UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑
þQUARTERLY REPORT PURSUANT TO SECTIONQuarterly Report Pursuant to Section 13 ORor 15(d) OF THE SECURITIES EXCHANGE ACT OFof the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2017
OR
March 31, 2024
☐
oTRANSITION REPORT PURSUANT TO SECTIONTransition Report Pursuant to Section 13 ORor 15(d) OF THE SECURITIES EXCHANGE ACT OFof the Securities Exchange Act of 1934
For the transition period from to .
Commission File Number: 001-16581
SANTANDER HOLDINGS USA, INC.
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of
incorporation or organization)
23-2453088
(I.R.S. Employer
Identification No.)
75 State Street, Boston, Massachusetts
(Address of principal executive offices)
02109
(Zip Code)
(617) 346-7200
Registrant’s telephone number including area code (800) 493-8219
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of each exchange on which registered
Not ApplicableNot ApplicableNot Applicable
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☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o☐
Accelerated filer o☐
Emerging growth company ☐
Non-accelerated filer þFiler ☑
(Do not check if smaller reporting company)
Smaller reporting company o
☐
Emerging growth company o


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o☐
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 numberNumber of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

outstanding at April 30, 2024: 530,391,043 shares

ClassOutstanding at October 31, 2017
Common Stock (no par value)530,391,043 shares

Table of Contents



INDEX

Page
Page
4
5
6
7
Condensed Consolidated Statements of Cash Flows for the nine-month periodsthree months ended September 30, 2017March 31, 2024 and 20162023
8
9
9272
147108
147108
153108
153108
153108
153108
153108
153108
153109
154110
156111
 Ex-31.1 Certification
 Ex-31.2 Certification
 Ex-31.1 Ex-32.1 Certification
 Ex-31.2 Ex-32.2 Certification
 Ex-32.1 Certification
 Ex-32.2 Certification
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
SANTANDER HOLDINGS USA, INC., AND SUBSIDIARIES


This Quarterly Report on Form 10-Q of Santander Holdings USA, Inc. (“SHUSA” or the “Company”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding1995. Any statements about the financial condition, resultsCompany’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of operations, business planswords and future performance of the Company. Wordsphrases such as “may,” “could,” “should,” “looking forward,” “will,” “would,” “believe,“believes,” “expect,“expects,” “hope,” “anticipate,“anticipates,” “estimate,” “intend,“intends,” “plan,“plans,” “assume," "goal," "seek" or"seek," "can," "predicts," "potential," "projects," "continuing," "ongoing," and similar expressions are intended to indicate forward-looking statements.expressions.


Although SHUSAthe Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date on which the statements are made, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors and assumptions, manysome of which are beyond the Company's control. For more information regarding these risks and uncertainties as well as additional risks that the Company faces, refer to the Risk Factors detailed in Item 1A of Part 1 of the Company's annual report on Form 10-K for the year ended December 31, 2016. Among the factors that could cause SHUSA’sthe Company’s financial performance to differ materially from that suggested by forward-looking statements are:


•the effects of regulation, actions and/or policies of the Board of Governors of the Federal Reserve, System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (the "FDIC"),FDIC, the Office of the Comptroller of the Currency (the “OCC”)OCC and the Consumer Financial Protection Bureau (the “CFPB”),CFPB, and other changes in monetary and fiscal policies and regulations, including policies that affect market interest rate policies of the Federal Reserve,rates and money supply, as well as in the impact of changes in and interpretations of generally accepted accounting principles in the United States of America ("GAAP"),GAAP, the failure to adhere to which could subject SHUSA and/or its subsidiaries to formal or informal regulatory compliance and enforcement actions;actions and result in fines, penalties, restitution and other costs and expenses, changes in our business practice, and reputational harm;
•our exposure to increased credit risk to the extent our loans are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral, and changes in the credit quality of SHUSA's customers and counterparties;
•adverse economic conditions in the United States and worldwide, including the extent of recessionary conditions in the U.S. and the strength of the United StatesU.S. economy in general and regional and local economies in which SHUSA conducts operations in particular, which may affect, among other things, the level of non-performing assets, charge-offs, and provisions for credit losses;loss expense;
the ability of certain European member countries to continue to service their debt and the risk that a weakened European economy could negatively affect U.S.-based financial institutions, counterparties with which SHUSA does business, as well as the stability of global financial markets;
•inflation, interest rate, market and monetary fluctuations which may, among other things, reduce net interest margins and impact funding sources, revenue and expenses, the value of assets and obligations, and the ability to originate and distribute financial products in the primary and secondary markets;
regulatory uncertainties•bank failures and changes facedactual or perceived adverse developments at other banks, including financial or operational failures and concerns about creditworthiness or the ability of other banks to fulfill their obligations, may lead to decreased customer and investor sentiment regarding the stability and liquidity of banks in general, reduced interest by financial institutionscustomers and investors to use banking services and enter into transactions with banks, disruption in the U.S.financial markets, increased expenses for banks such as higher FDIC insurance premiums, and globally arising fromincreased regulation of banks by supervisory authorities as they seek to manage or mitigate such adverse developments;
•risks SHUSA faces implementing its growth strategy, including SHUSA's ability to grow revenue, manage expenses, attract and retain highly-skilled people, successfully complete and integrate mergers and acquisitions, and raise capital necessary to achieve its business goals and comply with regulatory requirements;
•SHUSA’s ability to effectively manage its capital and liquidity, including non-objection to its capital plans by its regulators and its subsidiaries' ability to continue to pay dividends to it;
•Reduction in SHUSA's access to funding or increases in the U.S. presidential administration and Congress and the potential impact those uncertainties andcost of its funding, such as in connection with changes could have on SHUSA's business, results of operations, financial conditionin credit ratings assigned to SHUSA or strategy;its subsidiaries, or a significant reduction in customer deposits;
•adverse movements and volatility in debt and equity capital markets and adverse changes in the securities markets, including those related to the financial condition of significant issuers in SHUSA’s investment portfolio;
SHUSA's•the ability to grow revenue, manage expenses, attractrisks inherent in our businesses, including through effective use of systems and retain highly-skilled peoplecontrols, insurance, derivatives and raise capital necessary to achieve its business goals and comply with regulatory requirements;management;
SHUSA’s ability to effectively manage its capital and liquidity, including approval of its capital plans by its regulators;
changes in credit ratings assigned to SHUSA or its subsidiaries;
•SHUSA’s ability to timely develop competitive new products and services in a changing environment that are responsive to the needs of SHUSA's customers and are profitable to SHUSA, the acceptancesuccess of such products and services byour marketing efforts to customers, and the potential for new products and services to impose additional unexpected costs, on SHUSAlosses, or other liabilities not anticipated at their initiation, and expose SHUSA to increased operational risk;
•competitors of SHUSA thatwho may have greater financial resources or lower costs, or be subject to different regulatory requirements than SHUSA, may innovate more effectively, or may develop products and technology that enable those competitors to compete more successfully than SHUSA;SHUSA and cause SHUSA to lose business or market share and impact our net income adversely;
•SC's agreement with Stellantis not resulting in currently anticipated levels of growth;
•changes in customer spending, investment or savings behavior;
•the ability of SHUSA and its third-party vendors to convert, maintain and maintainupgrade, as necessary, SHUSA’s data processing and related systemsother IT infrastructure on a timely and acceptable basis, and within projected cost estimates;estimates and without significant disruption to our business;
•SHUSA's ability to control operational risks, data security breach risks and outsourcing risks, and the possibility of errors in quantitative models and software SHUSA uses to managein its business, including as a result of cyber attacks,cyberattacks, technological failure, human error, fraud or malice by internal or external parties, and the possibility that SHUSA's controls will prove insufficient, fail or be circumvented;
•changing federal, state, and local tax laws and regulations, which may include tax rates changes, that could materially adversely affect our business, including changes to tax laws and regulations and the outcome of ongoing tax audits by federal, state and local income tax authorities that may require SHUSA to pay additional taxes or recover fewer overpayments compared to what has been accrued or paid as of period-end;
acts of terrorism or domestic or foreign military conflicts; and acts of God, including natural disasters;
•the costs and effects of regulatory or judicial actions or proceedings, including possible business restrictions resulting from such actions or proceedings; and
•the pursuit of protectionist trade or other related policies, including tariffs and sanctions by the U.S., its global trading partners and/or other countries, and/or trade disputes generally;
•adverse publicity or negative public opinion, whether specific to SHUSA or regarding other industry participants or industry-wide factors, or other reputational harm.harm;

•SHUSA’s ability to implement its ESG strategy and appropriately address social, environmental and sustainability matters that may arise from its activities;
•natural or man-made disasters including pandemics and other significant public health emergencies, effects of climate change, and SHUSA's ability to deal with disruptions caused by such disasters and emergencies;
•local, regional or global geopolitical tensions and hostilities, including acts of terrorism or domestic or foreign military conflicts and escalations of hostilities; and
•the other factors that are described in Part I, Item IA - Risk Factors of the Company's Annual Report onForm 10-K for 2023.

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

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GLOSSARY OF ABBREVIATIONS AND ACRONYMS
SHUSA provides the following list of abbreviations and acronyms as a tool for the readers that are used in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Condensed Consolidated Financial Statements and the Notes to Condensed Consolidated Financial Statements.
ABS: Asset-backed securitiesEarly stage delinquency: loans that are greater than 30 DPD, but less than 90 DPD
ABS: Asset-backed securities
Deka Lawsuit: Purported securities class action lawsuit filed against SC on August 26, 2014
ACL:ACL: Allowance for credit losses
DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act
EFG: Enterprise Financial Group
AFS: Available-for-sale
DOJ: Department of Justice
EIR: Effective interest rate
ALLL: Allowance for loan and lease losses
DTI: Debt-to-income
ERISA: Employee Retirement Security Act of 1974, as amended
Alt-A: Loans originated through brokers outside the Bank's geographic footprint, often lacking full documentation
AOCI: Accumulated other comprehensive income
ECOA: Equal Credit Opportunity Act
ESG: Environmental, Social, and Governance
AOD: Assurance of Discontinuance
APS: Amherst Pierpont Securities LLC, now known as Santander US Capital Markets LLC
EPS: Enhanced Prudential Standards
APR: Annual percentage rate
ETR: Effective tax rate
ASC:ASC: Accounting Standards Codification
Evaluation Date: March 31, 2024
ASU: Accounting Standards Update
Exchange Act: Securities Exchange Act of 1934, as amended
ASU: Accounting Standards Update
ATM: Automated teller machine		Expanded Risk-Based Approach: New approach for calculating risk-weighted assets proposed by the federal banking agencies
BHC: Bank holding company
FASB: Financial Accounting Standards Board
ATM: Automated teller machine
BHCA: Bank Holding Company Act of 1956, as amended
FBO: Foreign banking organization
Bank: Santander Bank, National Association
BOLI: Bank-owned life insurance
FCA: Fiat Chrysler Automobiles US LLC
BEA: Bureau of Economic Analysis
FDIC:FDIA: Federal Deposit Insurance Corporation
Improvement Act
BHC: Bank holding company
Broker-Dealers: SanCap and SSLLC		FDIC: Federal Deposit Insurance Corporation
BSI: Banco Santander International
Federal Reserve: Board of Governors of the Federal Reserve System
BOLI: Bank-owned life insurance
BTFP: Bank Term Funding Program
FHLB: Federal Home Loan Bank
BSI: Banco Santander International
C&I: Commercial and Industrial Banking
FHLMC: Federal Home Loan Mortgage Corporation
CBP: Citizens Bank of Pennsylvania
Capital Proposal: Proposed revisions to capital rules issued by federal banking agencies on July 27, 2023
FICO®FICO®: Fair Isaac Corporation credit scoring model
CCAR: Comprehensive Capital AnalysisCARES Act: Coronavirus Aid, Relief, and Review
Economic Security Act
Final Rule: Rule implementing certain of the EPS mandated by Section 165 of the DFA
CD: Certificate(s) of deposit
FNMA: Federal National Mortgage Association
CEO:CBB: Consumer and Business Banking
FOMC: Federal Open Market Committee
CCAP: Chrysler Capital; trade name used in providing services under the MPLFAFRB: Federal Reserve Bank
CD: Certificate of depositFTP: Funds transfer pricing
CECL: Current expected credit losses as defined by FASB ASC Topic 326FVO: Fair value option
CEO: Chief Executive Officer
FRB: Federal Reserve Bank
CEVF: Commercial equipment vehicle financing
FTP: Funds transfer pricing
CET1: Common equity Tier 1
FVO: Fair value option
CFPB: Consumer Financial Protection Bureau
GAAP: Accounting principles generally accepted in the United States of America
Change in Control: First quarter 2014 change in control and consolidation of SC
CET1: Common equity Tier 1
GCB: Global Corporate Banking
GDP: Gross domestic product
Chrysler Agreement: Ten-year private labelCEVF: Commercial equipment vehicle financing agreement with Fiat Chrysler Automobiles US LLC, formerly Chrysler Group LLC, signed by SC
HQLA: High-quality liquid assets
GNMA: Government National Mortgage Association
Chrysler Capital: Trade name used in providing services under the Chrysler Agreement
CFPB: Consumer Financial Protection Bureau		GSIB: Globally systemically important bank
CFO: Chief Financial Officer
HFI: Held-for-investment
CFTC: Commodity Futures Trading CommissionHFS: Held-for-sale
CIB: Corporate and Investment BankingHPI: Housing Price Index
CID: Civil investigative demandHTM: Held-to-maturity
CLTV: Combined loan-to-valueIBOR: Inter-bank offered rate
CME: Chicago Mercantile ExchangeIDI: Insured depository institution
Company: Santander Holdings USA, Inc.IHC: U.S. intermediate holding company
CLTV: Combined loan-to-value
IPO: Initial public offering
CMO: Collateralized mortgage obligation
IRS: Internal Revenue Service
CMP: Civil monetary penalty
ISDA: International Swaps and Derivatives Association, Inc.
CODM: Chief Operating Decision Maker
IT: Information technology
Company: Santander Holdings USA, Inc.
Lending Club: LendingClub Corporation, a peer-to-peer personal lending platform company from which SC acquired loans under flow agreements
Consent Order: Consent order signed by the Bank with the CFPB on July 14, 2016 regarding the Bank’s overdraft coverage practices for ATM and one-time debit card transactions
LCR: Liquidity coverage ratio
Covered Fund: a hedge fund or a private equity fund under the Volcker Rule
LHFI: Loans held-for-investment
IRS: Internal Revenue Service
CPR: ChangesCOVID-19: a novel strain of coronavirus declared a pandemic by the World Health Organization in anticipated loan prepayment rates
March 2020
LHFS: Loans held-for-sale
ISDA: International Swaps and Derivatives Association, Inc.
CPR: Constant prepayment rate
IT: Information technology
CRA: Community Reinvestment ActLarge Banking Organization: Large banking organizations with assets of $100 billion or more
CRE: Commercial Real Estate
LCR: Liquidity coverage ratio
DCF: Discounted cash flowLGD: Loss given default
DFA: Dodd-Frank Wall Street Reform and Consumer Protection ActLHFI: Loans held for investment
DIF: Deposit Insurance FundLHFS: Loans held for sale
DOJ: Department of JusticeLIBOR: London Interbank Offered Rate
DCF: Discounted cash flow
DPD: Days past due
LIHTC: Low Income Housing Tax Credit
income housing tax credit
DDFS: Dundon DFS LLC
DRIVE: Drive Auto Receivables Trust, a securitization platform
LTD: Long-term debt
DTI: Debt-to-incomeLTV: Loan-to-value

2



Table of Contents



MBS: Mortgage-backed securitiesSBALT: SBNA Auto Lease Trust
LTV: Loan-to-value
Santander NY: New York branch of Banco Santander, S.A.
MBS: Mortgage-backed securities
Santander UK: Santander UK plc
Massachusetts AG: Massachusetts Attorney General
SBNA: Santander Bank, National Association
MD&A: Management's Discussion and Analysis of Financial Condition and Results of Operations
SBAT: SBNA Auto Receivable Trust
MMNA: Mitsubishi Motors North America, Inc.
SC:
SBNA or the Bank: Santander Bank, National Association
Moody’s: Moody's Investors Service, Inc.SC: Santander Consumer USA Holdings Inc. and its subsidiaries
MPLFA: Ten-year master private-label financing agreement with Stellantis
SCARF: Santander Consumer Auto Receivables Funding
MSR: Mortgage servicing right
SC Common Stock: Common shares of SC
SCART: Santander Consumer Auto Receivables Trust
MVE: Market value of equity
SCB: Stress capital buffer
NCI: Non-controlling interest
SCF:SCF: Statement of cash flows
NMD: Non-maturity deposits
NCO: Net charge-off		SCH: Santander Capital Holdings LLC
NFA: National Futures Association
SDART:
SDART: Santander Drive Auto Receivables Trust a SC securitization platform
NPL: Non-performing loan
NMDs: Non-maturity deposits
SDGT:SDGT: Specially Designated Global Terrorist
NSFR: Net stable funding ratio
NMTC: New market tax credits
SEC:SEC: Securities and Exchange Commission
NYSE: New York Stock Exchange
NPL: Non-performing loan
Securities Act: Securities Act of 1933, as amended
NPR: Notice of proposed rule-making
Securities Financing Activities: Resale, repurchase securities borrowed and securities lending agreements
OCC: Office of the Comptroller of the Currency
Separation Agreement: Agreement entered into by Thomas Dundon, the former Chief Executive Officer of SC, DDFS, SC and Santander on July 2, 2015
OEM: Original equipment manufacturer
SFS: Santander Financial Services, Inc.
OIS: Overnight indexed swap
SHUSA:SHUSA: Santander Holdings USA, Inc.
Order: OCC consent order signed by SBNA on January 26, 2012 which replaced a prior order signed by the Bank and other parties with the OTS
OCI: Other comprehensive income
SIS: Santander Investment Securities Inc.
SOFR: Secured overnight financing rate
OEM: Original equipment manufacturer
SPAIN: Santander Private Auto Issuing Note
OIS: Overnight indexed swapSPE: Special purpose entity
OREO: Other real estate owned
SPAIN:SSLLC: Santander Prime Auto Issuing Note Trust, a securitization platform
Securities LLC
OTTI: Other-than-temporary impairment
SPE: Special purpose entity
Parent Company: the The parent holding company of Santander Bank, National AssociationSBNA and other consolidated subsidiaries
Sponsor Holdings: Sponsor Auto Finance Holding Series LP
Stellantis: Fiat Chrysler Automobiles U.S. LLC parent Stellantis N.V. and/or any affiliates
Pledge Agreement: Agreement which, pursuantPCH: Pierpont Capital Holdings LLC, now known as Santander Capital Holdings LLC
Subvention: Reimbursement of the finance provider by a manufacturer for the difference between a market loan or lease rate and the below-market rate given to the loan agreement, 29,598,506 shares of SC’s common stock owned by DDFS LLC are pledged as collateral under a related pledge agreement.
SSLLC: Santander Securities, LLC
customer.
REIT: Real estate investment trust
PD: Probability of default
TDR: Troubled debt restructuring
RIC: Retail installment contract
TLAC: Total loss-absorbing capacity
RV:ROU: Right-of-use
TLAC Rule: The Federal Reserve's total loss-absorbing capacity rule
RV: Recreational vehicle
Trusts: Securitization trusts
RWA:RWA: Risk-weighted assets
asset
UPB: Unpaid principal balance
S&P:&P: Standard & Poor's
VIE: Variable interest entity
SanCap: Santander: US Capital Markets LLC
VOE: Voting rights entity
Santander: Banco Santander, S.A.
VOE: Voting interest entity
YTD: Year-to-date
Santander BanCorp:UK: Santander BanCorp and its subsidiaries
UK plc


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PART II. FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)Unaudited (In thousands)
 September 30, 2017 December 31, 2016
 (in thousands)
ASSETS   
Cash and cash equivalents$7,909,625
 $10,035,859
Investment securities:   
Available-for-sale ("AFS") at fair value17,233,046
 17,024,225
Held-to-maturity (fair value of $1,542,093 and $1,635,413 as of September 30, 2017 and December 31, 2016, respectively)1,560,850
 1,658,644
Trading securities9,098
 1,630
Other investments708,294
 730,831
Loans held-for-investment (1) (5)
81,548,699
 85,819,785
Allowance for loan and lease losses ("ALLL") (5)
(3,956,145) (3,814,464)
Net loans held-for-investment77,592,554
 82,005,321
Loans held-for-sale (2)
1,988,097
 2,586,308
Premises and equipment, net (3)
883,186
 996,498
Operating lease assets, net (5)(6)
10,400,560
 9,747,223
Accrued interest receivable (5)
555,407
 599,321
Equity method investments223,380
 255,344
Goodwill4,454,925
 4,454,925
Intangible assets, net551,041
 597,244
Bank-owned life insurance1,790,201
 1,767,101
Restricted cash (5)
3,033,587
 3,016,948
Other assets (4) (5)
3,092,266
 2,882,868
TOTAL ASSETS$131,986,117
 $138,360,290
LIABILITIES   
Accrued expenses and payables$2,591,266
 $2,821,712
Deposits and other customer accounts61,877,808
 67,240,690
Borrowings and other debt obligations (5)
41,351,374
 43,524,445
Advance payments by borrowers for taxes and insurance181,903
 163,498
Deferred tax liabilities, net1,642,549
 1,420,315
Other liabilities (5)
871,417
 810,872
TOTAL LIABILITIES108,516,317
 115,981,532
STOCKHOLDER'S EQUITY   
Preferred stock (no par value; $25,000 liquidation preference; 7,500,000 shares authorized; 8,000 shares outstanding at both September 30, 2017 and December 31, 2016)195,445
 195,445
Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both September 30, 2017 and December 31, 2016)17,012,660
 16,599,497
Accumulated other comprehensive loss(145,210) (193,208)
Retained earnings3,368,210
 3,020,149
TOTAL SHUSA STOCKHOLDER'S EQUITY20,431,105
 19,621,883
Noncontrolling interest3,038,695
 2,756,875
TOTAL STOCKHOLDER'S EQUITY23,469,800
 22,378,758
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY$131,986,117
 $138,360,290
March 31, 2024December 31, 2023
ASSETS  
Cash and cash equivalents$14,413,097 $13,118,428 
Federal funds sold and securities purchased under resale agreements or similar arrangements (1)
9,465,807 10,238,714 
Investment securities:  
AFS at fair value (amortized cost of $7,957,514 and $7,925,890 as of March 31, 2024 and December 31, 2023, respectively)7,091,513 7,039,537 
Trading securities9,003,612 7,967,875 
HTM (fair value of $7,410,927 and $7,562,523 as of March 31, 2024 and December 31, 2023, respectively)8,969,064 9,039,704 
Other investments1,346,020 1,353,278 
LHFI (2) (6)
91,679,788 93,047,209 
ALLL (6)
(6,742,124)(6,932,053)
Net LHFI84,937,664 86,115,156 
LHFS (3)
596,351 160,118 
Premises and equipment, net (4)
1,015,255 987,088 
Operating lease assets, net (6)(7)
13,642,137 13,782,840 
Goodwill2,766,665 2,766,665 
Intangible assets, net277,577 287,159 
BOLI1,987,439 1,982,428 
Restricted cash (6)
5,365,963 5,549,701 
Other assets (5) (6)
4,887,576 4,583,884 
TOTAL ASSETS$165,765,740 $164,972,575 
LIABILITIES  
Accounts payables and accrued expenses$5,172,139 $5,165,566 
Deposits and other customer accounts77,684,470 77,073,176 
Federal funds purchased and securities loaned or sold under repurchase agreements (8)
16,164,451 16,290,786 
Trading liabilities2,960,617 2,699,500 
Borrowings and other debt obligations (6)
43,911,347 44,144,051 
Advance payments by borrowers for taxes and insurance191,260 165,843 
Deferred tax liabilities, net39,262 84,187 
Other liabilities (6)
1,779,359 1,848,557 
TOTAL LIABILITIES147,902,905 147,471,666 
Commitments and contingencies (Note 16)
MEZZANINE EQUITY
Preferred stock (no par value; 7,500,000 shares authorized; 2,000,000 shares outstanding at March 31, 2024 and December 31, 2023, respectively)2,000,000 2,000,000 
STOCKHOLDER'S EQUITY
Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both March 31, 2024 and December 31, 2023, respectively)17,284,611 17,284,611 
Accumulated other comprehensive loss, net of taxes(1,002,447)(1,065,568)
Retained earnings / (accumulated deficit)(419,329)(718,134)
TOTAL STOCKHOLDER'S EQUITY15,862,835 15,500,909 
TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDER'S EQUITY$165,765,740 $164,972,575 
(1) Loans held-for-investment ("LHFI") includes $204.7Includes $0.6 billion and $2.1 billion of contracts held at the FVO, at March 31, 2024 and December 31, 2023, respectively,
(2) Includes $12.5 million and $217.2$13.9 million of loans recorded at fair value at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.
(2) Recorded(3) Includes $535.4 million and $19.5 million of loans recorded at the fair value option ("FVO") or lower of cost or fair value.FVO at March 31, 2024 and December 31, 2023, respectively.
(3)(4) Net of accumulated depreciation of $1.4$2.4 billion and $1.2$2.3 billion at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.
(4)(5) Includes mortgage servicing rights ("MSRs")MSRs of $143.5$95.8 million and $146.6$94.3 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively, for which the Company has elected the FVO.
(6) The Company has interests in certain Trusts that are considered VIEs for accounting purposes. At March 31, 2024 and December 31, 2023, LHFI included $25.1 billion and $25.1 billion, Operating leases assets, net included $13.6 billion and $13.8 billion, restricted cash included $1.0 billion and $864.5 million, Other assets included $701.0 million and $638.0 million, Borrowings and other debt obligations included $25.7 billion and $25.1 billion, and Other liabilities included $111.3 million and $119.3 million of assets or liabilities, respectively, that were included within VIEs. See Note 87 to these Condensed Consolidated Financial Statements for additional information.
(5) The Company has interests in certain securitization trusts ("Trusts") that are considered variable interest entities ("VIEs") for accounting purposes. The Company consolidates VIEs where it is deemed the primary beneficiary. See Note 6 to these Condensed Consolidated Financial Statements for additional information.
(6)(7) Net of accumulated depreciation of $3.0$3.3 billion and $2.8$3.5 billion at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.
(8) Includes $362.1 million and $595.4 million of contracts recorded at the FVO at March 31, 2024 and December 31, 2023, respectively.
See accompanying notes to unauditedUnaudited Condensed Consolidated Financial Statements.Statements

4



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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)Unaudited (In thousands)
Three months ended March 31,
 20242023
INTEREST INCOME:
Loans$2,115,019 $1,981,351 
Interest-earning deposits217,053 154,365 
Interest and fees on federal funds sold and securities purchased under resale agreements or similar arrangements637,711 522,390 
Investment securities: 
AFS97,892 66,071 
HTM44,829 47,257 
Trading securities128,691 72,462 
Other investments12,691 8,253 
TOTAL INTEREST INCOME3,253,886 2,852,149 
INTEREST EXPENSE:
Deposits and other customer accounts498,920 288,837 
Interest expense on federal funds purchased and securities loaned or sold under repurchase agreements763,840 570,275 
Interest expense on trading liabilities39,078 31,856 
Borrowings and other debt obligations574,539 450,787 
TOTAL INTEREST EXPENSE1,876,377 1,341,755 
NET INTEREST INCOME1,377,509 1,510,394 
Credit loss expense404,998 542,401 
NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE972,511 967,993 
NON-INTEREST INCOME:
Consumer and commercial fees84,217 90,329 
Capital markets and foreign exchange income115,970 37,082 
Lease income593,447 628,424 
Miscellaneous income, net (1)
78,931 107,472 
TOTAL FEES AND OTHER INCOME872,565 863,307 
Net gain on sale of investment securities65,166 36,960 
TOTAL NON-INTEREST INCOME937,731 900,267 
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES:
Compensation and benefits533,780 491,751 
Occupancy and equipment expenses157,550 169,740 
Technology, outside service, and marketing expense184,310 169,293 
Loan expense83,575 104,444 
Lease expense461,521 486,967 
Other expenses138,545 120,979 
TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES1,559,281 1,543,174 
INCOME BEFORE INCOME TAX350,961 325,086 
Income tax provision7,754 28,205 
NET INCOME$343,207 $296,881 
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,
 2017 2016 2017 2016
 (in thousands)
INTEREST INCOME:       
Loans$1,822,384
 $1,889,077
 $5,530,239
 $5,755,173
Interest-earning deposits24,370
 13,400
 63,279
 41,890
Investment securities:       
Available-for-sale93,599
 60,844
 270,041
 235,851
Held-to-maturity8,859
 —
 29,502
 —
Other investments4,688
 7,641
 15,876
 25,224
TOTAL INTEREST INCOME1,953,900
 1,970,962
 5,908,937
 6,058,138
INTEREST EXPENSE:       
Deposits and other customer accounts56,707
 64,288
 177,524
 213,135
Borrowings and other debt obligations323,133
 285,544
 913,040
 863,186
TOTAL INTEREST EXPENSE379,840
 349,832
 1,090,564
 1,076,321
NET INTEREST INCOME1,574,060
 1,621,130
 4,818,373
 4,981,817
Provision for credit losses652,120
 687,912
 1,992,334
 2,200,154
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES921,940
 933,218
 2,826,039
 2,781,663
NON-INTEREST INCOME:       
Consumer and Commercial fees151,906
 171,684
 468,609
 535,583
Mortgage banking income, net14,783
 22,537
 43,049
 50,005
Bank-owned life insurance ("BOLI")17,807
 14,150
 49,159
 44,315
Lease income509,714
 483,929
 1,494,801
 1,365,519
Miscellaneous income, net93,805
 35,637
 180,217
 94,842
TOTAL FEES AND OTHER INCOME788,015
 727,937
 2,235,835
 2,090,264
Other-than-temporary impairment ("OTTI") recognized in earnings—
 —
 —
 (44)
Net gains/(losses) on sale of investment securities6,707
 (364) 16,276
 58,595
Net gains/(losses) recognized in earnings6,707
 (364) 16,276
 58,551
TOTAL NON-INTEREST INCOME794,722
 727,573
 2,252,111
 2,148,815
GENERAL AND ADMINISTRATIVE EXPENSES:       
Compensation and benefits452,587
 426,162
 1,360,444
 1,282,094
Occupancy and equipment expenses165,201
 156,611
 491,465
 453,687
Technology expense59,056
 56,449
 181,331
 183,039
Outside services46,994
 57,742
 154,272
 207,472
Marketing expense23,424
 35,944
 91,641
 77,986
Loan expense91,147
 101,101
 285,364
 307,992
Lease expense409,424
 338,077
 1,137,456
 953,142
Other administrative expenses95,712
 109,189
 293,046
 310,078
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES1,343,545
 1,281,275
 3,995,019
 3,775,490
OTHER EXPENSES:       
Amortization of intangibles15,288
 17,174
 46,204
 52,860
Deposit insurance premiums and other expenses19,792
 17,950
 55,218
 56,966
Loss on debt extinguishment5,582
 10,228
 16,321
 88,672
Other miscellaneous expenses1,980
 198
 12,521
 5,779
TOTAL OTHER EXPENSES42,642
 45,550
 130,264
 204,277
INCOME BEFORE INCOME TAX PROVISION330,475
 333,966
 952,867
 950,711
Income tax provision93,448
 108,320
 264,368
 339,968
NET INCOME INCLUDING NONCONTROLLING INTEREST237,027
 225,646
 688,499
 610,743
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST75,195
 77,672
 230,547
 257,419
NET INCOME ATTRIBUTABLE TO SANTANDER HOLDINGS USA, INC.$161,832
 $147,974
 $457,952
 $353,324
(1) Includes equity investment income/(expense), net.


See accompanying notes to unauditedUnaudited Condensed Consolidated Financial Statements.Statements

5



Table of Contents



SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)Unaudited (In thousands)
Three months ended March 31,
20242023
NET INCOME$343,207 $296,881 
OTHER COMPREHENSIVE INCOME, NET OF TAX
Net unrealized changes in cash flow hedge derivative financial instruments, net of tax51,299 88,969 
Net unrealized gains on investment in debt securities, net of tax11,639 31,235 
Pension and post-retirement actuarial gains, net of tax183 485 
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX63,121 120,689 
COMPREHENSIVE INCOME$406,328 $417,570 
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,
 2017 2016 2017 2016
 (in thousands)
NET INCOME INCLUDING NONCONTROLLING INTEREST$237,027
 $225,646
 $688,499
 $610,743
OTHER COMPREHENSIVE INCOME, NET OF TAX       
Net unrealized (losses)/gains on cash flow hedge derivative financial instruments, net of tax (1)
(492) 53,828
 3,544
 6,528
Net unrealized gains/(losses) on available-for-sale investment securities, net of tax6,538
 (66,418) 42,856
 112,786
Pension and post-retirement actuarial gains/(losses), net of tax557
 (4,449) 1,598
 (3,319)
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX6,603
 (17,039) 47,998
 115,995
COMPREHENSIVE INCOME243,630
 208,607
 736,497
 726,738
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST75,195
 77,672
 230,547
 257,419
COMPREHENSIVE INCOME ATTRIBUTABLE TO SHUSA$168,435
 $130,935
 $505,950
 $469,319

(1) Excludes $0.2 million and $0.3 million of other comprehensive loss attributable to non-controlling interest ("NCI") for the three-month and nine-month periods ended September 30, 2017, respectively, compared to other comprehensive income of $9.9 million and other comprehensive loss of $11.8 million for the corresponding periods in 2016.


See accompanying notes to unauditedUnaudited Condensed Consolidated Financial Statements.Statements


6



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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’SSTOCKHOLDER'S EQUITY
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016
(Unaudited)
(inUnaudited (In thousands)
 
Common
Shares
Outstanding
 
Preferred
Stock
 
Common
Stock and
Paid-in
Capital
 
Accumulated
Other
Comprehensive
(Loss)/Income
 
Retained
Earnings
 
Noncontrolling
Interest
 
Total
Stockholder's
Equity
Balance, January 1, 2016530,391
 $270,445
 $16,629,822
 $(170,530) $2,672,393
 $2,444,970
 $21,847,100
Comprehensive income attributable to Santander Holdings USA, Inc.—
 —
 —
 115,995
 353,324
 —
 469,319
Other comprehensive loss attributable to noncontrolling interest ("NCI")—
 —
 —
 —
 —
 (11,790) (11,790)
Net income attributable to NCI—
 —
 —
 —
 —
 257,419
 257,419
Impact of Santander Consumer USA Holdings Inc. stock option activity—
 —
 69
 —
 —
 16,308
 16,377
Redemption of preferred stock  (75,000) —
 —
 —
 —
 (75,000)
Capital distribution to shareholder—
 —
 (29,090) —
 —
 —
 (29,090)
Stock issued in connection with employee benefit and incentive compensation plans—
 —
 395
 —
 —
 —
 395
Dividends paid on preferred stock—
 —
 —
 —
 (11,478) —
 (11,478)
Balance, September 30, 2016530,391
 $195,445
 $16,601,196
 $(54,535) $3,014,239
 $2,706,907
 $22,463,252
Common Shares OutstandingCommon Stock and Paid-in CapitalAccumulated Other Comprehensive Income / (Loss), Net of TaxRetained Earnings / (Accumulated Deficit)Total Stockholder's EquityPreferred Stock Mezzanine
Balance, January 1, 2023530,391 $17,284,611 $(1,336,023)$1,481,134 $17,429,722 $500,000 
Cumulative-effect adjustment upon adoption of new accounting standards (Note 1)— — — (41,396)(41,396)— 
Comprehensive income— — 120,689 296,881 417,570 — 
Dividends paid on common stock— — — (250,000)(250,000)— 
Dividends paid on preferred stock— — — (10,513)(10,513)— 
Balance, March 31, 2023530,391 $17,284,611 $(1,215,334)$1,476,106 $17,545,383 $500,000 
Balance, January 1, 2024530,391 $17,284,611 $(1,065,568)$(718,134)$15,500,909 $2,000,000 
Comprehensive income— — 63,121 343,207 406,328 — 
Dividends paid on preferred stock— — — (44,402)(44,402)— 
Balance, March 31, 2024530,391 $17,284,611 $(1,002,447)$(419,329)$15,862,835 $2,000,000 

 
Common
Shares
Outstanding
 
Preferred
Stock
 Common
Stock and
Paid-in
Capital		 
Accumulated
Other
Comprehensive
(Loss)/Income
 
Retained
Earnings
 Noncontrolling Interest 
Total
Stockholder's
Equity
Balance, January 1, 2017530,391
 $195,445
 $16,599,497
 $(193,208) $3,020,149
 $2,756,875
 $22,378,758
Cumulative-effect adjustment upon adoption of ASU 2016-09 (Note 1)—
 —
 (26,456) —
 14,764
 37,401
 25,709
Comprehensive income attributable to Santander Holdings USA, Inc.—
 —
 —
 47,998
 457,952
 —
 505,950
Other comprehensive loss attributable to NCI—
 —
 —
 —
 —
 (321) (321)
Net income attributable to NCI—
 —
 —
 —
 —
 230,547
 230,547
Impact of Santander Consumer USA Holdings Inc. stock option activity—
 —
 —
 —
 —
 14,193
 14,193
Contribution of SFS from shareholder(1)
—
 —
 430,783
 —
 (108,705) —
 322,078
Capital contribution from shareholder—
 —
 9,000
 —
 —
 —
 9,000
Stock issued in connection with employee benefit and incentive compensation plans—
 —
 (164) —
 —
 —
 (164)
Dividends paid on common stock—
 —
 —
 —
 (5,000) —
 (5,000)
Dividends paid on preferred stock—
 —
 —
 —
 (10,950) —
 (10,950)
Balance, September 30, 2017530,391
 $195,445
 $17,012,660
 $(145,210) $3,368,210
 $3,038,695
 $23,469,800

(1) Refer to footnote 1 - Basis of Presentation and Accounting Policies for additional information

See accompanying notes to unauditedUnaudited Condensed Consolidated Financial Statements.Statements

7



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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)Unaudited (in thousands)







Nine-Month Period
Ended September 30,
 2017
2016
    
 (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income including NCI$688,499
 $610,743
Adjustments to reconcile net income to net cash provided by operating activities:   
Provision for credit losses1,992,334
 2,200,154
Deferred tax expense256,111
 271,057
Depreciation, amortization and accretion758,926
 746,607
Net loss on sale of loans256,072
 295,883
Net gain on sale of investment securities(16,276) (58,595)
Net gain on sale of operating leases(288) (248)
OTTI recognized in earnings—
 44
Loss on debt extinguishment16,321
 88,672
Net (gain)/loss on real estate owned and premises and equipment(23,395) 8,382
Stock-based compensation940
 13,360
Equity loss on equity method investments747
 4,719
Originations of loans held-for-sale ("LHFS"), net of repayments(3,805,625) (4,570,257)
Purchases of LHFS(4,021) (3,677)
Proceeds from sales of LHFS4,272,628
 3,859,060
Purchases of trading securities(9,734) (505,254)
Proceeds from sales of trading securities18,074
 525,660
Net change in:   
Revolving personal loans(139,360) (471,061)
Other assets and BOLI (1)
(200,691) (120,709)
Other liabilities (1)
(49,535) 240,917
NET CASH PROVIDED BY OPERATING ACTIVITIES4,011,727
 3,135,457
    
CASH FLOWS FROM INVESTING ACTIVITIES:   
Proceeds from sales of available-for-sale investment securities1,763,305
 6,755,298
Proceeds from prepayments and maturities of available-for-sale investment securities3,791,545
 7,897,204
Purchases of available-for-sale investment securities(6,088,005) (9,427,160)
Proceeds from repayments and maturities of held to maturity investment securities140,992
 —
Purchases of held to maturity investment securities(51,506) —
Proceeds from sales of other investments205,445
 443,715
Proceeds from maturities of other investments560
 45
Purchases of other investments(154,928) (151,011)
Net change in restricted cash(22,760) (626,970)
Proceeds from sales of LHFI1,085,985
 1,447,704
Proceeds from the sales of equity method investments17,717
 —
Distributions from equity method investments7,572
 4,244
Contributions to equity method and other investments(55,236) (24,057)
Purchases of LHFI(517,844) (162,154)
Net change in loans other than purchases and sales2,299,699
 (1,729,419)
Purchases and originations of operating leases(4,739,735) (4,624,096)
Proceeds from the sale and termination of operating leases2,911,643
 1,740,389
Manufacturer incentives778,748
 1,076,593
Proceeds from sales of real estate owned and premises and equipment97,976
 54,205
Purchases of premises and equipment(103,695) (159,608)
NET CASH PROVIDED BY INVESTING ACTIVITIES1,367,478
 2,514,922
    
CASH FLOWS FROM FINANCING ACTIVITIES:   
Net change in deposits and other customer accounts(5,171,305) 2,120,695
Net change in short-term borrowings2,105,048
 (418,856)
Net proceeds from long-term borrowings35,094,920
 35,337,224
Repayments of long-term borrowings(36,051,143) (32,824,455)
Proceeds from Federal Home Loan Bank ("FHLB") advances (with terms greater than 3 months)1,000,000
 4,700,000
Repayments of FHLB advances (with terms greater than 3 months)(4,500,000) (12,123,672)
Net change in advance payments by borrowers for taxes and insurance18,405
 25,271
Cash dividends paid to preferred stockholders(10,950) (11,478)
Dividends paid on common stock(5,000) —
Proceeds from the issuance of common stock5,586
 2,635
Capital contribution from shareholder9,000
 —
Redemption of preferred stock—
 (75,000)
NET CASH USED IN FINANCING ACTIVITIES(7,505,439) (3,267,636)
    
NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS(2,126,234) 2,382,743
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD10,035,859
 9,447,003
CASH AND CASH EQUIVALENTS, END OF PERIOD$7,909,625
 $11,829,746
    
    
NON-CASH TRANSACTIONS   
Loans transferred to other real estate owned9,536
 61,186
Loans transferred from held-for-investment to held-for-sale, net4,899
 41,803
Unsettled purchases of investment securities—
 4,613
Unsettled sales of investment securities109,106
 —
Residential loan securitizations17,945
 19,585
Contribution of SFS from shareholder (2)
322,078
 —

Three months ended March 31,
 20242023
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$343,207 $296,881 
Adjustments to reconcile net income to net cash provided by operating activities: 
Credit loss expense/(benefit)404,998 542,401 
Deferred tax (benefit) / expense(68,629)(114,938)
Depreciation, amortization and accretion681,435 651,303 
Net (gain)/loss on sale or disposal of loans, investment securities, and other assets(19,152)(40,210)
Originations and purchases of LHFS(875,053)— 
Proceeds from sales of and collections on LHFS336,574 838 
Net change in: 
Trading securities and trading liabilities, net(708,493)(1,134,765)
Other assets and BOLI(268,747)(110,767)
Other liabilities(14,603)(339,685)
Other operating activities, net1,211 (1,640)
NET CASH (USED IN) / PROVIDED BY OPERATING ACTIVITIES(187,252)(250,582)
CASH FLOWS FROM INVESTING ACTIVITIES: 
Proceeds from sales of AFS investment securities— 211,171 
Proceeds from prepayments and maturities of AFS investment securities192,297 386,921 
Purchases of AFS investment securities(275,114)(220,619)
Proceeds from prepayments and maturities of HTM investment securities129,400 116,961 
Proceeds from sales of equity method and other investments105,630 109,000 
Purchases of and contributions to equity method and other investments(160,473)(602,316)
Distributions from equity method investments1,409 2,247 
Net change in federal funds sold and securities purchased under resale agreements772,907 (3,054,777)
Proceeds from sales of LHFI893,523 29,152 
Purchases of LHFI— (46,343)
Proceeds from settlements of BOLI policies13,183 10,106 
Net change in loans other than purchases and sales(156,718)(2,048,986)
Purchases and originations of operating leases(1,830,352)(1,428,681)
Proceeds from the sale and termination of operating leases1,445,119 1,056,302 
Purchases and sales of premises and equipment, net(52,024)(35,899)
NET CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES1,078,787 (5,515,761)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits and other customer accounts611,294 166,318 
Net change in short-term borrowings(166,745)851,462 
Net proceeds from long-term borrowings8,011,174 7,314,681 
Repayments of long-term borrowings(8,091,007)(5,846,658)
Net change in federal funds purchased and securities loaned or sold under repurchase agreements(126,335)5,651,253 
Dividends paid on preferred stock(44,402)(10,513)
Other financing activities, net25,417 39,669 
NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES219,396 8,166,212 
NET INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH1,110,931 2,399,869 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD18,668,129 16,564,314 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (1)
$19,779,060 $18,964,183 
NON-CASH TRANSACTIONS
Loans transferred from/(to) LHFI (from)/to LHFS, net117 120,425 
Non-cash transfer of financial assets in an off-balance sheet securitization transaction53,050 — 
Dividends declared and payable to Shareholder— 250,000 
(1) September 30, 2016The three months ended March 31, 2024 and 2023 include cash flow activity has been updated for the deferred tax classification correction. Refer to Note 1 - Basisand cash equivalents balances of Presentation$14.4 billion and Accounting Policies for additional information.$12.6 billion, respectively, and restricted cash balances of $5.4 billion and $6.3 billion, respectively.
(2) The contribution of SFS to SHUSA was accounted for as a non-cash transaction. Refer to Note 1 - Basis of Presentation and Accounting Policies for additional information.


See accompanying notes to unauditedUnaudited Condensed Consolidated Financial Statements.Statements

8



Table of Contents

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES


Introduction

Santander Holdings USA, Inc. ("SHUSA" or "the Company")SHUSA is the parent holding company (the "Parent Company") of Santander Bank, National Association, (the "Bank" or "SBNA"),SBNA, a national banking association; Santander Consumer USA Holdings Inc. (together with its subsidiaries, "SC"),SC, a consumer finance company focused on vehicle finance; Santander BanCorp (together with its subsidiaries, "Santander BanCorp"),headquartered in Dallas, Texas; BSI, a financial holdingservices company headquartered in Puerto Rico that offers a full range of financial services through its wholly-owned banking subsidiary, Banco Santander Puerto Rico; Santander Securities, LLC ("SSLLC"), a broker-dealer headquartered in Boston, Massachusetts; Banco Santander International ("BSI"), an Edge Act corporation located in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; Santander Investment Securities Inc. ("SIS"), a registeredSanCap, an institutional broker-dealer locatedheadquartered in New York, providingwhich has significant capabilities in market-making via an experienced fixed-income sales and trading team and a focus on structuring and advisory services for asset originators in investment banking, institutional sales, tradingthe real estate and offering research reports of Latin Americanspecialty finance markets; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; and European equity and fixed income securities; as well as several other subsidiaries. SHUSA is headquartered in Boston and the Bank's mainSBNA's home office is in Wilmington, Delaware. SHUSASSLLC is a wholly-owned subsidiary of Banco Santander, S.A. ("Santander"). The Parent Company'sregistered investment adviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are the BankSBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.


The Bank’s primary business consists of attracting deposits and providing other retail banking services through its network of retail branches, and originating small business loans, middle market, large and global commercial loans, multifamily loans, residential mortgage loans, home equity loans and lines of credit, and auto and otherCompany specializes in consumer loans throughout the Mid-Atlantic and Northeastern areas of the United States, focused throughout Pennsylvania, New Jersey, New York, New Hampshire, Massachusetts, Connecticut, Rhode Island, and Delaware. The Bank uses its deposits, as well as other financing sources, to fund its loan and investment portfolios.

SC is a specialized consumer finance company focused on vehicle finance, servicing of third-party vehicle financing, and third-party servicing. SC's primary business isdelivering service to dealers and customers across the full credit spectrum. This includes indirect origination and securitizationservicing of retail installment contracts ("RICs")vehicle loans and leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to subprime retail consumers.consumers, origination of vehicle loans through a web-based direct lending program, purchases of vehicle loans from other lenders, and servicing of automobile and recreational and marine vehicle portfolios for other lenders. The Company sells consumer vehicle loans and leases through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer vehicle loans and leases.


In conjunctionaddition to specialized consumer finance, the Company also attracts deposits and provides other retail banking services through its network of retail branches with a ten-year private label financing agreement with Fiat Chrysler Automobiles US LLC ("FCA") that became effective May 1, 2013 (the "Chrysler Agreement"), SC offers a full spectrum of auto financing productslocations in Connecticut, Delaware, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and services to FCA customersRhode Island and dealers under the Chrysler Capital brand. These productsoriginates small business, middle market, large and services includeglobal commercial loans, multifamily loans, and other consumer RICsloans and leases as well as dealer loans for inventory, construction, real estate, working capitalthroughout the Mid-Atlantic and revolving lines of credit. Refer to Note 14 for additional details.

As of September 30, 2017, SC was owned approximately 58.7% by SHUSA and 41.3% by other shareholders. Common shares of SC ("SC Common Stock") are listed on the New York Stock Exchange (the "NYSE") under the trading symbol "SC."

Intermediate Holding Company ("IHC")

The enhanced prudential standards mandated by Section 165Northeastern areas of the Dodd-Frank Wall Street ReformUnited States. For large institutional investors, the Company provides structured products, emerging markets credit and Consumer Protection Act (the "DFA")(U.S. investment grade credit, U.S. rates, short-term fixed-income, debt and equity capital markets, investment banking, exchange-traded derivatives, and cash equities, benefiting from a combination of Santander’s global reach and access to financial hubs together with extensive local market knowledge and regional expertise.

Joint Venture with FDIC

In December 2023, SBNA acquired a 20 percent interest in the “Final Rule") were enactedStructured LLC for approximately $1.1 billion. The Structured LLC was established by the Federal Reserve System (the "Federal Reserve")FDIC to strengthen regulatory oversighthold and service a $9 billion portfolio primarily consisting of foreign banking organizations ("FBOs").New York-based rent-controlled and rent-stabilized multifamily loans retained by the FDIC following a recent bank failure. SBNA classifies its 20 percent interest in the Structured LLC as an AFS debt security. Under the Final Rule, FBOs with over $50 billionterms of U.S. non-branch assets, including Santander, were required to consolidate U.S. subsidiary activities under an IHC. Due tothe arrangement, SBNA will receive payments from the Structured LLC generated from net cash flows of the underlying loans based on its U.S. non-branch total consolidated asset size, Santander is subject to the Final Rule. As a result of this rule, Santander transferred substantially all of its equity interests in U.S. bank and non-bank subsidiaries previously outside the Company to the Company, which became an IHC effective July 1, 2016. These subsidiaries included Santander BanCorp, BSI, SIS and SSLLC, as well as several other subsidiaries.

On July 1, 2017, an additional Santander subsidiary, Santander Financial Services, Inc. ("SFS"), a finance company located in Puerto Rico, was transferred to the Company. The contribution of SFS to the Company transferred approximately $679 million of assets, which were primarily comprised of cash and cash equivalents and loans held for sale, approximately $357 million of liabilities and approximately $322 million of equity to the Company. Moreover, the Company isproportionate interest in the process of dissolvingStructured LLC. SBNA is the business assets.loan portfolio servicer and is paid a market rate servicing fee by the Structured LLC.




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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)

SFS is an entity under common control of Santander; however its results of operations, financial condition, and cash flows are immaterial to the historical financial results of the Company. As a result, the Company has determined that it will report the results of SFS on a prospective basis beginning July 1, 2017 rather than, as required by GAAP, retrospectively restate its financial statements for the contribution of SFS. As a result, SHUSA's net income is understated for the nine-month period ended September 30, 2017 and September 30, 2016 by $3.3 million and $14.7 million, respectively, and a contribution to stockholder's equity of $322.1 million was recorded on July 1, 2017, which are immaterial to the overall presentation of the Company's financial statements for each of the periods presented.

Basis of Presentation


These Condensed Consolidated Financial Statements include the accounts of the Company and its consolidated subsidiaries, including the Bank, SC, and certain special purpose financing trusts utilized in financing transactionsTrusts that are considered VIEs. The Company generally consolidates VIEs for which it is deemed to be the primary beneficiary and generally consolidates voting interest entities ("VOEs")VOEs in which the Company has a controlling financial interest. The Condensed Consolidated Financial Statements have been prepared by the Company pursuant to Securities and Exchange Commission ("SEC") regulations. All significant intercompany balances and transactions have been eliminated in consolidation. Additionally, where applicable, the Company's accounting policies conform

These Condensed Consolidated Financial Statements have been prepared in accordance with GAAP and pursuant to the accounting and reporting guidelines prescribed by bank regulatory authorities.SEC regulations. In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments of a normal and recurring nature necessary for a fair statement of the Condensed Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholder's Equity and StatementsStatement of Cash Flows ("SCF") for the periods indicated, and contain adequate disclosure forto make the fair statement of this interim financial information.information presented not misleading.


Correction of Deferred Tax Classification

Beginning December 31, 2015 through March 31, 2017, net deferred tax assets and net deferred tax liabilities of entities filing separate U.S. Federal tax returns were improperly offset in the Company’s Consolidated Balance Sheet. As a result, the Company understated Deferred Tax Assets, Total Assets, Deferred Tax Liabilities and Total Liabilities by $981.7 million, $989.8 million, $791.2 million, $756.1 million, $743.0 million, and $804.5 million for the periods ended March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015, respectively.

The Company has determined that the impact of the misclassification of deferred tax balances in the Consolidated Balance Sheets for the periods ended March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015 and the corresponding impact of an overstatement of previously disclosed capital ratios ranging from 8 bpsCertain prior-year amounts have been reclassified to 17 bps are immaterial for all periods.

There was no significant impactconform to the Company’s Consolidated Statements of Operations, Consolidated Statements of Other Comprehensive Income, Consolidated Statements of Equity, or Consolidated Statement of Cash Flows for any period.

The Company has corrected the balances described above as of December 31, 2016 in its Consolidated Balance Sheet included herein. In future filings, the Company will correct the deferred tax classification balances and capital ratio disclosures for the periods described above when presented.

