensation programs.  A key responsibility of our Compensation Risk Mitigation Committee is to review our incentive compensation programs to ensure the programs do not incentivize excessive risk and make recommendations to our Compensation Committee in accordance with applicable law.  The Compensation Risk Mitigation Committee is chaired by our Chief Human Resources Officer and met six times in 2012.

Our management also played a role in other parts of the compensation process with respect to the named executive officers in 2012.  Mr. Morán generally performed (or delegated to our human resources department) management's responsibilities (except with respect to his own compensation) in accordance with the rules set forth by Santander.  The most significant aspects of management's role in the compensation process were presenting, and recommending for approval, salary and bonus recommendations for the named executive officers to Santander's Evaluation and Bonus Committee and, with respect to Messrs. Morán and Yanes, Santander's Appointments and Remuneration Committee and presented the proposed bonus recommendations to our Compensation Committee for its review.

None of the named executive officers determined or approved any portion of their compensation for 2012.

The Role of Outside Independent Compensation Advisors

Santander's Appointments and Remuneration Committee engaged Towers Watson to assist in setting fixed and variable compensation for Santander's worldwide employees.  In addition, Santander's human resource department engaged ORC Worldwide to assist it in determining possible salary adjustments for expatriate employees, including the named executive officers, as we describe below.  ORC Worldwide provided data on the compensation of expatriate employees of other global financial institutions.

We did not separately engage a compensation consultant for 2012.

Components of Executive Compensation

For 2012, the compensation that we paid to our named executive officers consisted primarily of base salary and short‑  and long-term incentive opportunities, as we describe more fully below.  In addition, the named executive officers are eligible for participation in company-wide benefits plans, and we provide the named executive officers with certain benefits and perquisites not available to the general team member population but that are, in accordance with Santander's International Mobility policy.  In general, Santander's objective in establishing its International Mobility Policy is to permit all expatriate employees, which include the named executive officers, to maintain on an equal basis the same standard of living that they were accustomed to in the employee's originating country.

Base Salary

Base salary represents the fixed portion of the named executive officers' compensation and we intend it to provide compensation for expected day-to-day performance.  The base salaries of the named executive officers were generally set in accordance with each named executive officer's employment or letter agreement and Santander's International Mobility policy for expatriate executives of similar levels.  While each of the named executive officer's employment or letter agreements provide for the possibility of increases in base salary, annual increases are not guaranteed.  Our Chief Human Resources Officer consulted with Santander's Appointments and Remuneration Committee and Santander's Board of Directors in setting the base salary of Messrs. Morán and Yanes.  Santander's Evaluation and Bonus Committee issued recommendations with respect to Santander's overall salary policy for 2012 for Santander's “Top Red”  executives, including Messrs. Sabater, Matos, and Morata.  Mr. Morán recommends for approval to Santander's Head of Corporate Human Resources, the base salaries for these executives, based, in part, on these recommendations.

Annual Discretionary Bonuses

In certain cases, we award annual discretionary bonuses to the named executive officers to motivate and reward outstanding performance.  These awards permit us to apply discretion in determining awards rather than applying a formulaic approach that may inadvertently reward inappropriate risk-taking.  None of the named executive officers received discretionary bonuses for 2012.

Retention Bonuses

In certain limited cases, we will provide retention bonuses to certain of our executive officers as an inducement for them to stay in active service with us.  Applicable European regulations limit Santander's ability to award such guaranteed bonuses.  We made no retention bonus payments to the named executive officers in 2012.

Short-Term Incentive Compensation

We provide annual short-term incentive opportunities for the named executive officers to reward achievement of both corporate and individual performance objectives, as well as to reinforce key cultural behaviors used to achieve short-term and long-term success.  Our short-term incentive programs are intended to motivate participants to achieve these objectives by providing an opportunity to receive higher compensation if these objectives are met.

Our short-term incentive compensation program generally establishes both financial and non-financial measures for each executive officer, including threshold performance expectations for triggering incentive payout eligibility as well as target and maximum performance benchmarks for determining ongoing incentive awards and final incentive payouts.  We refer to this bonus award program on the “Executive Bonus Program.”