Significant Accounting Policies

Management has identified (i) accounting for consolidation, (ii) business combinations, (iii) the allowance for loan losses for originated and purchased loans and the reserve for unfunded lending commitments, (iv) loan modifications and troubled debt restructurings (“TDRs”), (v) goodwill, (vi) derivatives and hedging activities, and (vii) income taxes ascurrent year presentation. These reclassifications did not have a material impact on the Company's significant accounting policies and estimates, in that they are important to the portrayal of the Company'sconsolidated financial condition or results of operations and cash flows and the accounting estimates related thereto require management's most difficult, subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2016.operations.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)


AsUse of September 30, 2017,Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the exception of the items notedreported amounts in the section captioned "Recently Adopted Accounting Policies" below, there have been nofinancial statements and accompanying notes. Actual results could differ from those estimates, and those differences may be material. The most significant changes toestimates include the Company's accounting policies as disclosed in the Annual ReportACL, expected end-of-term lease residual values, and goodwill. These estimates, although based on Form 10-K for the year ended December 31, 2016.actual historical trends and modeling, may potentially show significant variances over time.



Recently Adopted Accounting PoliciesStandards

SinceOn January 1, 2017,2024, the Company adopted ASU 2023-02 Accounting for Investments in Tax Credit Structures Using the following Financial Accounting Standards Board ("FASB") Accounting Standards Updates ("ASUs"):

ASU 2016-09, Compensation - Stock Compensation (Topic 718). This new guidance simplifies certain aspects related to income taxes,Proportional Amortization Method, which permits the Statementuse of Cash Flows, and forfeitures when accounting for share-based payment transactions. ASU 2016-09 eliminates the requirement to recognize excess tax benefits in Accumulated Paid In Capital pools, and instead requires companies to record all excess tax benefits and deficiencies at settlement, vesting or expiration in the income statement as provision for income taxes. At adoption of ASU 2016-09 on January 1, 2017, the cumulative-effect for previously unrecognized excess tax benefits totaled $27.1 million net of tax, and was recognized through an increase of $14.8 million to beginning retained earnings and $37.4 million to NCI, offset by a decrease of $26.5 million to common stock and paid in capital. The Company recorded excess tax benefits, net of tax of $194 thousand and $241 thousand in the provision for income taxes rather than as an increase to additional paid-in capital for the three-month and nine-month periods ended September 30, 2017, on a prospective basis. Therefore, the prior period presented has not been adjusted. All excess tax benefits along with other income tax cash flows will now be classified as an operating activity rather than financing activities in the Statement of Cash Flows on a prospective basis. In addition, the Company voluntarily changed its accounting policy on forfeitures from previously recognizing forfeitures based on estimatingelection to apply the number of awards expectedproportional amortization method to be forfeited to electing to recognize forfeiture of awards as they occur to simplify the accounting for forfeitures. This resulted in a cumulative adjustment, as a decrease to beginning retained earnings of $1.4 million.
In January 2017, the FASB also issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. It removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The new rules provideall tax equity investments that a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. The same one-step impairment test will be applied to goodwill at all reporting units. The revised guidance will be applied prospectively, and is effective for calendar year-end SEC filers in 2020. Early adoption is permitted for impairment tests performed after January 1, 2017. The Company adopted this ASU as of October 1, 2017.
meet specific criteria. The adoption of the following ASUsthis standard did not have an impact on the Company's financial position or results of operations.

On January 1, 2023, the Company adopted ASU 2022-02Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures. Upon adoption of the standard, the Company recorded an increase in the ACL of approximately $55.2 million, a decrease in retained earnings of approximately $41.4 million and a decrease in deferred tax liabilities of approximately $13.8 million. Refer to Note 3 for additional information on modified loans.

ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge
Recently Issued Accounting Relationships.
Standards Not Yet Adopted
ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments.

ASU 2016-07, Investments-Equity Method and Joint Ventures (Topic 323).
ASU 2016-17, Consolidation (Topic 810), Interest Held Through Related Parties That Are Under Common Control.



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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 2. RECENT ACCOUNTING DEVELOPMENTS

In May 2014,On August 23, 2023, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU, as amended, requires an entity2023-05 Business Combinations - Joint Venture Formations, Recognition and Initial Measurement requiring most assets and liabilities contributed to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expectsa joint venture upon formation to be entitled in exchangemeasured at fair market value. The new guidance is effective prospectively for those goodsall joint ventures with a formation date on or services.after January 1, 2025, and early adoption is permitted. The amendment includes a five-step process to assist an entity in achieving the main principle(s) of revenue recognition under ASC 606. The amended standard will be effective for the Company for the first annual period beginning after December 15, 2017. It should be applied retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption.

Because the ASU does not apply to revenue associated with leases and financial instruments (including loans, securities, and derivatives), the Company does not expect the new guidance to have a material impact on the elementsCompany’s financial position or results of its Consolidated Statements of Operations most closely associated with leases and financial instruments (such as interest income, interest expense and securities gains and losses). In addition to potential timing differences for revenue recognition under the new standard, SHUSA is evaluating the standard’s guidance for assessment of gross versus net reporting of revenues and expenses related to certain arrangements such as security underwriting. The Company is also in the process of developing additional quantitative and qualitative disclosures that are required upon the adoption of the new revenue recognition standard. The Company expects to adopt this ASU in the first quarter of 2018 using a modified retrospective approach with a cumulative-effect adjustment to opening retained earnings. The Company does not expect the adjustment to be material. operations.


In February 2016,On November 27, 2023, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance, as amended,2023-07 Segment Reporting – Improvements to Reportable Segment Disclosures, which enhances segment disclosure requirements primarily in this update supersedes the current lease accounting guidance for both lessees and lessors under ASC 840, Leases.area of significant segment expenses. The new guidance requires lessees to evaluate whether a lease is a finance lease using criteria similar to what lessees use today to determine whether they have a capital lease. Leases not classified as finance leasesdisclosure requirements are classified as operating leases. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. The lessee is also required to record a right-of-use asset and a lease liabilityretrospectively for all leasesperiods presented beginning with a term of greater than 12 months regardless of their classification. Leasesthe 2024 annual financial statements and interim periods thereafter, with a term of 12 months or less will be accounted for similarly to today’s guidance for operating leases. The new guidance will require lessors to account for leases using an approach that is substantially similar to the existing guidance. The Company currently recognizes assets and liabilities for all of its vehicle lease transactions. This new guidance will be effective for the Company for the first reporting period beginning afterearly adoption permitted.

On December 15, 2018, with earlier adoption permitted. The Company does not intend to early adopt this ASU. Adoption of this amendment must be applied on a modified retrospective approach. The Company is in the process of reviewing our existing property and equipment lease contracts, as well as service contracts that may include embedded leases. Upon adoption, the Company expects to report higher assets and liabilities from recording the present value of the future minimum lease payments of the leases.

In June 2016,14, 2023, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement2023-09 Income Taxes – Improvements to Income Tax Disclosures, requiring consistent categories and greater disaggregation of Credit Losses on Financial Instruments. This new guidance significantly changes how entities will measure credit losses for most financial assetsinformation in the rate reconciliation, and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the OTTI model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans.income taxes paid disaggregated by jurisdiction. The new guidance will bedisclosure requirements are effective for the Company for the first reporting periodannual periods beginning after December 15, 2019,in 2025, with earlierearly adoption permitted. Adoption of this new guidance can be applied only on a prospective basis as a cumulative-effect adjustment to retained earnings.

Subsequent Events

The Company is currently evaluatingevaluated events from the impactdate of these Condensed Consolidated Financial Statements on March 31, 2024 through the new guidance on itsissuance of these Condensed Consolidated Financial Statements. It is expectedExcept as noted in Note 9 to these Condensed Consolidated Financial Statements, there were no material events in that the new model will include different assumptions usedperiod that would require recognition or disclosure in calculating credit losses, suchits Condensed Consolidated Financial Statements as estimating losses over the estimated life of a financial asset, and will consider expected future changes in macroeconomic conditions. The adoption of this ASU may result in an increase to the Company’s allowance for credit losses (“ACL”), which will depend upon the nature and characteristics of the Company's portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at that date. The Company currently does not intend to early adopt this new guidance.March 31, 2024.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 2. RECENT ACCOUNTING DEVELOPMENTS (continued)INVESTMENT SECURITIES


In addition to those describedSummary of Investments in detail above, the Company is also in the process of evaluating the following ASUs and does not expect them to have a material impact on the Company's financial position, results of operations, or disclosures:

ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
ASU 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (A consensus of the FASB Emerging Issues Task Force)
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
- AFS and HTM
ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting
ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities


NOTE 3. INVESTMENT SECURITIES

Investment Securities Summary - Available-for-sale and Held-to-Maturity


The following tables presenttable presents the amortized cost, gross unrealized gains and losses and approximate fair values of investments in debt securities available-for-saleAFS at the dates indicated:
 March 31, 2024December 31, 2023
(in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Loss		Fair
Value		Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Loss		Fair
Value
U.S. Treasury securities$226,294 $80 $(15)$226,359 $25,391 $18 $— $25,409 
Corporate debt securities2,128 2 — 2,130 31,584 7 (1)31,590 
ABS550,506 232 (999)549,739 512,553 29 (1,919)510,663 
Beneficial interest in Structured LLC (2)
1,105,817 — (23,469)1,082,348 1,122,510 — — 1,122,510 
MBS:        
GNMA - Residential3,123,600 — (383,366)2,740,234 3,187,600 — (394,756)2,792,844 
GNMA - Commercial655,566 4 (144,425)511,145 659,882 4 (141,672)518,214 
FHLMC and FNMA - Residential2,283,311 1 (392,303)1,891,009 2,330,558 3 (381,142)1,949,419 
FHLMC and FNMA - Commercial91,689 — (3,140)88,549 91,821 — (2,933)88,888 
Unallocated fair value hedge basis adjustment (1)
(81,397)— 81,397 — (36,009)— 36,009 — 
Total investments in debt securities AFS$7,957,514 $319 $(866,320)$7,091,513 $7,925,890 $61 $(886,414)$7,039,537 
(1) The Company has entered into fair value hedges of portions of a closed portfolio of AFS debt securities, using the portfolio layer method. Refer to Note 12 for additional information.
 September 30, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Loss
 
Fair
Value
 (in thousands)
U.S. Treasury securities$1,669,963
 $524
 $(2,380) $1,668,107
Corporate debt securities43,798
 97
 —
 43,895
Asset-backed securities (“ABS”)524,503
 12,315
 (985) 535,833
Equity securities11,364
 1
 (538) 10,827
State and municipal securities25
 —
 —
 25
Mortgage-backed securities (“MBS”):       
U.S. government agencies - Residential5,243,543
 7,268
 (44,468) 5,206,343
U.S. government agencies - Commercial1,375,787
 1,888
 (9,440) 1,368,235
Federal Home Loan Mortgage Corporation (“FHLMC”)
and Federal National Mortgage Association ("FNMA") - Residential debt securities		8,482,935
 11,540
 (117,466) 8,377,009
FHLMC and FNMA - Commercial debt securities23,163
 —
 (392) 22,771
Non-agency securities1
 —
 —
 1
Total investment securities AFS$17,375,082
 $33,633
 $(175,669) $17,233,046
(2) Represents a 20 percent interest in the Structured LLC to hold and service a pool of multi-family loans.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 3. INVESTMENT SECURITIES (continued)

 December 31, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Loss
 
Fair
Value
 (in thousands)
U.S. Treasury securities$1,857,357
 $1,826
 $(2,326) $1,856,857
ABS1,196,702
 16,410
 (2,388) 1,210,724
Equity securities11,716
 —
 (565) 11,151
State and municipal securities30
 —
 —
 30
MBS:       
U.S. government agencies - Residential5,424,412
 3,253
 (64,537) 5,363,128
U.S. government agencies - Commercial948,696
 1,998
 (8,196) 942,498
FHLMC and FNMA - Residential debt securities7,765,003
 6,712
 (154,858) 7,616,857
FHLMC and FNMA - Commercial debt securities23,636
 —
 (670) 22,966
Non-agency securities14
 —
 —
 14
Total investment securities AFS$17,227,566
 $30,199
 $(233,540) $17,024,225


The following tables presenttable presents the amortized cost, gross unrealized gains and losses and approximate fair values of investments in debt securities held-to-maturityHTM at the dates indicated:
 March 31, 2024December 31, 2023
(in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Loss		Fair
Value		Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Loss		Fair
Value
Investment securities:    
ABS and other interests in structured securities$82,024 $— $(283)$81,741 $29,701 $— $(363)$29,338 
MBS:   
GNMA - Residential2,705,439 177 (501,124)2,204,492 2,752,158 724 (469,929)2,282,953 
GNMA - Commercial4,793,728 — (924,608)3,869,120 4,843,478 492 (894,635)3,949,335 
FHLMC and FNMA - Residential1,387,873 — (132,299)1,255,574 1,414,367 — (113,470)1,300,897 
Total investments in debt securities HTM$8,969,064 $177 $(1,558,314)$7,410,927 $9,039,704 $1,216 $(1,478,397)$7,562,523 
 September 30, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Loss
 
Fair
Value
 (in thousands)
MBS:       
U.S. government agencies - Residential$1,509,428
 $2,207
 $(21,100) $1,490,535
U.S. government agencies - Commercial51,422
 136
 —
 51,558
Total investment securities held-to-maturity$1,560,850
 $2,343
 $(21,100) $1,542,093

 December 31, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Loss
 
Fair
Value
 (in thousands)
MBS:      
U.S. government agencies - Residential$1,658,644
 $2,195
 $(25,426) $1,635,413
Total investment securities held-to-maturity$1,658,644
 $2,195
 $(25,426) $1,635,413

The Company continuously evaluates its investment strategies in light of changes in the regulatory and market environments that could have an impact on capital and liquidity. Based on this evaluation, it is reasonably possible that the Company may elect to pursue other strategies relative to its investment securities portfolio.


As of September 30, 2017March 31, 2024 and December 31, 2016,2023, the Company had investment securities available-for-sale with an estimated faircarrying value of $6.5$9.2 billion and $7.2$11.2 billion, respectively, pledged as collateral. The Company's investment securities pledged as collateral which waswere comprised of the following: $3.0$4.4 billion and $3.2$7.5 billion, respectively, were pledged as collateral for the Company's borrowing capacity with the Federal Reserve Bank ("FRB"); $2.3FRB; $3.2 billion and $3.0$3.2 billion, respectively, were pledged to secure public fund deposits; $119.6$59.6 million and $109.7$95.6 million, respectively, were pledged to various independent parties to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; $623.8$343.7 million and $622.0 million, respectively, were pledged to deposits with clearing organizations; and $422.1 million and $271.2$349.9 million, respectively, were pledged to secure the Company's customer overnight sweep product.

14


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 3. INVESTMENT SECURITIES (continued)

At September 30, 2017product; and $1.2 billion and $0.0 million, respectively, were pledged as collateral for the Company's borrowing capacity with the FHLB as of March 31, 2024 and December 31, 2016,2023. There were no amounts pledged to secure repurchase agreements in which the secured party has the right to sell or repledge the collateral as of March 31, 2024 or December 31, 2023. The Company also participates in Securities Financing Activities discussed further in Note 11 to these Condensed Consolidated Financial Statements.

At March 31, 2024 and December 31, 2023, the Company had $48.1$109.5 million and $44.8$79.6 million, respectively, of accrued interest related to investment securities which is included in the Accrued interest receivableOther assets line of the Company's Condensed Consolidated Balance Sheet.Sheets. No accrued interest related to investment securities was written off during the periods ended March 31, 2024 or December 31, 2023.

11


Table of Contents
NOTE 2. INVESTMENT SECURITIES (continued)

Contractual Maturity of Investments in Debt Securities

Contractual maturities of the Company’s debt securities available-for-sale at September 30, 2017 were as follows:
 Amortized Cost Fair Value
 (in thousands)
Due within one year$875,069
 $875,216
Due after 1 year but within 5 years1,221,182
 1,231,546
Due after 5 years but within 10 years210,785
 210,395
Due after 10 years15,056,682
 14,905,062
Total$17,363,718
 $17,222,219
    

Contractual maturities of the Company’s investments in debt securities held-to-maturityAFS at September 30, 2017March 31, 2024 were as follows:
Amortized Cost Fair Value
(in thousands)
(in thousands)
(in thousands)
(in thousands)
Amortized Cost(1)
Fair Value
Due within one year
Due after 1 year but within 5 years
Due after 5 years but within 10 years
Due after 10 years$1,560,850
 $1,542,093
Total$1,560,850
 $1,542,093
   
(1) Does not include unallocated fair value hedge basis adjustment.

Contractual maturities of the Company’s investments in debt securities HTM at March 31, 2024 were as follows:
(in thousands)Amortized CostFair Value
Due within one year$— $— 
Due after 1 year but within 5 years28,974 28,690 
Due after 5 years but within 10 years57,618 57,369 
Due after 10 years8,882,472 7,324,868 
Total$8,969,064 $7,410,927 

Actual maturities may differ from contractual maturities when there is a right to call or prepay obligations with or without call or prepayment penalties.


12


Table of Contents
NOTE 2. INVESTMENT SECURITIES (continued)

Gross Unrealized Loss and Fair Value of Investments in Debt Securities Available-for-SaleAFS and Held-to-maturityHTM


The following tables presenttable presents the aggregate amount of unrealized losses as of September 30, 2017 and December 31, 2016on debt securities in the Company’s AFS investment portfolios classified according to the amount of time those securities have been in a continuous loss position:position as of the dates indicated:
 March 31, 2024December 31, 2023
 Less than 12 months12 months or longerLess than 12 months12 months or longer
(in thousands)Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
U.S. Treasury securities$6,954 $(15)$— $— $6,992 $— $— $— 
Corporate debt securities72 — 13 — 7,325 (1)13 — 
ABS84,402 (79)131,838 (920)6,749 (168)402,325 (1,751)
Beneficial Interest in Structured Entities1,046,284 (23,469)— — — — — — 
MBS:        
GNMA - Residential— — 2,739,232 (383,366)— — 2,792,843 (394,756)
GNMA - Commercial— — 511,142 (144,425)— — 518,210 (141,672)
FHLMC and FNMA - Residential— — 1,890,924 (392,303)— — 1,949,320 (381,142)
FHLMC and FNMA - Commercial— — 88,549 (3,140)— — 88,888 (2,933)
Total investments in debt securities AFS (1)
$1,137,712 $(23,563)$5,361,698 $(924,154)$21,066 $(169)$5,751,599 $(922,254)
 September 30, 2017
 Less than 12 months 12 months or longer Total
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
 (in thousands)
U.S. Treasury securities$1,028,957
 $(2,380) $—
 $—
 $1,028,957
 $(2,380)
ABS28,047
 (280) 99,474
 (705) 127,521
 (985)
Equity securities666
 (11) 9,981
 (527) 10,647
 (538)
MBS:           
U.S. government agencies - Residential2,706,703
 (34,342) 887,686
 (10,126) 3,594,389
 (44,468)
U.S. government agencies - Commercial905,790
 (5,797) 77,367
 (3,643) 983,157
 (9,440)
FHLMC and FNMA - Residential debt securities4,382,804
 (54,005) 1,587,768
 (63,461) 5,970,572
 (117,466)
FHLMC and FNMA - Commercial debt securities22,316
 (382) 455
 (10) 22,771
 (392)
Total investment securities AFS$9,075,283
 $(97,197) $2,662,731
 $(78,472) $11,738,014
 $(175,669)
(1) Does not include unallocated fair value hedge basis adjustment.

15


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 3. INVESTMENT SECURITIES (continued)

 December 31, 2016
 Less than 12 months 12 months or longer Total
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
 (in thousands)
U.S. Treasury securities$1,016,654
 $(2,326) $—
 $—
 $1,016,654
 $(2,326)
ABS76,552
 (1,021) 111,758
 (1,367) 188,310
 (2,388)
Equity securities770
 (16) 9,800
 (549) 10,570
 (565)
MBS:           
U.S. government agencies - Residential3,831,354
 (46,846) 1,027,609
 (17,691) 4,858,963
 (64,537)
U.S. government agencies - Commercial532,334
 (4,451) 98,918
 (3,745) 631,252
 (8,196)
FHLMC and FNMA - Residential debt securities4,740,824
 (58,514) 1,981,886
 (96,344) 6,722,710
 (154,858)
FHLMC and FNMA - Commercial debt securities22,504
 (659) 462
 (11) 22,966
 (670)
Total investment securities AFS$10,220,992
 $(113,833) $3,230,433
 $(119,707) $13,451,425
 $(233,540)


The following tables presenttable presents the aggregate amount of unrealized losses as of September 30, 2017 and December 31, 2016 on debt securities in the Company’s held-to-maturityHTM investment portfolios classified according to the amount of time those securities have been in a continuous loss position:
  September 30, 2017
  Less than 12 months 12 months or longer Total
  Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
  (in thousands)
MBS:            
U.S. government agencies - Residential $1,198,222
 $(21,100) $—
 $—
 $1,198,222
 $(21,100)
Total investment securities held-to-maturity $1,198,222
 $(21,100) $—
 $—
 $1,198,222
 $(21,100)

  December 31, 2016
  Less than 12 months 12 months or longer Total
  Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
  (in thousands)
MBS:         
 
U.S. government agencies - Residential $1,311,390
 $(25,426) $—
 $—
 $1,311,390
 $(25,426)
Total investment securities held-to-maturity $1,311,390
 $(25,426) $—
 $—
 $1,311,390
 $(25,426)

OTTI

Management evaluates all investment securities in an unrealized loss position for OTTI on a quarterly basis. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. The OTTI assessment is a subjective process requiring the use of judgments and assumptions. During the securities-level assessments, consideration is given to (1) the intent not to sell and probability that the Company will not be required to sell the security before recovery of its cost basis to allow for any anticipated recovery in fair value, (2) the financial condition and near-term prospectsas of the issuer, as well as company newsdates indicated:
March 31, 2024December 31, 2023
Less than 12 months12 months or longerLess than 12 months12 months or longer
(in thousands)Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
ABS and other interests in structured securities$3,537 $— $25,155 $(283)$22,461 $(313)$6,878 $(50)
MBS:
GNMA - Residential66,910 (429)2,091,347 (500,695)— — 2,166,032 (469,929)
GNMA - Commercial69,063 (1,130)3,800,058 (923,478)45,983 (1,610)3,856,536 (893,025)
FHLMC and FNMA - Residential56,350 (827)1,199,224 (131,472)57,955 (528)1,242,941 (112,942)
Total investments in debt securities HTM$195,860 $(2,386)$7,115,784 $(1,555,928)$126,399 $(2,451)$7,272,387 $(1,475,946)

Allowance for credit-related losses on AFS and current events, and (3) the ability to collect the future expected cash flows. Key assumptions utilized to forecast expected cash flows may include loss severity, expected cumulative loss percentage, cumulative loss percentage to date, weighted average Fair Isaac Corporation ("FICO®") scores and weighted average loan-to-value ("LTV") ratio, rating or scoring, credit ratings and market spreads, as applicable.HTM securities


16


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 3. INVESTMENT SECURITIES (continued)

The Company assesses and recognizes OTTIdid not record an allowance for credit-related losses on AFS or HTM securities at March 31, 2024 or December 31, 2023. As discussed in accordance with applicable accounting standards. Under these standards, if the Company determines that impairment on its debt securities exists and it has made the decision to sell the security or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, it recognizes the entire portion of the unrealized loss in earnings. If the Company has not made a decision to sell the security and it does not expect that it will be required to sell the security priorNote 1 to the recoveryCompany's Annual Report on Form 10-K for 2023, securities for which management expects risk of nonpayment of the amortized cost basis but the Company has determinedis zero do not have a reserve.

For securities that OTTI exists, it recognizes the credit-related portion of the decline in value of the security in earnings.

The Company diddo not record any material OTTI in earnings related to its investment securitiesqualify for the three-month and nine-month periods ended September 30, 2017 and recognized $0 thousand and $44 thousand OTTI for the three-month and nine-month periods ended September 30, 2016, respectively.

Managementzero credit loss expectation exception, management has concluded that the unrealized losses on its debt and equity securities for which it hasare not recognized OTTI (which were comprised of 520 individual securities at September 30, 2017) are temporary in naturecredit-related since (1) they reflect the increase in interest rates which lowers the current fair value of the securities, (2) they are not related to the underlying credit quality of the issuers, (3)(2) the entire contractual principal and interest due on these securities is currently expected to be recoverable, (4)(3) the Company does not intend to sell these investments at a loss and (5)(4) it is more likely than not that the Company will not be required to sell the investments before recovery of the amortized cost basis, which for the Company's debt securities may be at maturity. Accordingly, the Company has concluded that the impairment on these securities is not other-than-temporary.



13


Table of Contents
NOTE 2. INVESTMENT SECURITIES (continued)

Gains (Losses) and Proceeds on Sales of Investment Securities


Proceeds from sales of investment securities and theThe realized gross gains and losses from those sales areof investment securities were as follows:follows for the periods indicated:
Three months ended March 31,
(in thousands)20242023
AFS debt and other securities:
Gross realized gains$— $192 
Gross realized losses— (4,690)
Net realized gains/(losses) on AFS and other securities$— $(4,498)
Total trading securities gains/(losses)65,166 41,458 
Total realized gains/(losses) in income from investments$65,166 $36,960 
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,
 2017 2016 2017 2016
 (in thousands) (in thousands)
Proceeds from the sales of AFS securities$566,286
 $—
 $1,872,411
 $6,755,298
        
Gross realized gains$7,123
 $—
 $18,247
 $60,328
Gross realized losses—
 —
 —
 (2,558)
OTTI—
 —
 —
 (44)
    Net realized gains (1)
$7,123
 $—
 $18,247
 $57,726

(1) Excludes the net realized gains/(losses) related to trading securities.


The Company uses the specific identification method to determine the cost of the securities sold and the gain or loss recognized.

The Company recognized $7.1 million and $18.2 million for the three-month and nine-month periods ended September 30, 2017, in net gains on the sale of AFS investment securities as a result of overall balance sheet and interest rate risk management. The net gain realized for the three-month period ended September 30, 2017 was primarily comprised of the sale of MBS's, including FHLMC residential debt securities and collateralized mortgage obligations ("CMOs"), with a book value of $558.6 million for a gain of $7.0 million. The net gain realized for the nine-month period ended September 30, 2017 was primarily comprised of the sale of U.S. Treasury securities with a book value of $739.4 million for a gain of $1.8 million, and the sale of MBS's, including FHLMC residential debt securities and collateralized mortgage obligations ("CMOs"), with a book value of $1.1 billion for a gain of $16.3 million.
The Company recognized $57.7 million for the nine-month period ended September 30, 2016, in net gains on the sale of AFS investment securities as a result of overall balance sheet and interest rate risk management. The net gain realized for the nine-month period ended September 30, 2016 was primarily comprised of the sale of state and municipal securities with a book value of $748.0 million for a gain of $19.9 million, the sale of U.S. Treasury securities with a book value of $3.2 billion for a gain of $7.0 million, corporate debt securities sold with a book value of $1.4 billion for a gain of $5.9 million, and the sale of MBS, including FHLMC residential debt securities and CMOs, with a book value of $1.3 billion for a gain of $24.7 million.

17


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 3. INVESTMENT SECURITIES (continued)

Trading Securities


TheAt March 31, 2024 and December 31, 2023, the Company held $9.1 million$9.0 billion and $8.0 billion, respectively, of trading securities as of September 30, 2017, compared to $1.6 million held at December 31, 2016.securities. Gains and losses on trading securities are recorded within Net gains/(losses)gain on sale of investment securities on the Company's Condensed Consolidated StatementStatements of Operations. At March 31, 2024 and December 31, 2023, the Company had $8.2 billion and $7.4 billion, respectively, of assets classified as trading securities pledged as collateral to counterparties that have the right to repledge these securities.


Other Investments


Other investments consisted of the following as of the dates indicated:
(in thousands)March 31, 2024December 31, 2023
FHLB of Pittsburgh and FRB stock$571,981 $631,394 
LIHTC investments721,298 660,694 
Equity securities not held for trading (1)
52,741 61,190 
Total$1,346,020 $1,353,278 
(1)    Includes $4.3 million and $2.8 million of equity certificates related to an off-balance sheet securitization as of March 31, 2024 and December 31, 2023, respectively.

Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the FRB with aggregate carrying amounts of $630.2 million and $680.5 million as of September 30, 2017 and December 31, 2016, respectively.FRB. These stocks do not have readily determinable fair values because their ownership is restricted and they lack a market.there is no market for their sale. The stocks can be sold back only at their par value of $100 per share, and FHLB stock can be sold back only to the FHLB or to another member institution. Accordingly, these stocks are carried at cost.cost. During the three-month and nine-month periodsthree months ended September 30, 2017,March 31, 2024, the Company purchased $65.9 million and $154.8$39.9 million of FHLB stock at par, respectively, and redeemed $88.4 million and $205.4$105.6 million of FHLB stock at par. The Company purchased $6.4 million of FRB stock at par and redeemed no FRB stock at par during the three months ended March 31, 2024. There was no gain or loss associated with these redemptions. During

The Company's LIHTC investments are accounted for using the three-monthproportional amortization method. Equity securities are measured at fair value with changes in fair value recognized in net income and nine-month periods ended September 30, 2017,consist primarily of CRA mutual fund investments.

Interest-bearing deposits include deposits maturing in more than 90 days with Santander affiliates that are not consolidated.

With the exception of equity and trading securities, which are measured at fair value, the Company did not purchase any FRB stock. Other investments also include $78.1 million and $50.4 million of low-income housing tax credit ("LIHTC") investments as of September 30, 2017 and December 31, 2016, respectively.

The Company evaluates these other investments for impairment based on the ultimate recoverability of the carrying value, rather than by recognizing temporary declines in value.


14



Table of Contents
NOTE 4.3. LOANS AND ALLOWANCE FOR CREDIT LOSSES


Overall


The Company's loansLHFI are generally reported at their outstanding principal balances net of any unearned income, cumulative charge-offs, unamortized deferred fees and costs and unamortized premiums or discounts. The Company maintains an ACL to provideCertain LHFI are accounted for losses inherent in its portfolios.at fair value under the FVO. Certain loans are pledged as collateral for borrowings, securitizations, or special purpose entities ("SPEs").SPEs. These loans totaled $50.8$59.2 billion at September 30, 2017March 31, 2024 and $53.5$60.3 billion at December 31, 2016.2023.


Loans that the Company no longer intends to sellhold to maturity or for the foreseeable future are classified as loans-held-for-sale (“LHFS”).LHFS. The LHFS portfolio balance at September 30, 2017March 31, 2024 was $2.0 billion,$596.4 million, compared to $2.6 billion$160.1 million at December 31, 2016. LHFS in the residential mortgage portfolio are either reported at fair value or at the lower of cost or fair value.2023. For a discussion on the valuation of LHFS at fair value, see Note 1613 to thethese Condensed Consolidated Financial Statements. During the third quarter of 2015, the Company determined that it no longer intended to hold certain personal lending assets at SC for investment. The Company adjusted the ACL associated with SC's personal loan portfolio through the provision for credit losses to value the portfolio at the lower of cost or market. Upon transferring the loans to LHFS at fair value, the adjusted ACL was released as a charge-off. Loan originations and purchases under SC’s personal lending platform during 2016 have been classified as held for sale and subsequent adjustments to lower of cost or market are recorded through Miscellaneous Income (Expense), net on the Condensed Consolidated Statements of Operations. As of September 30, 2017, the carrying value of the personal unsecured held-for-sale portfolio was $929.5 million.


Interest on loans is credited to income as it is earned. Loan origination fees and certain direct loan origination costs are deferred and recognized as adjustments to interest income in the Condensed Consolidated Statements of Operations generally over the contractual life of the loan utilizing the interest methodmethod. Loan origination costs and fees and premiums and discounts on RICs are deferred and recognized in interest income over their estimated lives using estimated prepayment speeds, which are updated on a quarterlymonthly basis. At September 30, 2017March 31, 2024 and December 31, 2016,2023, accrued interest receivable on the Company's loans was $507.3$624.8 million and $554.5$661.0 million, respectively.



During the first quarter of 2024, the Company transferred $1.1 billion in RIC loans to a newly formed off-balance sheet trust. Refer to Note 7 of these Condensed Consolidated Financial Statements for more information.
18


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)


Loan and Lease Portfolio Composition


The following presents the composition of the gross loans and leases held-for-investmentHFI by portfolio and by rate type:type as of the dates indicated:
 March 31, 2024December 31, 2023
(dollars in thousands)AmountPercentAmountPercent
Commercial LHFI:    
CRE loans$9,073,614 9.9 %$8,747,544 9.4 %
C&I loans10,825,263 11.8 %11,181,962 12.0 %
Multifamily loans10,232,335 11.2 %10,548,905 11.3 %
Other commercial (2)
7,484,125 8.2 %7,476,113 8.0 %
Total commercial LHFI$37,615,337 41.1 %$37,954,524 40.7 %
Consumer loans secured by real estate:    
Residential mortgages4,726,561 5.2 %4,816,218 5.2 %
Home equity loans and lines of credit2,335,081 2.5 %2,448,454 2.6 %
Total consumer loans secured by real estate$7,061,642 7.7 %$7,264,672 7.8 %
Consumer loans not secured by real estate:    
RICs and auto loans43,238,767 47.1 %43,705,359 47.0 %
Personal unsecured loans3,711,491 4.0 %4,062,700 4.4 %
Other consumer (3)
52,551 0.1 %59,954 0.1 %
Total consumer loans$54,064,451 58.9 %$55,092,685 59.3 %
Total LHFI (1)
$91,679,788 100.0 %$93,047,209 100.0 %
Total LHFI:    
Fixed rate$63,946,587 69.7 %$65,960,370 70.9 %
Variable rate27,733,201 30.3 %27,086,839 29.1 %
Total LHFI (1)
$91,679,788 100.0 %$93,047,209 100.0 %
 September 30, 2017 December 31, 2016
 Amount Percent Amount Percent
 (dollars in thousands)
Commercial LHFI:       
Commercial real estate loans$9,690,850
 11.9% $10,112,043
 11.8%
Commercial and industrial loans15,196,539
 18.6% 18,812,002
 21.9%
Multifamily loans8,293,232
 10.2% 8,683,680
 10.1%
Other commercial(2)
6,876,521
 8.4% 6,832,403
 8.0%
Total commercial LHFI40,057,142
 49.1% 44,440,128
 51.8%
Consumer loans secured by real estate:       
Residential mortgages8,476,935
 10.4% 7,775,272
 9.1%
Home equity loans and lines of credit5,855,086
 7.2% 6,001,192
 7.0%
Total consumer loans secured by real estate14,332,021
 17.6% 13,776,464
 16.1%
Consumer loans not secured by real estate:       
RICs and auto loans - originated23,074,936
 28.3% 22,104,918
 25.8%
RICs and auto loans - purchased2,162,540
 2.7% 3,468,803
 4.0%
Personal unsecured loans1,262,591
 1.5% 1,234,094
 1.4%
Other consumer(3)
659,469
 0.8% 795,378
 0.9%
Total consumer loans41,491,557
 50.9% 41,379,657
 48.2%
Total LHFI(1)
$81,548,699
 100.0% $85,819,785
 100.0%
Total LHFI:       
Fixed rate$49,274,614
 60.4% $51,752,761
 60.3%
Variable rate32,274,085
 39.6% 34,067,024
 39.7%
Total LHFI(1)
$81,548,699
 100.0% $85,819,785
 100.0%

(1)Total LHFI includes unamortized deferred loan fees, net of deferred origination costs andcosts; unamortized purchase premiums, net of discountsdiscounts; unamortized participation fees; accretable subvention; as well as purchase accounting adjustments. These items resulted in a net increase inpositive adjustment to the loan balances of $1.2 billion$497.2 million and $845.8$475.0 million as of September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.
(2)Other commercial includes commercial equipment vehicle financing ("CEVF")CEVF leveraged leases and loans.
(3)Other consumer primarily includes recreational vehicle ("RV")RV and marine loans.










15


Table of Contents

NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Portfolio segments and classes


GAAP requires that entities discloseThe Company discloses information about the credit quality of theirits financing receivables at disaggregated levels, specifically defined as “portfolio segments” and “classes,” based on management’s systematic methodology for determining the ACL. The Company utilizes an alternatesimilar categorization compared to the financial statement categorization of loans to model and calculate the ACL and track the credit quality, delinquency and impairment status of the underlying loan populations. In disaggregating its financing receivables portfolio, the Company’s methodology begins with the commercial and consumer segments.


The commercial segmentation reflects line of business distinctions. The three commercial real estate linesCRE line of business distinctions include “Corporate banking,” which includes commercial and industrialC&I owner-occupied real estate “Middle market real estate,” which represents the portfolio ofand specialized lending for investment real estate, including financing for continuing care retirement communities and “Santander real estate capital”, which is the commercial real estate portfolio of the specialized lending group. "Commercial and industrial"estate. C&I includes non-real estate-related commercial and industrial loans. "Multifamily" represents loans for multifamily residential housing units. “Other commercial” includes loans to global customer relationships in Latin America which are not defined as commercial or consumer for regulatory purposes. The remainder of the portfolio primarily represents the CEVF business.portfolio.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The following table reconciles the Company's recorded investment classified by its major portfolio classifications to its commercial loan classifications utilized in its determination of the allowance for loan and lease losses (“ALLL”) and other credit quality disclosures at September 30, 2017 and December 31, 2016, respectively:
Commercial Portfolio Segment(2)
    
Major Loan Classifications(1)
 September 30, 2017 December 31, 2016
  (in thousands)
Commercial LHFI:    
Commercial real estate:    
Corporate Banking $3,467,935
 $3,693,109
Middle Market Real Estate 5,188,460
 5,180,572
Santander Real Estate Capital 1,034,455
 1,238,362
Total commercial real estate 9,690,850
 10,112,043
Commercial and industrial (3)
 15,196,539
 18,812,002
Multifamily 8,293,232
 8,683,680
Other commercial 6,876,521
 6,832,403
Total commercial LHFI $40,057,142
 $44,440,128
(1)These represent the Company's loan categories based on SEC Regulation S-X, Article 9.
(2)These represent the Company's loan classes used to determine its ALLL.
(3)Commercial and industrial loans excluded $83.3 million of LHFS at September 30, 2017 and excluded $121.1 million of LHFS at December 31, 2016.

The Company's portfolio classes are substantially the same as its financial statement categorization of loans for the consumer loan populations. “Residential mortgages” includes mortgages on residential property, including single family and 1-4 family units. "Home equity loans and lines of credit" include all organic home equity contracts and purchased home equity portfolios. "RIC "RICs and auto loans" includes the Company's direct automobile loan portfolios but excludes RV and marine RICs. "Personal unsecured loans" includes personal revolving loans and credit cards. “Other consumer” includes an acquired portfolio of marine RICs and RV contracts as well as indirect auto loans.contracts.


In accordance with the Company's accounting policy when establishing the collective ACL for originated loans, the Company's estimate of losses on recorded investment includes the estimate of the related net unaccreted discount balance that is expected at the time of charge-off, while it considers the entire unaccreted discount for loan portfolios purchased at a discount as available to absorb the credit losses when determining the ACL specific to these portfolios. This accounting policy is not applicable for the purchased loan portfolios acquired with evidence of credit deterioration, on which we elected to apply the FVO.

Consumer Portfolio Segment(2)
    
Major Loan Classifications(1)
 September 30, 2017 December 31, 2016
  (in thousands)
Consumer loans secured by real estate:   
Residential mortgages(3)
 $8,476,935
 $7,775,272
Home equity loans and lines of credit 5,855,086
 6,001,192
Total consumer loans secured by real estate 14,332,021
 13,776,464
Consumer loans not secured by real estate:   
RICs and auto loans - originated (4)
 23,074,936
 22,104,918
RICs and auto loans - purchased (4)
 2,162,540
 3,468,803
Personal unsecured loans(5)
 1,262,591
 1,234,094
Other consumer 659,469
 795,378
Total consumer LHFI $41,491,557
 $41,379,657
(1)These represent the Company's loan categories based on the SEC's Regulation S-X, Article 9.
(2)These represent the Company's loan classes used to determine its ALLL.
(3)Residential mortgages exclude $212.6 million and $462.9 million of LHFS at September 30, 2017 and December 31, 2016, respectively.
(4)RIC and auto loans exclude $762.6 million and $924.7 million of LHFS at September 30, 2017 and December 31, 2016, respectively.
(5)Personal unsecured loans exclude $929.5 million and $1.1 billion of LHFS at September 30, 2017 and December 31, 2016, respectively.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The RIC and auto loan portfolio is comprised of: (1) RICs originated by SC prior to the first quarter 2014 change in control and consolidation of SC (the “Change in Control"), (2) RICs originated by SC after the Change in Control, and (3) auto loans originated by SBNA. The composition of the portfolio segment is as follows:

  September 30, 2017 December 31, 2016
  (in thousands)
RICs - Purchased:   
Unpaid principal balance ("UPB") (1)
 $2,289,692
 $3,765,714
UPB - FVO (2)
 31,003
 29,481
Total UPB 2,320,695
 3,795,195
Purchase marks (3)
(158,155) (326,392)
Total RICs - Purchased 2,162,540
 3,468,803
     
RICs - Originated:    
UPB (1)
 23,391,153
 22,527,753
Net discount (335,015) (441,131)
Total RICs - Originated23,056,138
 22,086,622
SBNA auto loans 18,798
 18,296
Total RICs - originated post change in control 23,074,936
 22,104,918
Total RICs and auto loans $25,237,476
 $25,573,721

(1) UPB does not include amounts related to the loan receivables - unsecured and loan receivables from dealers due to the short-term and revolving nature of these receivables.
(2) The Company elected to account for these loans, which were acquired with evidence of credit deterioration, under the FVO.
(3) Includes purchase marks of $6.8 million and $6.7 million related to purchase loan portfolios on which we elected to apply the FVO at September 30, 2017 and December 31, 2016, respectively.

During the nine months ended September 30, 2017 and 2016, the Company originated $5.2 billion and $6.5 billion, respectively, in Chrysler Capital loans, which represented 46% and 51%, respectively, of the total RIC originations. As of September 30, 2017 and December 31, 2016, the Company's auto RIC portfolio consisted of $6.9 billion and $7.4 billion, respectively, of Chrysler loans, which represented 31% and 32%, respectively, of the Company's auto RIC portfolio.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

ACL Rollforward by Portfolio Segment

The ACL is comprised of the ALLL and the reserve for unfunded lending commitments. The activity in the ACL by portfolio segment was as follows for the three-month and nine-month periods ended September 30, 2017 and 2016 was as follows:indicated:
Three months ended March 31, 2024
(in thousands)CommercialConsumerTotal
ALLL, beginning of period$616,788 $6,315,265 $6,932,053 
Credit loss (benefit) / expense(15,855)424,389 408,534 
Charge-offs(23,776)(1,244,661)(1,268,437)
Recoveries12,790 657,184 669,974 
Charge-offs, net of recoveries$(10,986)$(587,477)$(598,463)
ALLL, end of period$589,947 $6,152,177 $6,742,124 
Reserve for unfunded lending commitments, beginning of period$55,846 $4,916 $60,762 
Credit loss (benefit) on unfunded lending commitments(2,979)(557)(3,536)
Reserve for unfunded lending commitments, end of period$52,867 $4,359 $57,226 
Total ACL, end of period$642,814 $6,156,536 $6,799,350 
Three months ended March 31, 2023
(in thousands)CommercialConsumerTotal
ALLL, beginning of period$562,216 $6,217,783 $6,779,999 
Day 1: Adjustment to allowance for adoption of ASU 2022-024,986 50,254 55,240 
Credit loss expense21,478 520,771 542,249 
Charge-offs(26,866)(1,119,100)(1,145,966)
Recoveries19,281 664,489 683,770 
Charge-offs, net of recoveries$(7,585)$(454,611)$(462,196)
ALLL, end of period$581,095 $6,334,197 $6,915,292 
Reserve for unfunded lending commitments, beginning of period$77,709 $7,873 $85,582 
Credit loss (benefit) on unfunded lending commitments166 (14)152 
Reserve for unfunded lending commitments, end of period$77,875 $7,859 $85,734 
Total ACL, end of period$658,970 $6,342,056 $7,001,026 
16
 Three-Month Period Ended September 30, 2017
 Commercial Consumer Unallocated Total
 (in thousands)
ALLL, beginning of period$428,247
 $3,478,337
 $47,023
 $3,953,607
Provision for loan and lease losses17,129
 630,048
 —
 647,177
Other(1)
356
 5,283
 —
 5,639
Charge-offs(30,576) (1,224,296) —
 (1,254,872)
Recoveries9,635
 594,959
 —
 604,594
Charge-offs, net of recoveries(20,941) (629,337) —
 (650,278)
ALLL, end of period$424,791
 $3,484,331
 $47,023
 $3,956,145
        
Reserve for unfunded lending commitments, beginning of period$111,015
 $796
 $—
 $111,811
Release of reserve for unfunded lending commitments5,241
 (298) —
 4,943
Loss on unfunded lending commitments(668) —
 —
 (668)
Reserve for unfunded lending commitments, end of period115,588
 498
 —
 116,086
Total ACL, end of period$540,379
 $3,484,829
 $47,023
 $4,072,231
        
 Nine-Month Period Ended September 30, 2017
 Commercial Consumer Unallocated Total
 (in thousands)
ALLL, beginning of period$449,835
 $3,317,606
 $47,023
 $3,814,464
Provision for loan and lease losses62,597
 1,933,602
 —
 1,996,199
Other(1)
356
 5,283
 —
 5,639
Charge-offs(117,263) (3,590,495) —
 (3,707,758)
Recoveries29,266
 1,818,335
 —
 1,847,601
Charge-offs, net of recoveries(87,997) (1,772,160) —
 (1,860,157)
ALLL, end of period$424,791
 $3,484,331
 $47,023
 $3,956,145
Reserve for unfunded lending commitments, beginning of period$121,613
 $806
 $—
 $122,419
Release of reserve for unfunded lending commitments(3,557) (308) —
 (3,865)
Loss on unfunded lending commitments(2,468) —
 —
 (2,468)
Reserve for unfunded lending commitments, end of period115,588
 498
 —
 116,086
Total ACL, end of period$540,379
 $3,484,829
 $47,023
 $4,072,231
Ending balance, individually evaluated for impairment(2)
$60,492
 $1,765,790
 $—
 $1,826,282
Ending balance, collectively evaluated for impairment364,299
 1,718,541
 47,023
 2,129,863
        
Financing receivables:       
Ending balance$40,140,421
 $43,396,375
 $—
 $83,536,796
Ending balance, evaluated under the FVO or lower of cost or fair value83,279
 1,959,926
 —
 2,043,205
Ending balance, individually evaluated for impairment(1)
514,846
 6,650,254
 —
 7,165,100
Ending balance, collectively evaluated for impairment39,542,296
 34,786,195
 —
 74,328,491


(1) Includes transfers in for the period ending September 30, 2017.
(2) Consists of loans in TDR status.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

 Three-Month Period Ended September 30, 2016
 Commercial Consumer Unallocated Total
 (in thousands)
ALLL, beginning of period$528,858
 $3,189,784
 $47,245
 $3,765,887
(Release of) / Provision for loan and lease losses21,454
 687,697
 —
 709,151
Charge-offs(41,660) (1,249,370) —
 (1,291,030)
Recoveries21,359
 608,915
 —
 630,274
Charge-offs, net of recoveries(20,301) (640,455) —
 (660,756)
ALLL, end of period$530,011
 $3,237,026
 $47,245
 $3,814,282
        
Reserve for unfunded lending commitments, beginning of period$156,155
 $743
 $—
 $156,898
(Release of) / Provision for unfunded lending commitments(21,244) 5
 —
 (21,239)
Loss on unfunded lending commitments(1,094) —
 —
 (1,094)
Reserve for unfunded lending commitments, end of period133,817
 748
 —
 134,565
Total ACL, end of period$663,828
 $3,237,774
 $47,245
 $3,948,847
        
 Nine-Month Period Ended September 30, 2016
 Commercial Consumer Unallocated Total
 (in thousands)
ALLL, beginning of period$456,812
 $2,742,088
 $47,245
 $3,246,145
Provision for loan and lease losses122,832
 2,090,516
 —
 2,213,348
Charge-offs(118,273) (3,424,199) —
 (3,542,472)
Recoveries68,640
 1,828,621
 —
 1,897,261
Charge-offs, net of recoveries(49,633) (1,595,578) —
 (1,645,211)
ALLL, end of period$530,011
 $3,237,026
 $47,245
 $3,814,282
        
Reserve for unfunded lending commitments, beginning of period$148,207
 $814
 $—
 $149,021
Provision for / (Release of) unfunded lending commitments(13,128) (66) —
 (13,194)
Loss on unfunded lending commitments(1,262) —
 —
 (1,262)
Reserve for unfunded lending commitments, end of period133,817
 748
 —
 134,565
Total ACL, end of period$663,828
 $3,237,774
 $47,245
 $3,948,847
Ending balance, individually evaluated for impairment(1)
$146,458
 $1,376,942
 $—
 $1,523,400
Ending balance, collectively evaluated for impairment383,553
 1,860,084
 47,245
 2,290,882
        
Financing receivables:       
Ending balance$45,812,581
 $44,091,345
 $—
 $89,903,926
Ending balance, evaluated under the fair value option or lower of cost or fair value(1)
224,524
 3,027,806
 —
 3,252,330
Ending balance, individually evaluated for impairment(1)
693,317
 5,465,762
 —
 6,159,079
Ending balance, collectively evaluated for impairment44,894,740
 35,597,777
 —
 80,492,517

(1)Consists of loans in TDR status.





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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The following table presents the activity in the allowance for loan losses for the RICs acquired in the Change in Control and those originated by SC subsequent to the Change in Control.

 Three-Month Period Ended Nine-Month Period Ended
 September 30, 2017
September 30, 2017
 Purchased
Originated
Total
Purchased
Originated
Total
 (in thousands)
ALLL, beginning of period$468,671
 $2,792,666
 $3,261,337
 $559,092
 $2,538,127
 $3,097,219
Provision for loan and lease losses47,106
 523,832
 570,938
 128,372
 1,686,611
 1,814,983
Charge-offs(142,561) (1,043,732) (1,186,293) (481,389) (2,991,112) (3,472,501)
Recoveries52,406
 535,677
 588,083
 219,547
 1,574,817
 1,794,364
Charge-offs, net of recoveries(90,155) (508,055) (598,210) (261,842) (1,416,295) (1,678,137)
ALLL, end of period$425,622
 $2,808,443
 $3,234,065
 $425,622
 $2,808,443
 $3,234,065

 Three-Month Period Ended Nine-Month Period Ended
 September 30, 2016 September 30, 2016
 Purchased Originated Total Purchased Originated Total
 (in thousands)
ALLL, beginning of period$615,623
 $2,342,440
 $2,958,063
 $590,807
 $1,891,989
 $2,482,796
Provision for loan and lease losses29,406
 630,962
 660,368
 150,658
 1,877,527
 2,028,185
Charge-offs(207,662) (996,395) (1,204,057) (666,623) (2,611,263) (3,277,886)
Recoveries155,673
 442,543
 598,216
 518,198
 1,261,297
 1,779,495
Charge-offs, net of recoveries(51,989) (553,852) (605,841) (148,425) (1,349,966) (1,498,391)
ALLL, end of period$593,040
 $2,419,550
 $3,012,590
 $593,040
 $2,419,550
 $3,012,590


Refer to Note 14 for discussionTable of contingencies and possible losses related to the impact of hurricane activity in regions where the Company has lending activities.
Contents

24


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4.3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The credit risk in the Company’s loan portfolios is driven by credit and collateral quality and is affected by borrower-specific and economy-wide factors. In general, there is an inverse relationship between the credit quality of loans and projections of impairment losses so that loans with better credit quality require a lower expected loss reserve. The Company manages this risk through its underwriting, pricing strategies, credit policy standards, and servicing guidelines and practices, as well as the application of geographic and other concentration limits.

The Company estimates CECL based on prospective information as well as account-level models based on historical data. Unemployment, HPI, CRE price index and used vehicle index growth rates, along with loan level characteristics, are the key inputs used in the models for prediction of the likelihood that the borrower will default in the forecasted period (the PD) and the loss in the event of default (the LGD). GDP is also a key input used in the models for the prediction of the likelihood that a borrower will default.

The Company has determined the reasonable and supportable period to be three years, at which time the economic forecasts generally tend to revert to historical averages. The Company also utilizes qualitative adjustments to capture any additional risks that may not be captured in either the economic forecasts or in the historical data, including consideration of several factors such as the interpretation of economic trends and uncertainties, changes in the nature and volume of loan portfolios, trends in delinquency and collateral values, and concentration risk.

The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustments for macroeconomic uncertainty and considers adjustments to macroeconomic inputs and outputs based on market volatility. The baseline scenario was based on the latest consensus forecasts available which showed an improvement in key variables in the current quarter, including an expected improvement in unemployment rates (which is a key driver to losses) and the GDP growth rate, offset by expected worsening of the commercial real estate outlook (mainly office), indicating that there may be challenges ahead. The unemployment rate and used vehicle price index, which is a measure of wholesale used car price trends, are considered the most significant variables. Using the weighted-average of a range of economic forecast scenarios, we estimated at March 31, 2024 that the unemployment rate is expected to be approximately 4.9% at the end of 2024, slightly better than our previous estimate of 5.0% at December 31, 2023 for that period. Additionally, the weighted used vehicle index, where a higher number corresponds to a higher used car price at auction, is estimated at March 31, 2024 to be approximately 198 at the end of 2024 compared to our estimate at December 31, 2023 of approximately 201 for that period. While the economy saw significant recovery post pandemic, there is still considerable uncertainty regarding overall lifetime loss estimates due to persistent inflation and high interest rates.

The Company's ACL was $6.8 billion at March 31, 2024, a decrease of $193.5 million from December 31, 2023. The decrease in the ACL was primarily driven by improvement in the macroeconomic outlook for certain macro variables, seasonally expected lower delinquencies in RICs and auto loans, sale of certain RICs and auto loans and lower exposure in Personal unsecured loans. The ACL for the consumer segment decreased by $163.6 million, and the ACL for the commercial segment decreased $29.8 million, for the period ended March 31, 2024 compared to December 31, 2023.


17


Table of Contents
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Non-accrual loans by Class of Financing Receivable


The recorded investment inamortized cost basis of financing receivables that are non-accrual loansand other non-performing assets disaggregated by class of financing receivables and other non-performing assets(as well as the amount of non-accrual loans for which no related allowance is summarizedrecorded) are as follows:follows at the dates indicated:
Non-accrual loans and other non-performing assets as of:(1)
Non-accrual loans with no related allowance
(in thousands)March 31, 2024December 31, 2023March 31, 2024December 31, 2023
Non-accrual loans:  
Commercial:  
CRE$257,807 $267,537 $131,601 $64,383 
C&I159,037 143,504 847 2,230 
Multifamily102,024 97,228 17,684 17,801 
Other commercial7,320 5,621 — — 
Total commercial loans$526,188 $513,890 $150,132 $84,414 
Consumer:  
Residential mortgages51,648 52,718 5,720 5,898 
Home equity loans and lines of credit79,499 86,332 14,111 15,241 
RICs and auto loans1,829,983 2,194,509 139,077 153,850 
Personal unsecured loans20,302 21,267 1,844 1,776 
Other consumer13,598 15,733 49 152 
Total consumer loans$1,995,030 $2,370,559 $160,801 $176,917 
Total non-accrual loans$2,521,218 $2,884,449 $310,933 $261,331 
OREO19,422 24,246 — — 
Repossessed vehicles267,545 265,368 — — 
Foreclosed and other repossessed assets2,030 1,666 — — 
Total OREO and other repossessed assets$288,997 $291,280 $— $— 
Total non-performing assets$2,810,215 $3,175,729 $310,933 $261,331 
(1) Interest income recognized on nonaccrual loans was $61.0 million and $49.1 million for the three months ended March 31, 2024 and March 31, 2023, respectively.

18


Table of Contents
 September 30, 2017 December 31, 2016
 (in thousands)
Non-accrual loans:   
Commercial:   
Commercial real estate:   
Corporate banking$88,459
 $104,879
Middle market commercial real estate57,536
 71,264
Santander real estate capital921
 3,077
Commercial and industrial184,089
 182,368
Multifamily10,715
 8,196
Other commercial20,767
 11,097
Total commercial loans362,487
 380,881
Consumer:   
Residential mortgages284,415
 287,140
Home equity loans and lines of credit116,482
 120,065
RICs and auto loans - originated1,553,954
 1,045,587
RICs - purchased274,374
 284,486
Personal unsecured loans5,412
 5,201
Other consumer10,393
 12,694
Total consumer loans2,245,030
 1,755,173
Total non-accrual loans2,607,517
 2,136,054
    
Other real estate owned ("OREO")146,362
 116,705
Repossessed vehicles157,757
 173,754
Foreclosed and other repossessed assets1,711
 3,838
Total OREO and other repossessed assets305,830
 294,297
Total non-performing assets$2,913,347
 $2,430,351
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)


Age Analysis of Past Due Loans


For reporting of past due loans, a payment ofThe Company generally considers an account delinquent when an obligor fails to pay substantially all (defined as 90% or more of the amount due is considered to meet the contractual requirements. For certain RICs originated prior to January 1, 2017, the Company considers 50% of a single payment due sufficient to qualify as a payment for past due classification purposes. For RICs originated after January 1, 2017, the required minimum payment is 90%) of the scheduled payment regardless of which origination channelby the receivable was originated through. The Company aggregates partial payments in determining whether a full payment has been missed in computing past due status.date. When an account is deferred, the loan is returned to accrual status during the deferral period and accrued interest related to the loan is evaluated for collectability.


25


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)


The ageamortized cost of recorded investments in past due loans and accruing loans greater than 90 days or greater past due disaggregated by class of financing receivables is summarized as follows:follows at the dates indicated:

As of:March 31, 2024
(in thousands)30-89
Days Past
Due		90
Days or Greater		Total
Past Due		CurrentTotal
Financing
Receivables		Amortized Cost
> 90 Days and
Accruing
Commercial:      
CRE (2)
$51,411 $136,449 $187,860 $9,281,429 $9,469,289 $— 
C&I (1)
53,974 11,687 65,661 10,811,315 10,876,976 — 
Multifamily (4)
44,139 63,265 107,404 10,134,195 10,241,599 — 
Other commercial28,392 3,295 31,687 7,452,439 7,484,126 — 
Consumer:      
Residential mortgages (3)
89,074 46,739 135,813 4,730,446 4,866,259 — 
Home equity loans and lines of credit38,869 65,321 104,190 2,230,891 2,335,081 — 
RICs and auto loans4,596,175 447,075 5,043,250 38,195,517 43,238,767 — 
Personal unsecured loans78,384 41,283 119,667 3,591,824 3,711,491 7,917 
Other consumer1,492 257 1,749 50,802 52,551 — 
Total$4,981,910 $815,371 $5,797,281 $86,478,858 $92,276,139 $7,917 
(1) C&I loans includes $51.7 million of LHFS at March 31, 2024.
(2) CRE loans includes $395.7 million LHFS at March 31, 2024.
(3) Residential mortgages include $139.7 million of LHFS at March 31, 2024.
(4) Multifamily loans include $9.3 million of LHFS at March 31, 2024.


As of:December 31, 2023
(in thousands)30-89
Days Past
Due		90
Days or Greater		Total
Past Due		CurrentTotal
Financing
Receivables		Recorded
Investment
> 90 Days and Accruing
Commercial:      
CRE (2)
$98,799 $62,645 $161,444 $8,586,100 $8,747,544 $— 
C&I (1)
54,367 12,260 66,627 11,246,726 11,313,353 — 
Multifamily (4)
— 62,391 62,391 10,495,778 10,558,169 — 
Other commercial48,075 3,260 51,335 7,424,778 7,476,113 — 
Consumer:   
Residential mortgages (3)
99,171 47,019 146,190 4,689,491 4,835,681 — 
Home equity loans and lines of credit36,297 71,936 108,233 2,340,221 2,448,454 — 
RICs and auto loans5,393,627 558,208 5,951,835 37,753,524 43,705,359 — 
Personal unsecured loans84,379 44,389 128,768 3,933,932 4,062,700 7,947 
Other consumer2,213 345 2,558 57,396 59,954 — 
Total$5,816,928 $862,453 $6,679,381 $86,527,946 $93,207,327 $7,947 
(1)C&I loans included $131.4 million of LHFS at December 31, 2023.
(2)CRE loans includes $0.0 million of LHFS at December 31, 2023.
(3) Residential mortgages included $19.5 million of LHFS at December 31, 2023.
(4) Multifamily loans include $9.3 million of LHFS at December 31, 2023.
19
 As of:
  September 30, 2017
  30-89
Days Past
Due		 90
Days or Greater		 Total
Past Due		 Current 
Total
Financing
Receivables(1)
 Recorded Investment
> 90 Days
and
Accruing
 (in thousands)
Commercial:            
Commercial real estate:            
Corporate banking $21,114
 $49,274
 $70,388
 $3,397,547
 $3,467,935
 $—
Middle market commercial real estate 67,854
 33,344
 101,198
 5,087,262
 5,188,460
 —
Santander real estate capital —
 525
 525
 1,033,930
 1,034,455
 —
Commercial and industrial 80,116
 52,117
 132,233
 15,147,585
 15,279,818
 —
Multifamily 59
 1,837
 1,896
 8,291,336
 8,293,232
 —
Other commercial 72,944
 4,614
 77,558
 6,798,963
 6,876,521
 10
Consumer:            
Residential mortgages 282,297
 217,899
 500,196
 8,189,377
 8,689,573
 —
Home equity loans and lines of credit 41,210
 77,589
 118,799
 5,736,287
 5,855,086
 —
RICs and auto loans - originated 3,381,392
 331,033
 3,712,425
 20,125,142
 23,837,567
 —
RICs and auto loans - purchased 551,123
 51,261
 602,384
 1,560,156
 2,162,540
 —
Personal unsecured loans 104,796
 107,060
 211,856
 1,980,284
 2,192,140
 96,246
Other consumer 14,978
 15,774
 30,752
 628,717
 659,469
 —
Total $4,617,883
 $942,327
 $5,560,210
 $77,976,586
 $83,536,796
 $96,256


(1)Financing receivables include LHFS.

26


Table of Contents
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4.3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)


 As of
  December 31, 2016
  30-89
Days Past
Due		 90
Days or Greater		 Total
Past Due		 Current 
Total
Financing
Receivable(1)
 Recorded
Investment
> 90 Days
and
Accruing
 (in thousands)
Commercial:            
Commercial real estate:            
Corporate banking $14,973
 $40,170
 $55,143
 $3,637,966
 $3,693,109
 $—
Middle market commercial real estate 6,967
 57,520
 64,487
 5,116,085
 5,180,572
 —
Santander real estate capital 177
 —
 177
 1,238,185
 1,238,362
 —
Commercial and industrial 46,104
 33,800
 79,904
 18,853,163
 18,933,067
 —
Multifamily 7,133
 2,339
 9,472
 8,674,208
 8,683,680
 —
Other commercial 45,379
 2,590
 47,969
 6,784,434
 6,832,403
 1
Consumer:             
Residential mortgages 230,850
 224,790
 455,640
 7,782,525
 8,238,165
 —
Home equity loans and lines of credit 37,209
 75,668
 112,877
 5,888,315
 6,001,192
 —
RICs and auto loans - originated 3,092,841
 296,085
 3,388,926
 19,640,740
 23,029,666
 —
RICs and auto loans - purchased 800,993
 71,273
 872,266
 2,596,537
 3,468,803
 —
Personal unsecured loans 89,524
 103,698
 193,222
 2,118,474
 2,311,696
 93,845
Other consumer 31,980
 20,386
 52,366
 743,012
 795,378
 —
Total $4,404,130
 $928,319
 $5,332,449
 $83,073,644
 $88,406,093
 $93,846
(1)Financing receivables include LHFS.

27


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Impaired Loans by Class of Financing Receivable

Impaired loans are generally defined as all TDRs plus commercial non-accrual loans in excess of $1.0 million.

Impaired loans disaggregated by class of financing receivables are summarized as follows:
  September 30, 2017
  
Recorded Investment(1)
 UPB Related
Specific
Reserves		 Average
Recorded
Investment
  (in thousands)
With no related allowance recorded:        
Commercial:        
Commercial real estate:        
Corporate banking $90,335
 $118,315
 $—
 $89,675
Middle market commercial real estate 49,207
 72,294
 —
 54,647
Santander real estate capital —
 —
 —
 1,309
Commercial and industrial 86,831
 90,543
 —
 77,483
Multifamily 8,980
 9,939
 —
 9,675
Other commercial 884
 1,029
 —
 961
Consumer:        
Residential mortgages 172,400
 222,662
 —
 173,735
Home equity loans and lines of credit 42,483
 42,483
 —
 45,678
RICs and auto loans - originated —
 —
 —
 —
RICs and auto loans - purchased 19,395
 24,883
 —
 26,884
Personal unsecured loans(2)
 30,459
 30,459
 —
 28,234
Other consumer 10,335
 14,183
 —
 14,835
With an allowance recorded:        
Commercial:        
Commercial real estate:        
Corporate banking 61,629
 73,893
 15,488
 71,035
Middle market commercial real estate 26,179
 32,368
 6,090
 38,225
Santander real estate capital 8,405
 8,405
 1,135
 8,498
Commercial and industrial 144,503
 175,042
 35,138
 180,541
Multifamily 6,242
 6,242
 354
 4,586
Other commercial 15,717
 15,783
 2,287
 11,468
Consumer:        
Residential mortgages 292,426
 334,044
 41,218
 288,528
Home equity loans and lines of credit 49,808
 62,042
 1,704
 49,835
RICs and auto loans - originated 4,679,505
 4,742,581
 1,334,552
 3,975,411
RICs and auto loans - purchased 1,324,976
 1,497,436
 379,300
 1,590,462
  Personal unsecured loans 16,710
 16,904
 6,835
 16,784
  Other consumer 11,758
 15,640
 2,181
 12,426
Total:        
Commercial $498,912
 $603,853
 $60,492
 $548,103
Consumer 6,650,255
 7,003,317
 1,765,790
 6,222,812
Total $7,149,167
 $7,607,170
 $1,826,282
 $6,770,915

(1)Recorded investment includes deferred loan fees, net of deferred origination costs and unamortized purchase premiums, net of discounts as well as purchase accounting adjustments.
(2)Includes LHFS.

28


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The Company recognized interest income, not including the impact of purchase accounting adjustments, of $633.3 million for the nine-month period ended September 30, 2017 on approximately $6.0 billion of TDRs that were in performing status as of September 30, 2017.

  December 31, 2016
  
Recorded Investment(1)
 UPB Related
Specific
Reserves		 Average
Recorded
Investment
  (in thousands)
With no related allowance recorded:        
Commercial:        
Commercial real estate:        
 Corporate banking $89,014
 $106,212
 $—
 $93,495
 Middle market commercial real estate 60,086
 83,173
 —
 69,206
 Santander real estate capital 2,618
 2,618
 —
 2,717
Commercial and industrial 68,135
 74,034
 —
 40,163
Multifamily 10,370
 11,127
 —
 9,919
Other commercial 1,038
 1,038
 —
 639
Consumer:        
Residential mortgages 175,070
 222,142
 —
 160,373
Home equity loans and lines of credit 48,872
 48,872
 —
 39,976
RICs and auto loans - originated —
 —
 —
 8
RICs and auto loans - purchased 34,373
 44,296
 —
 55,036
Personal unsecured loans(2)
 26,008
 26,008
 —
 19,437
Other consumer 19,335
 23,864
 —
 15,915
With an allowance recorded:        
Commercial:        
 Corporate banking 80,440
 85,309
 21,202
 71,667
 Middle market commercial real estate 50,270
 66,059
 12,575
 44,158
 Santander real estate capital 8,591
 8,591
 890
 4,623
Commercial and industrial 216,578
 232,204
 57,855
 166,999
Multifamily 2,930
 2,930
 876
 4,292
Other commercial 7,218
 7,218
 5,198
 5,217
Consumer:        
Residential mortgages 284,630
 324,188
 38,764
 303,845
Home equity loans and lines of credit 49,862
 63,775
 3,467
 60,855
RICs and auto loans - originated 3,271,316
 3,332,297
 997,169
 2,298,646
RICs and auto loans - purchased 1,855,948
 2,097,520
 471,687
 2,155,028
Personal unsecured loans 16,858
 17,126
 6,846
 9,349
Other consumer 13,093
 17,253
 2,442
 15,878
Total:        
Commercial $597,288
 $680,513
 $98,596
 $513,095
Consumer 5,795,365
 6,217,341
 1,520,375
 5,134,346
Total $6,392,653
 $6,897,854
 $1,618,971
 $5,647,441
(1)Recorded investment includes deferred loan fees, net of deferred origination costs and unamortized purchase premiums, net of discounts as well as purchase accounting adjustments.
(2)Includes LHFS.

The Company recognized interest income of $657.5 million for the year ended December 31, 2016 on approximately $5.2 billion of TDRs that were in performing status as of December 31, 2016.


29


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Commercial Lending Asset Quality Indicators


CommercialThe Company's Risk Department performs a credit quality disaggregated by class of financing receivables is summarized according to standard regulatoryanalysis and classifies certain loans over an internal threshold based on the commercial lending classifications as follows:described below:


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


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


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


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


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

Commercial loan credit quality indicators by class of financing receivables are summarized as follows:

20
           
September 30, 2017 Corporate
banking		 Middle
market
commercial
real estate		 Santander
real estate
capital		 Commercial and industrial Multifamily Remaining
commercial		 
Total(1)
  (in thousands)
Rating:              
Pass $2,893,695
 $4,814,655
 $997,914
 $14,183,443
 $8,162,600
 $6,747,806
 $37,800,113
Special mention 361,652
 234,793
 18,173
 553,863
 82,209
 39,160
 1,289,850
Substandard 199,883
 115,409
 18,368
 490,616
 48,423
 89,555
 962,254
Doubtful 12,705
 23,603
 —
 51,896
 —
 —
 88,204
Total commercial loans $3,467,935
 $5,188,460
 $1,034,455
 $15,279,818
 $8,293,232
 $6,876,521
 $40,140,421



(1)Financing receivables include LHFS.

           
December 31, 2016 Corporate
banking		 Middle
market
commercial
real estate		 Santander
real estate
capital		 Commercial and industrial Multifamily Remaining
commercial		 
Total(1)
  (in thousands)
Rating:              
Pass $3,303,428
 $4,843,468
 $1,170,259
 $17,865,871
 $8,515,866
 $6,804,184
 $42,503,076
Special mention 144,125
 136,989
 44,281
 541,828
 120,731
 10,651
 998,605
Substandard 226,206
 161,962
 23,822
 503,185
 47,083
 11,932
 974,190
Doubtful 19,350
 38,153
 —
 22,183
 —
 5,636
 85,322
Total commercial loans $3,693,109
 $5,180,572
 $1,238,362
 $18,933,067
 $8,683,680
 $6,832,403
 $44,561,193

(1)Financing receivables include LHFS.

30


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Table of Contents


NOTE 4.3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)


Each commercial loan is evaluated to determine its risk rating at least annually. The indicators represent the rating for loans as of the date presented based on the most recent assessment performed. Amortized cost basis of loans in the commercial portfolio segment by credit quality indicator, class of financing receivable, and year of origination are summarized as follows:
March 31, 2024
Commercial Loan Portfolio (2)
(dollars in thousands)Amortized Cost by Origination Year
Regulatory Rating:
2024(1)
2023202220212020Prior
Total (3)
CRE
Pass$426,558 $411,544 $2,317,656 $1,777,346 $1,027,695 $1,868,070 $7,828,869 
Special mention— 7,138 245,356 259,279 99,610 333,010 944,393 
Substandard— — 129,599 180,066 63,802 274,071 647,538 
Doubtful— — — — — 48,489 48,489 
Total CRE$426,558 $418,682 $2,692,611 $2,216,691 $1,191,107 $2,523,640 $9,469,289 
Current period gross write-offs - CRE$— $— $— $1 $— $662 $663 
C&I
Pass$106,439 $1,060,293 $2,630,707 $1,763,078 $833,338 $3,101,853 $9,495,708 
Special mention48 8,998 50,709 12,777 — 102,473 175,005 
Substandard— 20 58,887 73,349 62,858 283,880 478,994 
N/A73,316 247,843 232,808 109,823 34,316 29,163 727,269 
Total C&I$179,803 $1,317,154 $2,973,111 $1,959,027 $930,512 $3,517,369 $10,876,976 
Current period gross write-offs - C&I$— $2,582 $5,464 $2,502 $896 $6,568 $18,012 
Multifamily
Pass$40,964 $1,130,377 $2,899,579 $1,278,138 $942,397 $2,464,286 $8,755,741 
Special mention— 123,607 131,695 143,150 — 214,976 613,428 
Substandard— — 300,955 127,419 70,700 373,356 872,430 
Total multifamily$40,964 $1,253,984 $3,332,229 $1,548,707 $1,013,097 $3,052,618 $10,241,599 
Current period gross write-offs - Multifamily$— $— $— $— $— $1,102 $1,102 
Remaining commercial
Pass$1,373,608 $2,185,241 $1,474,652 $1,008,566 $383,680 $1,043,265 $7,469,012 
Special mention— — 325 3,289 — 1,194 4,808 
Substandard— 758 2,299 1,648 656 4,945 10,306 
Total remaining commercial$1,373,608 $2,185,999 $1,477,276 $1,013,503 $384,336 $1,049,404 $7,484,126 
Current period gross write-offs - Remaining commercial$— $280 $13 $21 $— $3,685 $3,999 
Total commercial loans
Pass$1,947,569 $4,787,455 $9,322,594 $5,827,128 $3,187,110 $8,477,474 $33,549,330 
Special mention48 139,743 428,085 418,495 99,610 651,653 1,737,634 
Substandard— 778 491,740 382,482 198,016 936,252 2,009,268 
Doubtful— — — — — 48,489 48,489 
N/A73,316 247,843 232,808 109,823 34,316 29,163 727,269 
Total commercial loans$2,020,933 $5,175,819 $10,475,227 $6,737,928 $3,519,052 $10,143,031 $38,071,990 
Current period gross write-offs - Total commercial$— $2,862 $5,477 $2,524 $896 $12,017 $23,776 
(1)Loans originated during the three months endedMarch 31, 2024.
(2)Includes $456.7 million of LHFS at March 31, 2024.
(3)Includes $19.5 million revolving loans converted to term loans.

21


Table of Contents
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

December 31, 2023
Commercial Loan Portfolio (2)
(dollars in thousands)Amortized Cost by Origination Year
Regulatory Rating:
2023(1)
2022202120202019Prior
Total (3)
CRE
Pass$353,350 $1,947,060 $1,800,140 $1,108,882 $674,347 $1,343,095 $7,226,874 
Special mention3,747 178,287 145,212 102,550 245,385 114,666 789,847 
Substandard— 112,872 188,061 63,806 85,138 232,168 682,045 
Doubtful— — — — 48,778 — 48,778 
Total CRE$357,097 $2,238,219 $2,133,413 $1,275,238 $1,053,648 $1,689,929 $8,747,544 
Current period gross write-offs - CRE$— $— $37,982 $— $28,626 $8,637 $75,245 
C&I
Pass$1,073,864 $2,930,616 $1,941,561 $1,002,562 $993,395 $1,923,607 $9,865,605 
Special mention6,256 96,218 4,695 2,668 10,686 139,360 259,883 
Substandard100 14,786 82,563 70,458 50,881 230,798 449,586 
N/A272,220 259,671 126,449 41,229 32,916 5,794 738,279 
Total C&I$1,352,440 $3,301,291 $2,155,268 $1,116,917 $1,087,878 $2,299,559 $11,313,353 
Current period gross write-offs - C&I$3,440 $20,806 $12,749 $5,012 $11,287 $19,224 $72,518 
Multifamily
Pass$1,147,959 $3,000,968 $1,358,513 $949,385 $1,422,205 $1,289,127 $9,168,157 
Special mention116,789 107,137 101,850 — 160,535 72,513 558,824 
Substandard— 302,057 128,023 61,041 172,983 167,084 831,188 
Total multifamily$1,264,748 $3,410,162 $1,588,386 $1,010,426 $1,755,723 $1,528,724 $10,558,169 
Current period gross write-offs - Multifamily$— $— $— $— $1,267 $2,684 $3,951 
Remaining commercial
Pass$3,154,497 $1,598,202 $1,157,726 $491,229 $248,309 $811,827 $7,461,790 
Special mention— 355 3,624 — — 1,410 5,389 
Substandard283 2,262 1,524 765 311 3,789 8,934 
Total remaining commercial$3,154,780 $1,600,819 $1,162,874 $491,994 $248,620 $817,026 $7,476,113 
Current period gross write-offs - Remaining commercial$205 $— $27 $— $— $6,211 $6,443 
Total commercial loans
Pass$5,729,670 $9,476,846 $6,257,940 $3,552,058 $3,338,256 $5,367,656 $33,722,426 
Special mention126,792 381,997 255,381 105,218 416,606 327,949 1,613,943 
Substandard383 431,977 400,171 196,070 309,313 633,839 1,971,753 
Doubtful— — — — 48,778 — 48,778 
N/A272,220 259,671 126,449 41,229 32,916 5,794 738,279 
Total commercial loans$6,129,065 $10,550,491 $7,039,941 $3,894,575 $4,145,869 $6,335,238 $38,095,179 
Current period gross write-offs - Total commercial$3,645 $20,806 $50,758 $5,012 $41,180 $36,756 $158,157 
(1)Loans originated during the year ended December 31, 2023.
(2)Includes $140.7 million of LHFS at December 31, 2023.
(3)Includes $126.6 million revolving loans converted to term loans.

22


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NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Consumer Lending Asset Quality Indicators-Credit Score


Consumer financing receivables for which either an internal or external credit score is a core component of the allowance model are summarized by credit score determined at origination as follows:

  September 30, 2017 December 31, 2016
Credit Score Range(2)
 
RICs and auto loans(3)
 Percent 
RICs and auto loans(3)
 Percent
  (dollars in thousands)
No FICO®(1)
 $4,312,044
 16.5% $4,154,228
 15.7%
<600 13,819,835
 53.2% 14,100,215
 53.2%
600-639 4,413,269
 17.0% 4,597,541
 17.4%
>=640 3,454,959
 13.3% 3,646,485
 13.7%
Total $26,000,107
 100.0% $26,498,469
 100.0%
RICs and Auto Loans

As of March 31, 2024RICs and auto loans
(dollars in thousands)
Amortized Cost by Origination Year (3)
Credit Score Range
2024(1)
2023202220212020PriorTotalPercent
No FICO (2)
$351,986 $951,574 $663,701 $386,928 $164,092 $140,861 $2,659,142 6.1 %
<6001,717,899 5,123,759 3,787,821 2,460,390 945,612 994,526 15,030,007 34.8 %
600-6391,012,644 3,010,813 2,226,481 1,166,610 379,354 351,803 8,147,705 18.8 %
640-679658,565 1,884,000 1,407,548 635,691 202,476 186,407 4,974,687 11.5 %
680-719463,654 1,396,779 981,350 545,012 234,360 158,661 3,779,816 8.7 %
720-759294,537 901,701 748,759 517,135 224,668 115,983 2,802,783 6.6 %
>=760546,536 1,395,386 1,664,572 1,442,340 569,317 226,476 5,844,627 13.5 %
Total$5,045,821 $14,664,012 $11,480,232 $7,154,106 $2,719,879 $2,174,717 $43,238,767 100.0 %
Current period gross write-offs - RICs and auto loans$1,094 $423,021 $379,004 $195,396 $59,777 $73,251 $1,131,543 
(1)    Loans originated during the three months ended March 31, 2024.
(2)     Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.
(3)    Excludes LHFS.

As of December 31, 2023RICs and auto loans
(dollars in thousands)
Amortized Cost by Origination Year (3)
Credit Score Range
2023(1)
2022202120202019PriorTotalPercent
No FICO (2)
$1,075,125 $763,677 $445,542 $193,922 $120,752 $61,909 $2,660,927 6.1 %
<6005,578,707 4,219,184 2,791,141 1,093,652 778,438 458,350 14,919,472 34.1 %
600-6393,324,732 2,483,763 1,324,435 439,996 303,441 138,715 8,015,082 18.3 %
640-6792,535,908 1,567,064 718,649 234,883 169,431 69,668 5,295,603 12.1 %
680-7191,754,195 1,092,896 612,871 268,978 159,209 39,934 3,928,083 9.0 %
720-7591,052,128 830,476 583,392 256,724 122,537 24,692 2,869,949 6.6 %
>=7601,574,026 1,847,059 1,644,605 654,214 267,443 28,896 6,016,243 13.8 %
Total$16,894,821 $12,804,119 $8,120,635 $3,142,369 $1,921,251 $822,164 $43,705,359 100.0 %
Current period gross write-offs - RICs and auto loans$479,992 $1,943,905 $1,052,016 $366,896 $245,621 $194,308 $4,282,738 
(1)    Loans originated during the year ended December 31, 2023.
(2)     CreditConsists primarily of loans for which credit scores updated quarterly.are not available or are not considered in the ALLL model.
(3)    RICs and autoExcludes LHFS.

23


Table of Contents
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Personal unsecured loans include $762.6 million and $924.7 million

As of March 31, 2024Personal Unsecured loans
(dollars in thousands)Amortized Cost by Origination Year
Credit Score Range
2024(1)
2023202220212020PriorTotalPercent
No FICO (2)
$7,351 $— $— $— $— $48 $7,399 0.2 %
<6003 53 41 105 21 2,882 3,105 0.1 %
600-63972 6,739 9,648 1,038 352 5,640 23,489 0.6 %
640-6798,481 156,270 194,299 24,571 2,961 32,020 418,602 11.3 %
680-71950,350 548,420 541,476 95,491 7,564 69,186 1,312,487 35.4 %
720-75960,304 459,873 426,872 105,254 7,367 69,117 1,128,787 30.4 %
>=76059,595 314,592 277,828 85,337 8,427 71,843 817,622 22.0 %
Total$186,156 $1,485,947 $1,450,164 $311,796 $26,692 $250,736 $3,711,491 100.0 %
Current period gross write-offs - Personal unsecured loans$— $34,328 $56,646 $16,118 $667 $2,064 $109,823 
(1)    Loans originated during the three months ended March 31, 2024.
(2)     Consists primarily of LHFS at September 30, 2017 andloans for which credit scores are not available or are not considered in the ALLL model.

As of December 31, 2023Personal Unsecured loans
(dollars in thousands)Amortized Cost by Origination Year
Credit Score Range
2023(1)
2022202120202019PriorTotalPercent
No FICO (2)
$8,080 $— $— $— $— $49 $8,129 0.2 %
<60040 62 57 35 32 2,883 3,109 0.1 %
600-6397,634 11,300 1,205 418 390 5,752 26,699 0.7 %
640-679175,427 228,631 30,445 3,442 2,479 31,341 471,765 11.6 %
680-719610,259 599,431 154,687 10,264 5,721 69,897 1,450,259 35.6 %
720-759511,424 444,493 181,398 15,625 5,847 70,518 1,229,305 30.3 %
>=760350,721 274,043 148,550 20,357 6,020 73,743 873,434 21.5 %
Total$1,663,585 $1,557,960 $516,342 $50,141 $20,489 $254,183 $4,062,700 100.0 %
Current period gross write-offs - Personal unsecured loans$30,001 $179,550 $75,237 $4,837 $2,205 $5,621 $297,451 
(1)    Loans originated during the year ended December 31, 2016 that do2023.
(2)     Consists primarily of loans for which credit scores are not have an allowance.available or are not considered in the ALLL model.



24


Table of Contents
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Consumer Lending Asset Quality Indicators-FICO and LTV Ratio


For both residential and home equity loans, loss severity assumptions are incorporated in the loan and lease loss reserve models to estimate loan balances that will ultimately charge-off.charge off. These assumptions are based on recent loss experience within various current LTV bands within these portfolios. LTVs are refreshed quarterly by applying Federal Housing Finance Agency Home price index changes at a state-by-state level to the last known appraised value of the property to estimate the current LTV. The Company's ALLLCECL loss calculation incorporates the refreshed LTV information to update the distribution of defaulted loans by LTV as well as the associated loss given defaultLGD for each LTV band. Reappraisals on a recurring basis at the individual property level are not considered cost-effective or necessary; however, reappraisals are performed on certain higher risk accounts to support line management activities, default servicing decisions, or when other situations arise for which, the Company believes the additional expense is warranted.


FICO scores are refreshed quarterly, where possible. The indicators disclosed represent the credit scores for loans as of the date presented based on the most recent assessment performed.

Residential mortgage and home equity financing receivables by LTV and FICO range are summarized as follows:
  
Residential Mortgages(1)(3)
September 30, 2017 
N/A(2)
 LTV<=70% 70.01-80% 80.01-90% 90.01-100% 100.01-110% LTV>110% Grand Total
FICO Score (dollars in thousands)
N/A(2)
 $332,686
 $10,295
 $1,220
 $—
 $—
 $—
 $—
 $344,201
<600 27
 223,552
 64,225
 53,315
 29,774
 4,664
 24,310
 399,867
600-639 39
 153,329
 47,086
 37,683
 35,296
 2,361
 5,797
 281,591
640-679 102
 288,451
 104,426
 87,570
 93,608
 4,322
 11,046
 589,525
680-719 53
 521,023
 235,751
 138,110
 152,743
 4,896
 10,144
 1,062,720
720-759 95
 895,781
 468,835
 177,903
 173,269
 6,896
 12,500
 1,735,279
>=760 552
 2,686,523
 1,099,436
 270,981
 192,950
 8,726
 17,222
 4,276,390
Grand Total $333,554
 $4,778,954
 $2,020,979
 $765,562
 $677,640
 $31,865
 $81,019
 $8,689,573

As of March 31, 2024
Amortized Cost by Origination Year (4)
(dollars in thousands)
Residential mortgages
2024(1)
2023(1)
202220212020PriorGrand TotalRevolving Loans
LTV ratios (3)
No LTV available (2)
$— $— $— $— $— $2,747 $2,747 $— 
<= 70%— — 189,887 1,019,015 867,980 2,504,019 4,580,901 — 
70.01% - 110%— — 81,541 55,319 — 5,681 142,541 — 
Greater than 110%— — — — — 372 372 — 
Total residential mortgages$— $— $271,428 $1,074,334 $867,980 $2,512,819 $4,726,561 $— 
FICO scores
No FICO score available$— $— $— $— $— $3,507 $3,507 $— 
<600— — 12,524 20,550 15,271 145,170 193,515 — 
600-679— — 21,964 47,937 31,063 220,680 321,644 — 
680-759— — 70,445 220,738 192,388 661,083 1,144,654 — 
>=760— — 166,495 785,109 629,258 1,482,379 3,063,241 — 
Total residential mortgages$— $— $271,428 $1,074,334 $867,980 $2,512,819 $4,726,561 $— 
Current period gross write-offs - Residential mortgages$— $— $— $— $— $12 $12 
Home equity
LTV ratios
No LTV available (2)
$— $— $1,714 $4,591 $4,418 $56,733 $67,456 $43,745 
<= 70%— — 42,007 160,111 170,856 1,875,850 2,248,824 2,174,539 
70.01% - 110%— — 3,883 1,409 — 11,602 16,894 14,133 
Greater than 110%— — 621 154 — 1,132 1,907 1,907 
Total home equity$— $— $48,225 $166,265 $175,274 $1,945,317 $2,335,081 $2,234,324 
FICO scores
No FICO score available$— $— $724 $2,495 $2,631 $54,444 $60,294 $36,587 
<600— — 697 2,913 5,403 135,875 144,888 126,879 
600-679— — 1,915 9,421 9,460 227,775 248,571 231,058 
680-759— — 17,432 52,431 58,706 622,422 750,991 733,658 
>=760— — 27,457 99,005 99,074 904,801 1,130,337 1,106,142 
Total home equity$— $— $48,225 $166,265 $175,274 $1,945,317 $2,335,081 $2,234,324 
Current period gross write-offs - home equity$— $— $— $— $— $2,507 $2,507 
(1) Includes LHFS.
(2) Residential mortgagesLoans originated during the three months ended March 31, 2024. The Company ceased origination of new residential mortgage and home equity loans and lines of creditin 2022.
(2) Balances in the "N/A" range for"No LTV available" or "No FICO score available" ranges primarily represent the balance on loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.
(3) AllowanceThe ALLL model considers LTV for financing receivables in first lien position for the Company and combined LTV ("CLTV") for financing receivables in second lien position for the Company.


31


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

  
Home Equity Loans and Lines of Credit(2)
September 30, 2017 
N/A(1)
 LTV<=70% 70.01-90% 90.01-110% LTV>110% Grand Total
FICO Score (dollars in thousands)
N/A(1)
 $153,230
 $620
 $564
 $—
 $—
 $154,414
<600 8,561
 166,488
 64,193
 13,307
 10,019
 262,568
600-639 5,960
 143,081
 70,451
 10,181
 10,789
 240,462
640-679 7,960
 265,434
 145,426
 22,790
 13,371
 454,981
680-719 8,035
 452,532
 281,087
 32,697
 18,979
 793,330
720-759 7,699
 654,371
 389,602
 43,180
 22,235
 1,117,087
>=760 18,516
 1,758,747
 923,209
 84,817
 46,955
 2,832,244
Grand Total $209,961
 $3,441,273
 $1,874,532
 $206,972
 $122,348
 $5,855,086

(1) Residential mortgages and home equity loans and lines of credit in the "N/A" range for LTV or FICO score primarily represent the balance on loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.
(2) Allowance model considers LTV for financing receivables in first lien position for the Company and CLTV for financing receivables in second lien position for the Company.

(4) Excludes LHFS.
25


Table of Contents
  
Residential Mortgages(1)(3)
December 31, 2016 
N/A (2)
 LTV<=70% 70.01-80% 80.01-90% 90.01-100% 100.01-110% LTV>110% Grand Total
FICO Score (dollars in thousands)
N/A(2)
 $696,730
 $102,911
 $4,635
 $2,327
 $196
 $150
 $—
 $806,949
<600 80
 228,794
 70,793
 49,253
 30,720
 6,622
 5,885
 392,147
600-639 147
 152,728
 48,006
 42,443
 42,356
 4,538
 6,675
 296,893
640-679 98
 283,054
 101,495
 81,669
 93,552
 5,287
 4,189
 569,344
680-719 112
 487,257
 193,351
 136,937
 146,090
 6,766
 11,795
 982,308
720-759 56
 767,192
 348,524
 163,163
 178,264
 8,473
 16,504
 1,482,176
>=760 495
 2,415,542
 860,582
 219,014
 180,841
 11,134
 20,740
 3,708,348
Grand Total $697,718
 $4,437,478
 $1,627,386
 $694,806
 $672,019
 $42,970
 $65,788
 $8,238,165
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)


As of December 31, 2023
Amortized Cost by Origination Year (4)
(dollars in thousands)
Residential mortgages
2023(1)
2022202120202019PriorGrand TotalRevolving Loans
LTV ratios (3)
No LTV available (2)
$— $— $— $— $— $2,156 $2,156 $— 
<= 70%— 190,214 1,024,024 880,476 590,828 1,977,309 4,662,851 — 
70.01% - 110%— 83,925 61,624 — — 5,287 150,836 — 
Greater than 110%— — — — — 375 375 — 
Total residential mortgages$— $274,139 $1,085,648 $880,476 $590,828 $1,985,127 $4,816,218 $— 
FICO scores
No FICO score available$— $— $— $— $— $2,926 $2,926 $— 
<600— 9,909 15,601 13,053 30,094 109,302 177,959 — 
600-679— 20,516 43,327 32,157 51,103 189,585 336,688 — 
680-759— 83,098 256,737 202,173 160,961 517,085 1,220,054 — 
>=760— 160,616 769,983 633,093 348,670 1,166,229 3,078,591 — 
Total residential mortgages$— $274,139 $1,085,648 $880,476 $590,828 $1,985,127 $4,816,218 $— 
Current period gross write-offs - Residential mortgages$— $33 $22 $— $16 $182 $253 
Home equity
LTV ratios
No LTV available (2)
$— $1,577 $3,904 $3,848 $3,747 $53,593 $66,669 $42,375 
<= 70%— 43,661 168,205 179,258 230,879 1,737,887 2,359,890 2,285,157 
70.01% - 110%— 3,742 1,968 — 23 13,630 19,363 16,576 
Greater than 110%— 607 156 — — 1,769 2,532 2,532 
Total home equity$— $49,587 $174,233 $183,106 $234,649 $1,806,879 $2,448,454 $2,346,640 
FICO scores
No FICO score available$— $703 $2,471 $2,597 $3,328 $52,044 $61,143 $36,854 
<600— 430 2,774 3,942 6,652 126,607 140,405 123,232 
600-679— 3,325 8,624 9,080 24,357 215,826 261,212 242,747 
680-759— 16,781 60,151 61,256 73,166 576,663 788,017 771,495 
>=760— 28,348 100,213 106,231 127,146 835,739 1,197,677 1,172,312 
Total home equity$— $49,587 $174,233 $183,106 $234,649 $1,806,879 $2,448,454 $2,346,640 
Current period gross write-offs - home equity$— $— $— $253 $17 $1,330 $1,600 
(1) Includes LHFS.
(2) Residential mortgagesLoans originated during the year ended December 31, 2023. The Company ceased origination of new residential mortgage and home equity loans and lines of creditin 2022.
(2) Balances in the "N/A" range for"No LTV available" or "No FICO score available" ranges primarily represent the balance on loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.
(3) AllowanceThe ALLL model considers LTV for financing receivables in first lien position for the Company and CLTV for financing receivables in second lien position for the Company.

(4) Excludes LHFS.

  
Home Equity Loans and Lines of Credit(2)
December 31, 2016 
N/A(1)
 LTV<=70% 70.01-90% 90.01-110% LTV>110% Grand Total
FICO Score (dollars in thousands)
N/A(1)
 $172,836
 $530
 $157
 $—
 $—
 $173,523
<600 10,198
 166,702
 64,446
 14,474
 12,684
 268,504
600-639 7,323
 143,666
 68,415
 16,680
 8,873
 244,957
640-679 10,225
 278,913
 139,940
 27,823
 14,127
 471,028
680-719 11,507
 461,285
 271,264
 39,668
 25,158
 808,882
720-759 12,640
 662,217
 383,186
 45,496
 28,608
 1,132,147
>=760 25,425
 1,814,060
 919,295
 94,522
 48,849
 2,902,151
Grand Total $250,154
 $3,527,373
 $1,846,703
 $238,663
 $138,299
 $6,001,192

(1) Residential mortgages and home equity loans and lines of credit inDuring the "N/A" range for LTV or FICO score primarily represent the balance on loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.
(2) Allowance model considers LTV for financing receivables in first lien position forthree months ended March 31, 2024, the Company and CLTV for financing receivablesreported $0.8 million in second lien position for the Company.


gross charge-offs related to other consumer portfolios.
32
26




SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Table of Contents


NOTE 4.3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)


TDR LoansLoan Modifications


The following table summarizesOccasionally the Company’s performingCompany modifies loans to customers in financial difficulty by providing term extensions, payment deferrals, and non-performing TDRs atinterest rate reductions. When a loan is modified, the dates indicated:related unamortized net fees and costs and any prepayment penalties are carried forward and any fees received, and direct loan origination costs associated with the refinancing or restructuring are deferred. Additionally, the EIR is recalculated based upon the amortized cost basis of the modified loan and its revised contractual cash flows. If the modification results in a new loan, unamortized fees and costs from the original loan are recognized into income.
 September 30, 2017 December 31, 2016
 (in thousands)
Performing$5,959,537
 $5,169,788
Non-performing941,936
 937,127
Total$6,901,473
 $6,106,915

Commercial Loan TDRs


All of the Company’s commercial loan modifications are based on the circumstances of the individual customer, including specific customers' complete relationshipsrelationship with the Company. Loan terms are modified to meet each borrower’s specific circumstances at a point in time and may allow for modifications such as term extensions, covenant waivers, payment holidays and interest rate reductions, etc. Modifications for commercialreductions. Commercial loan TDRsmodifications are generally although not always, result in bifurcation of the original loan into A and B notes. The A note is restructured to allow for an upgraded risk rating and return to accrual status after a sustained period of payment performance has been achieved (typically six12 months for monthly payment schedules). The B note, if any, is structured as a deficiency note; the balance is charged off but the debt is usually not forgiven. Commercial TDRs are generally placed on non-accrual status until the Company believes repayment under the revised terms is reasonably assured and a sustained period of repayment performance has been achieved (typically six months for a monthly amortizing loan). TDRs are subject to analysis for specific reserves by either calculating the present value of expected future cash flows or, if collateral-dependent, calculating the fair value of the collateral less its estimated cost to sell. The TDR classification will remain on the loan until it is paid in full or liquidated.

Consumer Loan TDRs


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


For the Company’s other consumer portfolios, including RICs and auto loans, the Company at times offers deferrals under which the consumer is allowed to defer a maximum of three payments per event to the end of the loan. We limit the frequency of each new deferral that may be granted to one deferral after completion of at least eight payments from origination and eight payments between each extension. The maximum number of months extended for the life of the loan for all automobile RICs is eight for non-natural disaster extensions and twelve for natural disaster extensions. Some marine and RV contracts also have a maximum of twelve months extension to reflect their longer terms. Additionally, we generally limit the granting of deferrals on new accounts until a requisite number of payments has been received. During the deferral period, we continue to accrue and collect interest on the loan in accordance with the terms of the deferral agreement. Some auto loan modifications generally include one or a combination of: a reduction of the stated interest rate of the loan to a rate of interest lower than the current market rate for new debt with similar risk,and may include an extension of term to eligible borrowers at risk of default and repossession of the maturity date or principal forgiveness.financed vehicle.


Consumer TDRs excluding RICs are generally placed on non-accrual status untilWhen estimating the ACL, the Company believes repayment underuses a statistical methodology based on an expected credit loss approach that focuses on forecasting the revised terms is reasonably assuredexpected credit loss components (i.e., PD, payoff, LGD and EAD) on a sustained period of repayment performance has been achieved (typically six months for a monthly amortizing loan). Any loan that has remained current forlevel basis to estimate the six months immediately prior to modification will remain on accrual status after the modification is implemented. RIC TDRsexpected future lifetime losses. This methodology generally does not change when loans are placed on nonaccrual status whenmodified. However, the Company believes repayment undermonitors credit quality indicators and delinquency, and adjusts the revised terms is not reasonably assured, and consideredallowance as those factors change. The Company generally uses a DCF approach for return to accrual when a sustained period of repayment performance has been achieved. The TDR classification will remain on the loan until it is paid in full or liquidated.

In addition to loans identified as TDRs above, the guidance also requires loans discharged under Chapter 7 bankruptcy proceedings to be considered TDRs and collateral-dependent, regardless of delinquency status. TDRs that arelarge impaired commercial loans. For all collateral-dependent loans, must be written down to fair market value of the collateral, less costs to sell and classified as non-accrual/non-performing loans for the remaining life of the loan.


33


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

TDR Impact to ALLL

The ALLL is established to recognize losses inherent in funded loans intended to be held for investment that are probable and can be reasonably estimated. Prior to loans being placed in TDR status, the Company generally measures its allowance under a loss contingency methodology in which consumer loans with similar risk characteristics are pooled and loss experience information is monitored for credit risk and deterioration with statistical tools considering factors suchthe ACL as delinquency, LTV and credit scores.

Upon TDR modification, the Company generally measures impairment based on a present value of expected future cash flows methodology considering all available evidence, by discounting expected future cash flows using the original effective interest rate or fair value of collateral, less costs to sell. The amount of the required ALLL is equal to the difference between the loan’s impaired valueasset’s amortized cost basis and the recorded investment.

When a consumer TDR subsequently defaults, the Company generally measures impairment based on the fair value of the underlying collateral if applicable, less its estimated costas of the reporting date, adjusted for expected costs to sell. Refer to Note 1 for more information on the ACL.


Typically, commercialThe following table shows the amortized cost basis at the end of the reporting period for loans whose termsmodified during the reporting period to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of modification granted. Short-term modifications (three months or less) are modifiednot included in a TDR will have been identified as impaired prior to modification and accounted for generally using a present value of expected future cash flows methodology, unless the loan is considered collateral-dependent. Loans considered collateral-dependent are measured for impairment based on their fair values of collateral less estimated cost to sell. Accordingly, upon TDR modification or if a TDR modification subsequently defaults, the allowance methodology remains unchanged.these tables.


34
27




Table of Contents
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4.3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)


Financial Impact and TDRs by Concession Type
Payment Deferral Only
Three months endedThree months ended
March 31, 2024March 31, 2023
(dollars in thousands)Amortized Cost% of Total Class of Financing ReceivableAmortized Cost% of Total Class of Financing Receivable
Commercial:
CRE$98,453 1.04 %$190 — %
C&I1,910 0.02 %1,926 0.01 %
Other commercial51 — %— — %
Consumer:
RICs and auto loans245,019 0.57 %240,897 0.56 %
Total$345,433 0.37 %$243,013 0.25 %
The following tables detail the activity of TDRs for the three-month and nine-month periods ended September 30, 2017 and September 30, 2016, respectively:
All Other Modifications
Three months endedThree months ended
March 31, 2024March 31, 2023
(dollars in thousands)Amortized Cost% of Total Class of Financing ReceivableAmortized Cost% of Total Class of Financing Receivable
Commercial:
C&I$948 0.01 %$798 0.01 %
Consumer:
Residential mortgages290 0.01 %— — %
Home equity loans and lines of credit2,134 0.09 %653 0.02 %
RICs and auto loans33,567 0.08 %193,357 0.44 %
Other consumer43 0.08 %— — 
Total$36,982 0.04 %$194,808 0.20 %



28
 Three-Month Period Ended September 30, 2017
 Number of
Contracts		 
Pre-TDR Recorded
Investment(1)
 Term Extension
Capitalized(4)
Rate ReductionPrincipal ForbearanceFee Waiver
Other(4)
Post-TDR Recorded Investment(2)
 (dollars in thousands)
Commercial: 
Commercial real estate:           
Corporate Banking18
 $4,632
 $—
$—
$—
$(2)$—
$(125)$4,505
Commercial and industrial252
 3,079
 (3)—
—
—
—
(31)3,045
Consumer:    
  
 
 
Residential mortgages(3)
38
 7,750
 —
357
—
—
—
(769)7,338
 Home equity loans and lines of credit9
 995
 —
—
—
—
—
(29)966
RICs and auto loans - originated67,044
 1,166,434
 (1,228)—
—
—
—
65
1,165,271
RICs - purchased19
 1,057
 4
—
—
—
—
2
1,063
 Personal unsecured loans3,109
 5,330
 —
—
—
—
—
(106)5,224
 Other consumer35
 581
 —
1
—
—
—
(1)581
Total70,524
 $1,189,858
 $(1,227)$358
$—
$(2)$—
$(994)$1,187,993
            
 Nine-Month Period Ended September 30, 2017
 Number of
Contracts		 
Pre-TDR Recorded
Investment(1)
 Term Extension
Capitalized(4)
Rate ReductionPrincipal ForbearanceFee Waiver
Other(4)
Post-TDR Recorded Investment(2)
 (dollars in thousands)
Commercial:           
Commercial real estate:           
Corporate Banking72
 $143,976
 $(13,676)$—
$127
$(13,483)$(38)$(416)$116,490
Middle market commercial real estate1
 19,979
 (595)—
—
—
—
—
19,384
Commercial and industrial639
 15,486
 (10)—
—
—
—
(35)15,441
Consumer:           
Residential mortgages(3)
187
 36,724
 6
698
133
—
—
(1,310)36,251
 Home equity loans and lines of credit45
 3,838
 —
—
—
—
—
509
4,347
RICs and auto loans - originated163,797
 2,870,605
 (2,949)—
—
—
—
(82)2,867,574
RICs - purchased98
 1,447
 (2)



—


—
1,445
 Personal unsecured loans10,999
 18,470
 —
—
—
—
—
(219)18,251
 Other consumer97
 2,385
 —
1
—
—
—
(1)2,385
Total175,935
 $3,112,910
 $(17,226)$699
$260
$(13,483)$(38)$(1,554)$3,081,568



(1) Pre-TDR modification outstanding recorded investment amount is the month-end balance prior to the month in which the modification occurred.
(2) Post-TDR modification outstanding recorded investment amount is the month-end balance for the month in which the modification occurred.
(3) The post-TDR modification outstanding recorded investment amounts for residential mortgages exclude interest reserves.
(4) Other modifications may include modifications such as fee waivers, or capitalization of fees.

35

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
 Three-Month Period Ended September 30, 2016
 Number of
Contracts		 
Pre-TDR Recorded
Investment(1)
 Term ExtensionPrincipal Forbearance
Other(4)
Post-TDR Recorded Investment(2)
 (dollars in thousands)
Commercial:        
Commercial real estate:        
 Corporate Banking21
 $53,849
 $10
$(1,342)$(2,927)$49,590
 Middle market commercial real estate1
 500
 —
—
14,607
15,107
 Santander real estate capital—
 —
 —
—
—
—
Commercial and industrial249
 6,475
 —
—
(113)6,362
Consumer:        
Residential mortgages(3)
68
 10,917
 —
—
(408)10,509
 Home equity loans and lines of credit39
 2,637
 (132)—
59
2,564
RICs and auto loans - originated43,632
 798,710
 (122)—
(119)798,469
RICs - purchased10,227
 108,855
 (657)—
(22)108,176
 Personal unsecured loans756
 2,014
 —
—
(90)1,924
 Other consumer255
 5,636
 (2)—
29
5,663
Total55,248
 $989,593
 $(903)$(1,342)$11,016
$998,364
         
         
 Nine-Month Period Ended September 30, 2016
 Number of
Contracts		 
Pre-TDR Recorded
Investment(1)
 Term ExtensionPrincipal Forbearance
Other(4)
Post-TDR Recorded Investment(2)
 (dollars in thousands)
Commercial: 
Commercial real estate:        
 Corporate Banking81
 $213,688
 $(22)$(27,198)$(3,438)$183,030
 Middle market commercial real estate5
 11,326
 —
—
44,483
55,809
  Santander real estate capital1
 8,729
 —
—
(18)8,711
Commercial and industrial815
 26,601
 —
—
(79)26,522
Consumer:        
Residential mortgages(3)
237
 36,354
 (1)—
(3)36,350
 Home equity loans and lines of credit141
 9,680
 —
—
(226)9,454
RICs and auto loans - originated109,896
 2,023,661
 (369)—
(227)2,023,065
RICs - purchased35,072
 407,562
 (1,799)—
(63)405,700
 Personal unsecured loans18,264
 27,639
 —
—
(270)27,369
 Other consumer285
 6,726
 (2)—
(150)6,574
Total164,797
 $2,771,966
 $(2,193)$(27,198)$40,009
$2,782,584
(1) Pre-TDR modification outstanding recorded investment amount is the month-end balance prior to the month in which the modification occurred.
(2)Post-TDR modification outstanding recorded investment amount is the month-end balance for the month in which the modification occurred.
(3)The post-TDR modification outstanding recorded investment amounts for residential mortgages exclude interest reserves.
(4)Other modifications may include modifications such as interest rate reductions, fee waivers, or capitalization of fees.

36


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4.3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)


TDRsThe following table describes the financial effects of the modifications made to borrowers experiencing financial difficulty:

Loan TypeModification TypeFinancial Effect
RICs and auto loansPayment deferralProvide payment deferrals to borrowers through our deferral program, which allows a customer to defer payments for a maximum of up to eight months over the life of the loan. The deferred payments are added to the end of the original loan term.
Commercial loansPayment deferralProvide payment deferrals to commercial borrowers through our deferral program. The deferred payments are added to the end of the original loan term.
Consumer secured by real estateAll other modification typesProvide modifications consisting of a combination of term extension, interest rate reduction, and/or deferment of principal on a case-by-case basis to determine which benefit or combination of benefits will be offered to achieve the target DTI range.
RICs and auto loansAll other modification typesProvides reduction in interest rate and maturity date extension of up to 36 months beyond the current maturity date resulting in reduction to monthly payment.