On May 30, 2012, our Compensation Committee reviewed the 2012 Sovereign Bank Executive Bonus Program for the named executive officers as presented by our Executive Committee and the Compensation Risk Mitigation Committee.  We refer to this bonus program as the “Executive Bonus Program.”  The Executive Bonus Program is aligned directly with Santander's corporate bonus program for executives of similar levels across the Santander platform.  The program provides for significant variance in the amount of potential awards, higher or lower, in order to reinforce our pay for performance philosophy.  Each of the named executive officers participated in the Executive Bonus Program for 2012.

The Executive Bonus Program incorporates both Santander and subsidiary metrics to ensure that the plan award pool links the pay of its executives to the pay of other executives of similar levels within the Santander platform.  Santander's financial control division worked with Mr. Morán to validate that the proposed performance metrics aligned with Santander's overall business goals.  We reviewed the appropriateness of the financial measures used in the Executive Bonus Program with respect to the named executive officers and the degree of difficulty in achieving specific performance targets and determined that there was a sufficient balance.

The quantitative metrics for determining the funding scheme for 2012 for the named executive officers included net profit and return on risk-adjusted capital targets as follows:

•          55% determined based upon Sovereign Bank's net profit for 2012 versus our target for 2012

•          15% determined based upon Sovereign Bank's return on risk-adjusted capital for 2012 versus our target for 2012

•          20% determined based upon Santander's net attributable profit for 2012 versus its target for 2012

•          10% determined based upon Santander's return on risk-adjusted capital for 2012 versus its target for 2012

Santander's Evaluation and Bonus Committee may also adjust the funding scheme based on circumstances, including our risk and liquidity profile, the relevant entity's degree of compliance with local regulations and Santander policies, and, in general, the quality of results.  For 2012, there was no such adjustment for SHUSA's portion of the funding scheme but there was a downward adjustment for Santander's portion based on Santander's performance in 2012 versus its peers.

We assigned Messrs. Sabater, Matos, and Morata a base bonus amount at the beginning of 2012, based on grade level, market benchmark for the position, authority, duties, responsibilities, and job type.  We determine these base bonus amounts, subject to Santander Corporate Human Resources review and approval.  Messrs. Morán's and Yanes's base bonus amounts are set forth in their respective employment agreements.  If the relevant entity achieves a certain level of net profit or return on risk-adjusted capital target, the plan award pool is funded by a specific percentage of the aggregate base bonus amounts of the participants as set forth below:

If the actual quantitative metric falls between the above achievement points, the percentage payout will be interpolated.

For purposes of the Executive Bonus Program, Sovereign Bank's net profit for 2012, after group consolidation and one-time charges, was $750.5 million. This amount resulted in the achievement of 100% of the internal net profit target under the Executive Bonus Program.  In addition, Sovereign Bank's return on risk-adjusted capital, after the same adjustments, was 13.6%, which resulted in achievement of 93.8% of the return on risk-adjusted capital target.

Santander's ordinary attributable profit for 2012 was €5.251 billion. As determined by Santander's Bonus and Evaluation Committee, Santander achieved 80.8% of the net profit target.  In addition, Santander's return on risk-adjusted capital was 9.6%, which resulted in achievement of 80.2% of the internal return on risk-adjusted capital target.

Based on these results, the Appointments and Remuneration Committee approved a percentage payout under the Executive Bonus Program for the named executive officers of 82.8%.

We multiply this percentage by each named executive officer's target bonus amount to establish a proposed bonus amount for the executive.  We disclose the named executive officers' threshold, target, and maximum bonus amounts in the “Grants of Plan-Based Awards-2012” table.  Each named executive officer's proposed bonus amount is subject to upward or downward adjustment based on the executive's individual performance evaluation, but in no event will the aggregate total of the actual bonus amounts exceed the aggregate total of the proposed bonus amounts.  Santander intends that the results of such individual performance evaluations be distributed normally as follows: 10% of executives will receive a score of “significantly exceeds expectations,” 15% of executives will receive a score of “exceeds expectations,” 50% of executives will receive a score of “totally meets expectations,” 15% of executives will receive a score of “partially meets expectations,” and 10% of executives will receive a score of “improvable.”

We set forth the bonus opportunities for the named executive officers for 2012 for the named executive officers in the table captioned “Grant of Plan-Based Awards-2012.”

We conducted a detailed assessment of each named executive officer's accomplishments versus pre-established goals for the year with respect to the individual performance evaluation results.  These goals included specific goals directly related to the named executive officer's job responsibilities.  These goals are generally not objective, formulaic, or quantifiable.

On January 23, 2013, Mr. Morán recommended to our Compensation Committee and the Compensation Committee reviewed, the bonus amounts, if any, awarded under the enhanced Executive Bonus Program for 2012 to Messrs. Sabater, Matos, and Morata.  Santander's Evaluation and Bonus Committee, in consultation with Mr. Morán, approved the final bonus amounts for these named executive officers, subject to the approval of Santander's Appointments and Remuneration Committee and the ultimate approval of Santander's Board of Directors.

Santander's Board of Directors approved Messrs. Morán's and Yanes's bonus for 2012 in consultation with Santander's Appointments and Remuneration Committee.

We made current awards to the named executive officers under the Executive Bonus Program as short-term incentive awards for 2012 in the amounts that we set forth in the Summary Compensation Table under the caption “Non-Equity Incentive Plan Compensation.” These amounts include payments made with respect to each of the named executive officer's individual performance and the performance of Santander and SHUSA, as applicable.  Participants are required to defer a portion of the bonus as we describe below under the caption “Long-Term Incentive Compensation.” Any award made in shares of Santander common stock under the Executive Bonus Program is subject to a one-year holding requirement from the payment date of the award.  For 2013, we anticipate that the structure of our short-term incentive compensation program will be substantially the same as it was in 2012 although no final decision has been made as of the date of the filing of this Annual Report on Form 10-K.  As of the date of the filing of this Annual Report on Form 10-K, we have not set the target amounts for 2013, nor have we determined the bonus opportunities for the named executive officers for 2013.

Long-Term Incentive Compensation

For years prior to 2011, each of our named executive officers was eligible to participate in the Performance Shares Plan.  The Performance Shares Plan was the main instrument that Santander uses for providing medium- and long-term incentive compensation for selected executives across its global platform.  Santander developed the Performance Shares Plan to align the interests of Santander's executives with those of its shareholders.  The named executive officers did not receive any awards under the Performance Shares Plan for 2012, but vested in certain awards that we made in previous years.  We describe the Performance Shares Plan and the awards made to the named executive officers under the caption “Our Equity Compensation Plans” in the discussion following the Summary Compensation Table.

Under the Executive Bonus Program, certain Santander executives, including the named executive officers, are required to defer a portion of their bonus.  Messrs. Morán and Yanes must each defer 50% of their awards and Messrs. Sabater, Matos, and Morata each must defer 40% of their awards.  The deferred bonus (whether payable in cash or Santander common stock) is payable in three annual installments if the executive officer remains employed at Santander through the applicable payment date and the executive officer meets certain performance conditions.  We describe the deferral portion of the Executive Bonus Program more fully under the section entitled “Our Equity Compensation Plans.” 

Certain of Santander's executive management team, including Mr. Morán, participated in the Obligatory Investment Plan.  Under the Obligatory Investment Plan, participants were required to dedicate 10% of their annual bonus compensation to the purchase of Santander common stock.  If the participant held such shares for three years, Santander will provide a 100% match on the shares that the executive purchased.  Messrs. Sabater, Yanes, Matos, and Morata do not participate in the Obligatory Investment Plan.  The Obligatory Investment Plan terminated by its terms in 2010 for bonuses earned for 2009 performance.  We describe the Obligatory Investment Plan in more detail under the caption “Our Equity Compensation Plans”  in the discussion following the Summary Compensation Table.

Other Compensation

We model the compensation packages for the named executive officers to be competitive globally and within the country of assignment, and attractive to each executive in relation to the significant commitment he must make in connection with a global posting.  In addition to the benefits that all our team members are eligible to participate in, these named executive officers are eligible for certain other benefits and perquisites.  The additional benefits and perquisites that were significant when compared to other compensation received by our other executive officers include housing expenses, children's education costs, travel expenses, and tax equalization payments.  These benefits and perquisites are, however, consistent with those paid to similarly placed Santander executives who are subject to appointment to Santander locations globally as deemed appropriate by Santander senior management.  Additionally, Santander reviewed compensation surveys of human resources advisory firms, which have shown that these types of benefits and perquisites are common elements of expatriate programs of global companies.