29


NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Performance of Modified Loans

The Company monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the 12- month period prior to period-end:

Amortized Cost
As of March 31, 2024
(in thousands)Current30-89 DPD90+ DPD
Commercial:
CRE$256,931 $13,083 $7,144 
C&I47,701 6,661 378 
Multifamily8,885 15,348 8,536 
Other commercial318 — 51 
Consumer:
Residential mortgages4,568 104 — 
Home equity loans and lines of credit6,297 509 146 
RICs and auto loans725,914 271,635 21,709 
Other consumer30 — 13 
Total$1,050,644 $307,340 $37,977 

Amortized Cost (1)
As of March 31, 2023
(in thousands)Current30-89 DPD90+ DPD
Commercial:
CRE$190 $— $— 
C&I2,452 272 — 
Consumer:
Home equity loans and lines of credit631 22 — 
RICs and auto loans395,337 38,570 347 
Total$398,610 $38,864 $347 
(1) Reflects the adoption of ASU 2022-02 on January 1, 2023 and includes only loans modified after January 1, 2023.


30


NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Payment Defaults Which Have Subsequently DefaultedHad a Prior Modification


A TDRmodified loan is generally considered to have subsequently defaulted if, after modification, the loan becomes 90 days past due.DPD. For RICs, a TDRmodified loan is considered to have subsequently defaulted after modification at the earlier of the date of repossession or 120 days past due.DPD. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Refer to Note 1 to our most recent Annual Report on Form 10-K for 2023 for more information on the Company's charge-off policy. The following table details period-end recorded investment balancesprovides the amortized cost basis of TDRsfinancing receivables that became TDRshad a payment default during the past twelve-month period and have subsequently defaulted duringwere modified in the three-month12-month period prior to default due to the borrower's financial difficulty:


Amortized Cost
Three months ended
March 31, 2024
Payment deferralAll other modification types
(in thousands)
Commercial:
C&I90 68 
Consumer:
RICs and auto loans28,428 8,913 
Total$28,518 $8,981 

Amortized Cost (1)
Three months ended
March 31, 2023
Payment deferralAll other modification types
(in thousands)
Consumer:
RICs and auto loans313 494 
Total$313 $494 
(1) Reflects the adoption of ASU 2022-02 on January 1, 2023 and nine-month periods ended September 30, 2017 and September 30, 2016, respectively.includes only loans modified after January 1, 2023.
31


 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,
 2017 2016 2017 2016
 Number of
Contracts		 
Recorded Investment(1)
 Number of
Contracts		 
Recorded Investment(1)
 Number of
Contracts		 
Recorded Investment(1)
 Number of
Contracts		 
Recorded Investment(1)
 (dollars in thousands) (dollars in thousands)
Commercial               
Middle Market Commercial Real Estate5
 6,386
 —
 —
 10
 6,825
 —
 —
Commercial and industrial61
 2,210
 76
 2,838
 163
 5,842
 194
 14,223
Consumer:               
Residential mortgages55
 8,594
 5
 579
 175
 23,659
 22
 3,171
Home equity loans and lines of credit2
 47
 19
 2,991
 6
 257
 54
 8,457
RICs and auto loans11,275
 199,045
 12,112
 208,762
 34,496
 606,327
 35,299
 588,127
Unsecured loans731
 2,029
 719
 1,676
 2,667
 6,769
 3,594
 5,048
Other consumer7
 58
 263
 766
 29
 334
 263
 766
Total12,136
 $218,369
 13,194
 $217,612
 37,546
 $650,013
 39,426
 $619,792
(1)The recorded investment represents the period-end balance at September 30, 2017 and 2016. Does not include Chapter 7 bankruptcy TDRs.


NOTE 5.4. OPERATING LEASE ASSETS, NET


The Company has operating leases, including leased vehicles, which are included in the Company's Condensed Consolidated Balance Sheets as Operating lease assets, net. The leased vehicle portfolio consists primarily of leases originated under the Chrysler Agreement.


Operating lease assets, net consisted of the following as of September 30, 2017 and December 31, 2016:the periods indicated:

(in thousands)March 31, 2024December 31, 2023
Leased vehicles$17,064,556 $17,548,952 
Less: accumulated depreciation(3,255,044)(3,546,875)
Depreciated net capitalized cost$13,809,512 $14,002,077 
Manufacturer subvention payments, net of accretion(636,292)(593,004)
Unamortized origination fees and other costs468,917 373,767 
Leased vehicles, net$13,642,137 $13,782,840 
Commercial equipment vehicles and aircraft, gross$— $— 
Less: accumulated depreciation— — 
Commercial equipment vehicles and aircraft, net
$— $— 
Total operating lease assets, net$13,642,137 $13,782,840 
  September 30, 2017 December 31, 2016
  (in thousands)
Leased vehicles $14,391,725
 $13,603,494
Origination fees and other costs 28,507
 23,141
Manufacturer subvention payments (1,112,522) (1,126,323)
Leased vehicles, gross 13,307,710
 12,500,312
Less: accumulated depreciation (2,979,073) (2,811,855)
Leased vehicles, net 10,328,637
 9,688,457
     
Commercial equipment vehicles and aircraft, gross 86,910
 65,401
Less: accumulated depreciation (14,987) (6,635)
Commercial equipment vehicles and aircraft, net 71,923
 58,766
     
Total operating lease assets, net $10,400,560
 $9,747,223

37


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 5. OPERATING LEASE ASSETS, NET (continued)

Periodically, the Company executes bulk sales of leases originated under the Chrysler Capital program. During the three-month and nine-month periods ended September 30, 2017 and September 30, 2016, the Company did not execute any bulk sales of leases originated under the Chrysler Capital program.


The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of September 30, 2017March 31, 2024 (in thousands):

2024$1,629,446 
20251,552,937 
2026810,714 
202773,060 
202874 
Thereafter— 
Total$4,066,231 

During the three months ended March 31, 2024, the Company recognized $22.8 million of net gains on the sale of operating lease assets that had been returned to the Company at the end of the lease term, compared to $22.4 million recognized during the three months ended March 31, 2023, respectively. These amounts are recorded within Miscellaneous income, net in the Company's Condensed Consolidated Statements of Operations.
   
2017 $496,600
2018 1,516,400
2019 859,503
2020 219,541
2021 4,282
Thereafter —
Total $3,096,326


Lease incomeNOTE 5. GOODWILL AND OTHER INTANGIBLES

Goodwill

Goodwill is assigned to reporting units, which are operating segments or one level below an operating segment, as of the acquisition date. The following table presents the balance of the Company's goodwill by its reporting units for the three-monthperiods indicated:
(in thousands)AutoCBBC&ICRECIBTotal
December 31, 2023 and March 31, 2024$1,238,676 $159,027 

$52,198 $1,015,130 

$301,634 

$2,766,665 
During the three months ended March 31, 2024, there were no additions, re-allocations, impairments, or disposals of goodwill. During the first quarter of 2023, there was an immaterial adjustment to the value of goodwill acquired in connection with the 2022 acquisition of PCH. There were no other additions, re-allocations, impairments, or disposals of goodwill during the three months ended March 31, 2023.


32


NOTE 5. GOODWILL AND OTHER INTANGIBLES (continued)

The Company evaluates goodwill for impairment at the reporting unit level. The Company conducted its last annual goodwill impairment tests as of October 1, 2023 using generally accepted valuation methods. As a result of that impairment test, no goodwill impairment was identified.

Other Intangible Assets

The following table details amounts related to the Company's intangible assets subject to amortization for the dates indicated:
 March 31, 2024December 31, 2023
(in thousands)Net Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount		Accumulated
Amortization
Intangibles subject to amortization:
Dealer networks$231,083 $(238,917)$236,958 $(233,042)
Stellantis relationship4,515 (134,235)5,436 (133,314)
Other intangibles41,979 (50,325)44,765 (47,539)
Total intangibles subject to amortization$277,577 $(423,477)$287,159 $(413,895)

At March 31, 2024 and nine-month periods ended September 30, 2017December 31, 2023, the Company did not have any intangibles, other than goodwill, which were not subject to amortization.

Amortization expense on intangible assets was $509.7$9.6 million and $1.5 billion, respectively, compared to $483.9$10.4 million and $1.4 billion, respectively, for the three-monththree months ended March 31, 2024 and nine-month periods ended September 30, 2016.2023, respectively.


LeaseThe estimated aggregate amortization expense related to intangibles, excluding any impairment charges, for each of the five succeeding calendar years ending December 31 is:
YearCalendar Year AmountRecorded To DateRemaining Amount To Record
(in thousands)
2024$37,900 $9,581 $28,319 
202534,783 — 34,783 
202632,492 — 32,492 
202728,646 — 28,646 
202826,340 — 26,340 
Thereafter126,997 — 126,997 
33


NOTE 6. OTHER ASSETS

The following is a detail of items that comprised Other assets at the periods indicated:
(in thousands)March 31, 2024December 31, 2023
Operating lease ROU assets$397,251 $435,633 
Deferred tax assets235,025 234,309 
Accrued interest receivable823,415 827,704 
Derivative assets at fair value1,160,331 1,090,194 
Other real estate owned and other repossessed assets288,997 291,280 
Equity method investments321,078 306,313 
MSRs95,776 94,266 
Income tax receivables428,316 478,305 
Prepaid expense257,089 242,273 
Miscellaneous assets and receivables880,298 583,607 
Total Other assets$4,887,576 $4,583,884 

Operating lease ROU assets

We have operating leases for real estate and non-real estate assets. Real estate leases relate to office space and bank/lending retail branches. Non-real estate leases include disaster recovery centers, data centers, ATMs, vehicles and certain equipment leases. Real estate leases may include one or more options to renew, with renewal terms that can extend the lease term generally from one to five years. ROU assets represent our right to use an underlying asset for the three-monthlease term and nine-month periods ended September 30, 2017lease liabilities represent our obligation to make lease payments arising from the lease.

For the three months ended March 31, 2024 and 2023, operating lease expenses were $34.1 million and $43.0 million, respectively. Sublease income was $0.9 million and $1.0 million respectively, for the three months ended March 31, 2024 and 2023. These are reported within Occupancy and equipment expenses in the Company’s Condensed Consolidated Statements of Operations.

34


NOTE 6. OTHER ASSETS (continued)

Supplemental balance sheet information related to leases was $409.4 millionas follows:
Maturity of Lease Liabilities at March 31, 2024Total Operating leases
(in thousands)
2024$103,668 
2025117,580 
202689,377 
202777,253 
202843,490 
Thereafter95,084 
Total lease liabilities$526,452 
Less: Interest(42,083)
Present value of lease liabilities$484,369 

Supplemental Balance Sheet InformationMarch 31, 2024December 31, 2023
Operating lease ROU assets$397,251$435,633
Other liabilities$484,369$511,400
Weighted-average remaining lease term (years)5.65.6
Weighted-average discount rate3.1%3.1%

Three months ended March 31,
Other Information20242023
(in thousands)
Operating cash flows from operating leases (1)
$(35,699)$(38,391)
Leased assets obtained in exchange for new operating lease liabilities$6,286 $14,257 
(1) Activity is included within the net change in other liabilities on the SCF.
The remainder of Other assets is comprised of:

•Deferred tax asset - Refer to Note 15 of these Condensed Consolidated Financial Statements for more information on tax-related activities.
•Accrued interest receivable - Includes accrued interest receivable on the Company's investments, loans, and $1.1 billion, respectively, comparedother interest-earning portfolios.
•Derivative assets at fair value - Refer to $338.1 million and $953.1 million, respectively,the "Offsetting of Financial Assets" table in Note 12 to these Condensed Consolidated Financial Statements for the three-monthdetail of these amounts.
•Equity method investments - The Company makes certain equity investments in various limited partnerships, some of which are considered VIEs, that invest in and nine-month periods ended September 30, 2016.lend to qualified community development entities, such as renewable energy investments, through the NMTC and CRA programs. The Company acts only in a limited partner capacity in connection with these partnerships, so the Company has determined that it is not the primary beneficiary of the partnerships because it does not have the power to direct the activities of the partnerships that most significantly impact the partnerships' economic performance.
•MSRs - See further discussion on the valuation of the MSRs in Note 13.

•Income tax receivables - Refer to Note 15 of these Condensed Consolidated Financial Statements for more information on tax-related activities.

•OREO and other repossessed assets includes property and vehicles recovered through foreclosure and repossession.
•Prepaid expenses includes advanced payments for cloud-based hosting, prepaid taxes, and outside services.
•Miscellaneous assets and receivables includes investment and capital market receivables, subvention receivables, derivatives trading receivables, and unapplied payments.

35


NOTE 6. VARIABLE INTEREST ENTITIES

7. VIEs


The Company transfers RICs and leased vehiclesvehicle leases into newly formednewly-formed Trusts that then issue one or more classes of notes payable backed by the collateral. The Company’s continuing involvement with these Trusts is in the form of servicing the assets and, generally, through holding residual interests in the Trusts. The Trusts are considered VIEs under GAAP, and the Company may or may not consolidate these VIEs on its Condensed Consolidated Balance Sheets.
The collateral and borrowings under credit facilities and securitization notes payable of the Company’s consolidated VIEs remain on the Condensed Consolidated Balance Sheets. The Company recognizes finance charges, fee income, and provisions for credit losses on the RICs, and leased vehicles and interest expense on the debt. Revolving credit facilities generally also utilize entities that are considered VIEs which are included on the Condensed Consolidated Balance Sheets.


ForThe Company also uses a titling trust to originate and hold its leased vehicles and the associated leases, for administrative efficiency and also to facilitate the pledging of leases to financing facilities or the sale of leases to other parties, without incurring the costs and administrative burden of retitling the leased vehicles. In this process, the leases may be transferred to separate legal units within the titling trust to segregate them for ownership purposes, including for securitizations. This does not result in any changes to the accounting for the leases. This titling trust is considered a VIE. Refer to Note 4 to these Condensed Consolidated Financial Statements for further description ofinformation on the Company's securitization activities, involvement with VIEs and accounting policies regarding consolidation of VIEs, see Note 7 of the 2016 Annual Report on Form 10-K.leased vehicles.


On-balance sheet VIEsOther Intangible Assets


The assets of consolidated VIEs that are included infollowing table details amounts related to the Company's intangible assets subject to amortization for the dates indicated:
 March 31, 2024December 31, 2023
(in thousands)Net Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount		Accumulated
Amortization
Intangibles subject to amortization:
Dealer networks$231,083 $(238,917)$236,958 $(233,042)
Stellantis relationship4,515 (134,235)5,436 (133,314)
Other intangibles41,979 (50,325)44,765 (47,539)
Total intangibles subject to amortization$277,577 $(423,477)$287,159 $(413,895)

At March 31, 2024 and December 31, 2023, the Company did not have any intangibles, other than goodwill, which were not subject to amortization.

Amortization expense on intangible assets was $9.6 million and $10.4 million for the three months ended March 31, 2024 and 2023, respectively.

The estimated aggregate amortization expense related to intangibles, excluding any impairment charges, for each of the five succeeding calendar years ending December 31 is:
YearCalendar Year AmountRecorded To DateRemaining Amount To Record
(in thousands)
2024$37,900 $9,581 $28,319 
202534,783 — 34,783 
202632,492 — 32,492 
202728,646 — 28,646 
202826,340 — 26,340 
Thereafter126,997 — 126,997 
33


NOTE 6. OTHER ASSETS

The following is a detail of items that comprised Other assets at the periods indicated:
(in thousands)March 31, 2024December 31, 2023
Operating lease ROU assets$397,251 $435,633 
Deferred tax assets235,025 234,309 
Accrued interest receivable823,415 827,704 
Derivative assets at fair value1,160,331 1,090,194 
Other real estate owned and other repossessed assets288,997 291,280 
Equity method investments321,078 306,313 
MSRs95,776 94,266 
Income tax receivables428,316 478,305 
Prepaid expense257,089 242,273 
Miscellaneous assets and receivables880,298 583,607 
Total Other assets$4,887,576 $4,583,884 

Operating lease ROU assets

We have operating leases for real estate and non-real estate assets. Real estate leases relate to office space and bank/lending retail branches. Non-real estate leases include disaster recovery centers, data centers, ATMs, vehicles and certain equipment leases. Real estate leases may include one or more options to renew, with renewal terms that can extend the lease term generally from one to five years. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

For the three months ended March 31, 2024 and 2023, operating lease expenses were $34.1 million and $43.0 million, respectively. Sublease income was $0.9 million and $1.0 million respectively, for the three months ended March 31, 2024 and 2023. These are reported within Occupancy and equipment expenses in the Company’s Condensed Consolidated Statements of Operations.

34


NOTE 6. OTHER ASSETS (continued)

Supplemental balance sheet information related to leases was as follows:
Maturity of Lease Liabilities at March 31, 2024Total Operating leases
(in thousands)
2024$103,668 
2025117,580 
202689,377 
202777,253 
202843,490 
Thereafter95,084 
Total lease liabilities$526,452 
Less: Interest(42,083)
Present value of lease liabilities$484,369 

Supplemental Balance Sheet InformationMarch 31, 2024December 31, 2023
Operating lease ROU assets$397,251$435,633
Other liabilities$484,369$511,400
Weighted-average remaining lease term (years)5.65.6
Weighted-average discount rate3.1%3.1%

Three months ended March 31,
Other Information20242023
(in thousands)
Operating cash flows from operating leases (1)
$(35,699)$(38,391)
Leased assets obtained in exchange for new operating lease liabilities$6,286 $14,257 
(1) Activity is included within the net change in other liabilities on the SCF.
The remainder of Other assets is comprised of:

•Deferred tax asset - Refer to Note 15 of these Condensed Consolidated Financial Statements presented reflectingfor more information on tax-related activities.
•Accrued interest receivable - Includes accrued interest receivable on the transferCompany's investments, loans, and other interest-earning portfolios.
•Derivative assets at fair value - Refer to the "Offsetting of Financial Assets" table in Note 12 to these Condensed Consolidated Financial Statements for the detail of these amounts.
•Equity method investments - The Company makes certain equity investments in various limited partnerships, some of which are considered VIEs, that invest in and lend to qualified community development entities, such as renewable energy investments, through the NMTC and CRA programs. The Company acts only in a limited partner capacity in connection with these partnerships, so the Company has determined that it is not the primary beneficiary of the underlying assets in orderpartnerships because it does not have the power to reflect legal ownership, that can be used to settle obligationsdirect the activities of the consolidatedpartnerships that most significantly impact the partnerships' economic performance.
•MSRs - See further discussion on the valuation of the MSRs in Note 13.
•Income tax receivables - Refer to Note 15 of these Condensed Consolidated Financial Statements for more information on tax-related activities.
•OREO and other repossessed assets includes property and vehicles recovered through foreclosure and repossession.
•Prepaid expenses includes advanced payments for cloud-based hosting, prepaid taxes, and outside services.
•Miscellaneous assets and receivables includes investment and capital market receivables, subvention receivables, derivatives trading receivables, and unapplied payments.

35


NOTE 7. VIEs

The Company transfers RICs and vehicle leases into newly-formed Trusts that then issue one or more classes of notes payable backed by the collateral. The Company’s continuing involvement with these Trusts is in the form of servicing the assets and, generally, through holding residual interests in the Trusts. The Trusts are considered VIEs under GAAP, and the liabilities ofCompany may or may not consolidate these consolidated entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as follows:

38


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 6. VARIABLE INTEREST ENTITIES (continued)

  September 30, 2017 December 31, 2016
  (in thousands)
Assets    
Restricted cash $1,969,094
 $2,087,177
Loans(1)(2)
 22,592,031
 23,568,066
Operating lease assets, net 9,931,283
 8,564,628
Various other assets 634,338
 686,253
Total Assets $35,126,746
 $34,906,124
Liabilities    
Notes payable(2)
 $28,654,850
 $31,667,976
Various other liabilities 153,942
 91,234
Total Liabilities $28,808,792
 $31,759,210

(1) Includes $832.4 million and $1.0 billion of RICs held for sale at September 30, 2017 and December 31, 2016, respectively.
(2) Reflects the impacts of purchase accounting.

Certain amounts shown above are greater than the amounts shown in the corresponding line items in the accompanyingVIEs on its Condensed Consolidated Balance Sheets due to intercompany eliminations between the VIEsSheets.
The collateral and other entities consolidated by the Company. The amounts shown above are also impacted by purchase accounting marks from the Change in Control. For example, for most of its securitizations, the Company retains one or moreborrowings under credit facilities and securitization notes payable of the lowest tranches of bonds. Rather than showing investment in bonds as an assetCompany’s consolidated VIEs remain on the Condensed Consolidated Balance Sheets. The Company recognizes finance charges, fee income, and provisions for credit losses on the RICs, and leased vehicles and interest expense on the debt. Revolving credit facilities generally also utilize entities that are considered VIEs which are included on the Condensed Consolidated Balance Sheets.

The Company also uses a titling trust to originate and hold its leased vehicles and the associated debt as a liability, these amounts are eliminated in consolidation as required by GAAP.

The Company retains servicing responsibilityleases, for receivablesadministrative efficiency and also to facilitate the pledging of leases to financing facilities or the sale of leases to other parties, without incurring the costs and administrative burden of retitling the leased vehicles. In this process, the leases may be transferred to separate legal units within the Trusts and receivestitling trust to segregate them for ownership purposes, including for securitizations. This does not result in any changes to the accounting for the leases. This titling trust is considered a monthly servicing feeVIE. Refer to Note 4 to these Condensed Consolidated Financial Statements for further information on the outstanding principal balance. Supplemental fees, such as late charges, for servicing the receivables are reflected in miscellaneous income. As of September 30, 2017 and December 31, 2016, the Company was servicing $26.2 billion and $27.4 billion, respectively, of RICs that have been transferred to consolidated Trusts. The remainder of the Company’s RICs remains unpledged.Company's leased vehicles.


Below is a summary of the cash flows received from the on-balance sheet Trusts for the periods indicated:
  Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,
  2017 2016 2017 2016
  (in thousands)
Assets securitized $2,998,430
 $2,043,114
 $15,395,158
 $12,026,706
         
Net proceeds from new securitizations (1)
 $2,936,719
 $1,688,822
 $11,998,611
 $9,509,135
Net proceeds from sale of retained bonds —
 —
 273,733
 128,798
Cash received for servicing fees (2)
 228,131
 200,634
 653,048
 595,070
Net distributions from Trusts (2)
 666,179
 776,306
 2,073,965
 2,167,512
Total cash received from Trusts $3,831,029
 $2,665,762
 $14,999,357
 $12,400,515
(1) Includes additional advances on existing securitizations.
(2) These amounts are not reflected in the accompanying Condensed Consolidated Statements of Cash Flows because the cash flows are between the VIEs and other entities included in the consolidation.

Off-balance sheet VIEs

During the three-month and nine-month periods ended September 30, 2017, the Company sold $1.3 billion and $2.6 billion of gross RICs to VIEs in off-balance sheet securitizations for a loss of $6.8 million and $13.0 million, respectively. The transaction was executed under the new securitization platform with Santander, Santander Prime Auto Issuing Note (“SPAIN"). Santander will hold eligible vertical interests in notes and certificates of not less than 5% to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “DFA”) risk retention rules. For the three-month and nine-month periods ended September 30, 2016, the Company executed no off-balance sheet securitizations with VIEs in which it has continuing involvement.


39


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 6. VARIABLE INTEREST ENTITIES (continued)

As of September 30, 2017 and December 31, 2016, the Company was servicing $4.0 billion and $2.7 billion, respectively, of gross RICs that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call. The portfolio was comprised as follows:
  September 30, 2017 December 31, 2016
 (in thousands)
SPAIN $2,265,206
 $—
Total serviced for related parties 2,265,206
 —
     
Chrysler Capital securitizations 1,690,729
 2,472,756
Other third parties —
 268,345
Total serviced for third parties 1,690,729
 2,741,101
Total serviced for other portfolio $3,955,935
 $2,741,101

Other than repurchases of sold assets due to standard representations and warranties, the Company has no exposure to loss as a result of its involvement with these VIEs.

A summary of the cash flows received from the off-balance sheet Trusts for the periods indicated is as follows:
  Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,
  2017 2016 2017 2016
  (in thousands)
Assets securitized (1)
 $1,347,010
 $—
 $2,583,341
 $—
         
Net proceeds from new securitizations $1,347,430
 $—
 $2,588,227
 $—
Cash received for servicing fees 12,309
 10,027
 25,677
 38,885
Total cash received from Trusts $1,359,739
 $10,027
 $2,613,904
 $38,885

(1) Represents the UPB at the time of original securitization.


NOTE 7. GOODWILL AND OTHER INTANGIBLES

Goodwill

The following table presents the Company's goodwill by its reporting units at September 30, 2017:
  Consumer and Business Banking Commercial Real Estate Commercial Banking Global Corporate Banking SC Santander BanCorp Total
  (in thousands)
Goodwill at September 30, 2017 $1,880,303

$870,411

$542,584

$131,130

$1,019,960

$10,537

$4,454,925

There were no impairments, additions, or re-allocations of goodwill for the Nine-Month Period Ended September 30, 2017.

The Company, including its Santander BanCorp subsidiary, conducted its last annual goodwill impairment tests as of October 1, 2016 using generally accepted valuation methods. After conducting an analysis of the fair value of each reporting unit as of October 1, 2016, the Company determined that no impairments of goodwill were identified as a result of the annual impairment tests.


40


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 7. GOODWILL AND OTHER INTANGIBLES (continued)

Other Intangible Assets

The following table details amounts related to the Company's intangible assets subject to amortization for the dates indicated.indicated:
 March 31, 2024December 31, 2023
(in thousands)Net Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount		Accumulated
Amortization
Intangibles subject to amortization:
Dealer networks$231,083 $(238,917)$236,958 $(233,042)
Stellantis relationship4,515 (134,235)5,436 (133,314)
Other intangibles41,979 (50,325)44,765 (47,539)
Total intangibles subject to amortization$277,577 $(423,477)$287,159 $(413,895)
 September 30, 2017 December 31, 2016
 
Net
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Accumulated
Amortization
 (in thousands)
Intangibles subject to amortization:       
Dealer networks$436,214
 $(143,786) $465,625
 $(114,375)
Chrysler relationship83,750
 (55,000) 95,000
 (43,750)
Core deposit intangibles—
 —
 —
 (295,842)
Trade name16,200
 (1,800) 17,100
 (900)
Other intangibles14,877
 (54,654) 19,519
 (98,492)
Total intangibles subject to amortization$551,041
 $(255,240) $597,244
 $(553,359)


At September 30, 2017March 31, 2024 and December 31, 2016,2023, the Company did not have any intangibles, other than goodwill, thatwhich were not subject to amortization.


Amortization expense on intangible assets was $15.3$9.6 million and $46.2 million and $17.2 million and $52.9$10.4 million for the three-monththree months ended March 31, 2024 and nine-month periods ended September 30, 2017 and September 30, 2016,2023, respectively.

During 2016, the Company's core deposit intangibles and purchased credit card relationship intangibles associated with its 2006 acquisitions, which were amortized straight-line over a period of ten years, became fully amortized. During 2016, $48.5 million of the Company's customer relationships associated with BSI became fully amortized.


The estimated aggregate amortization expense related to intangibles, excluding any impairment charges, for each of the five succeeding calendar years ending December 31 is:
YearCalendar Year AmountRecorded To DateRemaining Amount To Record
(in thousands)
2024$37,900 $9,581 $28,319 
202534,783 — 34,783 
202632,492 — 32,492 
202728,646 — 28,646 
202826,340 — 26,340 
Thereafter126,997 — 126,997 
33


Year Calendar Year Amount Recorded To Date Remaining Amount To Record
  (in thousands)
2017 $61,491
 $46,204
 $15,287
2018 60,644
 —
 60,644
2019 58,975
 —
 58,975
2020 58,642
 —
 58,642
2021 55,603
 —
 55,603
Thereafter 301,890
 —
 301,890

41


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 8.6. OTHER ASSETS


The following is a detail of items that comprise othercomprised Other assets at September 30, 2017the periods indicated:
(in thousands)March 31, 2024December 31, 2023
Operating lease ROU assets$397,251 $435,633 
Deferred tax assets235,025 234,309 
Accrued interest receivable823,415 827,704 
Derivative assets at fair value1,160,331 1,090,194 
Other real estate owned and other repossessed assets288,997 291,280 
Equity method investments321,078 306,313 
MSRs95,776 94,266 
Income tax receivables428,316 478,305 
Prepaid expense257,089 242,273 
Miscellaneous assets and receivables880,298 583,607 
Total Other assets$4,887,576 $4,583,884 

Operating lease ROU assets

We have operating leases for real estate and December 31, 2016:non-real estate assets. Real estate leases relate to office space and bank/lending retail branches. Non-real estate leases include disaster recovery centers, data centers, ATMs, vehicles and certain equipment leases. Real estate leases may include one or more options to renew, with renewal terms that can extend the lease term generally from one to five years. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

For the three months ended March 31, 2024 and 2023, operating lease expenses were $34.1 million and $43.0 million, respectively. Sublease income was $0.9 million and $1.0 million respectively, for the three months ended March 31, 2024 and 2023. These are reported within Occupancy and equipment expenses in the Company’s Condensed Consolidated Statements of Operations.

34


  September 30, 2017 December 31, 2016
  (in thousands)
Income tax receivables $319,045
 $294,796
Derivative assets at fair value 431,267
 413,779
Other repossessed assets 159,468
 177,592
MSRs 146,958
 150,343
Prepaid expenses 160,222
 172,559
Other real estate owned ("OREO") 146,362
 116,705
Deferred tax asset, net 958,214
 989,767
Miscellaneous assets and receivables 770,730
 567,327
Total other assets $3,092,266
 $2,882,868
NOTE 6. OTHER ASSETS (continued)


IncomeSupplemental balance sheet information related to leases was as follows:
Maturity of Lease Liabilities at March 31, 2024Total Operating leases
(in thousands)
2024$103,668 
2025117,580 
202689,377 
202777,253 
202843,490 
Thereafter95,084 
Total lease liabilities$526,452 
Less: Interest(42,083)
Present value of lease liabilities$484,369 

Supplemental Balance Sheet InformationMarch 31, 2024December 31, 2023
Operating lease ROU assets$397,251$435,633
Other liabilities$484,369$511,400
Weighted-average remaining lease term (years)5.65.6
Weighted-average discount rate3.1%3.1%

Three months ended March 31,
Other Information20242023
(in thousands)
Operating cash flows from operating leases (1)
$(35,699)$(38,391)
Leased assets obtained in exchange for new operating lease liabilities$6,286 $14,257 
(1) Activity is included within the net change in other liabilities on the SCF.
The remainder of Other assets is comprised of:

•Deferred tax receivablesasset - Refer to Note 15 of these Condensed Consolidated Financial Statements for more information on tax-related activities.

•Accrued interest receivable - Includes accrued interest receivable on the Company's investments, loans, and other interest-earning portfolios.
Income tax receivables consists primarily of accrued federal tax receivables.

Derivative assets at fair value

•Derivative assets at fair value represent the net amount of derivatives presented in the Condensed Consolidated Financial Statements, including the impact of amounts offsetting recognized assets.- Refer to the offsetting"Offsetting of financial assetsFinancial Assets" table in Note 1112 to these Condensed Consolidated Financial Statements for the detail of these amounts.

MSRs

Residential real estate

•Equity method investments - The Company maintains an MSR asset for sold residential real estate loans serviced for others. At September 30, 2017makes certain equity investments in various limited partnerships, some of which are considered VIEs, that invest in and December 31, 2016,lend to qualified community development entities, such as renewable energy investments, through the balance of these loans serviced for others accounted for at fair value was $15.1 billionNMTC and $15.4 billion, respectively.CRA programs. The Company accounts foracts only in a majority of its residential MSRs usinglimited partner capacity in connection with these partnerships, so the FVO. Changes in fair value are recorded throughCompany has determined that it is not the Mortgage banking income, net lineprimary beneficiary of the Condensed Consolidated Statements of Operations. The fair valuepartnerships because it does not have the power to direct the activities of the partnerships that most significantly impact the partnerships' economic performance.
•MSRs at September 30, 2017 and December 31, 2016 was $143.5 million and $146.6 million, respectively.- See further discussion on the valuation of the MSRs in Note 16. As deemed appropriate,13.
•Income tax receivables - Refer to Note 15 of these Condensed Consolidated Financial Statements for more information on tax-related activities.
•OREO and other repossessed assets includes property and vehicles recovered through foreclosure and repossession.
•Prepaid expenses includes advanced payments for cloud-based hosting, prepaid taxes, and outside services.
•Miscellaneous assets and receivables includes investment and capital market receivables, subvention receivables, derivatives trading receivables, and unapplied payments.

35


NOTE 7. VIEs

The Company transfers RICs and vehicle leases into newly-formed Trusts that then issue one or more classes of notes payable backed by the collateral. The Company’s continuing involvement with these Trusts is in the form of servicing the assets and, generally, through holding residual interests in the Trusts. The Trusts are considered VIEs under GAAP, and the Company economically hedges MSRs usingmay or may not consolidate these VIEs on its Condensed Consolidated Balance Sheets.
The collateral and borrowings under credit facilities and securitization notes payable of the Company’s consolidated VIEs remain on the Condensed Consolidated Balance Sheets. The Company recognizes finance charges, fee income, and provisions for credit losses on the RICs, and leased vehicles and interest rate swapsexpense on the debt. Revolving credit facilities generally also utilize entities that are considered VIEs which are included on the Condensed Consolidated Balance Sheets.

The Company also uses a titling trust to originate and forward contractshold its leased vehicles and the associated leases, for administrative efficiency and also to purchase MBS. See further discussion on these derivative activitiesfacilitate the pledging of leases to financing facilities or the sale of leases to other parties, without incurring the costs and administrative burden of retitling the leased vehicles. In this process, the leases may be transferred to separate legal units within the titling trust to segregate them for ownership purposes, including for securitizations. This does not result in any changes to the accounting for the leases. This titling trust is considered a VIE. Refer to Note 114 to these Condensed Consolidated Financial Statements. Statements for further information on the Company's leased vehicles.

On-balance sheet VIEs

The remainderassets of MSRsconsolidated VIEs are presented based upon the legal transfer of the underlying assets in order to reflect legal ownership. Certain of these assets can be used only to settle obligations of the consolidated VIEs and the liabilities of those entities for which creditors (or beneficial interest holders) do not accountedhave recourse to the Company's general credit.

The assets and liabilities of consolidated VIEs included the following at the dates indicated:

(in thousands)March 31, 2024December 31, 2023
Assets
Restricted cash$1,003,547 $864,464 
LHFI25,065,413 25,144,797 
Operating lease assets, net (1)
13,642,137 13,782,840 
Various other assets701,005 637,987 
Total Assets$40,412,102 $40,430,088 
Liabilities
Notes payable$25,699,422 $25,087,655 
Various other liabilities111,313 119,280 
Total Liabilities$25,810,735 $25,206,935 
(1) As noted above, all leased vehicles are originated through a titling trust. At March 31, 2024 and December 31, 2023, $7.0 billion and $7.8 billion, respectively, of leased vehicle assets included in this amount were in a titling trust, but not in a securitization trust.

The Company retains servicing rights for usingreceivables transferred to the FVOTrusts and receives a monthly servicing fee on the outstanding principal balance. Supplemental fees, such as late charges, for servicing the receivables are accounted for at lowerreflected in Miscellaneous income, net.

As of cost or market.

For the three-monthMarch 31, 2024 and nine-month periods ended September 30, 2017,December 31, 2023, the Company recorded net changeswas servicing $29.4 billion and $28.7 billion, respectively, of gross RICs that have been transferred to consolidated Trusts. Certain amounts shown above are greater than the amounts shown in the fair value of MSRscorresponding line items in the accompanying Condensed Consolidated Balance Sheets due to valuation totaling $(1.6) millionintercompany eliminations between the VIEs and $(1.3) million, respectively, comparedother entities consolidated by the Company. For example, for most of its securitizations, the Company retains one or more of the lowest tranches of bonds. Rather than showing investment in bonds as an asset and the associated debt as a liability, these amounts are eliminated in consolidation as required by GAAP.

During the three month ended March 31, 2024, the company sold certain notes payable to $7.7 million and $(18.1) millionthird-party investors (for cash proceeds of $481.4 million) that it had previously retained from prior period securitization transactions of on-balance sheet VIEs. The company continues to consolidate these VIEs on its Condensed Consolidated Balance Sheet.
36


NOTE 7. VIEs (continued)

A summary of the cash flows received from the consolidated Trusts for the correspondingrespective periods in 2016.

The following table presents a summary of activityis as follows for the Company's residential MSRs thatperiods indicated:
Three months ended March 31,
(in thousands)20242023
Assets securitized$5,234,923 $1,382,583 
Net proceeds from new securitizations (1)
$4,011,360 $792,050 
Net proceeds on retained bonds from new securitizations733,880 255,669 
Cash received for servicing fees (2)
222,352 240,381 
Net distributions from Trusts (2)
1,038,012 572,348 
Total cash received from Trusts$6,005,604 $1,860,448 
(1) Includes additional advances on existing securitizations.
(2) These amounts are not reflected in the SCF because the cash flows are between the VIEs and other entities included in the Condensed Consolidated Balance Sheets.consolidation.


42Off-balance sheet VIEs



SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 8. OTHER ASSETS (continued)

 Three-Month Period Ended Nine-Month Period Ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
 (in thousands)
Fair value at beginning of period(1)
$146,091
 $117,792
 $146,589
 $147,233
Mortgage servicing assets recognized4,099
 6,057
 12,696
 14,450
Principal reductions(5,088) (5,446) (14,446) (17,456)
Change in fair value due to valuation assumptions(1,578) 7,711
 (1,315) (18,113)
Fair value at end of period(1)
$143,524
 $126,114
 $143,524
 $126,114

(1) The Company had total MSRs of $147.0 million and $150.3 million as of September 30, 2017,At March 31, 2024 and December 31, 2016, respectively.2023, the Company was servicing gross RICs of $1.9 billion and $973.9 million, respectively, that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call.

During the three months ended March 31, 2024, the Company sold $1.1 billion of gross of RICs to a newly formed off-balance sheet securitization VIE which resulted in a pre-tax loss of $42.3 million. The Company has elected to account forcompany retained the majority of its MSR balance using the FVO, while the remainderservicing of the MSRsRIC's sold and provided a loan, classified by the Company as an investment in debt security HTM, in the amount of $53.0 million to the VIE to satisfy regulatory risk retention requirements. The company is not obligated to provide any financial support to the VIE. All of the notes and residual equity interests issued by the VIE were sold to third-party investors. Gains and losses on securitizations are accounted for using the lower of cost or market and are not presented within this table.

Fee income and gain on sale of mortgage loans

Includedrecorded in Mortgage bankingMiscellaneous income, net, onin the accompanying Condensed Consolidated Statements of Operations was mortgage servicing fee incomeOperations. At the time of $10.2the sale, the Company released approximately $96.0 million of ACL to provision expense.

In November 2023, the Company sold all of the equity certificates of an on-balance sheet Trust to a new off-balance sheet Trust established in 2023. This new off-balance sheet Trust issued debt and $31.3 million forequity tranches to third-party investors, with the three-monthexception of a 5% share of each new tranche purchased by the Company. In addition, the Company sold all of its debt that had been held from the on-balance sheet Trust to a third party. The Company’s sale of this debt and nine-month periodsequity from the on-balance sheet Trust resulted in the Company no longer being identified as the primary beneficiary and the subsequent de-recognition of the assets and liabilities of the on-balance sheet Trust from its Condensed Consolidated Balance Sheets. As a result of these transactions, the Company recognized an immaterial loss in its Consolidated Statements of Operations.

During the three months ended September 30, 2017, respectively, comparedMarch 31, 2023, the Company sold no gross RICs to $10.8 millionthird-party investors in off-balance sheet securitizations and $32.4 million for the corresponding periodsrecorded no gain or loss on securitization. Gains and losses on securitizations are recorded in 2016. The Company had gains on sales of mortgage loans included in Mortgage bankingMiscellaneous income, net, onin the accompanying Condensed Consolidated Statements of OperationsOperations.
A summary of $13.6cash flows received from Trusts for the respective periods were as follows for the periods indicated:

Three months ended March 31,
(in thousands)20242023
Receivables securitized (1)
1,060,931 — 
Net proceeds from new securitizations1,003,695 — 
Cash received for servicing fees$1,344 $2,060 
Total cash received from Trusts$1,005,039 $2,060 
(1) Represents the UPB at the time of original securitization.


37


NOTE 7. VIEs (continued)

Other than repurchases of sold assets due to claims against standard representations and warranties, the Company's exposure to loss as a result of its involvement with these VIEs includes the portion of securitizations retained by the Company. The carrying value of this exposure at March 31, 2024 was $82.0 million and $19.3$4.6 million for the three-monthof debt and nine-month periods ended September 30, 2017,equity investments, respectively, compared to $8.0$29.7 million and $18.1 million for the corresponding periods in 2016.

Other repossessed assets and OREO

Other repossessed assets primarily consist of SC's vehicle inventory, which is obtained through repossession. OREO consists primarily of the Company's foreclosed properties.

Deferred tax assets, net

The Company recorded $958.2 million of deferred tax assets, net as of September 30, 2017, compared to $989.8$2.8 million at December 31, 2016.2023. These amounts are reported in debt securities HTM and other investments, respectively, in Note 2 to these Condensed Consolidated Financial Statements.


As discussed in Note 1 to these Condensed Consolidated Financial Statements, in December 2023 SBNA acquired a 20 percent interest in the Structured LLC for approximately $1.1 billion. The Company did not transfer any assets to the VIE and does not control nor consolidate it. SBNA's 20 percent interest is reported as an AFS debt security that has a fair value of approximately $1.1 billion and $1.1 billion at March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024 SBNA serviced approximately $8.9 billion in multi-family loans for the Structured LLC and receives a market rate servicing fee. For the three months ended March 31, 2024, SBNA recognized $9.9 million in servicing fee income from the servicing of these assets which is recorded in Miscellaneous assets and receivablesincome, net, in the accompanying Condensed Consolidated Statements of Operations.

Miscellaneous assets and receivables includes subvention receivables in connection with the Chrysler Agreement, investment and capital market receivables, and unapplied payments. The third quarter increase is due to a receivable for trade date sale of $110.0 million at SBNA, $81.0 million related to a receivable from customers and brokers associated with unsettled security trades, and $16.4 million related to capital market receivable at SIS, offset by a decrease in subvention receivables of $59.1 million as of September 30, 2017.


43
38




SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 9.8. DEPOSITS AND OTHER CUSTOMER ACCOUNTS


Deposits and other customer accounts are summarized as follows:follows at the dates indicated:
September 30, 2017 December 31, 2016
Balance Percent of total deposits Balance Percent of total deposits
(in thousands)
March 31, 2024March 31, 2024December 31, 2023
(dollars in thousands)(dollars in thousands)BalancePercent of total depositsBalancePercent of total deposits
Interest-bearing demand deposits$8,635,650
 14.0% $11,284,881
 16.8%Interest-bearing demand deposits$12,251,256 15.8 15.8 %$11,591,982 15.0 15.0 %
Non-interest-bearing demand deposits15,950,662
 25.8% 15,413,609
 22.9%Non-interest-bearing demand deposits15,177,900 19.5 19.5 %15,504,947 20.1 20.1 %
Savings6,012,896
 9.7% 5,988,852
 8.9%Savings4,213,934 5.4 5.4 %4,428,281 5.7 5.7 %
Customer repurchase accounts918,033
 1.5% 868,544
 1.3%Customer repurchase accounts240,728 0.3 0.3 %238,523 0.3 0.3 %
Money market24,625,925
 39.8% 24,511,906
 36.5%Money market25,037,492 32.3 32.3 %25,361,575 33.0 33.0 %
Certificates of deposit ("CDs")5,734,642
 9.2% 9,172,898
 13.6%
Total Deposits (1)
$61,877,808
 100.0% $67,240,690
 100.0%
CDsCDs20,763,160 26.7 %19,947,868 25.9 %
Total deposits (1)
Total deposits (1)
$77,684,470 100.0 %$77,073,176 100.0 %
(1) Includes foreign deposits, as defined by the FRB, of $9.8$5.2 billion and $10.7$5.4 billion at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.

Deposits collateralized by investment securities, loans, and other financial instruments totaled $2.3 billion and $3.0 billion at September 30, 2017 and December 31, 2016, respectively.


Demand deposit overdrafts that have been reclassified as loan balances were $46.2$186.7 million and $42.3$107.6 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.

At March 31, 2024 and December 31, 2023, the Company had $5.9 billion and $5.6 billion, respectively, of CDs greater than $250 thousand.

The Company's subsidiaries had outstanding irrevocable letters of credit totaling $0.0 million and $40.0 million from the FHLB of Pittsburgh at March 31, 2024 and December 31, 2023, respectively, used to secure uninsured deposits placed with the Bank by state and local governments and their political subdivisions.

39


NOTE 10.9. BORROWINGS


Total borrowings and other debt obligations at September 30, 2017March 31, 2024 were $41.4$43.9 billion, compared to $43.5$44.1 billion at December 31, 2016.2023. The Company's debt agreements impose certain limitations on dividends otherdividend payments and other transactions. The Company is currently in compliance with these limitations.

Periodically, as part of the Company's wholesale funding management, it opportunistically repurchases outstanding borrowings in the open market and subsequently retires the obligations.

Bank


During the first quarter of 2017, the Bank repurchased $881.0 million of its 2.00% senior notes due 2018 and senior floating rate notes due 2018.

During the second quarter of 2017, the Bank repurchased $14.2 million of its real estate investment trust ("REIT") preferred debt.

Subsequent to the third quarter, on October 18, 2017, the Bank repurchased $307.8 million of its 8.75% subordinated notes due 2018. The Bank recorded loss on debt extinguishment related to this repurchase of $14.0 million.

The Bank did not repurchase any outstanding borrowings in the open market during the three- or nine-month periodthree months ended September 30, 2016.

SHUSA

During the first quarter of 2017,March 31, 2024, the Company issuedcompleted the public offering and sale of $1.0 billion in aggregate principal amount of its 3.70%6.17% fixed-to-floating rate senior notes due March 2022. The proceeds of these notes were primarily used for general corporate purposes.


44


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10. BORROWINGS (continued)

During the second quarter of 2017, the Company issued $759.7 million in aggregate principal amount of its senior floating rate notes in two separate private offerings. These notes have a floating rate equal to the three-month London Interbank Offered Rate (“LIBOR") plus 100 basis points.The proceeds of these notes will be used for general corporate purposes.

During the third quarter of 2017, the Company issued $1.24 billion in aggregate principal amount of its senior notes, comprised of an additional $440.0 million of 3.70% senior notes due March 2022 and $800.0 million of 4.40% senior notes due May 2027.January 2030. The Company also repurchased $255.4completed on-balance sheet securitization transactions of $1.5 billion on its SDART platform, of which it retained approximately $332.4 million in interests in the VIE, and $1.1 billion on its DRIVE platform, of its 3.45% senior notes duewhich it retained $164.0 million in August 2018. In addition,interests in the Company redeemed and extinguished $70.3 million and $10.0 million of its Capital Trust VI junior subordinated debentures due June 2036.VIE. The Company did not repurchase any outstanding borrowingscompleted an on-balance sheet securitization transaction on its SBALT platform in the open market during the three- or nine-month periods ended September 30, 2016.

On October 6, 2017, the Company issued $302.6amount of $1.7 billion, of which it retained approximately $237.5 million in aggregate principal amount of its senior floating rate notes. These senior floating rateinterests in the VIE. Additionally, the company sold certain notes have a floating rate equalpayable to the three-month LIBOR plus 100 basis points, with a maturity of January 2020. Thethird-party investors (for cash proceeds of $481.4 million) that it had previously retained from prior period securitization transactions of on balance sheet VIEs. The company continues to consolidate these notes will be used for general corporate purposes.VIEs on its Condensed Consolidated Balance Sheet.


The Company recorded lossIn April 2024, the Company's auto business completed an on-balance sheet securitization transaction of $1.6 billion on debt extinguishment related to debt repurchases and early repayments at SHUSA and the Bankits SDART platform, of $5.6 million and $16.3which it retained approximately $134.4 million in total forinterests in the three-month and nine-month periods ended September 30, 2017, respectively. During the three-month and nine-month periods ended September 30, 2016, the Company recorded loss on debt extinguishment related to repurchases of FHLB advances of $10.2 million and $88.7 million, respectively.VIE.




45
40



SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE 10.9. BORROWINGS (continued)


Parent Company and other IHC EntitiesSubsidiary Borrowings and Debt Obligations

The following table presents information regarding the Parent Company and its subsidiaries' borrowings and other debt obligations at the dates indicated:
 September 30, 2017 December 31, 2016
 Balance 
Effective
Rate
 Balance 
Effective
Rate
 (dollars in thousands)
Parent Company       
Senior notes, due November 2017 (1)
$599,861
 2.93% $599,206
 2.67%
3.45% senior notes, due August 2018244,213
 3.62% 498,604
 3.62%
2.70% senior notes, due May 2019998,060
 2.82% 997,207
 2.82%
2.65% senior notes, due April 2020995,842
 2.82% 994,672
 2.82%
3.70% senior notes, due March 2022 (2)
1,440,039
 3.74% —
 —%
4.50% senior notes, due July 20251,095,324
 4.56% 1,094,955
 4.56%
4.40% senior notes, due July 2027794,838
 4.48% —
 —%
Junior subordinated debentures - Capital Trust VI , due June 2036 (3)
—
 —% 69,798
 7.91%
Common securities - Capital Trust VI (3)
—
 —% 10,000
 7.91%
Junior subordinated debentures - Capital Trust IX, due July 2036149,455
 3.13% 149,434
 2.49%
Common securities - Capital Trust IX4,640
 3.13% 4,640
 2.49%
Senior notes, due July 2019 (4)
388,532
 2.27% —
 —%
Senior notes, due September 2019 (4)
370,730
 2.30% —
 —%
Other IHC Entities       
Overnight Funds Purchase, due within one year, due October 2017580
 1.05% 830
 0.50%
 2.00% subordinated debt, maturing through 204240,793
 2.00% 40,457
 2.00%
Short-term borrowings, due within one year, due October 2017194,000
 1.13% 54,000
 0.63%
Total due to others overnight, due within one year, due October 201715,000
 1.13% 17,000
 0.63%
Short-term borrowings, due within one year, October 201754,471
 0.25% 207,173
 0.25%
Total Parent Company and other subsidiaries' borrowings and other debt obligations$7,386,378
 3.35% $4,737,976
 3.21%

 March 31, 2024December 31, 2023
(dollars in thousands)BalanceEffective
Rate		BalanceEffective
Rate
Parent Company
3.50% senior notes due June 2024 (1)
$999,813 3.50 %$999,559 3.50 %
3.45% senior notes due June 2025998,634 3.45 %998,329 3.45 %
4.26% senior notes due June 2025499,842 4.43 %499,634 4.43 %
4.50% senior notes due July 20251,099,104 4.50 %1,098,937 4.50 %
Senior notes due April 2026 (2)
433,464 6.01 %433,450 6.02 %
5.81% senior sustainability notes due September 2026499,212 5.92 %499,082 5.92 %
3.24% senior notes due October 2026932,325 3.24 %930,768 3.24 %
6.89% senior notes due June 2027 (1)
750,000 6.89 %750,000 6.89 %
4.40% senior notes due July 20271,049,651 4.40 %1,049,641 4.40 %
2.49% senior notes due January 2028997,776 2.57 %997,582 2.57 %
6.50% senior notes due March 2029996,758 6.59 %996,580 6.59 %
6.57% senior notes due June 2029498,130 6.67 %498,034 6.67 %
6.17% senior notes due January 2030996,259 6.26 %— — %
7.66% senior notes due November 2031497,847 7.73 %497,797 7.73 %
2.88% subordinated notes, due November 2031 (1)
500,000 2.88 %500,000 2.88 %
7.18% subordinated notes due December 2032 (1)
500,000 7.18 %500,000 7.18 %
Total Parent Company borrowings12,248,815 11,249,393 
Subsidiaries
Short-term borrowing due within one year, maturing thru March 2024$— — %$427,531 4.66 %
Short-term borrowing due within one year, maturing thru June 2024260,786 4.19 %— — %
FHLB advances, maturing through April 20274,951,510 4.93 %6,584,791 5.04 %
Credit-linked notes due December 2031 (3)
74,156 3.81 %89,812 3.51 %
Credit-linked notes due May 2032 (4)
181,549 7.56 %214,941 7.25 %
Credit-linked notes due August 2032 (5)
160,484 9.60 %188,282 9.12 %
Credit-linked notes due December 2032 (6)
218,327 10.51 %246,497 10.16 %
Credit-linked notes due June 2033 (7)
80,822 10.59 %89,787 10.26 %
Credit Linked notes due December 2033 (8)
205,108 9.25 %206,033 9.24 %
Credit-linked notes due February 2052 (9) (11)
115,520 11.92 %118,246 11.92 %
6.98% senior notes due October 2025 (1)
2,000,000 6.98 %2,000,000 6.98 %
Warehouse lines maturing through February 2026(10)
3,371,578 7.61 %3,618,378 6.93 %
Secured structured financings maturing through December 203120,042,692 0.48% - 7.69%19,110,360 0.48% - 7.69%
Total subsidiary borrowings and other debt obligations31,662,532 32,894,658 
Total Parent Company and subsidiaries' borrowings and other debt obligations$43,911,347 $44,144,051 
(1) These notes are payable to SHUSA's parent company, Santander.
(2) These notes bear interest at a rate equal to the three-month LIBORSOFR index rate plus 145135 basis points per annum.year.
(2) During(3) Issued in December 2021 in the first quarter of 2017, the Company issued $1.0 billion in aggregate principal amount of its 3.70% senior notes due March 2022. During$298.0 million. Notes are tied to the third quarterperformance of 2017, the Company issued an additional $440.0 milliona $2.0 billion original reference pool of 3.70% senior notes due March 2022.
(3)SBNA prime auto loans. The Company redeemed and extinguished $70.3 million and $10.0 million of its Capital Trust VI junior subordinated debentures and common securities due June 2036.contractual residual amount is $36.0 million.
(4) TheseIssued in June 2022 in the amount of $521.5 million. Notes are tied to the performance of a $3.5 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $63.0 million.
(5) Issued in September 2022 in the amount of $374.5 million. Notes are tied to the performance of a $3.5 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $63.0 million.
(6) Issued in December 2022 in the amount of $388.4 million. Notes are tied to the performance of a $3.6 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $65.3 million.
(7) Issued in June 2023 in the amount of $115.5 million. Notes are tied to the performance of a $1.1 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $22.0 million.
(8) Issued in December 2023 in the amount of $207.8 million. Notes are tied to the performance of a $2.1 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $62.3 million.
(9) Issued in January 2023 in the amount of $131.6 million. Notes are tied to the performance of a $2.5 billion original reference pool of SBNA residential mortgage loans. The contractual residual amount is $5.1 million.
(10) Benchmark rates used included commercial paper, daily simple SOFR, one-month term SOFR, and three-month term SOFR.
(11) Variable rate notes issued in tranches that bear interest at a rate equal to the three-month LIBORSOFR index plus 100 basis points per annum.


varying spreads ranging from 4.15% to 13.90% and reset monthly.
46
41



SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10.9. BORROWINGS (continued)

Credit-Linked Notes
Bank Borrowings
Credit-linked notes transfer credit risk on a reference pool of loans to the purchaser of the notes. In the event of credit losses on the reference pool in excess of the contractual residual amount, the principal balance of the notes will be reduced to the extent of such loss up to the amount of notes issued and Debt Obligations

recognized as a debt extinguishment gain within Miscellaneous income, net. The following table presents information regardingCompany has the Bank's borrowings and other debt obligations atoption to redeem the dates indicated:
 September 30, 2017 December 31, 2016
 Balance 
Effective
Rate
 Balance 
Effective
Rate
 (dollars in thousands)
2.00% senior notes, due January 2018$77,001
 2.24% $748,143
 2.24%
Senior notes, due January 2018(1)
41,900
 2.35% 249,705
 1.99%
8.750% subordinated debentures, due May 2018 (2)
499,456
 8.92% 498,882
 8.92%
Subordinated term loan, due February 2019111,697
 7.12% 122,313
 6.78%
FHLB advances, maturing through July 20194,550,000
 1.41% 5,950,000
 0.85%
Securities sold under repurchase agreements20,000
 1.35% —
 —%
REIT preferred, due May 2020 (3)
143,814
 13.30% 156,457
 13.46%
Subordinated term loan, due August 202228,524
 8.89% 29,202
 8.35%
     Total Bank borrowings and other debt obligations$5,472,392
 2.58% $7,754,702
 1.92%

(1) These notes bear interest at a rateonce the UPB of the reference pool is less than or equal to 10% of the three-month LIBOR plus 93 basis points per annum.initial principal balance.
(2) On October 18, 2017 the Bank repurchased $307.8 million
In connection with certain of its 8.75% subordinatedcredit linked notes, due 2018.
(3) During the second quarter of 2017, the Company repurchased $14.2 millionis required to maintain a letter of credit, as well as a collateral account with a third-party financial institution, with the amount equal to at least the outstanding balances of the REIT preferredtransaction’s credit-linked notes. This is reported as restricted cash in the Condensed Consolidated Financial Statements.