We describe the additional perquisites and benefits that we paid to the named executive officers below in the notes to the Summary Compensation Table.

Retirement Benefits

Each of the named executive officers is eligible to participate in our qualified retirement plan under the same terms as our other eligible employees.  In addition, certain of Santander's executive officers, including Messrs. Sabater are eligible to participant in a defined contribution retirement plan.  In addition, Messrs. Morán and Yanes are entitled to certain payments under their employment agreements with Santander upon their retirement, including a defined contribution benefit, under certain circumstances.  Santander provides these benefits in order to foster the development of these executives' long-term careers with Santander.  We describe these executive officers' retirement benefits below under the captions “Other Arrangements,”  and in the case of Mr. Yanes, under the description of his employment agreement.

Employment and Letter Agreements

We have entered into letter agreements with our named executive officers to establish key elements of compensation that differ from our standard plans and programs.  Santander has also entered into employment agreements with Messrs. Morán and Yanes.  Messrs. Morán's and Yanes's agreements with Santander facilitates the creation of covenants, such as those prohibiting post-employment competition or solicitation by the executives.  We and Santander believe these agreements provide stability to the organization and further our overarching compensation objective of attracting and retaining the highest quality executives to manage and lead us.  We discuss these agreements below under the caption “Description of Employment and Related Agreements.” 

Benchmarking

In 2012, we did not undertake any benchmarking with respect to our named executive officers' compensation.  Santander has periodically used compensation surveys and databases to assist it in setting certain of its executive officers' overall compensation.  The following was the benchmarking that Santander undertook applicable to our named executive officers' 2012 compensation and the applicable peer groups:

•          In 2012, Towers Watson assisted Santander in benchmarking Mr. Morán's compensation.  The peer group that Santander used was Capital One Financial Corp., CNA Financial Corporation, KeyCorp, M&T Bank Corporation, Northern Trust Corporation, People's United Financial, Inc., PNC Financial Services, Inc., State Street Corporation, TD Bank, United Services Automobile Association, U.S. Bancorp, and Webster Financial Corp.

•          For Messrs. Sabater and Matos, Santander performed an analysis in 2009 using information from Towers Perrin's CDB U.S. Commercial Banks Database.  The peer group that the Company used was Citizens Financial Group, Inc., HSBC North American Holdings, Inc., Huntington Bancshares, Inc., M&T Bank Corporation, People's United Financial, Inc., PNC Financial Services, Inc., TD Bank, U.S. Bancorp, Wachovia, and Webster Financial Corp.

•          Santander did not benchmark either Mr. Yanes's or Mr. Morata's compensation.

Matters Relating to the Compensation Committee of the Board

Compensation Committee Report

For purposes of Item 407(e)(5) of Regulation S-K, the Compensation Committee furnishes the following information.  The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in Part III-Item 11 of the Form 10-K with management.  Based upon the Compensation Committee's review and discussion with management, the Compensation Committee has recommended that the Compensation Discussion and Analysis be included in the Form 10-K for the fiscal year ended December 31, 2012.

Submitted by:

Marian L. Heard, Chair

Jorge Morán 

Wolfgang Schoellkopf

The foregoing “Compensation Committee Report” shall not be deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, and notwithstanding anything to the contrary set forth in any of SHUSA's previous filings under the Securities Act or the Exchange Act, that incorporate future filings, including this Form 10-K, in whole or in part, the foregoing “Compensation Committee Report” shall not be incorporated by reference into any such filings.

Compensation Committee Interlocks and Insider Participation

The following directors served as members of our Compensation Committee in 2011: Marian Heard (Chair), Wolfgang Schoellkopf, and Jorge Morán. 

Jorge Morán had a lending relationship with Sovereign Bank that was made and remained in compliance with Regulation O of the Board of Governors of the Federal Reserve System.  Such loans (i) were made in the ordinary course of business, (ii) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to Sovereign Bank, and (iii) did not involve more than the normal risk of collectability or present other unfavorable features.  As detailed in Item 13 of this Form 10‑K, during the 2012 fiscal year, Mr. Morán also served as an executive officer of Santander and an affiliated entity, and certain relationships existed between SHUSA and its affiliates, on one hand, and Santander and its affiliates, on the other hand.  With these exceptions, no member of the Compensation Committee (i) was, during the 2012 fiscal year, or had previously been, an officer or employee of SHUSA or its subsidiaries nor (ii) had any direct or indirect material interest in a transaction of SHUSA or a business relationship with SHUSA, in each case that would require disclosure under the applicable rules of the SEC.  Except as described above, no other interlocking relationship existed between any member of our Compensation Committee or an executive officer of SHUSA, on the one hand, and any member of the Compensation Committee (or committee performing equivalent functions, or the full Board of Directors) or an executive officer of any other entity, on the other hand, requiring disclosure pursuant to the applicable rules of the SEC.

Summary Compensation Table-2012

Footnotes:

1.         Mr. Morán began serving as our President and Chief Executive Officer on February 1, 2011.  Mr. Morán also served as a director SHUSA and Sovereign Bank for 2012.  Mr. Morán receives no compensation for his service as a director.

2.         Mr. Matos also served as a director of SHUSA from January 2, 2012, through January 25, 2012, and of Sovereign Bank for all of 2012.  Mr. Matos receives no compensation for his service as a director.

3.         In 2011, Mr. Yanes was employed by Santander's New York Branch but commenced performing services for SHUSA on July 28, 2011.  Mr. Yanes formally became an employee of SHUSA on February 1, 2012.  Amounts reflect compensation that Mr. Yanes received with respect to his service with SHUSA.  Mr. Yanes also served as a director SHUSA and Sovereign Bank for 2012.  Mr. Yanes receives no compensation for his service as a director.

4.         We base the amounts in this column on actual base compensation paid through the end of the applicable fiscal year.

5.         The amounts in these columns reflect the grant date fair value of such awards in accordance with A.S.C. Topic 718, for equity awards granted under Santander's equity compensation plans.  We include the assumptions used in the calculation of these amounts in the footnotes to our audited financial statements included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2012.  We describe Santander's equity compensation programs under the caption “Our Equity Compensation Plans.”

6.         The amounts in this column for 2012 do not include amounts payable in Santander common stock that vest in future years pursuant to the terms of the Executive Bonus Program.  We describe the Executive Bonus Program under the caption “Short-Term Incentive Compensation.”  The bonuses earned by the named executive officers for 2012 before deferral were:

7.         Includes the aggregate change in the actuarial present value of the amounts that Messrs. Morán and Yanes are entitled to receive upon their retirement pursuant to the terms of their employment agreements with Santander.

8.         Includes the following amounts that we paid to or on behalf of the named executive officers:

(*)       The value that we attribute to the personal use of SHUSA-provided automobiles (as calculated in accordance with Internal Revenue Service guidelines) is generally included as compensation on the Forms W-2 of the named executive officers who receive such benefits.  Each such named executive officer is responsible for paying income tax on such amount (generally subject to the right of each named executive officer to receive a tax gross-up payment with respect to the provision of such benefits).  We determined the aggregate incremental cost of any personal use of company automobiles in accordance with the requirements of the U.S. Treasury Regulation § 1.61-21.

(**)     For 2012, includes, for Messrs. Yanes and Morán, Santander's contribution to their respective defined contribution benefit account upon the conversion of their pension benefit to a defined contribution benefit in accordance with applicable Spanish law.

(***)   Includes amounts paid to gross up for tax purposes certain perquisites in accordance with an applicable letter agreement or other arrangement.

Grants of Plan-Based Awards-2012

Footnotes: 

(1)   This column reflect the estimated target payout for named executive officers under the applicable bonus program for fiscal year 2012 based on the performance targets that Santander set on February 17, 2012.  We report the actual awards paid out under our bonus programs in the Summary Compensation Table and describe our bonus programs in the Compensation Discussion & Analysis.

(2)   Reflects the shares of vested common stock that the applicable named executive officer received under the Executive Bonus Program.  We describe the Executive Bonus Program under the caption “Our Equity Compensation Plans.”