The Bank had outstanding irrevocable letters of credit totaling $762.5 million from the FHLB of Pittsburgh at September 30, 2017, used to secure uninsured deposits placed with the Bank by state and local governments and their political subdivisions.

Warehouse Lines
47


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10. BORROWINGS (continued)

Revolving Credit Facilities

The following tables present information regarding SC's credit facilities as of September 30, 2017the Company's warehouse lines at the dates indicated:
 March 31, 2024
(dollars in thousands)BalanceCommitted AmountEffective
Rate		Assets PledgedRestricted Cash Pledged
Warehouse line due April 2025$250,700 $1,000,000 8.25 %$396,342 $— 
Warehouse line due July 2025273,000 600,000 7.07 %326,067 3,236 
Warehouse line due July 202526,200 500,000 12.41 %38,594 — 
Warehouse line due October 2025927,100 2,100,000 6.26 %1,332,501 64 
Warehouse line due November 2025483,000 500,000 4.09 %677,604 — 
Warehouse line due January 2026999,500 1,000,000 10.82 %1,450,629 2,598 
Warehouse line due February 2026412,078 700,000 6.59 %611,351 506 
     Total credit facilities$3,371,578 $6,400,000 7.61 %$4,833,088 $6,404 

The warehouse lines and December 31, 2016:
 September 30, 2017
 Balance Committed Amount 
Effective
Rate
 Assets Pledged Restricted Cash Pledged
 (dollars in thousands)
Warehouse line, maturing on various dates(1)
$258,545
 $1,250,000
 1.21% $387,668
 $11,554
Warehouse line, due November 201857,820
 500,000
 4.54% 63,712
 2,215
Warehouse line, due August 2018(2)
—
 780,000
 1.39% 2,329
 121
Warehouse line, due August 2018(3)
2,766,543
 3,120,000
 2.22% 3,724,088
 61,367
Warehouse line, due October 2018445,277
 1,800,000
 3.45% 661,090
 12,644
Warehouse line, due October 201887,965
 400,000
 3.72% 132,197
 2,852
Warehouse line, due January 2018181,083
 500,000
 2.96% 276,519
 —
Warehouse line, due November 2018274,499
 1,000,000
 3.44% 401,219
 7,920
Warehouse line, due October 2017(4)
235,700
 300,000
 2.67% 276,521
 9,278
Repurchase facility, due December 2017(5)
254,120
 254,120
 3.35% —
 13,708
Repurchase facility, due April 2018(5)
202,311
 202,311
 2.62% —
 —
Repurchase facility, due March 2018(5)
148,690
 148,690
 3.88% —
 —
Repurchase facility, due November 2017(5)
53,335
 53,335
 2.43% —
 —
Line of credit with related party, due December 2017(6)
—
 1,000,000
 3.04% —
 —
Line of credit with related party, due December 2018(6)
—
 1,000,000
 3.09% —
 —
Line of credit with related party, due December 2018(6)
265,400
 750,000
 3.77% —
 —
     Total SC revolving credit facilities$5,231,288
 $13,058,456
 2.63% $5,925,343
 $121,659

(1) As of September 30, 2017, half of the outstanding balance on this facility will mature in March 2018 and half matures in March 2019.
(2) This line is held exclusively for financing of Chrysler Capital loans.
(3) This line is held exclusively for financing of Chrysler Capital leases.
(4) In October 2017, the warehouse line that matured was extended to December 2017.
(5) These repurchase facilities are fully collateralized by securitization notes payable retained by SC. Noa designated portion of these facilities is unsecured. These facilities have rolling maturities of up to one year.
(6) These lines are also collateralized bythe Company's RICs, leased vehicles, securitization notes payable, and residuals retained by SC. As of September 30, 2017, no portion of these facilities was unsecured.the Company.




48


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10. BORROWINGS (continued)

 December 31, 2016
 Balance Committed Amount Effective
Rate		 Assets Pledged Restricted Cash Pledged
 (dollars in thousands)
Warehouse line, maturing on various dates(1)
$462,085
 $1,250,000
 2.52% $653,014
 $14,916
Warehouse line, due August 2018(2)
534,220
 780,000
 1.98% 608,025
 24,520
Warehouse line, due August 2018(3)
3,119,943
 3,120,000
 1.91% 4,700,774
 70,991
Warehouse line, due October 2018(5)
702,377
 1,800,000
 2.51% 994,684
 23,378
Warehouse line, due October 2018202,000
 400,000
 2.22% 290,867
 5,435
Warehouse line, due January 2018153,784
 500,000
 3.17% 213,578
 —
Warehouse line, due November 2018578,999
 1,000,000
 1.56% 850,758
 17,642
Warehouse line, due October 2017243,100
 300,000
 2.38% 295,045
 9,235
Warehouse line, due November 2018—
 500,000
 2.07% —
 —
Repurchase facility, due December 2017(4)
507,800
 507,800
 2.83% —
 22,613
Repurchase facility, due April 2017(4)
235,509
 235,509
 2.04% —
 —
Line of credit with related party, due December 2017(5)
1,000,000
 1,000,000
 2.86% —
 —
Line of credit with related party, due December 2017(5)
500,000
 500,000
 3.04% —
 —
Line of credit with related party, due December 2018(5)
175,000
 500,000
 3.87% —
 —
Line of credit with related party, due December 2018(5)
1,000,000
 1,000,000
 2.88% —
 —
     Total SC revolving credit facilities$9,414,817
 $13,393,309
 2.36% $8,606,745
 $188,730
(1) Half of the outstanding balance on this facility had matured in March 2017 and half will mature in March 2018.
(2) This line is held exclusively for financing of Chrysler Capital loans.
(3) This line is held exclusively for financing of Chrysler Capital leases.
(4) These repurchase facilities are collateralized by securitization notes payable retained by SC. No portion of these facilities are unsecured. These facilities have rolling maturities of up to one year.
(5) These lines are also collateralized by securitization notes payable and residuals retained by SC. As of December 31, 2016, $1.3 billion of the aggregate outstanding balances on these credit facilities was unsecured.

Secured Structured Financings


The following tables present information regarding SC'sthe Company's secured structured financings as of September 30, 2017 and December 31, 2016:at the dates indicated:
 September 30, 2017
 Balance Initial Note Amounts Issued Initial Weighted Average Interest Rate Range Collateral Restricted Cash
 (dollars in thousands)
SC public securitizations, maturing on various dates(1,2)
$14,930,690
 $35,870,432
 0.90% - 2.80% $19,625,345
 $1,487,227
SC privately issued amortizing notes, maturing on various dates(1)
8,330,626
 12,229,241
 0.88% - 2.86% 9,923,095
 371,117
     Total SC secured structured financings$23,261,316
 $48,099,673
 0.88% - 2.86% $29,548,440
 $1,858,344

March 31, 2024
(dollars in thousands)Balance
Initial Note Amounts Issued (3)
Initial Weighted Average Interest Rate Range
Collateral (2)
Restricted Cash
Public securitizations maturing on various dates through December 2031(1)
$17,109,213 $45,365,875 0.48% - 7.69%$26,620,341 $994,399 
Privately issued amortizing notes maturing on various dates through August 2030 (3)
2,933,479 7,350,027 2.17% - 6.73%4,827,740 2,742 
     Total secured structured financings$20,042,692 $52,715,902  0.48% - 7.69%$31,448,081 $997,141 
(1) SC has entered into various securitization transactions involving its retail automobile installment loans and leases. These transactions are accounted for as secured financings and therefore both the securitized RICs, and the related securitization debt issued by SPEs, remain on the Condensed Consolidated Balance Sheets. The maturity of this debt is based on the timing of repayments from the securitized assets.
(2) Securitizations executed under Rule 144A of the Securities Act of 1933 (the “Securities Act”) are included within this balance.

49


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10. BORROWINGS (continued)

 December 31, 2016
 Balance Initial Note Amounts Issued Initial Weighted Average Interest Rate Range Collateral Restricted Cash
 (dollars in thousands)
SC public securitizations, maturing on various dates(1,2)
$13,444,543
 $32,386,082
  0.89% - 2.46% $17,474,524
 $1,423,599
SC privately issued amortizing notes, maturing on various dates(1)
8,172,407
 14,085,991
  0.88% - 2.86% 12,021,887
 500,868
     Total SC secured structured financings$21,616,950
 $46,472,073
  0.88% - 2.86% $29,496,411
 $1,924,467

(1) SC has entered into various securitization transactions involving its retail automobile installment loans and leases. These transactions are accounted for as secured financings and therefore both the securitized RICs, and the related securitization debt issued by SPEs, remain on the Condensed Consolidated Balance Sheets. The maturity of this debt is based on the timing of repayments from the securitized assets.
(2) Securitizations executed under Rule 144A of the Securities Act are included within this balance.

(2) Secured structured financings may be collateralized by collateral overages of other issuances.
(3) Excludes securitizations which no longer have outstanding debt and excludes any incremental borrowings.

Most of SC'sthe Company's secured structured financings are in the form of public, SEC-registered securitizations. The Company also executes private securitizations under Rule 144A of the Securities Act, and periodically issues private term amortizing notes, which are structured similarly to securitizations but are acquired by banks and conduits. The Company's securitizations and private issuances are collateralized by vehicle RICs and loans or vehicle leases.



42


NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)
The following table presents the components of AOCI / (loss), net of related tax, for the periods indicated.
Total Other
Comprehensive Income/(Loss)		Total Accumulated
Other Comprehensive Income/(Loss)
Three months ended March 31, 2024December 31, 2023March 31, 2024
(in thousands)Pre-tax
Activity		Tax
Effect		Net ActivityBeginning
Balance		Net
Activity		Ending
Balance
Net unrealized (losses)/gains on cash flow hedge derivative financial instruments67,037 (15,738)51,299 $(254,519)$51,299 $(203,220)
Net unrealized (losses)/gains on investments in debt securities18,594 (6,955)11,639 (790,551)11,639 (778,912)
Pension and post-retirement actuarial gain / (loss)(3)
247 (64)183 (20,498)183 (20,315)
As of March 31, 2024$85,878 $(22,757)$63,121 $(1,065,568)$63,121 $(1,002,447)

(1)    Net gains/(losses) reclassified into Interest on borrowings and other debt obligations in the Condensed Consolidated Statements of Operations for settlements of interest rate swap contracts designated as cash flow hedges.
(2)    Net (gains)/losses reclassified into Net gain on sale of investment securities sales in the Condensed Consolidated Statements of Operations for the sale of debt securities.
(3)    Included in the computation of net periodic pension costs.

Total Other
Comprehensive Income/(Loss)		Total Accumulated
Other Comprehensive Income/(Loss)
Three months ended March 31, 2023December 31, 2022March 31, 2023
(in thousands)Pre-tax
Activity		Tax
Effect		Net ActivityBeginning
Balance		Net
Activity		Ending
Balance
Change in AOCI on cash flow hedge derivative financial instruments$120,728 $(34,858)$85,870    
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments (1)
3,856 (757)3,099    
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments124,584 (35,615)88,969 $(515,664)$88,969 $(426,695)
Change in unrealized (losses)/gains on investments in debt securities25,602 (24,072)1,530    
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)
36,960 (7,255)29,705 
Net unrealized gains/(losses) on investments in debt securities62,562 (31,327)31,235 (796,572)31,235 (765,337)
Pension and post-retirement actuarial gain / (loss) (3)
655 (170)485 (23,787)485 (23,302)
As of March 31, 2023$187,801 $(67,112)$120,689 $(1,336,023)$120,689 $(1,215,334)
(1)- (3) Refer to the corresponding explanations in the table above.

43


NOTE 11. DERIVATIVESSECURITIES FINANCING ACTIVITIES


GeneralThe Company may enter into Securities Financing Activities primarily to deploy the Company’s excess cash and investment positions. Securities Financing Activities are treated as collateralized financings and are included in "Federal funds sold and securities purchased under resale agreements or similar arrangements" and "Federal funds purchased and securities loaned or sold under repurchase agreements" on the Company’s Condensed Consolidated Balance Sheets. Refer to Note 1 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for 2023 for further discussion of accounting for and the offsetting of securities financing assets and liabilities.


The Company uses derivative financial instruments primarilyhas elected the FVO for certain of its Securities Financing Activities. Refer to help manage exposureNote 13 to interest rate, foreign exchange, equitythese Condensed Consolidated Financial Statements for the amounts recorded at FVO.

Securities borrowed and credit risk, as well aspurchased under agreements to reduceresell, at their respective carrying values, consisted of the effectsfollowing at the dates indicated:

(in thousands)March 31, 2024December 31, 2023
Securities purchased under agreements to resell$7,628,806 $8,617,309 
Securities borrowed1,837,001 1,621,405 
Total$9,465,807 $10,238,714 


Securities loaned or sold under agreements to repurchase, at their respective carrying values, consisted of the following at the dates indicated:

(in thousands)March 31, 2024December 31, 2023
Securities sold under agreements to repurchase$16,164,434 $16,290,761 
Securities lending17 25 
Total$16,164,451 $16,290,786 

Securities Financing Activities are generally executed under standard industry agreements, including master agreements that changescreate a single contract under which all transactions between two counterparties are executed, allowing for trade aggregation of receivables and payables into a single net payment or settlement. The amounts of securities financing assets or liabilities qualified for offset in interest rates may have on net income, the fair value of assets and liabilities, and cash flows. The Company also enters into derivatives with customers to facilitate their risk management activities. The Company uses derivative financial instruments as risk management tools and not for speculative trading purposes. The fair value of all derivative balances is recorded within Other assets and Other liabilities on the Condensed Consolidated Balance Sheet.Sheets were as follows for the dates indicated.


See Note 16 for discussion
March 31, 2024
(in thousands)Gross amounts of recognized assets
Gross amounts offset on the Condensed Consolidated Balance Sheets (1)
Net amounts of assets included on the Condensed Consolidated Balance Sheets
Securities purchased under agreements to resell$53,209,700 $(45,580,894)$7,628,806 
Securities borrowed1,837,001 — 1,837,001 
Total$55,046,701 $(45,580,894)$9,465,807 
March 31, 2024
(in thousands)Gross amounts of recognized liabilities
Gross amounts offset on the Condensed Consolidated Balance Sheets (1)
Net amounts of liabilities included on the Condensed Consolidated Balance Sheets
Securities sold under agreements to repurchase$61,745,328 $(45,580,894)$16,164,434 
Securities lending17 — 17 
Total$61,745,345 $(45,580,894)$16,164,451 
(1) Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45.

44


NOTE 11. SECURITIES FINANCING ACTIVITIES (continued)

December 31, 2023
(in thousands)Gross amounts of recognized assets
Gross amounts offset on the Condensed Consolidated Balance Sheets (1)
Net amounts of assets included on the Condensed Consolidated Balance Sheets
Securities purchased under agreements to resell$41,237,731 $(32,620,422)$8,617,309 
Securities borrowed1,621,405 — 1,621,405 
Total$42,859,136 $(32,620,422)$10,238,714 
December 31, 2023
(in thousands)Gross amounts of recognized liabilities
Gross amounts offset on the Condensed Consolidated Balance Sheets (1)
Net amounts of liabilities included on the Condensed Consolidated Balance Sheets
Securities sold under agreements to repurchase$48,911,183 $(32,620,422)$16,290,761 
Securities lending25 — 25 
Total48,911,208 (32,620,422)16,290,786 
(1) Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45.

The following tables present the gross amounts of liabilities associated with Securities Financing Activities by remaining contractual maturity as of the valuation methodology for derivative instruments.date indicated:

March 31, 2024
(in thousands)Open and overnightUp to 30 days31-90 daysGreater than 90 daysTotal
Securities sold under agreements to repurchase$28,748,667 $10,211,955 $13,625,513 $9,159,193 $61,745,328 
Securities lending17 — — — 17 
Total$28,748,684 $10,211,955 $13,625,513 $9,159,193 $61,745,345 


The following tables present the gross amounts of liabilities associated with Securities Financing Activities by class of underlying collateral as of the dates indicated:
March 31, 2024December 31, 2023
(in thousands)Repurchase agreementsSecurities lendingTotalRepurchase agreementsSecurities lendingTotal
U.S. Treasury$35,424,614 $— $35,424,614 $29,251,978 $— $29,251,978 
Residential agency MBS24,267,322 — 24,267,322 17,532,972 — 17,532,972 
Corporate and other securities2,053,392 17 2,053,409 2,126,233 25 2,126,258 
Total$61,745,328 $17 $61,745,345 $48,911,183 $25 $48,911,208 


45


NOTE 12. DERIVATIVES

General

Derivatives represent contracts between parties that usually require little or no initial net investment and result in one partyor both parties delivering cash or another type of asset to the other party based on a notional amount and an underlying asset, index, or interest rate or future purchase commitment or option as specified in the contract. Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged, is not recorded on the balance sheet, and does not represent the Company`s exposure to credit loss. The notional amount is the basis on which the financial obligation of each party to the derivative contract is calculated to determine required payments under the derivative contract. The Company controls the credit risk of its derivative contracts through credit approvals, limits and monitoring procedures. The underlying assetvariable is typically a referenced interest rate (commonly the Overnight Indexed Swap ("OIS")OIS rate or LIBOR)a SOFR-based rate), security, credit spread or index.


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



See Note 13 to these Condensed Consolidated Financial Statements for discussion of the valuation methodology for derivative instruments.
50


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11. DERIVATIVES (continued)

Credit Risk Contingent Features


The Company has entered into certain derivative contracts that require the posting of collateral to counterparties when those contracts are in a net liability position. The amount of collateral to be posted is based on the amount of the net liability and thresholds generally related to the Company's long-term senior unsecured credit ratings. In a limited number of instances, counterparties also have the right to terminate their International Swaps and Derivatives Association, Inc. ("ISDA")ISDA Master Agreements if the Company's ratings fall below a specified level, typically investment grade. As of September 30, 2017,March 31, 2024, derivatives in this category had a fair value of $7.8$0.1 million. The credit ratings of the Company and BankSBNA are currently considered investment grade. During the third quarterAs of 2017,March 31, 2024, no additional collateral would be required if there were a further 1- or 2- notch downgrade by either Standard & Poor's ("S&P")&P or Moody's Investor Services ("Moody's").Moody's.


As of September 30, 2017March 31, 2024 and December 31, 2016,2023, the aggregate fair value of all derivative contracts with credit risk contingent features (i.e., those containing collateral posting or termination provisions based on the Company's ratings) that were in a net liability position totaled $21.2$11.0 million and $27.0$11.1 million,, respectively. The Company had $19.1$11.5 million and $28.3$15.3 million in cash and securities collateral posted to cover those positions as of September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.


Hedge Accounting


Management uses derivative instruments designated as hedges to mitigate the impact of interest rate and foreign exchange rate movements on the fair value of certain assets and liabilities and on highly probable forecasted cash flows. These instruments primarily include interest rate swaps that have underlying interest rates based on key benchmark indices and forward sale or purchase commitments.indices. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated interest rate environment.


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


Fair Value Hedges


During the three-month period ended June 30, 2017, theThe Company enteredenters into interest rate swapsderivatives to hedge the interest rate risk on certain fixed-rate borrowings.of changes in fair value of a portion of its AFS debt securities portfolio. These derivatives wereare designated as fair value hedges at inceptioninception. The gains/(losses) from changes in the fair value of the hedging derivative and the offsetting gains/(losses) from changes in the fair value of the related underlying hedged items due to the hedged risk are reporting in the same line item in the Condensed Consolidated Statements of Operations as earnings from the hedged items. The cumulative fair value hedge relationship.basis adjustments included in the carrying amount of hedged assets is reversed through earnings in future periods as an adjustment to yield. The Company included all components of each derivative's gain or lossincludes gains/(losses) on the hedging derivatives and the related hedged items in the assessment of hedge effectiveness. All of these swaps have been deemed highly effective fair value hedges. The earnings impactlast of the ineffective portion of these hedges was not material for the three-month and nine-month periods ended September 30, 2017.is scheduled to expire in February 2030. The Company terminatedhas entered into fair value hedges of portions of a closed portfolio of approximately $2.8 billion of AFS debt securities, using the interest rate swap duringportfolio layer method.

46


NOTE 12. DERIVATIVES (continued)

The carrying amount and fair value hedge adjustment of hedged assets at the three-month period ended September 30, 2017.dates indicated was:


Carrying Amount of Hedged AssetsAmount of Fair Value Hedge Adjustment Included in the Carrying Amount
March 31, 2024December 31, 2023March 31, 2024December 31, 2023
Debt securities AFS (Note 2)$2,243,603 $2,463,991 $81,397 $36,009 

Cash Flow Hedges


The Company has outstanding interest rate swap agreements designed to hedge a portion of the Company’s floating ratefloating-rate assets and liabilities (including itsand forecasted issuances of borrowed funds). funds. The Company also has foreign exchange contracts designed to hedge certain contractual payments in foreign currencies.

All of these swapsderivatives have been deemed as highly effective cash flow hedges. The effective portiongain or loss on the derivative instrument is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same Condensed Consolidated Statements of Operations line item as the earnings effect of the hedging gains and losses associated with these hedges is recorded in accumulated other comprehensive income; the ineffective portion of the hedging gains and losses is recorded in earnings.hedged item.

The last of the hedges is scheduled to expire in December 2030.2028. The Company includes all components of each derivative's gain or loss in the assessment of hedge effectiveness. The earnings impact of the ineffective portion of these hedges was not material for the nine-month periods ended September 30, 2017 and 2016. As of September 30, 2017,March 31, 2024, the Company expected $1.4estimated that approximately $83.7 million of gross gains recordedunrealized losses included in accumulated other comprehensive loss toAOCI would be reclassified to earnings during the subsequent twelve months as the future cash flows occur.



51


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11. DERIVATIVES (continued)


Derivatives Designated in Hedge Relationships – Notional and Fair Values


Derivatives designated as accounting hedges at September 30, 2017 and December 31, 2016 included:

 
Notional
Amount
 Asset Liability 
Weighted Average Receive
Rate
 
Weighted Average Pay
Rate
 
Weighted Average Life
(Years)
 (dollars in thousands)
September 30, 2017           
Cash flow hedges:           
Pay fixed — receive floating interest rate swaps5,235,818
 40,173
 5,304
 1.27% 1.25% 2.26
Pay variable - receive fixed interest rate swaps4,000,000
 467
 51,508
 1.41% 1.24% 3.23
Total$9,235,818
 $40,640
 $56,812
 1.33% 1.24% 2.68
            
December 31, 2016           
Cash flow hedges:           
Pay fixed — receive floating interest rate swaps (1)
$8,124,172
 $45,681
 $5,083
 0.83% 1.13% 2.57
Pay variable - receive fixed interest rate swaps (1)
2,000,000
 —
 54,729
 1.19% 0.62% 4.79
Total$10,124,172
 $45,681
 $59,812
 0.91% 1.03% 3.01
(1) The prior period amounts have been revised. The revision had no impact onincluded the Company's Consolidated Balance Sheets or its results of operations.

During the third quarter of 2017, the Company terminated fair value hedges with a notional of $650.0 million. The fair value markfollowing as of the previously hedged debt will be amortized into interest expense over the remaining termdates indicated:
(dollars in thousands)Notional
Amount		AssetLiabilityWeighted Average Receive RateWeighted Average Pay
Rate		Weighted Average Life
(Years)
March 31, 2024      
Fair value hedges:
Cross-currency swaps$18,766 $170 $2,475 5.91 %9.90 %3.58
Interest rate swaps6,475,000 66,761 — 2.75 %3.48 %2.77
Cash flow hedges:     
Pay fixed - receive variable interest rate swaps$5,559,350 $60,926 $— 3.24 %3.81 %2.52
Pay variable - receive fixed interest rate swaps11,075,000 4,245 333,523 1.96 %1.84 %1.21
Foreign exchange20,000 — 226 — %— %0.08
Total$23,148,116 $132,102 $336,224 2.49 %2.78 %1.96
December 31, 2023      
Fair value hedges:
Cross-currency swaps$18,766 $192 $2,235 5.91 %9.90 %3.83
    Interest rate swaps6,650,000 38,712 7,716 2.02 %3.46 %3.01
Cash flow hedges:      
Pay fixed — receive variable interest rate swaps$3,422,700 $22,935 $120 5.38 %3.82 %2.53
Pay variable - receive fixed interest rate swaps11,925,000 13,575 362,018 1.83 %1.64 %1.30
Interest rate floor250,000 — — — %— %0.04
Total$22,266,466 $75,414 $372,089 2.41 %2.51 %1.99


47




See Note 13 for detail of the amounts included in accumulated other comprehensive income related to derivatives activity.NOTE 12. DERIVATIVES (continued)


Other Derivative Activities


The Company also enters into derivatives that are not designated as accounting hedges under GAAP. The majority of these derivatives are customer-related derivatives relating to foreign exchange and lending arrangements, as well as derivatives to hedge interest rate risk on SC's secured structured financings and the borrowings under its revolving credit facilities. SC uses both interest rate swaps and interest rate caps to satisfy these requirements and to hedge the variability of cash flows on securities issued by Trusts and borrowings under its warehouse facilities. In addition, derivatives are used to manage risks related to residential and commercial mortgage banking and investing activities. Although these derivatives are used to hedge risk and are considered economic hedges, they are not designated as accounting hedges because the contracts they are hedging are typically alsooften carried at fair value on the balance sheet, resulting in generally symmetrical accounting treatment for the hedging instrument and the hedged item.


Customer-related derivatives

The Company offers derivatives to its customers in connection with their risk management requirements related to foreign exchange and lending arrangements. These derivatives primarily consist of interest rate swaps, caps, floors, and foreign exchange contracts. Risk exposure from customer positions is managed through offsetting transactions with other dealers, including Santander. Refer to Note 17 for related party transactions.

Broker dealer activities

The Company uses exchange-traded options and futures, credit default swaps, and forward-settling securities trades as part of its trading business, as well as to actively manage risk exposures that arise from its trading in cash instruments.

Structured financing activities

In certain circumstances, the Company is required to hedge its interest rate risk on revolving credit and term borrowings related to its secured structured financings. The Company uses interest rate caps to satisfy these requirements and enters into offsetting option contracts.

Foreign exchange activities

The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts as well as cross-currency swaps, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date and may or may not be physically settled depending on the Company’s needs. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate.

Mortgage Banking Derivatives

The Company's derivatives portfolio includes mortgage banking interest rate lock commitments, forward sale commitments and interest rate swaps. As part of its overall business strategy, the Company originates fixed-rate residential mortgages. It sells a portion of this production to the FHLMC, the FNMA, and private investors. The Company uses forward sales as a means of hedging against the economic impact of changes in interest rates on the mortgages that are originated for sale and on interest rate lock commitments.


52


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11. DERIVATIVES (continued)


The Company typically retains the servicing rights related to residential mortgage loans that are sold. Most of the Company`s residential MSRs are accounted for at fair value. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase MBS.

Customer-related derivatives

The Company offers derivatives to its customers in connection with their risk management needs. These financial derivative transactions primarily consist of interest rate swaps, caps, floors and foreign exchange contracts. Risk exposure from customer positions is managed through transactions with other dealers, including Santander.


Other derivative activities

The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts as well as cross-currency swaps, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to gains and losses on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.


Other derivative instruments primarily include forward contracts related to certain investment securities sales, loan sales, an OIS, and a total return swap on Visa, Inc. Class B common shares, and equity options, which manage the Company's market risk associated with certain investments and customer deposit products.shares.


48


NOTE 12. DERIVATIVES (continued)

Derivatives Not Designated in Hedge Relationships – Notional and Fair Values


Other derivative activities at September 30, 2017 and December 31, 2016 included:included the following as of the dates indicated:
NotionalAsset derivatives
Fair value		Liability derivatives
Fair value
(in thousands)March 31, 2024December 31, 2023March 31, 2024December 31, 2023March 31, 2024December 31, 2023
Mortgage banking derivatives:
Total mortgage banking risk management662,000 662,000 16,454 14,634 35,429 31,304 
Customer-related derivatives:
Swaps receive fixed14,931,634 15,017,998 2,903 26,731 793,390 687,505 
Swaps pay fixed14,984,936 15,005,503 812,882 708,642 3,876 26,366 
Other7,942,342 8,691,978 58,425 93,439 56,824 91,602 
Total customer-related derivatives37,858,912 38,715,479 874,210 828,812 854,090 805,473 
Other derivative activities:
Foreign exchange contracts10,244,954 11,518,594 50,793 54,722 50,381 62,842 
Interest rate swap agreements100 2,400,100 7 — — 2 
Interest rate cap agreements1,814,427 2,313,672 67,732 76,019 — — 
Options for interest rate cap agreements1,814,427 2,313,672 — — 67,732 76,019 
Other54,709,920 48,543,537 51,216 42,657 71,136 126,968 
Total$107,104,740 $106,467,054 $1,060,412 $1,016,844 $1,078,768 $1,102,608 


49
 Notional 
Asset derivatives
Fair value
 
Liability derivatives
Fair value
 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
 (in thousands)
Mortgage banking derivatives:           
Forward commitments to sell loans$354,698
 $693,137
 $586
 $8,577
 $—
 $—
Interest rate lock commitments181,810
 253,568
 2,564
 2,316
 —
 —
Mortgage servicing330,000
 295,000
 3,334
 838
 605
 1,635
Total mortgage banking risk management866,508
 1,241,705
 6,484
 11,731
 605
 1,635
            
Customer related derivatives:           
Swaps receive fixed9,175,060
 9,646,151
 106,446
 127,123
 42,410
 49,642
Swaps pay fixed9,441,107
 9,785,170
 74,067
 85,877
 74,939
 97,759
Other2,214,898
 1,611,342
 15,507
 3,421
 13,891
 1,989
Total customer related derivatives20,831,065
 21,042,663
 196,020
 216,421
 131,240
 149,390
            
Other derivative activities:           
Foreign exchange contracts3,056,076
 3,366,483
 33,767
 56,742
 35,550
 46,430
Interest rate swap agreements1,507,232
 1,064,289
 8,801
 2,075
 1,884
 2,647
Interest rate cap agreements11,927,449
 9,491,468
 116,646
 76,387
 26,255
 —
Options for interest rate cap agreements11,900,578
 9,463,935
 26,304
 —
 116,563
 76,281
Total return settlement—
 658,471
 —
 —
 —
 30,618
Other1,239,201
 1,265,583
 9,307
 12,293
 14,292
 16,325
Total$51,328,109
 $47,594,597
 $397,329
 $375,649
 $326,389
 $323,326




53


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Table of Contents


NOTE 11.12. DERIVATIVES (continued)

The Company purchased price holdback payments and total return settlement payments that were considered to be derivatives, collectively referred to herein as total return settlement, and accordingly were marked to fair value each reporting period. The Company was obligated to make purchase price holdback payments on a periodic basis to a third-party originator of loans that the Company has purchased, when losses are lower than originally expected. The Company also was obligated to make total return settlement payments to this third-party originator in 2016 and 2017 if returns on the purchased loans are greater than originally expected. All purchase price holdback payments and all total return settlement payments due in 2016 and 2017 have been made and as of September 30, 2017, the derivative instrument has been settled.


Gains (Losses) on All Derivatives


The following Condensed Consolidated StatementStatements of Operations line items were impacted by the Company’s derivative activities for the nine-month periods ended September 30, 2017 and 2016:indicated:
(in thousands)
(in thousands)
(in thousands) Three months ended March 31,
Line Item
Fair value hedges:
Fair value hedges:
Fair value hedges:
Cross-currency swaps
Cross-currency swaps
Cross-currency swaps
Interest rate swaps
Interest rate swaps
Interest rate swaps
   Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,
Derivative Activity(1)
 Line Item 2017 2016 2017 2016
 (in thousands)
Fair value hedges:        
Cross-currency swaps (2)
 Miscellaneous income $—
 $—
 $—
 $174
Interest rate swaps Miscellaneous income (235) 190
 (2,397) 1,959
Derivative Activity (1)
Derivative Activity (1)
Cash flow hedges:
Cash flow hedges:
Cash flow hedges:    
  
    
Pay fixed-receive variable interest
rate swaps
 Net interest income (1,846) (254) (8,317) (4,379)
Pay fixed-receive variable interest rate swaps
Pay fixed-receive variable interest rate swaps
Pay variable receive-fixed interest rate swap Net interest income (1,668) —
 (7,955) —
Pay variable receive-fixed interest rate swap
Pay variable receive-fixed interest rate swap
Interest rate floors
Interest rate floors
Interest rate floors
Other derivative activities:    
  
    
Forward commitments to sell loans Mortgage banking income (667) 4,128
 (7,991) (4,348)
Interest rate lock commitments Mortgage banking income (332) (793) 248
 6,645
Mortgage servicing Mortgage banking income 1,525
 (2,803) 3,525
 21,024
Customer related derivatives Miscellaneous income 627
 24,108
 (2,385) 18,985
Other derivative activities:
Other derivative activities:
Mortgage banking derivatives
Mortgage banking derivatives
Mortgage banking derivatives
Customer-related derivatives
Customer-related derivatives
Customer-related derivatives
Foreign exchange
Foreign exchange
Foreign exchange Miscellaneous income 1,951
 967
 5,097
 4,694
Interest rate swaps, caps, and options Miscellaneous income 1,918
 4,329
 3,429
 (1,790)
Net interest income (552) 12,391
 3,110
 42,563
Interest rate swaps, caps, and options
        
Total return settlement Other administrative expenses —
 343
 (505) (2,337)
Other Miscellaneous income (303) (765) (1,247) 974
Other
Other
(1)    Gains are disclosed as positive numbers while losses are shown as a negative number regardless of the line item being affected.
(2) Cross currency swaps designated as hedges matured
The net amount of change recognized in OCI for cash flow hedge derivatives were gains of $51.3 million, and $85.9 million, net of tax, for the first quarterthree months ended March 31, 2024, and 2023, respectively.

The net amount of 2016.changes reclassified from OCI into earnings for cash flow hedge derivatives were losses of zero, and $3.1 million, net of tax, for the three months ended March 31, 2024, and 2023, respectively.


Disclosures about Offsetting Assets and Liabilities


The Company enters into legally enforceable master netting agreements which reduce risk by permitting netting of transactions with the same counterparty on the occurrence of certain events. A master netting agreement allows two counterparties the ability to net-settle amounts under all contracts, including any related collateral posted, through a single payment and in a single currency. The right to offset and certain terms regarding the collateral process, such as valuation, credit events and settlement, are contained in the ISDAapplicable master agreement. The Company's financial instruments, including resell and repurchase agreements, securities lending arrangements, derivatives, and cash collateral, may be eligible for offset on its Condensed Consolidated Balance Sheet.Sheets.


54


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11. DERIVATIVES (continued)


The Company has elected to present derivative balances on a gross basis even if the derivative is subject to a legally enforceable master nettingnettable ISDA Master Agreement for all trades executed after April 1, 2013. Collateral that is received or pledged for these transactions is disclosed within the “Gross amounts not offsetAmounts Not Offset in the Condensed Consolidated Balance Sheet” section of the tables below. Prior to April 1, 2013, the Company had elected to net all caps, floors, and interest rate swaps when it had an ISDA with the counterparty. The collateral received or pledged in connection with these transactions is disclosed within the “Gross amounts offset in the Condensed Consolidated Balance Sheet"Sheets” section of the tables below.

50


NOTE 12. DERIVATIVES (continued)

Information about financial assets and liabilities that are eligible for offset on the Condensed Consolidated Balance SheetSheets was as of September 30, 2017 and December 31, 2016, respectively, is presented in the following tables:

  Offsetting of Financial Assets
        Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
  Gross Amounts of Recognized Assets Gross Amounts Offset in the Condensed Consolidated Balance Sheet Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet Financial Instruments Cash Collateral Received Net Amount
  (in thousands)
September 30, 2017            
Cash flow hedges 40,640
 —
 40,640
 —
 22,524
 18,116
Other derivative activities(1)
 394,520
 6,702
 387,818
 4,940
 90,510
 292,368
Total derivatives subject to a master netting arrangement or similar arrangement 435,160
 6,702
 428,458
 4,940
 113,034
 310,484
Total derivatives not subject to a master netting arrangement or similar arrangement(2)
 2,809
 —
 2,809
 —
 —
 2,809
Total Derivative Assets $437,969
 $6,702
 $431,267
 $4,940
 $113,034
 $313,293
             
             
December 31, 2016            
Cash flow hedges $45,681
 $—
 $45,681
 $—
 $21,690
 $23,991
Other derivative activities(1)
 374,052
 7,551
 366,501
 4,484
 39,474
 322,543
Total derivatives subject to a master netting arrangement or similar arrangement 419,733
 7,551
 412,182
 4,484
 61,164
 346,534
Total derivatives not subject to a master netting arrangement or similar arrangement(2)
 1,597
 —
 1,597
 —
 —
 1,597
Total Derivative Assets $421,330
 $7,551
 $413,779
 $4,484
 $61,164
 $348,131

(1)Includes customer-related and other derivatives.
(2)Includes mortgage banking derivatives.

55


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11. DERIVATIVES (continued)

  Offsetting of Financial Liabilities
         Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
  Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Condensed Consolidated Balance Sheet Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet  Cash Collateral Pledged Net Amount
  (in thousands)
September 30, 2017           
Cash flow hedges (3)
 56,812
 —
 56,812
  150,150
 —
Other derivative activities(1)
 326,389
 21,503
 304,886
  68,896
 235,990
Total derivatives subject to a master netting arrangement or similar arrangement 383,201
 21,503
 361,698
  219,046
 235,990
            
Reverse repurchase, securities borrowing, and similar arrangement 20,000
 —
 20,000
  —
 20,000
Total Financial Liabilities $403,201
 $21,503
 $381,698
  $219,046
 $255,990
            
December 31, 2016           
Cash flow hedges (3)
 $59,812
 $—
 $59,812
  $110,856
 $—
Other derivative activities(1)
 292,708
 34,197
 258,511
  95,138
 163,373
Total derivatives subject to a master netting arrangement or similar arrangement 352,520
 34,197
 318,323
  205,994
 163,373
Total derivatives not subject to a master netting arrangement or similar arrangement(2)
 30,618
 —
 30,618
  —
 30,618
Total Derivative Liabilities $383,138
 $34,197
 $348,941
  $205,994
 $193,991

(1)Includes customer-related and other derivatives
(2)Includes mortgage banking derivatives
(3)In certain instances, the Company is over-collateralized since the actual amount of cash pledged as collateral exceeds the associated financial liability. As a result, the actual amount of cash collateral pledged that is reported in Other Liabilities may be greater than the amount shown. The prior period have been revised to conform with current period presentation.


NOTE 12. INCOME TAXES

An income tax provision of $93.4 million and $264.4 million was recordedfollows for the three-month and nine-month periods ended September 30, 2017, respectively, compared to $108.3 million and $340.0 million for the corresponding periods in 2016. This resulted in an effective tax rate ("ETR") of 28.3% and 27.7% for the three-month and nine-month periods ended September 30, 2017, respectively, compared to 32.4% and 35.8% for the corresponding periods in 2016.dates indicated:

Offsetting of Financial Assets
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
(in thousands)Gross Amounts of Recognized AssetsGross Amounts Offset in the Condensed Consolidated Balance SheetsNet Amounts of Assets Presented in the Condensed Consolidated Balance Sheets
Collateral Received (2)
Net Amount
March 31, 2024
Fair value hedges$66,931 $— $66,931 $(32,121)$34,810 
Cash flow hedges65,171 — 65,171 (62,168)3,003 
Other derivative activities (1)
1,060,412 (32,183)1,028,229 (290,159)738,070 
Total Derivative Assets$1,192,514 $(32,183)$1,160,331 $(384,448)$775,883 
December 31, 2023
Fair value hedges$38,904 $— $38,904 $(11,300)$27,604 
Cash flow hedges36,510 — 36,510 (22,935)13,575 
Other derivative activities (1)
1,016,844 (2,064)1,014,780 (170,835)843,945 
Total Derivative Assets$1,092,258 $(2,064)$1,090,194 $(205,070)$885,124 
The decrease in the ETR for the three-month and nine-month periods ended September 30, 2017 was predominantly due to the undistributed net earnings of a Puerto Rico subsidiary that will be indefinitely reinvested outside the U.S.


56


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 12. INCOME TAXES (continued)

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

Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. The Company reviews its tax balances quarterly and, as new information becomes available, the balances are adjusted as appropriate. The Company is subject to ongoing tax examinations and assessments in various jurisdictions.

The Company filed a lawsuit against the United States in 2009 in Federal District Court in Massachusetts relating to the proper tax consequences of two financing transactions with an international bank through which the Company borrowed $1.2 billion. As a result of these financing transactions, the Company paid foreign taxes of $264.0 million during the years 2003 through 2007 and claimed a corresponding foreign tax credit for foreign taxes paid during those years, which the Internal Revenue Service ("IRS") disallowed. The IRS also disallowed the Company's deductions for interest expense and transaction costs, totaling $74.6 million in tax liability, and assessed penalties and interest totaling approximately $92.5 million. The Company has paid the taxes, penalties and interest associated with the IRS adjustments for all tax years, and the lawsuit will determine whether the Company is entitled to a refund of the amounts paid.

On November 13, 2015, the Federal District Court issued a written opinion in favor of the Company on all contested issues, and in a judgment issued on January 13, 2016, ordered amounts assessed by the IRS for the years 2003 through 2005 to be refunded to the Company. The IRS appealed that judgment. On December 15, 2016, the U.S. Court of Appeals for the First Circuit partially reversed the judgment of the Federal District Court. Pursuant to the First Circuit's decision, the Company is not entitled to claim the foreign tax credits it claimed but will be allowed to exclude from income $132.0 million (representing half of the U.K. taxes the Company paid) and will be allowed to claim the interest expense deductions. The First Circuit ordered the case to be remanded to the Federal District Court for further proceedings to determine, among other issues, whether penalties should be sustained. On March 16, 2017, the Company filed a petition requesting the U.S. Supreme Court to hear its appeal of the First Circuit Court's decision. On June 26, 2017 the U.S. Supreme Court denied the Company’s request, and the case has now been remanded to the Federal District Court as ordered by the Court of Appeals. On remand, the parties are awaiting the Court’s decision on motions for summary judgment filed by the Company regarding the remaining issues.

In response to the First Circuit's decision, the Company, at December 31, 2016, used its previously established $230.1 million tax reserve to write off deferred tax assets and a portion of the receivable that would not be realized under the Court's decision. Additionally, the Company established a $36.0 million tax reserve in relation to items that have not yet been determined by the courts, including potential penalties. Over the next 12 months, it is reasonably possible that changes in the reserve for uncertain tax positions could range from a decrease of $36.0 million to an increase of zero.

With few exceptions, the Company is no longer subject to federal, state and non-U.S. income tax examinations by tax authorities for years prior to 2003.

57


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)
The following table presents the components of accumulated other comprehensive income/(loss), net of related tax, for the three-month and nine-month periods ended September 30, 2017 and 2016, respectively.


Total Other
Comprehensive Income/(Loss)
Total Accumulated
Other Comprehensive (Loss)/Income

Three-Month Period Ended September 30, 2017
June 30, 2017


September 30, 2017

Pretax
Activity
Tax
Effect
Net Activity
Beginning
Balance
Net
Activity
Ending
Balance

(in thousands)
Change in accumulated gains/(losses) on cash flow hedge derivative financial instruments$5,298

$(955)
$4,343

 
 
 
Reclassification adjustment for net (losses)/gains on cash flow hedge derivative financial instruments (1)
(6,837)
2,002

(4,835)
 
 
 
Net unrealized (losses)/gains on cash flow hedge derivative financial instruments(1,539)
1,047

(492)
$(2,689)
$(492)
$(3,181)















Change in unrealized gains/(losses) on investment securities available-for-sale16,795

(5,910)
10,885

 
 
 
Reclassification adjustment for net (gains)/losses included in net income/(expense) on non-OTTI securities (2)
(6,707)
2,360

(4,347)





Reclassification adjustment for net (gains)/losses included in net income/(expense) on OTTI securities—

—

—






Net unrealized gains/(losses) on investment securities available-for-sale10,088

(3,550)
6,538

(94,436)
6,538

(87,898)


















Pension and post-retirement actuarial gains/(losses)(3)
912

(355)
557

(54,688)
557

(54,131)


















As of September 30, 2017$9,461

$(2,858)
$6,603

$(151,813)
$6,603

$(145,210)
            

(1) Net (losses)/gains reclassified into Interest on borrowingsIncludes customer-related and other debt obligationsderivatives.
(2)Collateral received includes cash, cash equivalents, and other financial instruments. Cash collateral received is reported in Other liabilities, as applicable, in the Condensed Consolidated Statement of Operations for settlements of interest rate swap contracts designated as cash flow hedges.Balance Sheets. Financial instruments that are pledged to the Company are not reflected in the accompanying Condensed Consolidated Balance Sheets since the Company does not control or have the ability to re-hypothecate these instruments.


Offsetting of Financial Liabilities
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
(in thousands)Gross Amounts of Recognized LiabilitiesGross Amounts Offset in the Condensed Consolidated Balance SheetsNet Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets
Collateral Pledged (2)
Net Amount
March 31, 2024
Fair value hedges$2,475 $— $2,475 $(1,171)$1,304 
Cash flow hedges333,749 — 333,749 (139,635)194,114 
Other derivative activities (1)
1,078,768 (32,133)1,046,635 (94,057)952,578 
Total Derivative Liabilities$1,414,992 $(32,133)$1,382,859 $(234,863)$1,147,996 
December 31, 2023
Fair value hedges$9,951 $— $9,951 (1,064)$8,887 
Cash flow hedges362,138 — 362,138 $(140,968)221,170 
Other derivative activities (1)
1,102,608 (2,014)1,100,594 (129,722)970,872 
Total Derivative Liabilities$1,474,697 $(2,014)$1,472,683 $(271,754)$1,200,929 
(1)Includes customer-related and other derivatives.
(2) Net (gains)/losses reclassified into Net gain on sale of investment securities salesCash collateral pledged and financial instruments pledged is reported in Other assets in the Condensed Consolidated StatementBalance Sheets. In certain instances, the Company is over-collateralized since the actual amount of Operations forcollateral pledged exceeds the saleassociated financial liability. As a result, the actual amount of available-for-sale securities.
(3) Includedcollateral pledged that is reported in Other assets may be greater than the amount shown in the computation of net periodic pension costs.table above.



58
51




SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Table of Contents


NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS) (continued)FAIR VALUE

 Total Other
Comprehensive Income/(Loss)		 Total Accumulated
Other Comprehensive (Loss)/Income
 Nine-Month Period Ended September 30, 2017 December 31, 2016 
 September 30, 2017
 Pretax
Activity		 Tax
Effect		 Net Activity Beginning
Balance		 Net
Activity		 Ending
Balance
 (in thousands)
Change in accumulated gains/(losses) on cash flow hedge derivative financial instruments$12,469
 $(2,950) $9,519
      
Reclassification adjustment for net (losses)/gains on cash flow hedge derivative financial instruments (1)
(8,315) 2,340
 (5,975)      
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments4,154
 (610) 3,544
 $(6,725) $3,544
 $(3,181)
            
Change in unrealized gains/(losses) on investment securities available-for-sale83,175
 (29,892) 53,283
      
Reclassification adjustment for net (gains)/losses included in net income/(expense) on non-OTTI securities (2)
(16,276) 5,849
 (10,427)      
Reclassification adjustment for net (gains)/losses included in net income/(expense) on OTTI securities—
 —
 —
      
Net unrealized gains/(losses) on investment securities available-for-sale66,899
 (24,043) 42,856
 (130,754) 42,856
 (87,898)
            
Pension and post-retirement actuarial gains/(losses)(3)
2,736
 (1,138) 1,598
 (55,729) 1,598
 (54,131)
            
As of September 30, 2017$73,789

$(25,791)
$47,998

$(193,208)
$47,998

$(145,210)
            

(1) Net (losses)/gains reclassified into Interest on borrowings and other debt obligations in the Condensed Consolidated Statement of Operations for settlements of interest rate swap contracts designated as cash flow hedges.
(2) Net (gains)/losses reclassified into Net gain on sale of investment securities sales in the Condensed Consolidated Statement of Operations for the sale of available-for-sale securities.
(3) Included in the computation of net periodic pension costs.


59


SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS) (continued)

 Total Other
Comprehensive (Loss)/Income		 Total Accumulated
Other Comprehensive Loss
 Three-Month Period Ended September 30, 2016 June 30, 2016   September 30, 2016
 Pretax
Activity		 Tax
Effect		 Net Activity Beginning
Balance		 Net
Activity		 Ending
Balance
 (in thousands)
Change in accumulated gains/(losses) on cash flow hedge derivative financial instruments$69,464
 $(15,775) $53,689
      
Reclassification adjustment for net gains/(losses) on cash flow hedge derivative financial instruments (1)
254
 (115) 139
      
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments69,718
 (15,890) 53,828
 $(63,881) $53,828
 $(10,053)
            
Change in unrealized (losses)/gains on investment securities available-for-sale(105,270) 38,852
 (66,418)      
Reclassification adjustment for net (gains)/losses included in net income/(expense) on non-OTTI securities (2)
—
 —
 —
      
Reclassification adjustment for net losses/(gains) included in net income/(expense) on OTTI securities (3)
—
 —
 —
      
Reclassification adjustment for net (gains)/losses included in net income—
 —
 —
      
Net unrealized (losses)/gains on investment securities available-for-sale(105,270) 38,852
 (66,418) 83,262
 (66,418) 16,844
            
Pension and post-retirement actuarial losses(4)
(4,085) (364) (4,449) (56,877) (4,449) (61,326)
            
As of September 30, 2016$(39,637) $22,598
 $(17,039) $(37,496) $(17,039) $(54,535)
            

(1) Net gains/(losses) reclassified into Interest on borrowings and other debt obligations in the Condensed Consolidated Statement of Operations for settlements of interest rate swap contracts designated as cash flow hedges.
(2) Net (gains)/losses reclassified into Net gain on sale of investment securities sales in the Condensed Consolidated Statement of Operations for the sale of available-for-sale securities.
(3) Unrealized losses/(gains) previously recognized in accumulated other comprehensive income on securities for which OTTI was recognized during the period. See further discussion in Note 3 to the Condensed Consolidated Financial Statements.
(4) Included in the computation of net periodic pension costs.