(3)   Reflects the number of bonus deferral shares that the applicable named executive officer received under the Executive Bonus Program.  Such shares vest ratably over three years on the anniversary of the grant date.

Outstanding Equity Awards at Fiscal 2012 Year End

Footnotes: 

(1)   Santander awarded these restricted stock units on March 22, 2011, as part of the I-13 Plan.  The units vest in accordance with the terms of the I-13 Plan, which we describe under the caption “The Performance Shares Plan.”

(2)   Santander awarded these shares on February 22, 2010, under the Obligatory Investment Plan.  The shares vested on February 22, 2013, in accordance with the terms of the Obligatory Investment Plan.

(3)   Santander awarded these shares on February 15, 2011, under the Executive Bonus Program.  One-third of the shares vested on February 15, 2012, one-third vested on February 15, 2013, and one-third vest on February 15, 2014, in accordance with the terms of the Executive Bonus Program, which we describe in the Compensation Discussion and Analysis.

(4)   Santander awarded these shares on February 3, 2012, under the Executive Bonus Program.

(5)   Santander awarded these shares on February 3, 2012, under the Bonus Deferral Program.  One‑third of these shares vested on February 3, 2013, one‑third vest on February 3, 2014, and one‑third vest on February 3, 2015, in accordance with the terms of the Executive Bonus Program.

Option Exercises and Stock Vested-2012

Our Equity Compensation Plans

As we describe in the Compensation Discussion and Analysis, the named executive officers receive a portion of their compensation in Santander common stock (or American Depositary Shares, in the case of native U.S. participants or participants who elect to have their shares delivered in the U.S.).  Set forth below is a description of the equity compensation plans through which we make these common stock awards.

The Performance Shares Plan

As we describe above in the Compensation Discussion & Analysis, in 2012, each of our named executive officers vested in shares that Santander awarded under the Performance Shares Plan.  The Performance Shares Plan, which Santander sponsors for all of its eligible employees, generally consists of a multi-year bonus plan under which Santander may award a participant a maximum number of shares of Santander common stock.  The shares are subject to certain pre-established service and performance requirements.  As described above, the named executive officers no longer participate in the Performance Shares Plan.

Santander makes awards under the Performance Shares Plan in cycles, with one cycle ending each year.  Santander's shareholders approve each of these plans at annual meetings of shareholders.  Santander makes awards under the Performance Shares Plan in cycles, with one cycle ending each year.  We describe the two cycles (which we refer to as the “I‑12 Plan”  and the “I‑13 Plan” respectively) for which the named executive officers vested in shares in 2012 or held unvested shares at the end of 2012.  Santander shareholders approved each of these plans at annual meetings of shareholders.  Each plan is similarly structured and has the following features:

•          Each cycle is for a three-year period, with payout of shares no later than July 31 of the year following the end of the cycle, as follows:

•          The maximum number of shares that each participant is eligible to receive under each cycle was entirely discretionary as Santander determined based on the each participant's level within the Santander organization.

•          Each plan provides that a percentage of the maximum number of shares will vest in accordance with pre-established Santander TSR goals compared to a peer group.

•          Each plan defines TSR as the difference (expressed as a percentage) between the value of a hypothetical investment in ordinary shares of each of the members of a peer group and Santander at the end of the cycle and the value of the same investment at the beginning of the cycle.  Santander will consider dividends or similar amounts received by shareholders as if such amounts were invested in more shares.  Santander uses the trading price on the exchange with the highest trading volume to calculate the initial and final share prices.

•          Santander chooses the peer group from among the world's largest financial institutions, based on their market capitalization, geographic location, and the nature of their businesses.  The peer group may vary slightly from plan to plan.  Santander may remove a member of the peer group from the calculations in the event the member is acquired by another company, is delisted, or otherwise is otherwise ceases to be in existence.  In such a case, Santander will equitably adjust the maximum number of shares that a participant earns to reflect such removal.