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NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS) (continued)

            
 Total Other
Comprehensive Income/(Loss)		 Total Accumulated
Other Comprehensive (Loss)/Income
 Nine-Month Period Ended September 30, 2016 December 31, 2015   September 30, 2016
 Pretax
Activity		 Tax
Effect		 Net Activity Beginning
Balance		 Net
Activity		 Ending
Balance
 (in thousands)
Change in accumulated (losses)/gains on cash flow hedge derivative financial instruments$(11,538) $15,117
 $3,579
      
Reclassification adjustment for net gains/(losses) on cash flow hedge derivative financial instruments(1)
4,379
 (1,430) 2,949
      
Net unrealized (losses)/gains on cash flow hedge derivative financial instruments(7,159) 13,687
 6,528
 $(16,581) $6,528
 $(10,053)
            
Change in unrealized gains/(losses) on investment securities available-for-sale246,508
 (99,376) 147,132
      
Reclassification adjustment for net (gains)/losses included in net income/(expense) on non-OTTI securities (2)
(57,770) 23,398
 (34,372)      
Reclassification adjustment for net losses/(gains) included in net income/(expense) on OTTI securities (3)
44
 (18) 26
      
Reclassification adjustment for net (gains)/losses included in net income(57,726) 23,380
 (34,346)      
Net unrealized gains/(losses) on investment securities available-for-sale188,782
 (75,996) 112,786
 (95,942) 112,786
 16,844
            
Pension and post-retirement actuarial losses(4)
(2,227) (1,092) (3,319) (58,007) (3,319) (61,326)
            
As of September 30, 2016$179,396
 $(63,401) $115,995
 $(170,530) $115,995
 $(54,535)

(1) Net gains/(losses) reclassified into Interest on borrowings and other debt obligations in the Condensed Consolidated Statement of Operations for settlements of interest rate swap contracts designated as cash flow hedges.
(2) Net (gains)/losses reclassified into Net gain on sale of investment securities sales in the Condensed Consolidated Statement of Operations for the sale of available-for-sale securities.
(3) Unrealized losses/(gains) previously recognized in accumulated other comprehensive income on securities for which OTTI was recognized during the period. See further discussion in Note 3 to the Condensed Consolidated Financial Statements.
(4) Included in the computation of net periodic pension costs.





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NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES

Off-Balance Sheet Risk - Financial Instruments

In the normal course of business, the Company utilizes a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers and manage its exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, letters of credit, loans sold with recourse, forward contracts, and interest rate and cross currency swaps, caps and floors. These financial instruments may involve, to varying degrees, elements of credit, liquidity, and interest rate risk in excess of the amount recognized on the Condensed Consolidated Balance Sheet. The contractual or notional amounts of these financial instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, letters of credit and loans sold with recourse is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For forward contracts and interest rate swaps, caps and floors, the contract or notional amounts do not represent exposure to credit loss. The Company controls the credit risk of its forward contracts and interest rate swaps, caps and floors through credit approvals, limits and monitoring procedures. See Note 11 to these Condensed Consolidated Financial Statements for discussion of all derivative contract commitments.

The following table details the amount of commitments at the dates indicated:
Other Commitments September 30, 2017 December 31, 2016
  (in thousands)
Commitments to extend credit $29,128,608
 $28,889,904
Letters of credit 1,608,257
 2,071,089
Unsecured revolving lines of credit 27,126
 30,547
Recourse exposure on sold loans 70,036
 69,877
Commitments to sell loans 29,010
 49,121
Total commitments $30,863,037
 $31,110,538

Commitments to Extend Credit

Commitments to extend credit generally have fixed expiration dates, are variable rate, and contain provisions that permit the Company to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These arrangements normally require payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.

Included within the reported balances for Commitments to extend credit at September 30, 2017 and December 31, 2016 are $6.8 billion and $6.3 billion, respectively, of commitments that can be canceled by the Company without notice.

The following table details the amount of commitments to extend credit expiring per period as of the dates indicated:
  September 30, 2017 December 31, 2016
  (in thousands)
1 year or less $5,223,450
 $5,656,552
Over 1 year to 3 years 5,226,031
 5,265,685
Over 3 years to 5 years 3,909,397
 4,680,057
Over 5 years (1)
 14,769,730
 13,287,610
Total $29,128,608
 $28,889,904

(1)Includes certain commitments to extend credit that do not have a contractual maturity date, but are expected to be outstanding more than 5 years.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

Unsecured Revolving Lines of Credit

Such commitments, included in the Commitments to extend credit table above, arise primarily from agreements with customers for unused lines of credit on unsecured revolving accounts and credit cards, provided there is no violation of conditions in the underlying agreement. These commitments, substantially all of which the Company can terminate at any time and which do not necessarily represent future cash requirements, are periodically reviewed based on account usage, customer creditworthiness and loan qualifications.

Letters of Credit

The Company’s letters of credit meet the definition of a guarantee. Letters of credit commit the Company to make payments on behalf of its customers if specified future events occur. The guarantees are primarily issued to support public and private borrowing arrangements. The weighted average term of these commitments at September 30, 2017 was 13.3 months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. In the event of a requested draw by the beneficiary that complies with the terms of the letter of credit, the Company would be required to honor the commitment. The Company has various forms of collateral for these letters of credit, including real estate assets and other customer business assets. The maximum undiscounted exposure related to these commitments at September 30, 2017 was $1.6 billion. The fees related to letters of credit are deferred and amortized over the life of the respective commitments, and were immaterial to the Company’s financial statements at September 30, 2017. Management believes that the utilization rate of these letters of credit will continue to be substantially less than the amount of the commitments, as has been the Company’s experience to date. As of September 30, 2017 and December 31, 2016, the liability related to these letters of credit was $15.0 million and $8.1 million, respectively, which is recorded within the reserve for unfunded lending commitments in Other liabilities on the Condensed Consolidated Balance Sheet. The credit risk associated with letters of credit is monitored using the same risk rating system utilized within the loan and financing lease portfolio. Also included within the reserve for unfunded lending commitments at September 30, 2017 and December 31, 2016 were lines of credit outstanding of $101.1 million and $114.4 million, respectively.

The following table details the amount of letters of credit expiring per period as of the dates indicated:
  September 30, 2017 December 31, 2016
  (in thousands)
1 year or less $1,047,330
 $1,360,495
Over 1 year to 3 years 463,334
 399,866
Over 3 years to 5 years 68,451
 283,975
Over 5 years 29,142
 26,753
Total $1,608,257
 $2,071,089

Loans Sold with Recourse


The Company has loans sold with recourse that meet the definition of a guarantee. For loans sold with recourse under the terms of its multifamily sales program with FNMA, the Company retained a portion of the associated credit risk. The UPB outstanding of loans sold in these programs was $152.6 million as of September 30, 2017 and $341.7 million as of December 31, 2016. As a result of its agreement with FNMA, the Company retained a 100% first loss position on each multifamily loan sold to FNMA until the earlier to occur of (i) the aggregate approved losses on multifamily loans sold to FNMA reaching the maximum loss exposure for the portfolio as a whole of $34.4 million as of September 30, 2017 and $34.4 million as of December 31, 2016, or (ii) the time when such loans sold to FNMA under this program are fully paid off. Any losses sustained as a result of impediments in standard representations and warranties would be in addition to the maximum loss exposure.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

At the time of the sale, the Company established a liability which representedestimates the fair value of the retained credit exposurecertain assets and the amount the Company estimates it would have to pay a third party to assume the retained recourse obligation.liabilities for both measurement and disclosure purposes. The estimated liability is calculated as the presentfair value of losses that the portfolio is projected to incur based upon internal specific information and an industry-based default curve with a range of estimated losses. At September 30, 2017 and December 31, 2016, the Company had $1.6 million and $3.8 million, respectively, of reserves classified in Accrued expenses and payables on the Condensed Consolidated Balance Sheets related to the retained credit exposure for loans sold to the FNMA under this program. The Company's commitment will expire in March 2039 based on the maturity of the loans sold with recourse. Losses sustained by the Company may be offset, or partially offset, by proceeds resulting from the disposition ofhierarchy categorizes the underlying mortgaged properties. Approval from the FNMA is required for all transactions relatedassumptions and inputs to the liquidation of properties underlying the mortgages.

Commitments to Sell Loans

The Company enters into forward contracts relating to its mortgage banking business to hedge the exposures from commitments to make new residential mortgage loans with existing customers and from mortgage loans classified as LHFS. These contracts mature in less than one year.

SC Commitments

SC is committed to purchase certain new advances on personal revolving financings originated by a third-party retailer, along with existing balances on accounts with new advances, for an initial term ending in April 2020 and renewing through April 2022 at the retailer's option. Each customer account generated under the agreements generally is approved with a credit limit higher than the amount of the initial purchase, with each subsequent purchase automatically approved as long as it does not cause the account to exceed its limit and the customer is in good standing. As of September 30, 2017 and December 31, 2016, SC was obligated to purchase $12.9 million and $12.6 million, respectively, in receivables that had been originated by the retailer but not yet purchased by SC. SC also is required to make a profit-sharing payment to the retailer each month if performance exceeds a specified return threshold. During the year ended December 31, 2015, SC and the third-party retailer executed an amendment that, among other provisions, increases the profit-sharing percentage retained by SC, gives the retailer the right to repurchase up to 9.99% of the existing portfolio at any time during the term of the agreement, and, provided that the repurchase right is exercised, gives the retailer the right to retain up to 20% of new accounts subsequently originated.

Under terms of an application transfer agreement with an original equipment manufacturer (“OEM") other than Fiat Chrysler Automobiles US LLC ("FCA"), SC has the first opportunity to review for its own portfolio any credit applications turned down by the OEM's captive finance company. The agreement does not require SC to originate any loans, but for each loan originated SC will pay the OEM a referral fee.

In connection with the sale of RICs through securitizations and other sales, SC has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require SC to repurchase loans previously sold to on- or off-balance sheet Trusts or other third parties. As of September 30, 2017, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for SC's ABS or other sales. In the opinion of management, the potential exposure of other recourse obligations related to SC’s RIC sales agreements will not have a material adverse effect on SC’s consolidated financial position, results of operations, or cash flows.

Santander has provided guarantees on the covenants, agreements, and obligations of SC under the governing documents of its warehouse facilities and privately issued amortizing notes. These guarantees are limited to the obligations of SC as servicer.

Under terms of the Chrysler Agreement, SC must make revenue sharing payments to FCA and also must make gain-sharing payments to FCA when residual gains on leased vehicles exceed a specified threshold. SC had accrued $13.3 million and $10.1 million at September 30, 2017 and December 31, 2016, respectively, related to these obligations.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

The Chrysler Agreement requires, among other things, that SC bears the risk of loss on loans originated pursuant to the agreement, but also that FCA shares in any residual gains and losses from consumer leases. The agreement also requires that SC maintains at least $5.0 billion in funding available for dealer inventory financing and $4.5 billion of financing dedicated to FCA retail financing. In turn, FCA must provide designated minimum threshold percentages of its subvention business to SC. The Chrysler Agreement is subject to early termination in certain circumstances, including the failure by either party to comply with certain of its ongoing obligations under the agreement. These obligations include SC's meeting specified escalating penetration rates for the first five years of the agreement. SC has not met these penetration rates at September 30, 2017. If the Chrysler Agreement were to terminate, there could be a materially adverse impact to our and SC's business financial condition and results of operations.

Until January 31, 2017, SC had a flow agreement with Bank of America whereby SC was committed to sell up to $300.0 million of eligible loans to the bank each month. On October 27, 2016, Bank of America notified SC that it was terminating the flow agreement effective January 31, 2017 and, accordingly, the flow agreement has terminated. SC retains servicing on all sold loans and may receive or pay a servicer performance payment based on an agreed-upon formula if performance on the sold loans is better or worse, respectively, than expected performance at the time of sale. Servicer payments are due six years from the cut-off date of each loan sale. SC had accrued $8.1 million and $9.8 million at September 30, 2017 and December 31, 2016, respectively, related to this obligation.

Until May 1, 2017, SC sold loans to Citizens Bank of Pennsylvania ("CBP") under terms of a flow agreement and predecessor sale agreements. Under the flow agreement, as amended, CBP's committed purchases of Chrysler Capital prime loans were a maximum of $200.0 million and a minimum of $50.0 million per quarter. SC retains servicing on the sold loans and will owe CBP a loss-sharing payment capped at 0.5% of the original pool balance if losses exceed a specified threshold, established on a pool-by-pool basis. Loss-sharing payments are due the month in which net losses exceed the established threshold of each loan sale. The Company had accrued $4.9 million and $4.6 million at September 30, 2017 and December 31, 2016, respectively, related to this obligation.

As of September 30, 2017, SC was party to a forward flow asset sale agreement with a third party under the terms of which SC is committed to sell charged-off loan receivables in bankruptcy status on a quarterly basis until sales total at least $200.0 million in proceeds. On June 29, 2015, SC and the third party executed an amendment to the forward flow asset sale agreement which increased the committed sales of charged-off loan receivables in bankruptcy status to $275.0 million. On September 30, 2015, SC and the third party executed a second amendment to the forward flow asset sale agreement which required sales to occur quarterly. On November 13, 2015, SC and the third party executed a third amendment to the forward flow asset sale agreement which increased the committed sales of charged-off loan receivables in bankruptcy status to $350.0 million. However, any sale of more than $275.0 millionis subject to a market price check. As of September 30, 2017 and December 31, 2016, the remaining aggregate commitments were $108.4 million and $166.2 million, respectively.

Pursuant to the terms of a separation agreement among SC`s former Chief Executive Officer ("CEO") Thomas G. Dundon, SC, DDFS LLC, the Company and Santander, upon satisfaction of applicable conditions, including receipt of required regulatory approvals, SC will owe Mr. Dundon a cash payment of up to $115.1 million. Refer to Note 15 for additional transactions involving the Company and the former CEO of SC.

SC is or may be subject to potential liability under various other contingent exposures. SC had accrued $8.6 million and zero at September 30, 2017 and December 31, 2016, respectively, for other miscellaneous contingencies.

Impact from Hurricanes

Our footprint was impacted by three significant hurricanes during the third quarter of 2017, Hurricane Harvey, which struck the State of Texas and surrounding region, Hurricane Irma, which primarily struck the State of Florida, and Hurricane Maria, which struck the island of Puerto Rico. Each of these hurricanes resulted in widespread flooding, power outages and associated damage to real and personal property in the affected areas Our SC subsidiary headquartered in Dallas, Texas, our BSI subsidiary headquartered in Miami, Florida, and our Santander BanCorp, BSPR and SSLLC subsidiaries in Puerto Rico were most directly affected by these hurricanes. In Puerto Rico, there was significant damage to the infrastructure and the power grid in the entire island, which resulted in extended delays in BSPR returning to normal operations.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

The Company assessed the potential additional credit losses related to its consumer and commercial lending exposures in the greater Texas, Florida and Puerto Rico regions and has increased its allowance for loan losses by approximately $95 million in the third quarter of 2017. However, for credit exposures in Puerto Rico, given the current state in the region, the Company has had limited information with which to estimate probable credit losses. As of September 30, 2017, the Company has approximately $3.6 billion of loan exposures in Puerto Rico consisting of $1.7 billion in consumer loans, $1.6 billion in commercial loans, and $300 million in loans to municipalities. The Company will continue to monitor and assess the impact of these hurricanes on our subsidiaries’ businesses and may establish additional reserves for losses in future periods.
See discussion under the "Puerto Rico FINRA Arbitrations" section of Note 14 below for further discussion.

Other Off-Balance Sheet Risk

Other off-balance sheet risk stems from financial instruments that do not meet the definition of guarantees under applicable accounting guidance, and from other relationships that include items such as indemnifications provided in the ordinary course of business and intercompany guarantees.

Legal and Regulatory Proceedings

Periodically, the Company is party to, or otherwise involved in, various lawsuits, investigations, regulatory matters and other legal proceedings that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of any such lawsuit, investigation, regulatory matter and/or legal proceeding, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of the matters, or the eventual loss, fines or penalties related to the matter. Accordingly, except as provided below, the Company is unable to reasonably estimate a range of its potential exposure, if any, to these lawsuits, investigations, regulatory matters and other legal proceedings at this time. However, it is reasonably possible that actual outcomes or losses may differ materially from the Company's current assessments and estimates and any adverse resolution of any of these matters against it could have a material adverse effect on the Company's financial position, liquidity, and results of operations.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation, investigation, regulatory matters and other legal proceedings when those matters present material loss contingenciesvaluation techniques that are both probable and estimable. In such cases, there may be an exposureused to lossmeasure fair value into three levels as follows:

•Level 1 inputs are quoted prices in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation, investigationactive markets for identical assets or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether the matter presents a material loss contingencyliabilities that is probable and estimable. If a determination is made during a given quarter that a material loss contingency is probable and estimable, an accrued liability is established during such quarter with respect to such loss contingency; the Company continues to monitor the matter for further developments that could affect the amount of the accrued liability previously established.

As of September 30, 2017 and December 31, 2016, the Company has accrued aggregate legal and regulatory liabilities of $63.7 million and $98.8 million, respectively. Further, the Company believes that the estimate of the aggregate range of reasonably possible losses for legal and regulatory proceedings in excess of reserves established up to $18.0 million as of September 30, 2017. Descriptions of the material lawsuits, regulatory matters and other legal proceedings to which the Company is subject are set forth below.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

OCC Identity Theft Protection Product ("SIP") Matter

In 2014, the Bank commenced discussions with the OCC to address concerns that some customers may have paid for but did not receive certain benefits of SIP, an identity theft protection product from the Bank's third-party vendor. On March 26, 2015, the Bank entered into a Consent Cease and Desist Order ("SIP Consent Order") with the OCC regarding identified deficiencies in SBNA's billing practices with regard to SIP. Pursuant to the SIP Consent Order, the Bank paid a civil monetary penalty ("CMP") of $6.0 million and agreed to remediate customers who paid for but may not have received certain benefits of SIP. Prior to entering into the SIP Consent Order, the Bank made $37.3 million in remediation payments to customers, representing the total amount paid for product enrollment.

Subsequently, the Bank commenced a further review in order to remediate checking account customers who may have been charged an overdraft fee and credit card customers who may have been charged an over limit fee and/or finance charge related to SIP product fees. The approximate amount of the expected additional remediation is $5.2 million. On June 26, 2015, the Bank sent its formal response to the SIP Consent Order and, on October 15, 2015, the OCC responded objecting to the Bank's response and proposed reimbursement and action plans. On December 14, 2015, the Bank re-submitted a revised response and enhanced reimbursement and action plans and, on December 21, 2015, received a notice of non-objection from the OCC. Since that time, the actions and remediation set forth in the action plans are underway, as is ongoing quarterly reporting to the OCC.

CFPB Overdraft Coverage Consent Order

On April 1, 2014, the Bank received a civil investigative demand from the CFPB requesting information and documents in connection with the Bank’s marketing to consumers of overdraft coverage for automated teller machine ("ATM") and onetime debit card transactions through a third-party vendor. On July 14, 2016, the Bank entered into a consent order with the CFPB regarding these practices. Pursuant to the terms of the consent order, the Bank paid a CMP of $10.0 million and agreed to validate the elections made by customers who opted in to overdraft coverage for ATM and onetime debit card transactions in connection with telemarketing by the third-party vendor. The Bank is also required to make certain changes to its third-party vendor oversight policy and its customer complaint policy.  By letter dated July 31, 2017, the CFPB indicated that it does not object to the Bank’s validation plan. The Bank is currently executing that plan and working to meet the other consent order requirements. It is possible that additional litigation could be filed as a result of these issues.

FIRREA Subpoena

On May 22, 2013, the Bank received a subpoena from the U.S. Attorney's Office for the Southern District of New York seeking information regarding claims for foreclosure expenses incurred in connection with the foreclosure of loans insured or guaranteed by the Federal Housing Agency, the FNMA or the FHLMC. The Bank continues to cooperate with the investigation; however, there can be no assurance that claims or litigation will not arise from this matter. There is insufficient information/status to assess a likelihood of fines/penalties or other loss and/or estimates at this time.

SC Matters

Periodically, SC is party to, or otherwise involved in, various lawsuits and other legal proceedings that arise in the ordinary course of business.

On August 26, 2014, a purported securities class action lawsuit was filed in the United States District Court, Southern District of New York, captioned Steck v. Santander Consumer USA Holdings Inc. et al., No. 1:14-cv-06942 (the "Deka Lawsuit"). The Deka Lawsuit was brought against SC, certain of its current and former directors and executive officers and certain institutions that served as underwriters in SC's IPO on behalf of a class consisting of those who purchased or otherwise acquired SC's securities between January 23, 2014 and June 12, 2014. In June 2015, the venue of the Deka Lawsuit was transferred to the United States District Court, Northern District of Texas. In September 2015, the court granted a motion to appoint lead plaintiffs and lead counsel, and the Deka Lawsuit is now captioned Deka Investment GmbH et al. v.Santander Consumer USA Holdings, Inc. et al., No. 3:15-cv-2129-K.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

The amended class action complaint in the Deka Lawsuit alleges that that SC's registration statement and prospectus and certain subsequent public disclosures contained misleading statements concerning SC’s ability to pay dividends and the adequacy of SC’s compliance systems and oversight. The amended complaint asserts claims under Sections 11, 12(a) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and seeks damages and other relief. On December 18, 2015, SC and the individual defendants moved to dismiss the amended class action complaint and on June 13, 2016, the motion to dismiss was denied. On December 2, 2016, the plaintiffs moved to certify the proposed classes, on February 17, 2017, SC filed an opposition to the plaintiffs' motion to certify the proposed classes, and on March 31, 2017, the plaintiffs filed their reply brief. On July 11, 2017, the court granted an order staying the Deka Lawsuit pending the resolution of the appeal of a class certification order in In re Cobalt Int'l Energy, Inc. Sec. Litig., No. H-14-3428, 2017 U.S. Dist. Lexis 91938 (S.D. Tex. June 15, 2017).

On October 15, 2015, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Feldman v. Jason A. Kulas, et al., C.A. No. 11614 (the "Feldman Lawsuit"). The Feldman Lawsuit names as defendants current and former members of SC’s Board of Directors, and names SC as a nominal defendant. The complaint alleges, among other things, that the current and former director defendants breached their fiduciary duties in connection with overseeing SC’s subprime auto lending practices, resulting in harm to SC. The complaint seeks unspecified damages and equitable relief. On December 29, 2015, the Feldman Lawsuit was stayed pending the resolution of the Deka Lawsuit.

On March 18, 2016, a purported securities class action lawsuit was filed in the United States District Court, Northern District of Texas, captioned Parmelee v. Santander Consumer USA Holdings Inc. et al., No. 3:16-cv-783 (the "Parmelee Lawsuit"). On April 4, 2016, another purported securities class action lawsuit was filed in the United States District Court, Northern District of Texas, captioned Benson v. Santander Consumer USA Holdings Inc. et al., No. 3:16-cv-919 (the "Benson Lawsuit"). Both the Parmelee Lawsuit and the Benson Lawsuit were filed against SC and certain of its current and former directors and executive officers on behalf of a class consisting of all those who purchased or otherwise acquired SC's securities between February 3, 2015 and March 15, 2016. On May 25, 2016, the Benson Lawsuit was consolidated into the Parmelee Lawsuit, with the consolidated case captioned as Parmelee v. Santander Consumer USA Holdings Inc. et al., No. 3:16-cv-783.

On December 20, 2016, the plaintiffs filed an amended class action complaint. The amended class action complaint in the Parmelee Lawsuit alleges that SC made false or misleading statements, as well as failed to disclose material adverse facts, in prior Annual and Quarterly Reports filed under the Exchange Act and certain other public disclosures, in connection with, among other things, SC’s change in its methodology for estimating its ACL and correction of such allowance for prior periods in, among other public disclosures, SC’s Annual Report on Form 10-K for the year ended December 31, 2015, SC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, and SC’s amended filings for prior reporting periods. The amended class action complaint asserts claims under Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, and seeks damages and other relief. On March 14, 2017, SC filed a motion to dismiss the Parmelee Lawsuit. On March 14, 2017, SC filed a motion to dismiss the Parmelee Lawsuit. On April 25, 2017, the plaintiffs filed an opposition to the motion to dismiss, and on June 9, 2017, SC filed a reply to the plaintiffs’ opposition.

On September 27, 2016, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware captioned Jackie888, Inc. v. Jason Kulas, et al., C.A. # 12775 (the "Jackie888 Lawsuit"). The Jackie888 Lawsuit names as defendants current and former members of SC’s Board of Directors, and names SC as a nominal defendant. The complaint alleges, among other things, that the defendants breached their fiduciary duties in connection with SC’s accounting practices and controls. The complaint seeks unspecified damages and equitable relief. On April 13, 2017 the Jackie888 Lawsuit was stayed pending the resolution of the Deka Lawsuit.

SC is also party to various lawsuits pending in federal and state courts alleging violations of state and federal consumer lending laws, including, without limitation, the Equal Credit Opportunity Act (the “ECOA”), the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, Section 5 of the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Truth in Lending Act, wrongful repossession laws, usury laws and laws related to unfair and deceptive acts or practices. In general, these cases seek damages and equitable and/or other relief.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

SC is party to, or is periodically otherwise involved in reviews, investigations, examinations and proceedings (both formal and informal), and information-gathering requests, by government and self-regulatory agencies, including the Federal Reserve, the CFPB, the DOJ, the SEC, the Federal Trade Commission and various state regulatory and enforcement agencies. Currently, such proceedings include, but are not limited to, a civil subpoena from the DOJ, under the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA"), requesting the production of documents and communications that, among other things, relate to the underwriting and securitization of nonprime auto loans since 2007, and from the SEC requesting the production of documents and communications that, among other things, relate to the underwriting and securitization of nonprime auto loans since 2013.

On March 21, 2017, SC and SHUSA entered into a written agreement (the "2017 Written Agreement") with the FRBB. Under the terms of the 2017 Written Agreement, SC is required to enhance its compliance risk management program, board oversight of risk management and senior management oversight of risk management, and SHUSA is required to enhance its oversight of SC's management and operations.

In October 2014, May 2015, July 2015, and February 2017, SC also received civil subpoenas and/or CIDs from the Attorneys General of California, Illinois, Oregon, New Jersey, Maryland and Washington under the authority of each state's consumer protection statutes. SC has been informed that these states serve as an executive committee on behalf of a group of 30 state Attorneys General. The subpoenas and/or CIDs from the executive committee states contained broad requests for information and documents related to SC's underwriting, securitization, servicing and collection of nonprime auto loans. SC believes that several other companies in the auto finance sector have received similar subpoenas and CIDs. SC is cooperating with the Attorneys General of the states involved. SC believes that it is reasonably possible that it will suffer a loss related to the Attorneys General, however, any such loss is not currently estimable.

On January 10, 2017, the Attorney General of the State of Mississippi (the "Mississippi AG") filed a lawsuit against SC in the Chancery Court of the First Judicial District of Hinds County, State of Mississippi, captioned State of Mississippi ex rel. Jim Hood, Attorney General of the State of Mississippi v. Santander Consumer USA Inc., C.A. # G-2017-28. The complaint alleges that SC engaged in unfair and deceptive business practices to induce Mississippi consumers to apply for loans that they could not afford. The complaint asserts claims under the Mississippi Consumer Protection Act (the "MCPA") and seeks unspecified civil penalties, equitable relief and other relief. On March 31, 2017, SC filed motions to dismiss the Mississippi AG’s lawsuit. On May 18, 2017, SC filed a motion to stay the Mississippi AG’s lawsuit pending the resolution of an interlocutory appeal relating to the MCPA before the Mississippi Supreme Court in Purdue Pharma, L.P., et al. v. State, No. 2017-IA- 00300-SCT. On May 30, 2017, the Mississippi AG filed an opposition to the motion to stay, and on June 14, 2017, SC filed a reply to the Mississippi AG’s opposition. On September 25, 2017, the court granted the motion to stay and ordered a stay of all proceedings, excluding discovery and final briefing on motions to discuss.

On February 25, 2015, SC entered into a consent order with the DOJ, approved by the United States District Court for the Northern District of Texas, which resolves the DOJ's claims against the Company that certain of its repossession and collection activities during the period between January 2008 and February 2013 violated the Servicemen’s Civil Relief Act ("SCRA"). The consent order requires SC to pay a civil fine in the amount of $55,000, as well as at least $9.4 million to affected servicemembers consisting of $10,000 per servicemember plus compensation for any lost equity (with interest) for each repossession by SC, and $5,000 per servicemember for each instance where SC sought to collect repossession-related fees on accounts where a repossession was conducted by a prior account holder. The consent order also provides for monitoring by the DOJ of the Company’s SCRA compliance for a period of five years and requires SC to undertake certain additional remedial measures.
On July 31, 2015, the CFPB notified SC that it had referred to the DOJ certain alleged violations by SC of the ECOA regarding statistical disparities in markups charged by automobile dealers to protected groups on loans originated by those dealers and purchased by SC and the treatment of certain types of income in SC's underwriting process. On September 25, 2015, the DOJ notified SC that, based on the referral from the CFPB, it has initiated an investigation under the ECOA of SC's pricing of automobile loans.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

IHC Matters

Periodically, SSLLC is party to pending and threatened legal actions and proceedings, including Financial Industry Regulatory Authority (“FINRA”) arbitration actions and class action claims.

Puerto Rico FINRA Arbitrations

As of September 30, 2017, SSLLC had received 270 FINRA arbitration cases related to Puerto Rico bonds and Puerto Rico closed-end funds. Most of these cases are based upon concerns regarding the local Puerto Rico securities market. The statements of claims allege, among other things, fraud, negligence, breach of fiduciary duty, breach of contract, unsuitability, over-concentration and failure to supervise. There were 181 arbitration cases that remained pending as of September 30, 2017.

As a result of the recent hurricane impacting the Puerto Rico market including declines in Puerto Rico bond and closed-end fund ("CEF") prices, it is possible that additional arbitration claims and/or increased claim amounts may be asserted in future periods.

Puerto Rico Closed-End Funds Shareholder Derivative and Class Action

On September 12, 2016, customers of certain Puerto Rico CEFs filed a shareholder derivative and class action in the Court of First Instance of the Commonwealth of Puerto Rico, Superior Court of San Juan, captioned Dionisio Trigo González et al. v. Banco Santander, S.A. et al., Civil No. 2016-0857. Customers filed this action against Santander, Santander BanCorp, Banco Santander Puerto Rico, SSLLC, Santander Asset Management, LLC, and several directors and senior management of those entities. The complaint alleges misconduct including that the entities and individuals created, controlled, managed, and advised certain CEFs within the First Puerto Rico Family of Funds (the “Funds”) from March 1, 2012 to the detriment of the Funds and their shareholders. Brought on behalf of the Funds and Puerto Rico-based investors, the complaint contains numerous allegations and seeks unspecified damages but alleges damages to be at least tens of millions of dollars. The case was removed to U.S. District Court, District of Puerto Rico. Plaintiffs moved to remand the action back to state court, Plaintiffs' motion is pending.

On October 13, 2017, a putative class action was filed in Puerto federal court against SSLLC alleging federal securities and common law claims relating to the solicitation and purchase of more than $180 million of Puerto Rico bonds and $101 million of CEFs during the period from December 2012 to October 2013. The case is captioned Jorge Ponsa-Rabell, et. Al. v. SSLLC, Civ. No. 3:17-cv-02243 (D.PR. 2017).The complaint alleges that SSLLC defrauded purchasers by instructing its financial consultants to omit material facts to the purchasers or concealing material facts from the financial consultants to prevent disclosures to the purchasers regarding changes in the Puerto Rico market. SSLLC has not yet been served with the complaint.

SHUSA does not believe that there are any other proceedings, threatened or pending, that, if determined adversely, would have a material adverse effect on the consolidated financial position, results of operations, or liquidity of the Company.

NOTE 15. RELATED PARTY TRANSACTIONS

The Company has various debt agreements with Santander. For a listing of these debt agreements, see Note 11 to the Condensed Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2016. The Company and its affiliates also entered into or were subject to various service agreements with Santander and its affiliates. Each of these agreements was made in the ordinary course of business and on market terms.

On March 28, 2017, SHUSA received a $9.0 million capital contribution from Santander.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 15. RELATED PARTY TRANSACTIONS (continued)

On March 29, 2017, SC entered into a Master Securities Purchase Agreement with Santander, whereby it has the option to sell a contractually determined amount of eligible prime loans to Santander, through the SPAIN securitization platform, for a term ending in December 2018. SC will provide servicing on all loans originated under this arrangement. For the nine months ended September 30, 2017, SC sold $1.2 billion of loans under this arrangement. Under a separate securities purchase agreement, SC sold $1.3 billion of prime loans to Santander during the three months ended September 30, 2017. A total loss of $6.8 million and $13.0 million was recognized for the three and nine-months period ended September 30, 2017, which is included in Miscellaneous income, net in the Condensed Consolidated Statement of Operations. SC had $14.1 million of collections due to Santander as of September 30, 2017.

During the third quarter of 2017, SBNA sold $372.1 million of commercial loans to Santander. The sale resulted in $2.4 million of net gain for the nine-month period ended September 30, 2017, which is included in Miscellaneous Income, net in the Condensed Consolidated Statement of Operations.

Employment and Related Agreements

On July 2, 2015, SC announced the departure of Mr. Dundon from his roles as Chairman of the Board and CEO of SC, effectiveaccessed as of the close of business on July 2, 2015. In connection with Mr. Dundon's departure, and subject to the terms and conditions of his employment agreement, including Mr. Dundon's execution of a release of claims against SC, he became entitled to receive certain payments and benefits under his employment agreement. The separation agreement also provided for the modification of terms for certain other equity-based awards. Certain of the payments, agreements to make payments and benefits may be effective only upon receipt of certain required regulatory approvals.

As of September 30, 2017, SC has not made any payments to Mr. Dundon, nor recorded any liability or obligation arising from or pursuant to the terms of the separation agreement. If all applicable conditions are satisfied, including receipt of required regulatory approvals and satisfaction of any conditions thereto, SC will be obligated to make a cash payment to Mr. Dundon of up to $115.1 million. This amount would be recorded as compensation expense in its Consolidated Statement of Income and Comprehensive Income.

The Company also entered into an agreement with Mr. Dundon, Dundon DFS LLC ("DDFS"), and Santander related to Mr. Dundon's departure from SC. Pursuant to the separation agreement, the Company was deemed to have delivered an irrevocable notice to exercise its option to acquire all of the 34,598,506 shares of SC Common Stock owned by DDFS and consummate the transactions contemplated by the call option notice, subject to the receipt of all required regulatory approvals (the "Call Transaction"). At that date, the SC Common Stock held by DDFS (the "DDFS Shares") represented approximately 9.7% of SC Common Stock. The separation agreement did not affect Santander’s option to assume the Company’s obligation under the Call Transaction as provided in the Shareholders Agreement that was entered into by the same parties on January 28, 2014. Under the separation agreement, because the Call Transaction was not consummated prior to October 15, 2015 (the “Call End Date”), DDFS is free to transfer any or all of the DDFS shares, subject to the terms and conditions of an Amended and Restated Loan Agreement dated as of July 16, 2014 between DDFS and Santander. In the event the Call Transaction were to be completed after the Call End Date, interest would accrue on the price paid per share in the Call Transaction at the overnight LIBOR rate on the third business day preceding the consummation of the Call Transaction plus 100 basis points with respect to the shares of SC Common Stock that were ultimately sold in the Call Transaction. The Amended and Restated Loan Agreement provides for a $300.0 million revolving loan from Santander to DDFS which, as of September 30, 2017 and December 31, 2016, had an UPB of approximately $290.0 million. On April 17, 2017, the loan agreement matured and became due and payable. Pursuant to the Loan Agreement, 29,598,506 shares of the SC’s Common Stock owned by DDFS are pledged as collateral under a related pledge agreement. The Shareholders Agreement further provides that Santander may, at its option, become the direct beneficiary of the Call Option, and Santander has exercised this option. If consummated in full, DDFS LLC would receive $928.3 million plus interest that has accrued since the Call End Date. To date, the Call Transaction has not been consummated.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 15. RELATED PARTY TRANSACTIONS (continued)

Pursuant to the loan agreement, if at any time the value of SC Common Stock pledged under the Pledge Agreement is less than 150% of the aggregate principal amount outstanding under the loan agreement, DDFS has an obligation to either (a) repay a portion of the outstanding principal amount, such that the value of the pledged collateral is equal to at least 200% of the outstanding principal amount, or (b) pledge additional shares of SC Common Stock such that the value of the additional shares of SC Common Stock, together with the 29,598,506 shares already pledged under the Pledge Agreement, is equal to at least 200% of the outstanding principal amount. The value of the pledged collateral is less than 150% of aggregate principal amount outstanding under the loan agreement, and DDFS has not taken any of the collateral posting actions described in clauses (a) or (b) above. Moreover, as noted above, on April 17, 2017, the loan agreement matured and became due and payable on that date. If Santander declares the borrower’s obligations under the loan agreement due and payable as a result of an event of default (including with respect to the collateral posting obligations described above), under the terms of the loan agreement and the Pledge Agreement, Santander’s ability to rely upon the shares of SC Common Stock subject to the Pledge Agreement is, subject to certain exceptions, limited to the right to consummate the Call Transaction at the price specified in the Shareholders Agreement. Because the borrower failed to pay obligations under the loan agreement on April 17, 2017, the borrower is in default and is currently being charged the default rate of interest provided for in the loan agreement. The loan agreement generally defines the default interest rate as the base rate plus 2%. The base rate under the loan agreement is the higher of (1) the federal funds rate plus ½ of 1% or (2) the prime rate, which is the annual rate of interest publicly announced by Santander's New York branch ("Santander NY") from time to time. As of April 21, 2017, the prime rate as announced by Santander NY was 4%.

In connection with, and pursuant to, the separation agreement, on July 2, 2015, DDFS LLC and Santander entered into amendments to the loan agreement and the Pledge Agreement that provide, among other things, the outstanding balance under the loan agreement will become due and payable upon the consummation of the Call Transaction and that the amount otherwise payable to DDFS under the Call Transaction will be reduced by the amount outstanding under the loan agreement, including principal, interest and fees, and further that any net cash proceeds received by DDFS on account of sales of SC Common Stock after the Call End Date are applied to the outstanding balance under the loan agreement.

The parties continue in discussions on these matters. Completion of the transactions with Mr. Dundon is subject to receipt of applicable regulatory approvals.


NOTE 16. FAIR VALUE

General

A portion of the Company’s assets and liabilities are carried at fair value, including AFS investment securities and derivative instruments. In addition, the Company elects to account for its residential mortgages held for sale and a portion of its MSRs at fair value. Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include impairments for certain loans and foreclosed assets.

As of September 30, 2017, $18.2 billion of the Company’s total assets consisted of financial instruments measured at fair value on a recurring basis, including financial instruments for which the Company elected the FVO. Approximately $179.5 million of these financial assets were measured using quoted market prices for identical instruments, or Level 1 inputs. Approximately $17.3 billion of these financial assets were measured using valuation methodologies involving market-based and market-derived information, or Level 2 inputs. Approximately $721.0 million of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 4.0% of total assets measured at fair value and approximately 0.5% of total consolidated assets.

Fair value is defined in GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard focuses on the exit priceActive markets are those in the principal or most advantageous marketwhich transactions for the asset or liability occur in an orderly transaction between market participants. GAAP establishes a fair value reporting hierarchysufficient frequency and volume to maximize the use of observable inputs when measuring fair value and defines the three levels of inputs as noted below:

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)

•Level 1 - Assets or liabilities for which the identical item is tradedprovide pricing information on an active exchange, such as publicly-traded instruments.ongoing basis.
•Level 2 - Assets and liabilities valued based on observable market data for similar instruments. Fair value is estimated using inputs are those other than quoted prices included withinin Level 1 that are observable for the assets or liabilities, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3 - Assetsinputs are those that are unobservable or liabilities for which significant valuation assumptions are not readily observable infor the market,asset or liability and instruments valued based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require. Fairare used to measure fair value is estimated using unobservable inputs that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities may include financial instruments whose value is determined using pricing services, pricing models with internally developed assumptions, discounted cash flow ("DCF") methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.extent relevant observable inputs are not available.


Assets and liabilities measured at fair value, by their nature, result in a higher degree of financial statement volatility. See Note 1 for a broad discussion of fair value measurement techniques. When available, the Company uses quoted market prices or matrixmatrix pricing in active markets to determine fair value and classifies such items as Level 1 or Level 2 assets or liabilities. If quoted market prices in active markets are not available, fair value is determineddetermined using third-party broker quotes and/or DCF models incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using broker quotes and/or DCF models are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation.


The Company values assets and liabilities based on the principal market in which each would be sold (in the case of assets) or transferred (in the case of liabilities). The principal market is the forum with the greatest volume and level of activity. In the absence of a principal market, the valuation is based on the most advantageous market. In the absence of observable market transactions, the Company considers liquidity valuation adjustments to reflect the uncertainty in pricing the instruments.

The fair value of a financial asset is measured on a stand-alone basis and cannot be measured as a group, with the exception of certain financial instruments held and managed on a net portfolio basis. In measuring the fair value of a nonfinancial asset, the Company assumes the highest and best use of the asset by a market participant, not just the intended use, to maximize the value of the asset. The Company also considers whether any credit valuation adjustments are necessary based on the counterparty's credit quality.

Any models used to determine fair values or validate dealer quotes based on the descriptions below are subject to review and testing as part of the Company's model validation and internal control testing processes.



52


NOTE 13. FAIR VALUE (continued)

The Bank'sCompany's Market Risk Department is responsible for determining and approvingapproves the fair valuesmethodologies used in the estimations of all assets and liabilities valued at fair value, including the Company's Level 3 assets and liabilities. Price validation procedures are performed, and the results are reviewed for Level 3 assets and liabilities by the Market Risk Department. Price validation procedures performed for these assets and liabilities can include comparing current prices to historical pricing trends by collateral type and vintage, comparing prices by product type to indicative pricing grids published by market makers, and obtaining corroborating dealer prices for significant securities.


The Company reviews the assumptions utilized to determine fair value on a quarterly basis. Any changes in methodologies or significant inputs used in determining fair values are further reviewed to determine if a change in fair value level hierarchy has occurred. TransfersAt December 31, 2023, the beneficial interest in and out of Levels 1, 2 and 3 are consideredthe Structured LLC was determined to be effective asLevel 2 based on observed market execution. As a result of moving further from the end ofpurchase date and observed market execution, the quarter in which they occur.

There were no transfers between Levels 1, 2 or 3 during the nine-month periods ended September 30, 2017 and 2016 for any assets or liabilities valued at fair valueCompany is relying on a recurring basis.DCF method going forward for valuation. As a result, the $1.1 billion beneficial interest in the Structured LLC has transferred from Level 2 to Level 3.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)


Assets and Liabilities Measured at Fair Value on a Recurring Basis


The following tables present the assets and liabilities that are measured at fair value on a recurring basis by major product category and fair value hierarchy as of September 30, 2017 and December 31, 2016.
the dates indicated:
 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other
Observable Inputs (Level 2)		 Significant
Unobservable Inputs (Level 3)		 Balance at
September 30, 2017
 (in thousands)
Financial assets:       
U.S. Treasury securities$179,473
 $1,488,634
 $—
 $1,668,107
Corporate debt—
 43,895
 —
 43,895
ABS—
 165,649
 370,184
 535,833
Equity securities(1)
—
 —
 —
 —
State and municipal securities—
 25
 —
 25
MBS—
 14,974,359
 —
 14,974,359
Total investment securities AFS(1)
179,473
 16,672,562
 370,184
 17,222,219
Trading securities1
 9,097
 —
 9,098
RICs held-for-investment—
 —
 204,694
 204,694
LHFS (2)
—
 198,254
 —
 198,254
MSRs (3)
—
 —
 143,524
 143,524
Derivatives:       
Cash flow—
 40,640
 —
 40,640
Mortgage banking interest rate lock commitments—
 —
 2,564
 2,564
Mortgage banking forward sell commitments—
 577
 9
 586
Customer related—
 196,020
 —
 196,020
Foreign exchange—
 33,767
 —
 33,767
Mortgage servicing—
 3,334
 —
 3,334
Interest rate swap agreements—
 8,801
 —
 8,801
Interest rate cap agreements—
 142,950
 —
 142,950
Other—
 9,307
 —
 9,307
Total financial assets$179,474
 $17,315,309
 $720,975
 $18,215,758
Financial liabilities:       
Derivatives:       
Cash flow$—
 $56,812
 $—
 $56,812
Customer related—
 131,240
 —
 131,240
Foreign exchange—
 35,550
 —
 35,550
Mortgage servicing—
 605
 —
 605
Interest rate swaps—
 1,884
 —
 1,884
Interest rate cap agreements—
 26,255
 —
 26,255
Option for interest rate cap—
 116,563
 —
 116,563
Total return settlement—
 —
 —
 —
Other—
 13,597
 695
 14,292
Total financial liabilities$—
 $382,506
 $695
 $383,201

(in thousands)Level 1Level 2Level 3
Balance at
March 31, 2024
Level 1Level 2Level 3Balance at December 31, 2023
Financial assets:    
U.S. Treasury securities$226,359 $— $— $226,359 $25,409 $— $— $25,409 
Corporate debt— 2,130 — 2,130 — 31,590 — 31,590 
ABS— 549,739 — 549,739 — 510,663 — 510,663 
Beneficial interest in Structured LLC— — 1,082,349 1,082,349 — 1,122,510 — 1,122,510 
MBS— 5,230,937 — 5,230,937 — 5,349,365 — 5,349,365 
Investment in debt securities AFS (2)
$226,359 $5,782,806 $1,082,349 $7,091,514 $25,409 $7,014,128 $— $7,039,537 
Trading securities1,593,249 7,404,215 6,148 9,003,612 1,637,908 6,329,031 936 7,967,875 
Federal funds sold and securities purchased under resale agreements or similar arrangements— 604,292 — 604,292 — 2,112,292 — 2,112,292 
RICs HFI (3)
— — 12,494 12,494 — — 13,888 13,888 
LHFS (1)(4)
— 535,373 — 535,373 — 19,464 — 19,464 
MSRs— — 95,776 95,776 — — 94,266 94,266 
Other assets - derivatives (2)
586 1,159,713 32 1,160,331 4,807 1,085,333 54 1,090,194 
Total financial assets (5)
$1,820,194 $15,486,399 $1,196,799 $18,503,392 $1,668,124 $16,560,248 $109,144 $18,337,516 
Financial liabilities:    
Federal funds purchased and securities loaned or sold under repurchase agreements$— $362,103 $— $362,103 $— $595,414 $— $595,414 
Trading liabilities2,665,439 295,178 — 2,960,617 2,371,823 327,293 384 2,699,500 
Other liabilities - derivatives (2)
134 1,382,360 365 1,382,859 5,914 1,466,119 650 1,472,683 
Total financial liabilities$2,665,573 $2,039,641 $365 $4,705,579 $2,377,737 $2,388,826 $1,034 $4,767,597 
(1) Investment securities AFS disclosed on the Condensed Consolidated Balance Sheet at September 30, 2017 included $10.8 million of equity securities valued using net asset value as a practical expedient that are not presented within this table.
(2)    LHFS disclosed on the Condensed Consolidated Balance SheetSheets also includes LHFS that are held at the lower of cost or fair value and are not presented within this table.
(2)    Refer to Note 2 for the fair value of investment securities and to Note 12 for the fair values of derivative assets and liabilities on a further disaggregated basis.
(3) RICs collateralized by vehicle titles at SC and RV/marine loans at SBNA.
(4) Residential mortgage loans and commercial mortgage loans.
(5) Approximately $1.2 billion of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 6.5% of total assets measured at fair value on a recurring basis and approximately 0.7% of total consolidated assets.

53


NOTE 13. FAIR VALUE (continued)

Valuation Processes and Techniques - Recurring Fair Value Assets and Liabilities

The following is a description of the valuation techniques used for instruments measured at fair value on a recurring basis:

Investments in debt securities AFS

Investments in debt securities AFS are accounted for at fair value. The Company utilizes a third-party pricing service to value its investment securities portfolios on a global basis. Its primary pricing service has total MSRsconsistently proved to be a high quality third-party pricing provider. For those investments not valued by pricing vendors, other trusted market sources are utilized. The Company monitors and validates the reliability of $147.0 millionvendor pricing on an ongoing basis, which can include pricing methodology reviews, performing detailed reviews of the assumptions and inputs used by the vendor to price individual securities, and price validation testing. Price validation testing is performed independently of the risk-taking function and can include corroborating the prices received from third-party vendors with prices from another third-party source, reviewing valuations of comparable instruments, comparison to internal valuations, or by reference to recent sales of similar securities.

The classification of securities within the fair value hierarchy is based upon the activity level in the market for the security type and the observability of the inputs used to determine their fair values. Actively traded quoted market prices for debt securities AFS, such as government agency securities, corporate debt, state and municipal securities, and MBS, are not readily available. The Company's principal markets for its investment securities are the secondary institutional markets with an exit price that is predominantly reflective of September 30, 2017. bid-level pricing in these markets. These investment securities are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.

Certain ABS are valued using DCF models. The DCF models are obtained from a third-party pricing vendor which uses observable market data and therefore are classified as Level 2.

The Company's beneficial interest in the Structured LLC was acquired in December 2023, and is valued using an internally-developed DCF model and is classified as Level 3 at March 31, 2024. Significant assumptions used in evaluation include, discount rate, loss severity rate, and extension of loans. Significant changes in any of these inputs could result in a higher or lower fair value measurement.

Securities Financing Activities

No quoted prices exist for Securities Financing Activities, so fair value is determined using a DCF technique. Cash flows are estimated based on the terms of the contract. These cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Securities Financing Activities are classified as Level 2.

LHFI

For certain RICs reported in LHFI, net, the Company has elected the FVO. The estimated fair value of all RICs HFI is estimated using a DCF model and is classified as Level 3.

LHFS

For certain LHFS portfolios, the Company has elected the FVO and the portfolios are measured at fair value on a recurring basis. These loans consisted primarily of loans attributed to CIB whole loan aggregation and bridge lending programs. The fair value of these loans was based on estimated market rates for similar loans and certain forward sale agreements and the loans are considered Level 2. See further discussion below in the section captioned "FVO for Financial Assets and Financial Liabilities."
54


NOTE 13. FAIR VALUE (continued)

MSRs

The Company maintains an MSR asset accounted for at fair value for sold residential real estate loans serviced for others. At March 31, 2024 and December 31, 2023, the balance of these loans serviced for others was $8.1 billion and $8.3 billion, respectively. Changes in fair value of the MSR are recorded through Miscellaneous income, net on the Condensed Consolidated Statements of Operations.

The Company has elected to accountmeasure its residential MSRs at fair value to be consistent with the risk management strategy to hedge changes in the fair value of these assets. The fair value of residential MSRs is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates (reflective of a market participant’s return on an investment for similar assets), servicing costs, and other economic factors which are determined based on current market conditions. Historically, servicing costs and discount rates have been less volatile than prepayment rates, which are directly correlated with changes in market interest rates. Increases in prepayment rates, discount rates and servicing costs result in lower valuations of MSRs. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of MSRs. Assumptions incorporated into the residential MSR valuation model reflect management's best estimate of factors that a market participant would use in valuing the residential MSRs, as well as future expectations. Although sales of residential MSRs do occur, residential MSRs do not trade in an active market with readily observable prices. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase MBS. See further discussion on these derivative activities in Note 12 to these Condensed Consolidated Financial Statements.

As a benchmark for the majority of its MSR balance using the FVO, while the remainderreasonableness of the residential MSRs' fair value, opinions of value from brokers are obtained. Brokers provide a range of values based upon their own DCF calculations of our portfolio that reflect conditions in the secondary market and any recently executed servicing transactions. Management compares the internally-developed residential MSR values to the ranges of values received from brokers. If the residential MSRs fair value falls outside of the brokers' ranges, management will assess whether a valuation adjustment is warranted. The residential MSRs value is considered to represent a reasonable estimate of fair value. MSR’s are classified as Level 3.

Gains and losses on MSRs are accounted for using the lower of cost or fair value and are not presented within this table.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)

 Quoted Prices in Active
Markets for Identical
Assets (Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable Inputs
(Level 3)		 Balance at
December 31, 2016
 (in thousands)
Financial assets:       
U.S. Treasury securities$224,506
 $1,632,351
 $—
 $1,856,857
ABS—
 396,157
 814,567
 1,210,724
Equity securities(1)
544
 —
 —
 544
State and municipal securities—
 30
 —
 30
MBS—
 13,945,463
 —
 13,945,463
Total investment securities AFS(1)
225,050
 15,974,001
 814,567
 17,013,618
Trading securities214
 1,416
 —
 1,630
RICs held-for-investment—
 —
 217,170
 217,170
LHFS (2)
—
 453,293
 —
 453,293
MSRs (3)
—
 —
 146,589
 146,589
Derivatives:       
Cash flow—
 45,681
 —
 45,681
Mortgage banking interest rate lock commitments—
 —
 2,316
 2,316
Mortgage banking forward sell commitments—
 8,575
 2
 8,577
Customer related—
 216,421
 —
 216,421
Foreign exchange—
 56,742
 —
 56,742
Mortgage servicing—
 838
 —
 838
Interest rate swap agreements—
 2,075
 —
 2,075
Interest rate cap agreements—
 76,387
 —
 76,387
Other—
 12,293
 —
 12,293
Total financial assets$225,264
 $16,847,722
 $1,180,644
 $18,253,630
Financial liabilities:       
Derivatives:       
Cash flow$—
 $59,812
 $—
 $59,812
Customer related—
 149,390
 —
 149,390
Foreign exchange—
 46,430
 —
 46,430
Mortgage servicing—
 1,635
 —
 1,635
Interest rate swaps—
 2,647
 —
 2,647
Option for interest rate cap—
 76,281
 —
 76,281
Total return settlement—
 —
 30,618
 30,618
Other—
 15,625
 700
 16,325
Total financial liabilities$—
 $351,820
 $31,318
 $383,138

(1) Investment securities AFS disclosedrecognized on the Condensed Consolidated Balance SheetStatements of Operations through Miscellaneous income, net.

Significant assumptions used in the valuation of residential MSRs include CPRs and the discount rate. Other important valuation assumptions include market-based servicing costs and the anticipated earnings on escrow and similar balances held by the Company in the normal course of mortgage servicing activities. Below is a sensitivity analysis of the most significant inputs utilized by the Company in the evaluation of residential MSRs:
•A 10% and 20% increase in the CPR speed would decrease the fair value of the residential servicing asset by $2.8 million and $5.4 million, respectively, at DecemberMarch 31, 2016 included $10.62024.
•A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $3.6 million and $7.0 million, respectively, at March 31, 2024.

Significant increases/(decreases) in any of equity securities valued using net assetthose inputs in isolation would result in significantly (lower)/higher fair value asmeasurements, respectively. These sensitivity calculations are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a practical expedient that are not presented within this table.
(2) LHFS disclosedparticular assumption on the Condensed Consolidated Balance Sheet also includes LHFS that are held at the lower of cost or fair value of the MSRs is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another, which may either magnify or counteract the effect of the change. Prepayment estimates generally increase when market interest rates decline and are not presented within this table.decrease when market interest rates rise. Discount rates typically increase when market interest rates increase and/or credit and liquidity risks increase and decrease when market interest rates decline and/or credit and liquidity conditions improve.
(3)
Derivatives

The valuation of these instruments is determined using commonly accepted valuation techniques, including DCF analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable and unobservable market-based inputs. The fair value represents the estimated amount the Company would receive or pay to terminate the contract or agreement, taking into account current interest rates, foreign exchange rates, equity prices and, when appropriate, the current creditworthiness of the counterparties.
55


NOTE 13. FAIR VALUE (continued)

The Company had total MSRsincorporates credit valuation adjustments in the fair value measurement of $150.3 millionits derivatives to reflect the counterparty's nonperformance risk, except for those derivative contracts with associated credit support annexes which provide credit enhancements, such as of December 31, 2016.collateral postings and guarantees. The Company has elected to account fordetermined that the majority of the inputs used to value its MSR balance using the FVO, while the remainderderivatives fall within Level 2 of the MSRs are accounted for using the lower of cost or fair value hierarchy. Certain of the Company's derivatives utilize Level 3 inputs, which are primarily related to total return settlement derivative contracts.

The DCF model is utilized to determine the fair value of the total return settlement derivative contracts. The significant unobservable inputs for total return settlement derivative contracts used in the fair value measurement of the Company's liabilities are discount percentages, which are based on comparable financial instruments. See Note 12 to these Condensed Consolidated Financial Statements for a discussion of derivatives activity.

Trading liabilities

The sales and trading of financial instruments are recorded on the trade date. Trading liabilities includes amounts payable for securities transactions that have not presented within this table.reached their contractual settlement date. Financial instruments owned and securities sold, not yet purchased, are carried at fair value.



Level 3 Rollforward for Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present the changes in Level 3 balances for those assets and liabilities measured at fair value on a recurring basis for the periods indicated.
Three months ended March 31, 2024Three months ended March 31, 2023
(in thousands)Beneficial interest in Structured, LLCRICs HFIMSRsDerivatives, netOtherTotalRICs HFIMSRsDerivatives, netOtherTotal
Balances, beginning of period$— $13,888 $94,266 $(596)$552 $108,110 $20,924 $107,383 $(2,210)$139 $126,236 
Gain / (losses) in OCI(23,469)— — — — (23,469)— — — — — 
Gains/(losses) in earnings— — 3,848 263 (9)4,102 — (2,539)(169)(2)(2,710)
Additions/Issuances— — — — 465 465 — — — — — 
Transfer from Level 21,122,510 — — — 5,576 1,128,086 — — — 2,219 2,219 
Settlements (1)
(16,692)(1,394)(2,338)— (436)(20,860)(2,100)(2,534)— — (4,634)
Balances, end of period$1,082,349 $12,494 $95,776 $(333)$6,148 $1,196,434 $18,824 $102,310 $(2,379)$2,356 $121,111 
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period$— $— $3,848 $263 $(9)$4,102 $— $(2,539)$(169)$(2)$(2,710)
(1)Settlements include charge-offs, prepayments, paydowns and maturities.
75
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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Table of Contents


NOTE 16.13. FAIR VALUE (continued)


Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company may be required to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP from time to time. These adjustments to fair value usually result from application of lower-of-cost-or-fair value accounting or certain impairment measures. Assets measured at fair value on a nonrecurring basis that were still held on the balance sheet were as follows:follows at the dates indicated:
(in thousands)Level 1Level 2Level 3Balance at March 31, 2024Level 1Level 2Level 3Balance at December 31, 2023
Impaired commercial LHFI$— $137,370 $96,774 $234,144 $— $230,443 $41,432 $271,875 
Foreclosed assets— 20,922 — 20,922 — 24,588 — 24,588 
Vehicle inventory— 356,793 — 356,793 — 311,321 — 311,321 
LHFS— — 60,978 60,978 — — 140,655 140,655 
Auto loans impaired due to bankruptcy— 139,709 — 139,709 — 154,684 — 154,684 
 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value
 (in thousands)
September 30, 2017       
Impaired LHFI$—
 $201,030
 $303,996
 $505,026
Foreclosed assets—
 21,875
 117,124
 138,999
Vehicle inventory—
 206,076
 —
 206,076
LHFS(1)
—
 —
 1,789,860
 1,789,860
Auto loans impaired due to bankruptcy—
 101,990
 —
 101,990
MSRs—
 —
 9,276
 9,276
        
December 31, 2016       
Impaired LHFI$13,147
 $244,986
 $265,664
 $523,797
Foreclosed assets—
 30,792
 79,721
 110,513
Vehicle inventory—
 257,659
 —
 257,659
LHFS(1)
—
 —
 2,133,040
 2,133,040
MSRs—
 —
 10,287
 10,287

(1) These amounts include $929.5 million and $1.1 billion of personal loans held for sale that are impaired as of September 30, 2017 and December 31, 2016, respectively.


Valuation Processes and Techniques - Nonrecurring Fair Value Assets and Liabilities


Impaired commercial LHFI in the table above represents the recorded investment of impaired commercial loans for which the Company measures impairment during the period based on the fair value of the underlying collateral supporting the loan. Written offers to purchase a specific impaired loan are considered observable market inputs, which are considered Level 1 inputs. Appraisals are obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and are considered Level 2 inputs. Loans for which the value of the underlying collateral is determined using a combination of real estate appraisals, field examinations and internal calculations are classified as Level 3. The inputs in the internal calculations may include the loan balance, estimation of the collectability of the underlying receivables held by the customer used as collateral, sale and liquidation value of the inventory held by the customer used as collateral and historical loss-given-default parameters. In cases in which the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized. The net carrying value of these loans was $460.8 million and $449.5 million at September 30, 2017 and December 31, 2016, respectively. Loans previously impaired which were not marked to fair value during the periods presented are excluded from this table.


Foreclosed assets represent the recorded investment in assets taken during the period presented in foreclosure of defaulted loans and are primarily comprised of commercial and residential real properties and generally measured at fair value less costs to sell. The fair value of the real property is generally determined using appraisals or other indications of market value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace.


The Company estimates the fair value of its vehicles, which are obtained either through repossession or lease termination, using historical auction rates and current market values of used cars.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)


The Company'sCompany had LHFS portfolios of $61.0 million and $140.7 million at March 31, 2024 and December 31, 2023, respectively, that are measured at fair value on a nonrecurring basis primarily consistconsisting of personal, commercial loans and RICs LHFS.RICs. The estimated fair value forof these LHFS is calculated based on a combination of estimated market rates for similar loans with similar credit risks and a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, including historical default rates and adjustments to reflect voluntary prepayments, prepayment rates, discount rates reflective of the cost of funding, and credit loss expectations. The lower of cost or fair value adjustment for personal loans held for sale includes customer default activity and adjustments related to the net change in the portfolio balance during the reporting period.


For loans that are considered collateral-dependent, such as certain bankruptcy loans, impairment is measured based on the fair value of the collateral less its estimated cost to sell. For the underlying collateral, the estimated fair value is obtained using historical auction rates and current market levels of used car prices.the collateral securing the loans.

57
A portion

NOTE 13. FAIR VALUE (continued)

The estimated fair value of goodwill is valued using unobservable inputs and is classified as Level 3. Goodwill is written down to fair value when, as a result of an annual or interim goodwill impairment test, an impairment is identified and recognized. Fair value is calculated using widely-accepted valuation techniques, such as the guideline public company market approach (earnings and price-to-tangible book value multiples of comparable public companies) and the income approach (the DCF method). The Company uses a combination of these accepted methodologies to determine the fair valuation of reporting units. Several factors are taken into account, including actual operating results, future business plans, economic projections, and market data. On a quarterly basis, the Company assesses whether or not impairment indicators are present. For information on the Company's goodwill impairment test and the results of the most recent goodwill impairment test, see Note 5 for a description of the Company's MSRs are measured at fair value on a nonrecurring basis. These MSRs are priced internally using a DCF model. The DCF model incorporates assumptions that market participants would use in estimating future net servicing income, including portfolio characteristics, prepayments assumptions, discount rates, delinquency and foreclosure rates, late charges, other ancillary revenues, cost to service and other economic factors. Due to the unobservable nature of certaingoodwill valuation inputs, these MSRs are classified as Level 3.methodology.


Fair Value Adjustments


The following table presents the increases and decreases in value of certain assets that are measured at fair value on a nonrecurring basis for which a fair value adjustment has been included in the Condensed Consolidated Statements of Operations relating to assets held at period-end:
Three months ended March 31,
Three months ended March 31,
Three months ended March 31,
(in thousands)
Impaired LHFI
Impaired LHFI
Impaired LHFI
Foreclosed assets
Foreclosed assets
Foreclosed assets
LHFS
LHFS
LHFS
Auto loans impaired due to bankruptcy
Auto loans impaired due to bankruptcy
Auto loans impaired due to bankruptcy
Statement of Operations
Location		 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,
  2017 2016 2017 2016
 (in thousands)
Impaired loans held-for-investmentProvision for credit losses $617
 $(14,033) $(26,070) $(127,144)
Foreclosed assets
Miscellaneous income(1)
 (777) (1,604) (5,448) (6,346)
LHFSProvision for credit losses —
 —
 (13,200) —
LHFS
Miscellaneous income(1)
 (84,840) (107,526) (246,882) (266,506)
Auto loans impaired due to bankruptcyProvision for credit losses (17,471) —
 (65,584) —
MSRsMortgage banking income, net 123
 301
 320
 962
  $(102,348) $(122,862) $(356,864) $(399,034)
(1)    These amounts reduce Miscellaneous income.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)

Level 3 Rollforward for Assets and Liabilities Measured at Fair Value onGains are disclosed as positive numbers while losses are shown as a Recurring Basis

The tables below present the changes in Level 3 balances for the three-month and nine-month periods ended September 30, 2017 and 2016, respectively, for those assets and liabilities measured at fair value on a recurring basis.
Three-Month Period Ended September 30, 2017        
 Investments
AFS		 RICs Held for Investment MSRs Derivatives Total
 (in thousands)
Balance, June 30, 2017$587,571
 $207,216
 $146,091
 $(29,020) $911,858
Losses in other comprehensive income(1,506) —
 —
 —
 (1,506)
Gains/(losses) in earnings—
 27,759
 (1,578) (324) 25,857
Additions/Issuances—
 —
 4,099
 —
 4,099
Settlements(1)
(215,881) (30,281) (5,088) 31,222
 (220,028)
Balance, September 30, 2017$370,184
 $204,694
 $143,524
 $1,878
 $720,280
Changes in unrealized gains (losses) included in earnings related to balances still held at September 30, 2017$—
 $27,759
 $(1,578) $8
 $26,189
          
Nine-Month Period Ended September 30, 2017        
 Investments
AFS		 RICs Held for Investment MSRs Derivatives Total
 (in thousands)
Balance, December 31, 2016$814,567
 $217,170
 $146,589
 $(29,000) $1,149,326
Losses in other comprehensive income(4,184) —
 —
 —
 (4,184)
Gains/(losses) in earnings—
 49,392
 (1,315) (539) 47,538
Additions/Issuances—
 19,727
 12,696
 —
 32,423
Settlements(1)
(440,199) (81,595) (14,446) 31,417
 (504,823)
Balance, September 30, 2017$370,184
 $204,694
 $143,524
 $1,878
 $720,280
Changes in unrealized gains (losses) included in earnings related to balances still held at September 30, 2017$—
 $49,392
 $(1,315) $(787) $47,290

(1)Settlements include charge-offs, prepayments, pay downs and maturities.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)

Three-Month Period Ended September 30, 2016        
 Investments
AFS		 RICs Held for Investment MSRs Derivatives Total
 (in thousands)
Balance, June 30, 2016$1,526,691
 $250,703
 $117,792
 $(44,378) $1,850,808
Gains in other comprehensive income3,879
 —
 —
 —
 3,879
Gains/(losses) in earnings—
 31,814
 7,711
 (478) 39,047
Additions/Issuances9,479
 —
 6,058
 —
 15,537
Settlements(1)
(217,870) (64,974) (5,447) 23,434
 (264,857)
Balance, September 30, 2016$1,322,179
 $217,543
 $126,114
 $(21,422) $1,644,414
Changes in unrealized gains (losses) included in earnings related to balances still held at September 30, 2016$—
 $31,814
 $7,711
 $315
 $39,840
          
Nine-Month Period Ended September 30, 2016        
 Investments
AFS		 RICs Held for Investment MSRs Derivatives Total
 (in thousands)
Balance, December 31, 2015$1,360,240
 $328,655
 $147,233
 $(51,278) $1,784,850
Gains in other comprehensive income6,088
 —
 —
 —
 6,088
Gains/(losses) in earnings—
 85,169
 (18,113) 3,657
 70,713
Additions/Issuances509,006
 —
 14,450
 —
 523,456
Settlements(1)
(553,155) (196,281) (17,456) 26,199
 (740,693)
Balance, September 30, 2016$1,322,179
 $217,543
 $126,114
 $(21,422) $1,644,414
Changes in unrealized gains (losses) included in earnings related to balances still held at September 30, 2016$—
 $85,169
 $(18,113) $(2,988) $64,068

(1)Settlements include charge-offs, prepayments, pay downs and maturities.

The gains in earnings reported in the table above related to the RICs held for investment for which the Company elected the FVO are driven by three primary factors: 1) the recognition of interest income, 2) recoveries of previously charged-off RICs, and 3) actual performancenegative number regardless of the portfolio since the Change in Control. Recoveries from RICs that were charged off at the Change in Control date are a direct increase to the gain recognized within the portfolio. In accordance with ASC 805, Business Combinations, the Company did not ascribe a fair value to the portfolio of sub-prime charged-off RICs at the Change in Control date. Recoveries of previously charged off loans are usually recorded as a reduction to charge-offs in the period in which the recovery is made, however, in instances where the FVO is elected, it will flow through the fair value mark. At the Change in Control date, the UPB of the previously charged-off RIC portfolio was approximately $3.0 billion.line item being affected.



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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)

Valuation Processes and Techniques - Recurring Fair Value Assets and Liabilities

The following is a description of the valuation techniques used for instruments measured at fair value on a recurring basis:

Securities AFS and Trading Securities

Securities accounted for at fair value include both AFS and trading securities portfolios. The Company utilizes a third-party pricing service to value its investment securities portfolios. Its primary pricing service has consistently proved to be a high quality third-party pricing provider. For those investments not valued by pricing vendors, other trusted market sources are utilized. The vendors the Company uses provide pricing services on a global basis. The Company monitors and validates the reliability of vendor pricing on an ongoing basis, which can include pricing methodology reviews, performing detailed reviews of the assumptions and inputs used by the vendor to price individual securities, and price validation testing. Price validation testing is performed independently of the risk-taking function and can include corroborating the prices received from third-party vendors with prices from another third-party source, reviewing valuations of comparable instruments, comparison to internal valuations, or by reference to recent sales of similar securities.

The classification of securities within the fair value hierarchy is based upon the activity level in the market for the security type and the observability of the inputs used to determine their fair values. Trading securities and certain of the Company's U.S. Treasury securities are valued utilizing observable market quotes. The Company obtains vendor trading platform data (actual prices) from a number of live data sources, including active market makers and interdealer brokers. These certain investment securities are, therefore, classified as Level 1.

Actively traded quoted market prices for the majority of the investment securities available-for-sale, such as U.S. Treasury and government agency securities, corporate debt, state and municipal securities, and MBS, are not readily available. The Company's principal markets for its investment securities are the secondary institutional markets with an exit price that is predominantly reflective of bid-level pricing in these markets. These investment securities are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.

Certain ABS are valued using DCF models. The DCF models are obtained from a third-party pricing vendor who uses observable market data and therefore are classified as Level 2. Other ABS that could not be valued using a third-party pricing service are valued using an internally-developed DCF model. When estimating the fair value using this model, the Company uses its best estimate of the key assumptions which include the discount rates and forward yield curves. The Company uses comparable bond indices based on industry, term, and rating to discount the expected future cash flows. Determining the comparability of assets involves significant subjectivity related to asset type differences, cash flows, performance and other inputs. The inability of the Company to corroborate the fair value of the ABS due to the limited available observable data on these ABS resulted in a fair value classification of Level 3.

Equity securities of $10.8 million, which are comprised primarily of shares of registered mutual funds, are priced using net asset value per share practical expedient, which is validated with a sufficient level of observable activity. In accordance with GAAP, these equity securities are not presented within the fair value hierarchy. The remainder of the Company's equity securities are valued at quoted market prices and are, therefore, classified as Level 1.

Gains and losses on investments are recognized in the Condensed Consolidated Statements of Operations through Net gains/(losses) on sale of investment securities.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)

RICs held-for-investment

For certain RICs held for investment, the Company has elected the FVO. The fair values of RICs are estimated using the DCF model. In estimating the fair value using this model, the Company uses significant unobservable inputs on key assumptions, which includes historical default rates and adjustments to reflect voluntary prepayments, prepayment rates based on available data from a comparable market securitization of similar assets, discount rates reflective of the cost of funding debt issuance and recent historical equity yields, recovery rates based on the average severity utilizing reported severity rates and loss severity utilizing available market data from a comparable securitized pool. Accordingly, RICs held for investment for which the Company has elected FVO are classified as Level 3.

LHFS

The Company's LHFS portfolios that are measured at fair value on a recurring basis consists primarily of residential mortgage LHFS. The fair values of LHFS are estimated using published forward agency prices to agency buyers such as FNMA and FHLMC. The majority of the residential mortgage LHFS portfolio is sold to these two agencies. The fair value is determined using current secondary market prices for portfolios with similar characteristics, adjusted for servicing values and market conditions.

These loans are regularly traded in active markets, and observable pricing information is available from market participants. The prices are adjusted as necessary to include the embedded servicing value in the loans as well as the specific characteristics of certain loans that are priced based on the pricing of similar loans. These adjustments represent unobservable inputs to the valuation, and are not significant given the relative insensitivity of the value to changes in these inputs to the fair value of the loans. Accordingly, residential mortgage LHFS are classified as Level 2. Gains and losses on residential mortgage LHFS are recognized in the Condensed Consolidated Statements of Operations through Miscellaneous income. See further discussion below in the section captioned "FVO for Financial Assets and Financial Liabilities."

MSRs

The model to value MSRs estimates the present value of the future net cash flows from mortgage servicing activities based on various assumptions. These cash flows include servicing and ancillary revenue, offset by the estimated costs of performing servicing activities. Significant assumptions used in the valuation of residential MSRs include changes in anticipated loan prepayment rates ("CPRs") and the discount rate, reflective of a market participant's required return on an investment for similar assets. Other important valuation assumptions include market-based servicing costs and the anticipated earnings on escrow and similar balances held by the Company in the normal course of mortgage servicing activities. All of these assumptions are considered to be unobservable inputs. Historically, servicing costs and discount rates have been less volatile than CPR and earnings rates, both of which are directly correlated with changes in market interest rates. Increases in prepayment speeds, discount rates and servicing costs result in lower valuations of MSRs. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of MSRs. For each of these items, the Company makes assumptions based on current market information and future expectations. All of the assumptions are based on standards that the Company believes would be utilized by market participants in valuing MSRs and are derived and/or benchmarked against independent public sources. Accordingly, MSRs are classified as Level 3. Gains and losses on MSRs are recognized on the Condensed Consolidated Statements of Operations through Mortgage banking income, net. See further discussion on MSRs in Note 8.

Listed below are the most significant inputs that are utilized by the Company in the evaluation of residential MSRs:

A 10% and 20% increase in the CPR speed would decrease the fair value of the residential servicing asset by $4.8 million and $9.3 million, respectively, at September 30, 2017.
A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $4.8 million and $9.4 million, respectively, at September 30, 2017.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)

Significant increases (decreases) in any of those inputs in isolation would result in significantly (lower) higher fair value measurements. These sensitivity calculations are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another, which may either magnify or counteract the effect of the change. Prepayment estimates generally increase when market interest rates decline and decrease when market interest rates rise. Discount rates typically increase when market interest rates increase and/or credit and liquidity risks increase, and decrease when market interest rates decline and/or credit and liquidity conditions improve.

Derivatives

The valuation of these instruments is determined using widely accepted valuation techniques, including DCF analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable and unobservable market-based inputs. The fair value represents the estimated amount the Company would receive or pay to terminate the contract or agreement, taking into account current interest rates, foreign exchange rates, equity prices and, when appropriate, the current creditworthiness of the counterparties.

The Company incorporates credit valuation adjustments in the fair value measurement of its derivatives to reflect the counterparty's nonperformance risk in the fair value measurement of its derivatives, except for those derivative contracts with associated credit support annexes which provide credit enhancements, such as collateral postings and guarantees.

The Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy. Certain of the Company's derivatives utilize Level 3 inputs, which are primarily related to mortgage banking derivatives-interest rate lock commitments and total return settlement derivative contracts.

The DCF model is utilized to determine the fair value of the mortgage banking derivatives-interest rate lock commitments and the total return settlement derivative contracts. The significant unobservable inputs for mortgage banking derivatives used in the fair value measurement of the Company's loan commitments are "pull through" percentage and the MSR value that is inherent in the underlying loan value. The pull through percentage is an estimate of loan commitments that will result in closed loans. The significant unobservable inputs for total return settlement derivative contracts used in the fair value measurement of the Company's liabilities are discount percentages, which are based on comparable financial instruments. Significant increases (decreases) in any of these inputs in isolation would result in significantly higher (lower) fair value measurements. Significant increases (decreases) in the fair value of a mortgage banking derivative asset (liability) results when the probability of funding increases (decreases). Significant increases (decreases) in the fair value of a mortgage loan commitment result when the embedded servicing value increases (decreases).

Gains and losses related to derivatives affect various line items in the Condensed Consolidated Statements of Operations. See Note 11 for a discussion of derivatives activity.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)


Level 3 Inputs - Significant Recurring and Nonrecurring Fair Value Assets and Liabilities



The following table presents quantitative information about the significant unobservable inputs within significant Level 3 recurring and nonrecurring assets and liabilities.liabilities at the dates indicated:
 Fair Value at September 30, 2017 Valuation Technique Unobservable Inputs Range
(Weighted Average)
 (in thousands)      
Financial Assets: 
ABS       
Financing bonds$323,583
 DCF 
Discount Rate (1)
  1.52% - 2.37% (2.01% )
Sale-leaseback securities$46,601
 
Consensus Pricing (2)
 
Offered quotes (3)
 123.03%
RICs held for investment$204,694
 DCF 
Prepayment rate (CPR) (4)
 6.66%
     
Discount Rate (5)
  9.5% - 14.5% (10.75% )
     
Recovery Rate (6)
  25% - 43% (36.65% )
MSRs$143,524
 DCF 
Prepayment rate (CPR) (7)
  [0.20% - 55.47%] (9.63% )
     
Discount Rate (8)
 9.90%
Mortgage banking interest rate lock commitments$2,564
 DCF 
Pull through percentage (9)
 77.00%
     
MSR value (10)
  [0.733% - 1.032]% (0.97%)

(dollars in thousands)
Fair Value at
March 31, 2024 (3)
Valuation TechniqueUnobservable InputsRange
(Weighted Average)
Financial Assets:
Beneficial interest in Structured LLC$1,082,349 DCF
Discount rate (1)

11.50%
Loss severity rate0.00% -100.00%
Extension of Loan0 to 60 months
MSRs$95,776 DCF
CPR (2)
  0.00% - 100.00% (7.48%)
Discount rate (1)
9.81 %
(1)    Based onAverage discount rate from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the applicable term and discount index.associated relative UPB.
(2) Consensus pricing refers to fair value estimates that are generally developed using information such as dealer quotes or other third-party valuations or comparable asset prices.
(3) Based on the nature of the input, a range or weighted average does not exist. For sale-leaseback securities, the Company owns one security.
(4) Based on the analysis of available data from a comparable market securitization of similar assets.
(5) Based on the cost of funding of debt issuance and recent historical equity yields.
(6) Based on the average severity utilizing reported severity rates and loss severity utilizing available market data from a comparable securitized pool.
(7)     Average CPR projected from collateral stratified by loan type and note raterate. Weighted average amount was developed by weighting the associated relative UPB.
(3) Excluded insignificant Level 3 assets and maturity.liabilities.
(8) Based on the nature of the input, a range or weighted average does not exist.
(9) Historical weighted average based on principal balance calculated as the percentage of loans originated for sale divided by total commitments less outstanding commitments. 
(10) MSR value is the estimated value of the servicing right embedded in the underlying loan, expressed in basis points of outstanding unpaid principal balance.



83
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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Table of Contents


NOTE 16.13. FAIR VALUE (continued)


(dollars in thousands)
Fair Value at December 31, 2023 (3)
Valuation TechniqueUnobservable InputsRange
(Weighted Average)
MSRs$94,266 DCF
CPR (2)
 0.00% - 100.00% (7.53%)
Discount rate (3)
9.81 %
(1), (2), (3) - See corresponding footnotes to the March 31, 2024 Level 3 significant inputs table above.


Fair Value of Financial Instruments


The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company's financial instruments are as follows:follows as of the dates indicated:
 September 30, 2017
 Carrying Value Fair Value Level 1 Level 2 Level 3
 (in thousands)
Financial assets:         
Cash and amounts due from depository institutions$7,909,625
 $7,909,625
 $7,909,625
 $—
 $—
AFS investment securities(1)
17,222,219
 17,222,219
 179,473
 16,672,562
 370,184
Held to maturity investment securities1,560,850
 1,542,093
 —
 1,542,093
 —
Trading securities9,098
 9,098
 1
 9,097
 —
LHFI, net77,592,554
 78,414,389
 —
 111,030
 78,303,359
LHFS1,988,097
 1,988,114
 —
 198,254
 1,789,860
Restricted cash3,033,587
 3,033,587
 3,033,587
 —
 —
MSRs(2)
146,958
 152,800
 —
 —
 152,800
Derivatives437,969
 437,969
 —
 435,396
 2,573
          
Financial liabilities: 
  
    
  
Deposits61,877,808
 61,856,395
 56,143,166
 5,713,229
 —
Borrowings and other debt obligations41,351,374
 41,630,193
 579
 26,969,565
 14,660,049
Derivatives383,201
 383,201
 —
 382,506
 695

March 31, 2024December 31, 2023
December 31, 2016
Carrying Value Fair Value Level 1 Level 2 Level 3
(in thousands)
(in thousands)(in thousands)Carrying ValueFair ValueLevel 1Level 2Level 3Carrying ValueFair ValueLevel 1Level 2Level 3
Financial assets:         
Cash and amounts due from depository institutions$10,035,859
 $10,035,859
 $10,035,859
 $—
 $—
AFS investment securities(1)
17,013,618
 17,013,618
 225,050
 15,974,001
 814,567
Held to maturity investment securities1,658,644
 1,635,413
 —
 1,635,413
 —
Trading securities1,630
 1,630
 214
 1,416
 —
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents
Federal funds sold and securities purchased under resale agreements or similar arrangements
Investments in debt securities AFS
Investments in debt securities HTM
Trading securities and other investments (2)
LHFI, net82,005,321
 81,955,122
 13,147
 244,986
 81,696,989
LHFS2,586,308
 2,586,333
 —
 453,293
 2,133,040
Restricted cash3,016,948
 3,016,948
 3,016,948
 —
 —
MSRs(2)
150,343
 156,876
 —
 —
 156,876
MSRs
Derivatives421,330
 421,330
 —
 419,012
 2,318
         
Financial liabilities: 
  
    
  
Deposits67,240,690
 67,141,041
 58,067,792
 9,073,249
 —
Financial liabilities:
Financial liabilities:
Deposits (1)
Deposits (1)
Deposits (1)
Federal funds purchased and securities loaned or sold under repurchase agreements
Trading liabilities
Borrowings and other debt obligations43,524,445
 43,770,267
 830
 26,132,197
 17,637,240
Derivatives383,138
 383,138
 —
 351,820
 31,318
(1) Investment securities available-for-sale disclosed on the Condensed Consolidated Balance Sheet at September 30, 2017This line item excludes deposit liabilities with no defined or contractual maturities in accordance with ASU 2016-01.
(2) This line item includes CDs with a maturity greater than 90 days and December 31, 2016 included $10.8 million and $10.6 million, respectively, of equity securities valued using net asset value as a practical expedient that are not presented within these tables.investments in trading securities.
(2) The Company has elected to account for the majority of its MSR balance using the FVO, while the remainder of the MSRs are accounted for using the lower of cost or fair value.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)

Valuation Processes and Techniques - Financial Instruments


The preceding tables present disclosures about the fair value of the Company's financial instruments. Those fair values for certain instruments are presented based upon subjective estimates of relevant market conditions at a specific point in time and information about each financial instrument. In cases in which quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties resulting in variability in estimates affected by changes in assumptions and risks of the financial instruments at a certain point in time. Therefore, the derived fair value estimates presented above for certain instruments cannot be substantiated by comparison to independent markets. In addition, the fair values do not reflect any premium or discount that could result from offering for sale at one time an entity’s entire holding of a particular financial instrument, nor does itdo they reflect potential taxes and the expenses that would be incurred in an actual sale or settlement. Accordingly, the aggregate fair value amounts presented above do not represent the underlying value of the Company.




59


NOTE 13. FAIR VALUE (continued)

The following methods and assumptions were used to estimate the fair value of each class of financial instruments not measured at fair value on the Condensed Consolidated Balance Sheets:


Cash, cash equivalents and amounts due from depository institutionsrestricted cash


Cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits in other banks, federal funds sold, and securities purchased under agreements to resell. The related fair value measurements have been classified as Level 1, since their carrying value approximates fair value due to the short-term nature of the asset.


As of September 30, 2017 and December 31, 2016, the Company had $3.0 billion and $3.0 billion, respectively, of restricted cash. Restricted cash is related to cash restricted for investment purposes, cash posted for collateral purposes, cash advanced for loan purchases, and lockbox collections. Cash and cash equivalents, including restricted cash, have maturities of three months or less and, accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.


Held-to-maturity investmentSecurities Financing Activities

No quoted prices exist for Securities Financing Activities, so fair value is determined using a DCF technique. Cash flows are estimated based on the terms of the contract. These cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Securities Financing Activities are classified as Level 2. At March 31, 2024, the fair value of the underlying collateral was $61.9 billion before netting of $45.6 billion, all of which was sold or re-pledged.

Investments in debt securities HTM


InvestmentInvestments in debt securities held to maturityHTM are recorded at amortized cost and are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.


LHFI, net


The fair values of loans are estimated based on groupings of similar loans, including but not limited to stratificationsstratification by type, interest rate, maturity, and borrower creditworthiness. Discounted future cash flow analyses are performed for these loans incorporating assumptions of current and projected voluntary prepayment speeds. Discount rates are determined using the Company's current origination rates on similar loans, adjusted for changes in current liquidity and credit spreads (if necessary). Because the current liquidity spreads are generally not observable in the market and the expected loss assumptions are based on the Company's experience, these are Level 3 valuations. Impaired loans are valued at fair value on a nonrecurring basis. See further discussion under the section captioned "Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis" above.


LHFS


The Company'sCompany has LHFS portfolios that are accounted for at the lower of cost or market primarily consists of RICs held-for-sale. The estimatedmarket. Estimated fair value of the RICs held-for-salefor these portfolios is generally based on prices obtained infrom agreements to sell the specific assets, if available, recent market transactions or prices expected to be obtained in the subsequent sales for similar assets.

60


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Table of Contents


NOTE 16.13. FAIR VALUE (continued)


Deposits


The fair value ofFor deposits with no stated maturity, such as non-interest-bearing demand deposits,and interest-bearing demand deposit accounts, savings accounts, and certain money market accounts, is equal to the amount payable on demand and does not take into account the significantcarrying value of the cost advantage and stability of the Company’s long-term relationships with depositors.approximates fair values. The fair value of fixed-maturity CDsdeposits is estimated by discounting cash flows using currently offered rates for deposits of similar remaining maturities. The related fair value measurementsmaturities and have generally been classified as Level 1 for core deposits, since the carrying value approximates fair value due to the short-term nature of the liabilities. All other deposits are considered to be Level 2.


Borrowings and other debt obligations


Fair value is estimated by discounting cash flows using rates currently available to the Company for other borrowings with similar terms and remaining maturities. Certain other debt obligation instruments are valued using available market quotes for similar instruments, which contemplates issuer default risk. The related fair value measurements have generally been classified as Level 2. A certain portion of debt relating to revolving credit facilities is classified as Level 3. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements and, therefore, they are considered to be Level 3.

Commitments to extend credit and standby letters of credit

Commitments to extend credit and standby letters of credit include the value of unfunded lending commitments and standby letters of credit, as well as the recorded liability for probable losses. The Company’s pricing of such financial instruments is based largely on credit quality and relationship, probability of funding and other requirements. Loan commitments often have fixed expiration dates and contain termination and other clauses which provide relief from funding in the event of significant deterioration in the credit quality of the customer. The rates and terms of the Company’s loan commitments and letters of credit are competitive with those of other financial institutions operating in markets served by the Company.

The liability for probable losses is estimated by analyzing unfunded lending commitments and standby letters of credit for commercial customers and segregating by risk according to the Company's internal risk rating scale. These risk classifications, in conjunction with an analysis of historical loss experience, current economic conditions, performance trends within specific portfolio segments, and any other pertinent information, result in the estimation of the reserve for probable losses.

These instruments and the related reserve are classified as Level 3. The Company believes that the carrying amounts, which are included in Other liabilities, are reasonable estimates of fair value for these financial instruments.


FVO for Financial Assets and Financial Liabilities

LHFS

The Company's LHFS portfolios that are measured using the FVO consist of residential mortgage LHFS. The adoption of the FVO on residential mortgage loans classified as held-for-sale allows the Company to record the mortgage LHFS portfolio at fair market value compared to the lower of cost, net of deferred fees, deferred origination costs, or market. The Company economically hedges its residential LHFS portfolio, which is reported at fair value. A lower of cost or market accounting treatment would not allow the Company to record the excess of the fair market value over book value, but would require the Company to record the corresponding reduction in value on the hedges. Both the loans and related hedges are carried at fair value, which reduces earnings volatility, as the amounts more closely offset.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 16. FAIR VALUE (continued)


RICs held for investmentHFI


To reduce accounting and operational complexity, the Company elected the FVO for certain of its RICs held for investment in connection with the Change in Control.HFI. These loans consisted primarily of allNPLs acquired by the Company under optional clean-up calls from its non-consolidated Trusts.

LHFS

At March 31, 2024 and December 31, 2023, the Company had LHFS for which the FVO has been elected, primarily related to loans that are attributed to CIB whole loan aggregation and bridge lending programs. Electing the FVO allows the Company to record loans in these programs at fair market value. The Company may enter into hedges on these LHFS portfolios, These hedges are reported at fair value; as a result, the loans and associated hedges are carried at fair value, reducing earnings volatility.

Securities Financing Activities

The Company has elected the FVO for certain of SC’s RICs accounted by SC under ASC 310-30, as well as all of SC’s RICsits Securities Financing Activities, primarily to align the accounting with the derivatives that were more than 60 days past due at the date of the Changeare used to economically hedge changes in Control, which collectively had an aggregate outstanding UPB of $2.6 billion with a fair value of $1.9 billion at that date.the assets and liabilities. Changes in fair value for Securities Financing Activities under an FVO are recording in non-interest income.


The following table summarizes the differences between the fair value and the principal balance of LHFS and RICsfinancial instruments measured at fair value on a recurring basis as of September 30, 2017.the dates indicated:
March 31, 2024March 31, 2024December 31, 2023
(in thousands)(in thousands)Fair ValuePrincipal BalanceDifferenceFair ValuePrincipal BalanceDifference
LHFS(1)
 Fair Value Aggregate Unpaid Principal Balance Difference
 (in thousands)
September 30, 2017      
LHFS(1)
 $198,254
 $194,099
 $4,155
RICs held-for-investment 204,694
 233,734
 (29,040)
RICs HFI
RICs HFI
RICs HFI
Nonaccrual loans 17,686
 23,476
 (5,790)
Securities Financing Activities
Federal funds sold and securities purchased under resale agreements or similar arrangements
Federal funds sold and securities purchased under resale agreements or similar arrangements
Federal funds sold and securities purchased under resale agreements or similar arrangements
Federal funds purchased and securities loaned or sold under repurchase agreements
(1) LHFS disclosed on the Condensed Consolidated Balance SheetSheets also includes $61.0 million and $140.7 million of LHFS at March 31, 2024 and December 31, 2023, respectively, that are held at the lower of cost or fair value that are not presented within this table. There were no nonaccrual loans related to the LHFS measured using the FVO.

61
Interest

NOTE 14. NON-INTEREST INCOME AND OTHER EXPENSES

The following table presents the details of the Company's non-interest income onfor the Company’s LHFS and RICs held for investment is recognized when earned based on their respective contractual rates in Interestfollowing periods:
Three months ended March 31,
(in thousands)20242023
Non-interest income:
Consumer and commercial fees$84,217 $90,329 
Lease income593,447 628,424 
Capital market revenue115,970 37,082 
Miscellaneous income, net
Mortgage banking income, net13,750 4,184 
BOLI18,194 15,570 
Net gain on sale of operating leases22,759 22,383 
Asset and wealth management fees80,603 61,133 
(Loss) / gain on non-mortgage loans(740)(4,701)
Other miscellaneous income, net(55,635)8,903 
Net gain / (loss) on sale of investment securities65,166 36,960 
Total Non-interest income$937,731 $900,267 
Disaggregation of Revenue from Contracts with Customers

The following table presents the Company's non-interest income on loansdisaggregated by revenue source:
Three months ended March 31,
(in thousands)20242023
Non-interest income:
In-scope of revenue from contracts with customers:
Depository services (1)
$31,048 $31,695 
Commission and trailer fees (2)
77,063 57,626 
Interchange income, net (2)
19,116 17,525 
Underwriting service fees (2)
73,492 27,961 
Asset and wealth management fees (2)
47,821 30,105 
Other revenue from contracts with customers (2)
2,122 11,948 
Total in-scope of revenue from contracts with customers250,662 176,860 
Out-of-scope of revenue from contracts with customers:
Consumer and commercial fees (3)
34,952 41,626 
Lease income593,447 628,424 
Other miscellaneous income, net (3)
(6,496)16,397 
Net gain / (loss) on sale of investment securities65,166 36,960 
Total out-of-scope of revenue from contracts with customers687,069 723,407 
Total non-interest income$937,731 $900,267 
(1) Primarily recorded in the Condensed Consolidated Statements of Operations. The accrual of interest is discontinued and reversed once the loans become more than 90 days past due for LHFS and more than 60 days past due for RICs held for investment. 

Residential MSRs

The Company elected to account for the majority of its existing portfolio of MSRs at fair value. This election created greater flexibility with regard to risk management of the asset by aligning the accounting for the MSRs with the accounting for risk management instruments, which are also generally carried at fair value. The remainder of the MSRs are accounted for using the lower of cost or fair value and are presented above in the section captioned "Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis."

The Company's residential MSRs that are accounted for at fair value had an aggregate fair value of $143.5 million at September 30, 2017. Changes in fair value totaling a loss of $1.6 million and a gain of $1.3 million were recorded in Mortgage banking income, net in the Condensed Consolidated Statements of Operations within Consumer and commercial fees.
(2) Primarily recorded in the Company's Consolidated Statements of Operations within Miscellaneous income, net.
(3) The balance presented excludes certain revenue streams that are considered in-scope and presented above.
62


NOTE 14. NON-INTEREST INCOME AND OTHER EXPENSES (continued)

Other Expenses

The following table presents the Company's other expenses for the following periods:
Three months ended March 31,
(in thousands)20242023
Other expenses:
Amortization of intangibles$9,581 $10,446 
Deposit insurance premiums and other expenses16,604 18,757 
Other administrative expenses94,975 86,578 
Other miscellaneous expenses17,385 5,198 
Total Other expenses$138,545 $120,979 


NOTE 15.INCOME TAXES

Income tax expense of $7.8 million and $28.2 million was recorded for the three months ended March 31, 2024 and 2023, respectively. This resulted in an ETR of 2.2% for the three months ended March 31, 2024, compared to 8.7% for the corresponding period in 2023.

The income tax expense recorded (and related ETR) for the three months ended March 31, 2024 was directly impacted by an increase in forecasted electric vehicle tax credits expected to be generated in 2024 when compared to the first quarter of 2023.

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

Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. The Company reviews its tax balances quarterly and, as new information becomes available, the balances are adjusted as appropriate. The Company is subject to ongoing tax examinations and assessments in various jurisdictions.

In December 2021, a framework known as Pillar Two was established by the Organization for Economic Cooperation and Development (“OECD”). Pillar Two is designed to ensure large multinational companies pay a minimum level of tax on the income arising in each jurisdiction where they have operations. It will be effective for some countries in 2024 and others in future years. At this time, the Pillar Two framework has not been adopted by the U.S., but has been adopted by our parent’s jurisdiction. Any potential tax liability associated with SHUSA’s operations is expected to be accrued and paid by Santander.

With few exceptions, the Company is no longer subject to federal and non-U.S. income tax examinations by tax authorities for years prior to 2011 and state income tax examinations for years prior to 2006.

The Company applies an aggregate portfolio approach whereby income tax effects from AOCI are released only when an entire portfolio (i.e., all related units of account) of a particular type is liquidated, sold or extinguished. 

The Company had a net deferred tax asset balance of $195.7 million at March 31, 2024 (consisting of a deferred tax asset balance of $235.0 million and a deferred tax liability balance of $39.3 million with respect to jurisdictional netting), compared to a net deferred tax asset balance of $150.1 million at December 31, 2023 (consisting of a deferred tax asset balance of $234.3 million and a deferred tax liability balance of $84.2 million). The $45.6 million change in net deferred tax asset for the period ended March 31, 2024 was primarily due to a decrease in the deferred tax liability related to leasing transactions and an increase in the allowance for loan loss deferred tax asset.
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NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES

Off-Balance Sheet Risk - Financial Instruments

In the normal course of business, the Company utilizes a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers and manage its exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, letters of credit, loans sold with recourse, forward contracts, and interest rate and cross currency swaps, caps, and floors. These financial instruments may involve, to varying degrees, elements of credit, liquidity, and interest rate risk in excess of the amount recognized on the Condensed Consolidated Balance Sheets. The contractual or notional amounts of these financial instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, letters of credit and loans sold with recourse is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For forward contracts and interest rate swaps, caps and floors, the contract or notional amounts do not represent exposure to credit loss. The Company controls the credit risk of its forward contracts and interest rate swaps, caps and floors through credit approvals, limits, and monitoring procedures. See Note 12 to these Condensed Consolidated Financial Statements for discussion of all derivative contract commitments.

The following table details the amount of commitments at the dates indicated:
Other CommitmentsMarch 31, 2024December 31, 2023
 (in thousands)
Commitments to extend credit$24,846,809 $25,239,691 
Letters of credit1,084,701 1,168,681 
Recourse exposure on sold loans18,157 18,546 
Total commitments$25,949,667 $26,426,918 

Commitments to Extend Credit

Commitments to extend credit generally have fixed expiration dates, are variable rate, and contain provisions that permit the Company to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These arrangements normally require payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.

Included within the reported balances for commitments to extend credit at March 31, 2024 and December 31, 2023 were $3.3 billion and $3.1 billion, respectively, of commitments that can be canceled by the Company without notice.

Commitments to extend credit also include amounts committed by the Company to fund its investments in CRA, LIHTC, and other equity method investments in which it is a limited partner.

Letters of Credit

The Company’s letters of credit meet the definition of a guarantee. Letters of credit commit the Company to make payments on behalf of its customers if specified future events occur. The guarantees are primarily issued to support public and private borrowing arrangements. The weighted average term of these commitments at March 31, 2024 was 11.1 months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. In the event of a requested draw by the beneficiary that complies with the terms of the letter of credit, the Company would be required to honor the commitment. The Company has various forms of collateral for these letters of credit, including real estate assets and other customer business assets. The maximum undiscounted exposure related to these commitments at March 31, 2024 was $1.1 billion. The fees related to letters of credit are deferred and amortized over the lives of the respective commitments and were immaterial to the Company’s financial statements at March 31, 2024. Management believes that the utilization rate of these letters of credit will continue to be substantially less than the amount of the commitments, as has been the Company’s experience to date. The credit risk associated with letters of credit is monitored using the same risk rating system utilized within the loan and financing lease portfolio. As of March 31, 2024 and December 31, 2023, the liability related to unfunded lending commitments was $57.2 million and $60.8 million, respectively.


64


NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Unsecured Revolving Lines of Credit

Such commitments arise primarily from agreements with customers for unused lines of credit on unsecured revolving accounts and credit cards, provided there is no violation of conditions in the underlying agreement. These commitments, substantially all of which the Company can terminate at any time, and which do not necessarily represent future cash requirements, are reviewed periodically based on account usage, customer creditworthiness and loan qualifications.

Loans Sold with Recourse

The Company has loans sold with recourse that meet the definition of a guaranty. For loans sold with recourse under the terms of its multifamily sales program with the FNMA, the Company retained a portion of the associated credit risk.

RIC Commitments

The following table summarizes significant liabilities recorded for commitments and contingencies associated with the Company's RIC origination and servicing operations, all of which are included in Accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets at the dates indicated:
Agreement or Legal MatterCommitment or ContingencyMarch 31, 2024December 31, 2023
(in thousands)
MPLFARevenue-sharing and gain/(loss), net-sharing payments$11,129 $10,302 

MPLFA

Under the terms of the MPLFA, SC must make revenue-sharing payments to Stellantis and also must share with Stellantis when residual gains/(losses) on leased vehicles exceed a specified threshold. The MPLFA requires SC to maintain at least $2.5 billion and $2.5 billion for floor plan and retail financing. In turn, Stellantis must provide designated minimum threshold percentages of its Subvention business to SC.

Agreements

In connection with the sale of RICs through securitizations and other sales, SC has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require SC to repurchase loans previously sold to on or off-balance sheet Trusts or other third parties. As of March 31, 2024, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for SC's ABS or other sales. In the opinion of management, the potential exposure of other recourse obligations related to SC’s RIC sale agreements is not expected to have a material adverse effect on the Company's or SC’s business, consolidated financial position, results of operations, or cash flows.

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NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Santander has provided guarantees on the covenants, agreements, and obligations of SC under the governing documents of its warehouse facilities and privately issued amortizing notes. These guarantees are limited to the obligations of SC as servicer.

In November 2015, SC is party to a forward flow asset sale agreement with a third party under the terms of which SC is committed to sell $350.0 million in charged-off loan receivables in bankruptcy status on a quarterly basis. However, any sale of more than $275.0 million is subject to a market price check. The remaining aggregate commitment as of March 31, 2024 and December 31, 2023 not subject to a market price check was zero.

Other Off-Balance Sheet Risk

Other off-balance sheet risk stems from financial instruments that do not meet the definition of guarantees under applicable accounting guidance and from other relationships that include items such as indemnifications provided in the ordinary course of business and intercompany guarantees.

Legal and Regulatory Proceedings

The Company, including its subsidiaries, is and in the future periodically expects to be party to, or otherwise involved in, various claims, disputes, lawsuits, investigations, regulatory matters and other legal matters and proceedings that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of any such claim, dispute, lawsuit, investigation, regulatory matter and/or legal proceeding, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of the matters, or the eventual loss, fines or penalties related to the matters, if any. Accordingly, except as provided below, the Company is unable to reasonably estimate a range of its potential exposure, if any, to these claims, disputes, lawsuits, investigations, regulatory matters and other legal proceedings at this time. It is reasonably possible that actual outcomes or losses may differ materially from the Company's current assessments and estimates, and any adverse resolution of any of these matters against it could materially and adversely affect the Company's business, financial position, liquidity, and results of operations.

The Company establishes an accrued liability for legal and regulatory proceedings when those matters present material loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued that are reasonably possible.

As of March 31, 2024 and December 31, 2023, the Company accrued aggregate legal and regulatory liabilities of approximately $12.6 million and $12.4 million, respectively. Further, the Company estimates the aggregate range of reasonably possible losses for legal and regulatory proceedings, in excess of reserves established, of up to approximately $13.3 million as of March 31, 2024 and $14.6 million as of December 31, 2023. Set forth below are descriptions of the significant lawsuits, regulatory matters, and other legal proceedings to which the Company is subject.


66


NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Consumer Lending Cases

The Company and its subsidiaries are party to various lawsuits pending in federal and state courts alleging violations of state and federal consumer lending laws, including, without limitation, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, Section 5 of the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Truth in Lending Act, wrongful repossession laws, usury laws and laws related to unfair and deceptive acts or practices. In general, these cases seek damages and equitable and/or other relief.

Enterprise Financial Group v. SC. EFG, a former GAP products and services provider to SC, sued SC for breach of contract, alleging that SC placed non-conforming loans in the program, resulting in EFG losses. The case is pending in Texas District Court, Dallas County, and is captioned Enterprise Financial Group v. SC, Case No. 18-08119. SC asserted a counterclaim against EFG seeking approximately $10.5 million in connection with EFG’s refusal to pay claims. A jury trial concluded on November 2, 2022 and the jury awarded EFG $5 million and SC $4.2 million. On May 9, 2023, the court issued a final judgment awarding EFG approximately $10.6 million, and eliminating the jury award of $4.2 million in favor of SC. On July 17, 2023, the court heard arguments on SC’s motion for judgment notwithstanding the verdict, a new trial and remittitur. The court denied SC's motions for judgment notwithstanding the verdict, new trial, or remittitur. SC has appealed.

Real Legacy Assurance ERISA Litigation. On April 13, 2020, participants of the Real Legacy Assurance Plan, a pension plan, filed an amended complaint adding SSLLC as a defendant to an ERISA putative class action pending against the owner of Real Legacy, Real Legacy Board members, the Plan’s Trustee, actuaries, and other defendants. The case is pending in the United States District Court for the District of Puerto Rico and captioned Vega-Ortiz et al v. Cooperativa de Seguros Multiples de Puerto Rico, et al, Civ. No. 3:19-cv-02056. The amended complaint alleges that SSLLC served as an investment manager to the Real Legacy Assurance Plan and breached its fiduciary duties by failing to ensure that the plan was adequately funded. On November 24, 2021, the court denied each of the defendants’ motions to dismiss. SSLLC filed its answer and discovery is ongoing. On April 4, 2023, the court granted the plaintiffs' motion for class certification.

Santander Consumer USA Holdings Inc. Stockholders Litigation. A consolidated, certified class action litigation is pending in the Court of Chancery of the State of Delaware captioned In re Santander ConsumerUSA Holdings Inc. Stockholders Litigation, No. 2022-0689, filed by former SC shareholders against SHUSA, Santander and current and former SC directors and officers alleging breaches of fiduciary duty related to SHUSA’s January 2022 acquisition of the remaining minority shares of SC, allegedly resulting in a failure to fairly compensate the minority shareholders. The parties are engaged in discovery.

These matters are ongoing and could in the future result in the imposition of damages, fines, or other penalties. No assurance can be given that the ultimate outcome of these matters or any resulting proceedings would not materially and adversely affect the Company's business, financial condition, and results of operations.

Regulatory Investigations and Proceedings

The Company is party to, or is periodically otherwise involved in, reviews, investigations, examinations, and proceedings (both formal and informal), and information-gathering requests, by government and self-regulatory agencies, including the FRB of Boston, the CFPB, the DOJ, the SEC, the CFTC, the Federal Trade Commission and various state regulatory and enforcement agencies.
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NOTE 17.RELATED PARTY TRANSACTIONS

In the normal course of business, the Company conducts business with Santander and its subsidiaries. Santander policy requires that these transactions occur at prevailing market rates and terms, and, where applicable, these transactions are compliant with United States banking regulations. All extensions of credit by (and certain credit exposures of) the Bank to other Santander affiliates are legally required to be secured by eligible collateral. The following disclosures below are the more significant related party transactions entered into during 2023:

Debt and derivative activities

The Company and its affiliates have various debt and derivative agreements with Santander. For further details of these agreements, see Note 10 and Note 20 to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K for 2023.

On October 5, 2023, SBNA entered into a loan agreement with Santander to borrow $2.0 billion at a fixed rate of 6.98%, which will mature on October 16, 2025.

Mezzanine and Stockholder's Equity

On December 21, 2022, the Company issued 500,000 shares of the Series E Preferred Stock. Dividends on the Series E Preferred Stock are payable when, as and if authorized by the Company’s Board of Directors or a duly authorized committee thereof. From and including December 21, 2022 to but excluding December 21, 2027, dividends accrue on a non-cumulative basis a rate of 8.41% per annum, payable quarterly in arrears. From and including December 21, 2027, dividends on the Series E Preferred Stock will accrue on a non-cumulative basis at the five-year U.S. Treasury rate as of the most recent re-set dividend determination date plus 4.74% for each dividend re-set period, payable quarterly in arrears. The Company may redeem the Series E Preferred Stock on, among others, any dividend payment date on or after December 31, 2027.

On June 15, 2023, the Company issued 1,000,000 shares of the Series F Preferred Stock. Dividends on the Series F Preferred Stock are payable when, as and if authorized by the Company’s Board of Directors or a duly authorized committee thereof. From and including June 15, 2023 to but excluding June 21, 2028, dividends accrue on the Series F Preferred Stock on a non-cumulative basis at a rate of 9.380% per annum, payable quarterly in arrears. From and including June 21, 2028, dividends will accrue on a non-cumulative basis at the five-year U.S. Treasury rate as of the most recent re-set dividend determination date plus 5.467% for each dividend re-set period, payable quarterly in arrears. The Company may redeem the Series F Preferred Stock on, among others, any dividend payment date on or after June 21, 2028.