•          In order for a participant to receive the shares under each plan, the plan requires the participant to remain continuously employed at Santander or a subsidiary through the June 30 of the year following the end of the cycle, except in the cases of retirement, involuntary termination, unilateral waiver by the participant for good cause (as provided under Spanish law), unfair dismissal, forced leave of absence, permanent disability, or death, in which case, the participant (or his or her beneficiary, in the case of death), will receive a pro-rated portion of the participant's award that he or she would otherwise be entitled to if the participant had remain employed based on the number of days that the participant was employed.

The maximum number of shares payable under the I-13 Plan as of the end of 2012 to the named executive officers is as follows:

*        Shares were awarded to Mr. Morán prior to becoming our President and Chief Executive Officer.

The TSR goals are as follows and the associated possible percentages that participants may earn under each Plan are as follows:

Bonus Deferral under the 2012 Executive Bonus Program

Under the Executive Bonus Program, certain executive officers, including the named executive officers, are required to defer a portion of their annual bonuses for 2012.  The deferral requirement applies to all bonuses and other variable cash compensation.  The portion that the executive officer must defer is based the executive's classification.

Santander classifies Messrs. Morán and Yanes as “Senior Management” and therefore they each must defer 50% of his award. Santander classifies Messrs. Sabater, Matos, and Morata as “Other Executives” and therefore they each must defer 40% of their respective awards.

All amounts that a participant defers under the Executive Bonus Program are deferred 50% in cash and 50% in Santander common stock.  The deferred amounts are paid out in three equal parts over three years provided that the participant remains employed through the applicable payment date (except as described below) and none of the following occurs:

•          Santander's deficient financial performance;

•          the participant's breach of internal rules, including those any related to risk;

•          material restatement of Santander's financial statements, except when modified accounting rules require such restatement; or

•          significant variation in the economic capital or in Sovereign Bank's risk profile.

Any deferred award made in shares of Santander common stock under the Executive Bonus Program is subject to a one-year holding requirement from the vesting date of the award.

Our named executive officers deferred the following amounts into the Executive Bonus Program and will be entitled to the following number of shares if the above conditions are satisfied:

*      Number of shares based on an exchange rate of €1.284177 to $1 and an €6.427 per share price on the deferral date.  Amounts deferred by and shares awarded are estimates subject to the tax-equalization provisions of their respective employment or letter agreement.

Santander's Remuneration Risk Evaluation Committee will determine whether the conditions for payment are satisfied.  Santander's Appointments and Remuneration Committee will recommend to Santander's Board whether to approve final payment of amounts under the Executive Bonus Program.

The Obligatory Investment Plan

As we note above in the Compensation Discussion & Analysis, Santander required Mr. Morán to participate in the Obligatory Investment Plan.  Santander terminated the Obligatory Investment Plan in 2010 and replaced it with the deferral feature of Executive Bonus Program, which we describe above.

The Obligatory Investment Plan generally required participants to dedicate 10% (subject to shareholder limitations) of their gross annual bonus to acquire shares of Santander common stock.  Participants in the Obligatory Investment Plan were required to purchase the required number shares of Santander common stock on the open market and deposit those shares into a designated account.  If the participant holds the shares and remains employed with Santander for three years, Santander will provide at the end of the three-year period a 100% matching contribution of the number of shares that the participant purchased.  Santander pays the matching contribution in additional shares of Santander common stock.  Participants do not receive dividends on the shares prior to vesting.  If a participant terminates employment for any reason before the end of the applicable three-year period, the participant will forfeit Santander's matching contribution.

A participant's receipt of Santander's matching contribution under the Obligatory Investment Plan is subject to there being no:

•          deficient financial performance by Santander during the three-year period,

•          poor conduct by the participant,

•          breach or falsification by the participant in violation of the internal risk rules, and

•          material restatement of the entity's financial statements.

Description of Employment and Related Agreements

We and/or Santander have entered into employment agreements and letter agreements with certain of our executive officers that were in effect at the end of fiscal year 2012.  We describe each of the agreements below.

Jorge Morán  

Mr. Morán was a party to an agreement with Santander dated June 15, 2002, as amended, which he was entitled to certain compensation and benefits.  Effective December 26, 2012, Santander and Mr. Morán agreed to a revised employment agreement.  The new agreement is similar to Mr. Morán's original agreement, except:

•          the payments that Mr. Morán is entitled to receive upon his termination of employment has been revised, as described below;