On December 19, 2023, the Company issued 500,000 shares of the Series G Preferred Stock. Dividends on the Series G Preferred Stock are payable when, as and if authorized by the Company’s Board of Directors or a duly authorized committee thereof. From and including December 19, 2023 to but excluding December 21, 2028, dividends accrue on the Series G Preferred Stock on a non-cumulative basis a rate of 8.170% per annum, payable quarterly in arrears. From and including December 21, 2028, dividends will accrue on a non-cumulative basis at the five-year U.S. Treasury rate as of the most recent re-set dividend determination date plus 4.360% for each dividend re-set period, payable quarterly in arrears. The Company may redeem the Series G Preferred Stock on, among others, any dividend payment date on or after December 21, 2028.

As of March 31, 2024, Santander was the sole holder of the Series E, F, and G Preferred Stock.

During the three months ended March 31, 2024, the Company declared and paid dividends to its common shareholder, Santander, in the amount of $0.0 billion. In addition, during the three-monththree months ended March 31, 2024, the Company declared and nine-month periods ended September 30, 2017.paid dividends to its preferred shareholder, Santander, in the amount of $44.4 million.



87
68



NOTE 17. RELATED PARTY TRANSACTIONS (continued)

Deposit and checking accounts

Affiliates of Santander that are not consolidated by SHUSA had deposits with SBNA of $179.0 million and $141.8 million as of March 31, 2024 and December 31, 2023, respectively.

Repurchase Agreements and Securities Trading

During thethree months ended March 31, 2024, SanCap entered into intercompany repurchase agreements and securities trading with Santander and its affiliates. The gross principal amount outstanding on these repurchase agreements and securities trading activities, which do not eliminate in consolidation, was $45.0 million and $105.0 million at March 31, 2024, respectively. During the three months ended March 31, 2024, the amount of income / expense related to these accounts was negligible to the overall results of the Company and Santander.





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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 17.18. BUSINESS SEGMENT INFORMATION


Business Segment Products and Services


The Company’s reportable segments are focused principally around the customers the Company serves. The Company has identified the following reportable segments: Auto, CBB, C&I, CRE, CIB, and Wealth Management.

•The Auto segment includes the Company's consumer and commercial auto loans and leases and the Company's commercial loans to dealers and dealer floorplan financing products. This includes the Company's specialized consumer finance subsidiary focused on vehicle finance and third-party servicing. The specialized consumer finance primary business is the indirect origination of RICs, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. The Company offers a full spectrum of auto financing products and services to captive financing companies. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. The Company also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders. All intercompany revenue and fees between consolidated affiliates are eliminated in the consolidated results of the Company.
•The Consumer and Business BankingCBB segment (formerly known as the Retail Banking segment) includes the products and services provided to Bankconsumer and small business banking customers, through the Bank's branch locations, including consumer deposit, small business banking, residential mortgage, unsecured lending, and investment services. The branch locations offerThis segment offers a wide range of products and services to consumers and business banking customers, including demand and interest-bearing demand deposit accounts, money market and savings accounts, CDs, and retirement savings products. The branch locationsIt also offeroffers lending products such as unsecured personal loans, credit cards, home equity loans and lines of credit, andsmall business loans such as commercialbusiness lines of credit and business credit cards.credit. In addition, the Bank providesCompany makes investment services available to its retail customers, including products such as annuities, mutual funds, managed accounts, and insurance products. Santander Universities, which provides grants and scholarships to universities and colleges asproducts through a way to foster education through research, innovation and entrepreneurship, is the last component of this segment.networking agreement with a consolidated affiliate.
•The Commercial BankingC&I segment currently provides commercial lines, loans, letters of credit, receivables financing, commercial credit cards, and depositscash management and deposit services to mediumlower middle market commercial customers and large business bankingto medium- and large-sized commercial customers, as well as financing and deposits for government entities, commercial loans to dealers and financing for equipment and commercial vehicles.entities. This segment also provides financing and deposits for government entities and niche product financing for specific industries, including oil and gas and mortgage warehousing, among others.industries.
•The Commercial Real EstateCRE segment offers commercial real estateCRE loans, CEVF, and multifamily loans, as well as cash management and deposit services to customers. This category also includes community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.

•The Global Corporate Banking ("GCB")CIB segment serves the needs of global commercialcorporate and institutional customers by leveraging the international footprint of Santander to provide financing and banking services to corporations with over $500 million in annual revenues. GCB'sCIB also includes the Company's institutional broker-dealer that provides services in investment banking, sales, trading, and equity research reports. CIB's offerings and strategy are based on Santander's local and global capabilities in wholesale banking.
SC is a specialized consumer finance company focused on vehicle finance•The Wealth Management segment consists of the Company's international private banking and third-party servicing. SC’s primary business isfinancial operations Services include the indirect originationfull range of RICs, principally through manufacturer-franchised dealers in connection with their sale of newbanking and used vehicles to retail consumers. In conjunction with a ten-year private label financing agreement with FCA that became effective May 1, 2013, SC offers a full spectrum of auto financing products andasset management services to FCA customersforeign individuals and dealers undercorporations based primarily in Latin America

The Company also offers customer-related derivatives to hedge interest rate risk, and in the Chrysler Capital brand. These productsC&I, CRE, and services include consumer RICsCIB business segments and leases, as well asthe dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. SC also originates vehicle loans through a web-based directcommercial lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders. Additionally, SC has several relationships through which it provides personal loans, private label credit cards and other consumer finance products. During 2015, SC announced its intention to exit the personal lending business.
SC has entered into a number of intercompany agreements with the Bank as described above as partdivision of the Other segment. All intercompany revenueAuto business segment, offers derivatives relating to foreign exchange and fees between the Bank and SC are eliminated in the consolidated results of the Company.lending arrangements. See Note 12 to these Condensed Consolidated Financial Statements for additional details.


The Other category includes certain immaterial subsidiaries, such as BSI, BSPR, SIS, SSLLC, and SFS, the unallocated interest expense on the Company's borrowings and other debt obligations and certain unallocated corporate income and indirect expenses.


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NOTE 18. BUSINESS SEGMENT INFORMATION (continued)

The Company’sCompany's segment results excluding SC and the entities that have become part of the IHC, are derived from the Company’s business unit profitability reporting system by specifically attributing managed balance sheet assets, deposits and other liabilities and their related interest income or expense to each of the segments. Funds transfer pricing ("FTP") methodologies are utilized to allocate a cost for funds used or a credit for funds provided to business line deposits, loans and selected other assets using a matched funding concept. The methodology includes a liquidity premium adjustment, which considers an appropriate market participant spread for commercial loans and deposits by analyzing the mix of borrowings available to the Company with comparable maturity periods.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 17. BUSINESS SEGMENT INFORMATION (continued)


Other income and expenses are managed directly by each reportable segment, including fees, service charges, salaries and benefits, and other direct expenses, as well as certain allocated corporate expenses, and are accounted for within each segment’s financial results. Accounting policies for the lines of business are the same as those used in preparation of the Condensed Consolidated Financial Statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses, and other financial elements to each line of business. Where practical, the results are adjusted to present consistent methodologies for the segments.


The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. The implementation of these enhancements to the internal management reporting methodology may materially affect the results disclosed for each segment with no impact on consolidated results. Whenever significant changes to management reporting methodologies take place, prior period information is reclassified wherever practicable.

The Chief Operating Decision Maker ("CODM"), as described by ASC 280, Segment Reporting, manages SC on a historical basis by reviewing the results of SC on a pre-Change in Control basis. The Results of Segments table discloses SC's operating information on the same basis that it is reviewed by SHUSA's CODM. The adjustments column includes adjustments to reconcile SC's GAAP results to SHUSA's consolidated results.

There were no changes to the Company's reportable segments during the three-month and nine-month periods ended September 30, 2017. The results of segments for the three-month and nine-month periods ended September 30, 2016 have been recast to the current composition of the Company's reportable segments.


Results of Segments


The following tables present certain information regarding the Company’s segments.segments:
Three months endedSHUSA Reportable Segments
Consumer ActivitiesCommercial Activities
March 31, 2024AutoCBBC&ICRECIBWealth Management
Other(1)
Total
(in thousands)
Net interest income / (expense)$885,622 $377,814 $86,401 $124,191 $26,911 $60,684 $(184,114)$1,377,509 
Non-interest income571,158 61,348 14,070 8,953 164,850 83,732 33,620 937,731 
Credit loss expense / (benefit)379,652 52,034 (21,395)8,737 (12,743)— (1,287)404,998 
Total expenses807,303 353,005 52,986 32,366 195,479 66,870 51,272 1,559,281 
Income/(loss) before income taxes269,825 34,123 68,880 92,041 9,025 77,546 (200,479)350,961 
Total assets61,259,798 11,747,388 4,080,901 23,845,435 26,842,241 7,322,916 30,667,061 165,765,740 
(1) Other includes the results of the immaterial entities, earnings from non-strategic assets, the investment portfolio, interest expense on SBNA’s and the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.
Three months endedSHUSA Reportable Segments
Consumer ActivitiesCommercial Activities
March 31, 2023AutoCBBC&ICRECIBWealth Management
Other(1)
Total
(in thousands)
Net interest income / (expense)$920,272 $400,246 $82,942 $105,132 $59,789 $70,019 $(128,006)$1,510,394 
Non-interest income650,683 65,974 10,929 4,997 89,735 57,655 20,294 900,267 
Credit loss expense / (benefit)417,766 109,095 2,094 30,383 (11,122)— (5,815)542,401 
Total expenses824,726 368,348 59,023 31,781 120,139 68,522 70,635 1,543,174 
Income/(loss) before income taxes328,463 (11,223)32,754 47,965 40,507 59,152 (172,532)325,086 
Total assets62,163,190 13,174,180 6,021,239 21,921,029 36,282,779 8,267,535 29,727,891 177,557,843 
(1) Refer to corresponding notes above.
For the Three-Month Period EndedSHUSA Reportable Segments    
September 30, 2017Consumer & Business BankingCommercial BankingCommercial Real Estate GCB
Other(2)
 
SC(3)
SC Purchase Price Adjustments(4)
Eliminations(4)
 Total
 (in thousands)
Net interest income$324,539
$87,176
$72,870
$35,494
$27,665
 $989,140
$31,731
$5,445
 $1,574,060
Total non-interest income100,583
15,837
2,855
23,205
181,047
 496,728
(13,779)(11,754) 794,722
Provision for credit losses20,716
5,857
(2,824)11,599
48,812
 536,447
31,513
—
 652,120
Total expenses379,299
51,677
17,530
24,615
234,270
 671,648
10,946
(3,798) 1,386,187
Income/(loss) before income taxes25,107
45,479
61,019
22,485
(74,370) 277,773
(24,507)(2,511) 330,475
Intersegment revenue/(expense)(1)
3,076
1,619
500
(1,823)(3,372) —
—
—
 —
Total assets19,716,199
11,606,759
14,073,894
6,109,131
41,714,577
 38,765,557
—
—
 131,986,117

(1)Intersegment revenue/(expense) represents charges or credits for funds used or provided by each of the segments and is included in net interest income.
(2)Other includes the results of the entities transferred to the IHC, earnings from non-strategic assets, the investment portfolio, interest expense on the Bank’s and the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.
(3)Management of SHUSA manages SC by analyzing the pre-Change in Control results of SC as disclosed in this column.
(4)Purchase Price Adjustments represents the impact that SC purchase marks had on the results of SC included within the consolidated operations of SHUSA, while eliminations eliminate intercompany transactions.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Table of Contents



NOTE 17. BUSINESS SEGMENT INFORMATION (continued)

For the Nine-Month Period EndedSHUSA Reportable Segments    
September 30, 2017Consumer & Business BankingCommercial BankingCommercial Real Estate GCB
Other(2)
 
SC(3)
SC Purchase Price Adjustments(4)
Eliminations(4)
 Total
 (in thousands)
Net interest income$945,102
$259,502
$220,580
$119,968
$62,738
 $3,085,739
$103,132
$21,612
 $4,818,373
Total non-interest income282,360
45,729
8,121
48,808
548,945
 1,363,948
(12,044)(33,756) 2,252,111
Provision for credit losses64,577
16,115
(8,784)23,871
80,472
 1,692,015
124,068
—
 1,992,334
Total expenses1,169,247
154,587
57,162
75,945
739,912
 1,910,365
34,326
(16,261) 4,125,283
Income/(loss) before income taxes(6,362)134,529
180,323
68,960
(208,701) 847,307
(67,306)4,117
 952,867
Intersegment revenue/(expense)(1)
9,226
4,553
1,997
(5,867)(9,909) —
—
—
 —
Total assets19,716,199
11,606,759
14,073,894
6,109,131
41,714,577
 38,765,557
—
—
 131,986,117

(1)Intersegment revenue/(expense) represents charges or credits for funds used or provided by each of the segments and is included in net interest income.
(2)Other includes the results of the entities transferred to the IHC, earnings from non-strategic assets, the investment portfolio, interest expense on the Bank’s and the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.
(3)Management of SHUSA manages SC by analyzing the pre-Change in Control results of SC as disclosed in this column.
(4)Purchase Price Adjustments represents the impact that SC purchase marks had on the results of SC included within the consolidated operations of SHUSA, while eliminations eliminate intercompany transactions.
For the Three-Month Period EndedSHUSA Reportable Segments    
September 30, 2016Consumer & Business BankingCommercial BankingCommercial Real Estate GCB
Other(2)
 
SC(3)
SC Purchase Price Adjustments(4)
Eliminations(4)
 Total
 (in thousands)
Net interest income$297,952
$91,259
$74,992
$60,436
$(45,680) $1,095,060
$42,566
$4,545
 $1,621,130
Total non-interest income104,736
16,947
5,124
26,319
189,825
 389,375
9,071
(13,824) 727,573
Provision for credit losses19,872
(20,162)2,945
(2,487)4,426
 610,398
72,920
—
 687,912
Total expenses395,759
51,156
20,556
26,830
260,723
 570,017
13,956
(12,172) 1,326,825
Income/(loss) before income taxes(12,943)77,212
56,615
62,412
(121,004) 304,020
(35,239)2,893
 333,966
Intersegment revenue/(expense)(1)
9,656
3,616
2,523
(702)(15,093) —
—
—
 —
Total assets19,735,459
12,174,784
15,005,335
10,551,939
43,782,904
 38,771,636
—
—
 140,022,057

(1)Intersegment revenue/(expense) represents charges or credits for funds used or provided by each of the segments and is included in net interest income.
(2)Other includes the results of the entities transferred to the IHC, earnings from non-strategic assets, the investment portfolio, interest expense on the Bank’s and the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.
(3)Management of SHUSA manages SC by analyzing the pre-Change in Control results of SC as disclosed in this column.
(4)Purchase Price Adjustments represents the impact that SC purchase marks had on the results of SC included within the consolidated operations of SHUSA, while eliminations eliminate intercompany transactions.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 17. BUSINESS SEGMENT INFORMATION (continued)

For the Nine-Month Period EndedSHUSA Reportable Segments    
September 30, 2016Consumer & Business BankingCommercial BankingCommercial Real Estate GCB
Other(2)
 
SC(3)
SC Purchase Price Adjustments(4)
Eliminations(4)
 Total
 (in thousands)
Net interest income$793,345
$257,421
$212,035
$182,024
$(8,180) $3,388,276
$146,419
$10,477
 $4,981,817
Total non-interest income297,311
51,094
16,445
65,818
608,810
 1,109,894
38,340
(38,897) 2,148,815
Provision for credit losses40,215
32,686
23,905
28,889
31,247
 1,782,489
260,723
—
 2,200,154
Total expenses1,162,090
157,672
66,819
89,952
852,990
 1,645,156
42,585
(37,497) 3,979,767
Income/(loss) before income taxes(111,649)118,157
137,756
129,001
(283,607) 1,070,525
(118,549)9,077
 950,711
Intersegment revenue/(expense)(1)
34,111
12,927
9,940
(780)(56,198) —
—
—
 —
Total assets19,735,459
12,174,784
15,005,335
10,551,939
43,782,904
 38,771,636
—
—
 140,022,057

(1)Intersegment revenue/(expense) represents charges or credits for funds used or provided by each of the segments and is included in net interest income.
(2)Other includes the results of the entities transferred to the IHC, earnings from non-strategic assets, the investment portfolio, interest expense on the Bank’s and the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.
(3)Management of SHUSA manages SC by analyzing the pre-Change in Control results of SC as disclosed in this column.
(4)Purchase Price Adjustments represents the impact that SC purchase marks had on the results of SC included within the consolidated operations of SHUSA, while eliminations eliminate intercompany transactions.


NOTE 18. IHC

The Federal Reserve issued the Final Rule to strengthen regulatory oversight of FBOs. Under the Final Rule, FBOs with over $50 billion of U.S. non-branch assets, including Santander, were required to consolidate U.S. subsidiary activities under an IHC. Due to its U.S. non-branch total consolidated asset size, Santander is subject to the Final Rule. As a result of this rule, Santander transferred substantially all of its equity interests in U.S. bank and non-bank subsidiaries previously outside the Company to the Company, which became an IHC effective July 1, 2016. These subsidiaries included Santander BanCorp, BSI, SIS and SSLLC, as well as other subsidiaries.

As these entities were and are solely owned and controlled by Santander prior to and after July 1, 2016, in accordance with ASC 805, the transaction has been accounted for under the common control guidance, which requires the Company to recognize the assets and liabilities transferred at their historical cost of the transferring entity at the date of the transfer. Additionally, as this transaction represented a change in reporting entity, the guidance requires retrospective combination of the entities for all periods presented in these financial statements as if the combination had been in effect since inception of common control.

On July 1, 2017, an additional Santander subsidiary, Santander Financial Services, Inc. ("SFS"), a finance company located in Puerto Rico, was transferred to the Company. Refer to Note 1 for additional details.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")



EXECUTIVE SUMMARY


Santander Holdings USA, Inc. ("SHUSA" or the "Company")SHUSA is the parent holding company of Santander Bank, National Association, (the "Bank" or "SBNA"),SBNA, a national banking association, and owns approximately 59% of Santander Consumer USA Holdings Inc. (together with its subsidiaries, "SC"),association; SC, a specialized consumer finance company focused on vehicle finance and third-party servicing. SHUSA is headquartered in Boston, Massachusetts and the Bank's main office is in Wilmington, Delaware. SC is headquartered in Dallas, Texas. SHUSA is a wholly-owned subsidiary of Banco Santander, S.A. ("Santander"). SHUSA is also the parent company of Santander BanCorp (together with its subsidiaries, “Santander BanCorp”), a holding company headquartered in Puerto Rico which offers a full range of financial services through its wholly-owned banking subsidiary, Banco Santander Puerto Rico; Santander Securities, LLC (“SSLLC”), a broker-dealer headquartered in Boston; Banco Santander International (“BSI”),Texas; BSI, a financial services company locatedheadquartered in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; Santander Investment Securities Inc. (“SIS”), a registeredSanCap, an institutional broker-dealer locatedheadquartered in New York, providingwhich has significant capabilities in market-making via an experienced fixed-income sales and trading team and a focus on structuring and advisory services for asset originators in investment banking, institutional sales, tradingthe real estate and offering research reports of Latin American and European equity and fixed-income securities;specialty finance markets; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC is a registered investment adviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.


The Bank's principal markets areCompany specializes in consumer financing focused on vehicle finance, servicing of third-party vehicle financing, and delivering service to dealers and customers across the Mid-Atlantic and Northeastern United States. The Bank uses its deposits, as well as other financing sources, to fund its loan and investment portfolios. The Bank earns interest income on its loan and investment portfolios. In addition, the Bank generates non-interest income from a number of sources, including deposit and loan services, sales of loans and investment securities, capital markets products and bank-owned life insurance ("BOLI"). The principal non-interest expenses include employee compensation and benefits, occupancy and facility-related costs, technology and other administrative expenses. The financial results, of the Bank are affected by the economic environment, including interest rates and consumer and business confidence and spending, as well as the competitive conditions within the Bank's geographic footprint.

SC's primary business is thefull credit spectrum. This includes indirect origination and securitizationservicing of retail installment contracts ("RICs"),vehicle loans and leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to subprime retail consumers. Further information about SC’s business is provided below in the “Chrysler Capital” section.

SC also originatesconsumers, origination of vehicle loans through a web-based direct lending program, purchases of vehicle RICsloans from other lenders, and servicesservicing of automobile and recreational and marine vehicle portfolios for other lenders. Additionally, SC has several relationships through which it provides personal unsecuredThe Company sells consumer vehicle loans private-label credit cards and other consumer finance products.

In 2014, an initial public offering ("IPO") of shares of SC's common stock (the “SC Common Stock”) was declared effective by the Securities and Exchange Commission (the "SEC"). Prior to the IPO, the Company owned approximately 65% of SC Common Stock. SC Common Stock is now listed for trading on the New York Stock Exchange under the trading symbol “SC”.

Immediately following the IPO, the Company owned approximately 61% of the shares of SC Common Stock. The IPO resulted in a change in control and consolidation of SC (the "Change in Control").

Prior to the Change in Control, the Company accounted for its investment in SC under the equity method. Following the Change in Control, the Company consolidated the financial results of SC in the Company’s Condensed Consolidated Financial Statements. The Company’s consolidation of SC is treated as an acquisition of SC by the Company in accordance with Accounting Standards Codification ("ASC") 805 - Business Combinations (ASC 805).

Chrysler Capital

SC offers a full spectrum of auto financing products and services to Chrysler customers and dealers under the Chrysler Capital brand ("Chrysler Capital"), the trade name used in providing services under the ten-year private label financing agreement with Fiat Chrysler Automobiles US LLC ("FCA"), formerly Chrysler Group LLC, signed by SC in 2013 (the "Chrysler Agreement"). These products and services include consumer RICs and leases as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Under the terms of the Chrysler Agreement, certain standards were agreed to, including SC meeting specified escalating penetration rates for the first five years, and FCA treating SC in a manner consistent with comparable original equipment manufacturers ("OEMs") treatment of their captive providers, primarily in regard to sales support. The failure of either party to meet its obligations under the agreement could result in the agreement being terminated. The targeted and actual penetration rates under the terms of the Chrysler Agreement are as follows:

  Program Year (a)
  1 2 3 4 5-10
Retail 20% 30% 40% 50% 50%
Lease 11% 14% 14% 14% 15%
Total 31% 44% 54% 64% 65%
           
Actual Penetration (b) 30% 29% 26% 19% 21%

(a) Each program year runs from May 1 to April 30. Retail and lease penetration is based on a percentage of FCA retail sales.
(b) Actual penetration rates shown for program year 1, 2, 3 and 4 are as of April 30, 2014, 2015, 2016 and 2017, respectively, the end date of each of those Program Years. Actual penetration rate shown for program year 5, which ends April 30, 2018, is as of September 30, 2017.

The target penetration rate as of as of April 30, 2018 is 65%. SC's actual penetration rate for the three-months ended September 30, 2017 was 21%. The penetration rate has been constrained due to the competitive landscape and low interest rates, causing SC's subvented loan offers not to be materially more attractive than other lenders' offers. While SC has not achieved the targeted penetration rates to date, Chrysler Capital continues to be a focal point of its strategy, SC continues to work with FCA to improve penetration rates, and SC remains committed to the Chrysler Agreement.

SC has worked strategically and collaboratively with FCA to continue to strengthen its relationship and create value within the Chrysler Capital program. SC has partnered with FCA to roll out two new pilot programs, including a dealer rewards program and a nonprime subvention program. During the nine months ended September 30, 2017, SC originated $5.2 billion in Chrysler Capital loans, which represented 46% of total RIC originations, with an approximately even share between prime and non-prime, as well as more than $4.7 billion in Chrysler Capital leases. Since its May 1, 2013 launch, Chrysler Capital has originated $43.7 billion in retail loans and $22.3 billion in leases, and facilitated the origination of $3.0 billion in leases and dealer loans for the Bank. As of September 30, 2017, SC's auto RIC portfolio consisted of $6.9 billion of Chrysler Capital loans, which represents 31% of SC's auto RIC portfolio.

SC also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile and recreational and marine vehicle portfolios for other lenders. Additionally, SC has several relationships through which it has provided personal loans, private-label credit cards and other consumer finance products. In October 2015, SC announced its planned exit from the personal lending business.

SC has dedicated financing facilities in place for its Chrysler Capital business. SC periodically sells consumer RICs through these flow agreements and, when market conditions are favorable, it accesses the asset-backed securities ("ABS")ABS market through securitizations of consumer RICs. SCvehicle loans and leases.

Since May 2013, under the MPLFA with Stellantis, the Company has operated as Stellantis' preferred provider for consumer loans, leases and dealer loans and provides services to Stellantis customers and dealers under the CCAP brand. In the second quarter of 2022, the Company announced it had reached an agreement with Stellantis to amend and extend the MPLFA through December 2025. In June 2022, the Company launched a preferred lender, full spectrum financing program in partnership with MMNA to provide customer and dealer financing programs that will help MMNA achieve its goal of improving the car-buying experience.

During the second half of 2023, the Company entered into numerous new lending agreements with various auto OEMs. These new agreements reinforce the Company’s leadership in the U.S. auto finance market and commitment to forging deep, multi-geography relationships with automotive manufacturers catering to customers across the credit spectrum. These various OEMs have a diverse product lineup, including an increased focus on electric vehicles. In addition, the Company has been chosen by LendingClub to be its primary loan servicer for its auto refinance program.

In addition to specialized consumer finance, the Company also periodically enters into bulk salesattracts deposits and provides other retail banking services through its network of consumer vehicle leasesretail branches with a third party. SC typically retains servicing oflocations in Connecticut, Delaware, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island and originates small business, middle market, large and global commercial loans, multifamily loans, and other consumer loans and leases sold or securitized,throughout the Mid-Atlantic and may also retain some residual riskNortheastern areas of the United States. For large institutional investors, the Company provides structured products, emerging markets credit and U.S. investment grade credit, U.S. rates, short-term fixed-income, debt and equity capital markets, investment banking, exchange-traded derivatives, and cash equities, benefiting from a combination of Santander’s global reach and access to financial hubs together with extensive local market knowledge and regional expertise.

The Company uses its deposits, public and private borrowings, as well as other financing sources, to fund its loan and investment portfolios.

In December 2023, SBNA acquired a 20 percent interest in salesthe Structured LLC for approximately $1.1 billion. The Structured LLC was established by the FDIC to hold and service a $9.0 billion portfolio primarily consisting of leases. SC has also entered intoNew York based rent-controlled and rent-stabilized multifamily loans retained by the FDIC following a recent bank failure. SBNA's 20 percent interest is reported as an agreement withAFS debt security that had a third party whereby SC will periodically sell charged-off loans.fair value of approximately $1.1 billion and $1.1 billion at March 31, 2024 and December 31, 2023, respectively As of March 31, 2024, SBNA serviced approximately $8.9 billion of multi-family loans for the Structured LLC and receives a market rate servicing fee in the accompanying Condensed Consolidated Statements of Operations.
72





Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



ECONOMIC AND BUSINESS ENVIRONMENT


Overview

During the third quarter of 2017, unemployment declined, while market results improved and the preliminary gross domestic product ("GDP") growth rate rose from the prior quarter.


The unemployment rate at September 30, 2017 decreased to 4.2%March 31, 2024 was 3.8% compared to 4.4% at June 30, 2017 and 5.0%3.5% one year ago. According to the U.S. Bureau of Labor Statistics, employment rosecontinued to trend up in government, health care, transportationsocial assistance, and warehousing jobs, but declined in food services.construction.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


The Bureau of Economic Analysis ("BEA") advance estimate indicates that real GDP grew at an annualized rate of 3.0% for the third quarter of 2017, compared to 2.6% in the second quarter of 2017. According to the BEA, the change was positively affected by changes in personal consumption expenditures, non-residential fixed investment, exports, and federal government spending, and negatively affected by changes in residential fixed investment and state and local government spending.


Market year-to-date returns for the following indices based on closing prices at September 30, 2017for the period indicated were:
March 31, 2024
September 30, 2017
Dow Jones Industrial Average5.6%13.4%
S&P 50010.2%12.5%
NASDAQ Composite9.1%20.7%


At its September 2017March 2024 meeting, the Federal Open Market Committee decided to maintainFOMC maintained the federal funds rate target at 1-1.25% , indicating that the labor market has continuedrange of 5.25% - 5.50%. The FOMC continues to strengthenfocus its policy making on maximum employment and that economic activity has continued to expand atachieving a moderate pace. Inflation remains below the targeted rate of 2.0%. inflation target rate.


The 10-yearten-year Treasury bond rate at September 30, 2017March 31, 2024 was 2.33%4.21%, downup from 2.45%3.87% at December 31, 2016. Over2023.

One of the past twelve months, however,primary metrics used by the 10-year Treasury bondmarket to monitor the strength of the used car market is the Manheim Used Vehicle Index. The Manheim Used Vehicle Value Index, based on the 1997 Manheim based index, decreased from 204 at December 31, 2023 to 203.1 at March 31, 2024.

Recent Events Affecting the Financial Services Industry
In response to the current interest rate environment and recent events affecting the financial services industry, the Company has enhanced its monitoring of interest rate and liquidity risks. Additional information related to these matters can be found in the sections of this MD&A captioned "Deposits", "Bank Regulatory Capital", "Liquidity and Capital Resources", and "Asset and Liability Management".

The failure of several large U.S. banking institutions in early 2023 has led to increased 72 basis points. Within the industry, this metric is often considered to correspond to 15-year and 30-year mortgage rates.

At the time of filing this Form 10-Q, current quarter 2017 informationmarket uncertainty. The Company was not available;materially impacted by these events; however, for the second quarter of 2017, mortgage originations increased approximately 1.73% over the prior quarter, but decreased 25.99% year-over-year. Similarly, refinancing activity showed an increase of approximately 2.72% over the prior quarter, but a decrease of 54.49% year-over- year.

After reaching its peak in 2009, the ratio of nonperforming loans ("NPLs") to total gross loans for U.S. banks declined for six consecutive years, to just under 1.5% in 2015. NPL trends have remained relatively flat since that time. NPLs for U.S. commercial banks were approximately 1.20% of loans using data for the second quarter of 2017, compared to 1.31 for the prior quarter.

Changingchanging market conditions are considered a significant risk factor to the Company. TheThese factors have increased competition and pricing on customer deposits over the short and medium term, and heightened market and regulatory focus and reform on liquidity, capital, and interest rate environment canrisk. As a result, the FDIC published a proposed rule, which was finalized on November 16, 2023, to charge certain banks a special assessment to recover the costs associated with protecting uninsured depositors following the bank closures during 2023. Based on the final rule, SBNA is required to pay a total of $61.5 million over the course of eight consecutive quarters beginning with the first quarter 2024 assessment period. SBNA accrued for the full amount of the special assessment during the fourth quarter of 2023. In the first quarter of 2024, the FDIC communicated that it will increase the assessment for all banks, which will be reported in its June 2024 special assessment invoice. The Company did not adjust its FDIC special assessment accrual in the first quarter of 2024, as there was uncertainty as to the incremental charges that will ultimately be levied by the FDIC. The Company will re-evaluate its accrual upon receipt of FDIC communications expected in the second quarter of 2024. Refer to the “Regulatory Matters” section of the MD&A for further details. These changing market conditions and uncertainty will likely present challenges in the growth of net interest income, for the banking industry, which continues to rely on non-interest activities to support revenue growth. Changing market conditions and political uncertaintyincreased credit risk and associated credit loss expense, and could have an overall impact on the Company's results of operations and financial condition. Suchoperations. It is not possible to quantify the impact of changing market conditions, could also impactuncertainty, or regulatory action on the Company's credit riskresults of operations.

73



Item 2.    Management’s Discussion and the associated provision for credit lossesAnalysis of Financial Condition and legal expense.Results of Operations




Credit Rating Actions


The following table presents Moody'sMoody’s, S&P and Standard & Poor's ("S&P")Fitch credit ratings for the Bank,SBNA, SHUSA, and Banco Santander Puerto Rico ("BSPR"), SHUSA, Santander, and the Kingdom of Spain, as of September 30, 2017:
senior debt / long-term issuer:
SANTANDER (1)
SHUSA
SBNA (2)
Overall Outlook
FitchA / A-BBB+BBB+Stable
Moody'sBANKA2 / Baa1Baa2
BSPR(1)
Baa1SHUSASANTANDERSPAINStable
S&PMoody'sA+ / A-S&PBBB+A-Moody'sS&PMoody'sS&PMoody'sS&PMoody'sS&P
Long-TermBaa2BBB+Baa2N/ABaa3BBB+A3A-Baa2BBB+
Short-TermP-1A-2P-1/P-2N/An/aA-2P-2A-2P-2A-2
OutlookStableStableStableN/AStableStableStableStableStablePositive

(1) Senior preferred debt / senior non-preferred rating
(1) P-1 Short Term Deposit Rating; P-2 Short Term Debt Rating.(2) Moody's rating represents SBNA long-term issuer rating


February 9, 2017 Standard and Poor’s raised its outlook on Santander’s credit rating to “positive” from “stable” reflecting Santander’s issuance of debt to meet total loss absorbing capital ("TLAC") requirements.

On March 31, 2017, Standard & Poor's raised its outlook on Spain's sovereign credit rating to "positive" from "stable", saying it believed the country's strong economic performance would continue over the next two years.

On June 6, 2017 Standard and Poor's revised its outlook on Santander to stable from positive, saying its stable outlook reflects limited prospects for ratings upside until it sees evidence that the integration of Banco Popular is proceeding smoothly and not facing meaningful business or financial setbacks.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


On August 1, 2017 Standard & Poor’s affirmed SHUSA’s and SBNA’s ratings at A-2/BBB+/Stable.

On September 27, 2017 Moody’s placed SBNA’s long term rating on review for possible upgrade. Moody's affirmed SBNA’s short term rating and outlook at P-1/Stable. Also on September 27, 2017 Moody’s affirmed SHUSA’s long-term rating and outlook at Baa3/Stable.

On October 10, 2017 Moody's affirmed the short-term deposit rating for BSPR following Hurricane Maria.

SHUSA funds its operations independently of the other entities owned by Santander, and believes its business is not necessarily closely relatedrelated to the business or outlook of other entities owned by Santander. Future changes in the credit ratings of its parent, Santander, or the Kingdom of Spain, however, could impact SHUSA's or its subsidiaries' credit ratings, and any other change in the condition of Santander could affect SHUSA.


At this time, SC is not rated by the major credit rating agencies.

Puerto Rico Economy

On May 3, 2017, the Financial Oversight and Management Board for Puerto Rico (“FOB”) submitted a request to the Federal District Court of Puerto Rico to apply Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) to the Commonwealth of Puerto Rico. Title III of PROMESA allows the Commonwealth of Puerto Rico to enter into a debt restructuring process notwithstanding that Puerto Rico is barred from traditional bankruptcy protection under Chapter 9 of the U.S. Bankruptcy Code.

On July 2, 2017, the Puerto Rican Electric Power Authority ("PREPA") submitted a request to the Federal District Court of Puerto Rico to apply Title III of PROMESA to PREPA.

As of September 30, 2017, SHUSA did not have material direct credit exposure to the Commonwealth of Puerto Rico, and its exposure to Puerto Rico municipalities in total was approximately $300 million. As of September 30, 2017, municipalities had not been designated “covered” territorial instrumentalities subject to the requirements of PROMESA, and the municipalities were current on their debt obligations to SHUSA. Under PROMESA, the FOB has sole discretion to designate territorial instrumentalities such as municipalities as covered entities subject to PROMESA’s requirements. If the FOB determines to designate municipalities as covered entities under PROMESA, the FOB could initiate debt restructuring of municipalities that have debt obligations to SHUSA, if deemed necessary.

Impact from Hurricanes

Our footprint was impacted by three significant hurricanes during the third quarter of 2017, Hurricane Harvey, which struck the State of Texas and surrounding region, Hurricane Irma, which primarily struck the State of Florida, and Hurricane Maria, which struck the island of Puerto Rico. Each of these hurricanes resulted in widespread flooding, power outages and associated damage to real and personal property in the affected areas. Our SC subsidiary headquartered in Dallas, Texas, our BSI subsidiary headquartered in Miami, Florida, and our Santander BanCorp, BSPR and SSLLC subsidiaries in Puerto Rico were most directly affected by these hurricanes.  In Puerto Rico, there was significant damage to the infrastructure and the power grid in the entire island, which resulted in extended delays in BSPR returning to normal operations.

The Company assessed the potential additional credit losses related to its consumer and commercial lending exposures in the greater Texas, Florida and Puerto Rico regions and has increased its allowance for loan losses by approximately $95 million in the third quarter 2017. However, for credit exposures in Puerto Rico, given the current state in the region, the Company has had limited information with which to estimate probable credit losses. As of September 30, 2017, the Company has approximately $3.6 billion of loan exposures in Puerto Rico consisting of $1.7 billion in consumer loans, $1.6 billion in commercial loans, and $300 million in loans to municipalities. The Company will continue to monitor and assess the impact of these hurricanes on our subsidiaries’ businesses and may establish additional reserves for losses in future periods.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


REGULATORY MATTERS


The activities of the Company and its subsidiaries, including the BankSBNA and SC, are subject to regulation under various U.S. federal laws and regulatory agencies which impose regulations, supervise and conduct examinations, and may affect the operations and management of the Company and its ability to take certain actions, including making distributions to our parent, and shareholders.

Santander. The Company is regulated on a consolidated basis by the Board of Governors of the Federal Reserve, System (the “Federal Reserve”), including the Federal Reserve BankFRB of Boston, (the "FRB"), and the Consumer Financial Protection Bureau (the "CFPB").CFPB. The Company's banking subsidiaries are further supervised by the Federal Deposit Insurance Corporation (the "FDIC")OCC, the FRB of Atlanta, and the OfficeNew York Department of Financial Services.

The Federal Reserve tailors its supervisory programs and regulatory requirements by category based on firm-specific characteristics such as total assets, cross-jurisdictional activity, and nonbank asset or off-balance sheet exposure. As of March 31, 2024, SHUSA was designated a Category IV institution under the Federal Reserve's tailoring rule. Institutions that change to a higher category would become subject to the requirements of the Comptroller of the Currency (the “OCC”). As a subsidiary of the Company, SC is also subject to regulatory oversightnew category, as outlined by the Federal Reserve, as well asgenerally within two quarters of the CFPB.change in category.


ReferOn July 27, 2023, the regulatory agencies issued an NPR to modify the Annual Report on Form 10-K fordefinition of cross-jurisdictional activity, which would expand the year ended December 31, 2016, which includes additional disclosuresscope of exposures included in the measurement of cross-jurisdictional activity and discussion of laws and regulations affectinghas the potential to move certain firms into a higher supervisory category under the Federal Reserve’s tailoring rule. The Company including, the Dodd-Frank Act Wall Street Reform and Consumer Protection (the "DFA"), the FDIC Improvement Act, and other regulatory matters.does not expect to be materially impacted by this NPR once finalized.


Payment of DividendsDividends


The Parent CompanySHUSA is the parent holding company of SBNA and other consolidated subsidiaries, and is a legal entity separate and distinct from its subsidiaries. In addition to those arising as a result of the Comprehensive Capital Analysis and Review (“CCAR”) process described under the caption “Stress Tests and Capital Adequacy” below,SBNA. SHUSA and SBNA are subject to various regulatory restrictions relating to the payment of dividends, including regulatory capital minimums and the requirement to remain "well-capitalized" under prompt corrective action regulations. As a consolidated subsidiaryRefer to the "Liquidity and Capital Resources" section of this MD&A for detail of the capital actions of the Company SC is included in various regulatory restrictions relating to payment of dividends as described inand its subsidiaries during the “Stress Tests and Capital Adequacy” discussion in this section.period.


During the three-month and nine-month periods ended September 30, 2017 the Company paid dividends of $5.0 million to its sole shareholder, Santander.

In addition, the following regulatory matters are in the process of being phased in or evaluated by the Company.

Foreign Banking Organizations ("FBOs")

On February 18, 2014, the Federal Reserve issued the final rule to strengthen regulatory oversight of FBOs (the “FBO Final Rule”). Under the FBO Final Rule, FBOs with over $50 billion of U.S. non-branch assets, including Santander, must consolidate U.S. subsidiary activities under an IHC. In addition, the FBO Final Rule requires U.S. bank holding companies ("BHCs") and FBOs with at least $50 billion in total U.S. consolidated non-branch assets to be subject to enhanced prudential standards ("EPS") and heightened capital, liquidity, risk management, and stress testing requirements. Due to both its global and U.S. non-branch total consolidated asset size, Santander was subject to both of the above provisions of the FBO Final Rule. As a result of this rule, Santander transferred substantially all of its U.S. bank and non-bank subsidiaries previously outside the Company to the Company, which became an IHC effective July 1, 2016. These subsidiaries include Santander BanCorp, a Puerto Rico bank holding company, Banco Santander International, a private bank headquartered in Miami ("BSI"); Santander Investment Securities, Inc., a broker-dealer located in New York ("SIS"); and Santander Securities LLC, a Puerto Rico broker-dealer ("SSLLC"). A phased-in approach is being used for the standards and requirements at both the FBO and the IHC. As a result, as discussed in Note 18, on July 1, 2017, Santander also transferred ownership of an additional entity, Santander Financial Services, Inc. ("SFS"), to the Company. Other standards of the FBO Final Rule will be phased in through January 1, 2019.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Third Basel Accord ("Basel III")

Basel III Regulatory Capital Rule ImplementationRequirements


The U.S. Basel III regulatory capital rules are applicable to both SHUSA and SBNA.

These rules include deductions from and adjustments to common equity Tier 1 ("CET1"). Implementation of the deductions and other adjustments to CET1 forprompt corrective action thresholds that require banking organizations, including the Company and SBNA, to maintain a minimum CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total capital ratio of 8.0% and a minimum leverage ratio, calculated as the Bank began on Januaryratio of Tier 1 2015 and are being phased in over three years. Phased-in changes include,capital to average consolidated assets for example, the requirement that mortgage servicing rights ("MSRs"), deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities are deducted from CET1quarter, of 4.0%. A further capital conservation buffer of 2.5% above these minimum ratios is required for banking institutions to the extent any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.make capital distributions, including paying dividends.


As of September 30, 2017, the Bank's and the Company's CET1 ratios under the transitional provisions provided under Basel III, were 18.08% and 15.66%, respectively. Under Basel III, on a fully phased-in basis under the standardized approach (non-GAAP), the Bank`s and the Company`s CET1 ratios were 17.71% and 15.18%, respectively. The calculation of the CET1 ratio on both a fully phased-in and transition basis is based on management's interpretation of the final rules adopted by the Federal Reserve in July 2013. As part of the implementation of any regulations, management interprets the rules with advice from its counsel and compliance professionals. If the regulators were to interpret the rules differently, there could be an impact to the results of the calculation and the CET1 ratio. The Company believes that, as of September 30, 2017, it would remain above regulatory minimums under the currently enacted capital adequacy requirements of Basel III, including when implemented on a fully phased-in basis.

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See the Bank Regulatory Capital section of this Management's


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations (the "MD&A")



As described in Note 1 to the Condensed Consolidated Financial Statements, on January 1, 2020, we adopted the CECL standard, which upon adoption resulted in a reduction to our opening retained earnings balance, net of income tax, and an increase to the allowance for loan losses of approximately $2.5 billion. The U.S. banking agencies in December 2018 approved a final rule to address the impact of CECL on regulatory capital by allowing banking organizations, including the Company, the option to phase in the day-one impact of CECL until the first quarter of 2023. On March 26, 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. SHUSA remains in the three-year transition period. This interim rule was subsequently updated with technical amendments in a final rule dated September 30, 2020, which was elected by the Company.

See the "Bank Regulatory Capital" section of this MD&A for the Company's capital ratios under Basel III standards. The implementation of certain regulations and standards relating to regulatory capital could disproportionately affect the Company's regulatory capital position relative to that of its competitors, including those that may not be subject to the same regulatory requirements as the Company.


Material restrictions can be imposed on SBNA, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver or conservator. Critically undercapitalized banks generally may not make any payment of principal or interest on their subordinated debt and all, but well-capitalized banks are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to the FDIA and OCC regulations, institutions which are not categorized as well-capitalized or adequately-capitalized are restricted from making capital distributions, which include cash dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the capital account of the institution. At March 31, 2024, SBNA met the criteria to be classified as “well-capitalized.”

On March 4, 2020, the Federal Reserve adopted a final rule to simplify capital rules for large banks. Under the final rule, firms' supervisory stress test results are now used to establish the size of the SCB requirement. The SCB is calculated as the maximum decline in CET1 in the severely adverse scenario (subject to a 2.5% floor) plus four quarters of dividends. The rule results in new firm-specific regulatory capital expectations which are equal to 4.5% of CET1 plus the SCB, any GSIB surcharge, and any countercyclical capital buffer. The GSIB buffer is applicable only to the largest and most complex firms and does not apply to SHUSA. In the event a firm falls below its new minimums, the rule imposes restrictions on capital distributions and discretionary bonuses. Firms continue to submit a capital plan annually. Supervisory expectations for capital planning processes do not change under the final rule. As of March 31, 2024, SHUSA's SCB CET1 minimum requirement was 7.0%.

On July 27, 2023, the federal banking agencies issued a capital proposal that would make significant changes to the regulatory capital rules applicable to large banking organizations (including SHUSA and SBNA) and banking organizations with significant trading activity. This proposal would implement the final elements of the Basel III Capital Conservation Buffercapital framework and make other changes to the regulatory capital rules in response to recent bank failures. The capital proposal would establish the expanded risk-based approach for calculating RWA that would apply to large banking organizations. The expanded risk-based approach would include a new more risk-sensitive standardized approach for measuring credit risk and operational risk. It would also include new standardized approaches for measuring market risk and credit valuation adjustment risk but would allow the use of internal models for market risk in certain circumstances with regulatory approval. Under the capital proposal, a large banking organization would be required to calculate its risk-based capital ratios under both the expanded risk-based approach and the current standardized approach and would use the lower of the two. All capital buffer requirements, including the SCB requirement, would apply regardless of whether the expanded risk-based approach or the existing standardized approach produces the lower ratio.


A capital conservation buffer of 2.5% above these minimum ratios is beingThe expanded total RWA calculation used in the expanded risk-based approach would be phased in over three years,a three-year period starting on July 1, 2025. The requirement to reflect AOCI in regulatory capital would also be phased in over a three-year period starting on July 1, 2025. All other elements of the calculation of regulatory capital would apply on the effective date of the final rule, which began in 2016 at 0.625% and increasesis expected to be on or about July 1, 2025. On October 20, 2023, the federal banking agencies announced that they extended the comment period on the capital proposal from November 30, 2023 until January 16, 2024. In addition to pushing back the comment deadline, the Federal Reserve indicated it would begin collecting data to gather more information from the banks affected by that amount on each subsequent January 1, until it reaches 2.5%the proposal. That data collection also ended on January 1, 2019. This capital conservation buffer is required for banking institutions16, 2024. The proposed rules and BHCs,their impact on SHUSA are under review.


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Item 2.    Management’s Discussion and failureAnalysis of Financial Condition and Results of Operations



Liquidity Rules

The Federal Reserve, the FDIC, and the OCC have established a rule to maintainimplement the capital conservation buffer can lead to restrictions on the ability to make capital distributions, including paying dividends.

Basel III Liquidity Framework

The Basel III liquidity framework requiresLCR for certain internationally active banks and BHCs to measure their liquidity against specific liquidity tests. One test, referred to asnonbank financial companies, and a modified version of the liquidity coverage ratio ("LCR"),LCR for certain depository institution holding companies that are not internationally active. The LCR is designed to ensure that a banking entity maintains an adequate level of unencumbered high-quality liquid assets ("HQLA") equal to its expected net cash outflow for a 30-day time horizon. The other, referred toSmaller covered companies (but with more than $50 billion in assets) such as the net stable funding ratio ("NSFR"), is designed to promote more medium and long-term funding of the assets and activities of banking entities over a one-year time horizon.

On November 13, 2015, the Federal Reserve published a revised final LCR rule. Under this revision, the Company wasare required to calculate the modified US LCR (the "US LCR") on a monthly basis beginning with data as of January 31, 2016. The Company will be required to publicly disclose its US LCR results starting October 1, 2018. Based on management's interpretation of the final rule, the Company's LCR was in excess of the regulatory minimum of 100% on January 1, 2017.monthly.


In May 2016, the Federal Reserve issued a proposed rule for NSFR applicable to U.S. financial institutions. If finalized as proposed, the proposed rule will become a minimum standard on January 1, 2018. The Company is currently evaluating the impact this proposed rule would have on its financial position, results of operations and disclosures.Resolution Planning

Stress Tests and Capital Adequacy

Under the terms of a written agreement the Company entered into with Federal Reserve Bank ("FRB") of Boston on July 2, 2015, the Company is required to make enhancements with respect to, among other matters, Board oversight of the consolidated organization, risk management, capital planning and liquidity risk management.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations



The Company previously was subject to an additional written agreement with the FRB of Boston regarding stress testing and capital adequacy. That written agreement was entered into on September 15, 2014, and was terminated on August 17, 2017.

The Company also is subject to the capital plan rule, whichDFA requires the Company to prepare and update resolution plans. The 165(d) resolution plan must assume that the Bank to perform stress testscovered company is resolved under the U.S. Bankruptcy Code and submitthat no “extraordinary support” is received from the resultsU.S. or any other government. The most recent 165(d) resolution plan was submitted to the Federal Reserve and the OCC on an annual basis. The Company is also required to submit a mid-year stress test to the Federal Reserve.FDIC in June 2022. In addition, togetherunder amended FDIA rules, the IDI resolution plan rule requires that a bank with assets of $50 billion or more develop a plan for its resolution that supports depositors’ rapid access to their insured deposits, maximizes the annual stress test submission,net present value return from the Company is requiredsale or disposition of its assets, and minimizes the amount of any loss realized by creditors in resolution.

On August 29, 2023, the FDIC issued an NPR that modifies the IDI resolution planning requirement to submit a proposed capital planfocus on operational readiness and changes to existing resolution strategy. The proposal tailors the Federal Reserve. As a consolidated subsidiary of the Company, SC is included in the Company's stress testsrequirements for banks with total assets between $50 billion and capital plans.$100 billion and those above $100 billion.


Under the capital plan rule,Long-Term Debt Requirements

On July 28, 2023, the Federal Reserve may objectand FDIC issued an NPR that would require banks with total assets of $100 billion or more to maintain a layer of long-term debt from the holding company to improve financial stability by increasing the resolvability and resiliency of such institutions. By requiring each such large bank to maintain a minimum amount of long-term debt to absorb losses, the proposal would increase the options available to resolve such banks in case of failure. Additionally, by reducing the risk that uninsured depositors would face losses, long-term debt can reduce the speed and severity of bank runs and limit the risk of contagion when a bank is under stress. The proposal would provide a three-year phase-in period and would also allow certain outstanding long-term debt to count toward the minimum requirements to provide banks with a reasonable period to transition to the Company’s capital plan ifrequired characteristics of eligible long-term debt instruments. Comments on the Federal Reserve determines that the Company has not demonstrated an ability to maintain capital above each minimum regulatory capital ratioproposal were due on a pro forma basis under expected and stressful conditions throughout the planning horizon. The Company is considered a large and non-complex BHC under the capital rule plan, and as a result is no longerNovember 30, 2023. SHUSA remains subject to the qualitativeTLAC requirements outlined below.

Deposit Insurance and Assessments

On October 18, 2022, the FDIC adopted a final rule, applicable to all IDIs, to increase the initial base deposit insurance assessment rate schedules uniformly by two basis points consistent with the amended restoration plan approved by the FDIC on June 21, 2022. The FDIC indicated that it was taking this action in order to restore the DIF reserve ratio to the required statutory minimum of 1.35% by the statutory deadline of September 30, 2028. The FDIC indicated that the reserve ratio had declined below this level because of the capital planincrease in insured deposits since the start of the pandemic and other factors that affect the level of the DIF. Under the final rule, the increase in rates began with the first quarterly assessment period of 2023 and will remain in effect unless and until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% reserve ratio. The increase in assessment rates applies to SBNA.

The recent failure of several large U.S. banking institutions has led to increased market uncertainty. Under the FDIA, the loss to the DIF arising from the use of the systemic risk exception must be recovered through one or more special assessments on IDIs, depository institution holding companies, or both, as the FDIC determines to be appropriate. On May 11, 2023, the FDIC issued for public comment a proposed rule to impose a special assessment on IDIs to recover the loss to the DIF resulting from the use of the systemic risk exception to protect the uninsured depositors of the failed U.S. banking institutions. The final rule was issued on November 16, 2023. Under the final rule, the FDIC would collect a special assessment from IDIs at a quarterly rate of approximately 3.36 basis points over eight quarterly assessment periods, starting with the first quarterly assessment period of 2024. The assessment base for the special assessment is equal to an IDI’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits held by the Federal Reserve.

In June 2017,IDI. The special assessment is a tax-deductible operating expense for IDIs, and the Company announced thateffect on income of the Federal Reserve, as partentire amount of its Comprehensive Capital Analysis and Review ("CCAR") process, did not objectthe special assessment will occur in one quarter for the IDIs subject to the capital plan submitted by the Company as partassessment.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



The impact of the CCAR process and the capital distributions includedspecial assessment is $61.5 million, which was recorded in the plan. That capital plan included planned capital distributions across the following categories: (1) common stock dividends from SHUSA to Santander, (2) common stock dividends from SC, (3) redemption of the remaining balance of SHUSA's 7.908% trust preferred securities, and (4) dividends on the Company's preferred stock and payments on its trust preferred securities. On June 28, 2017, SHUSA's Board of Directors approved the following capital distributions for the thirdfourth quarter of 2017: (1) a dividend payment of $0.45625 per share on2023, upon the Company's preferred stock, (2) a common stock dividend payment to Santander of $5.0 million, and (3) redemption ofrule’s final issuance. The FDIC has recently communicated that it will increase the remaining balance of the Company's trust preferred securities.assessment for all banks, which will be reported in its June 2024 special assessment invoice.


TLAC


The Federal Reserve adopted a rule in December 2016 that will requireTLAC Rule requires certain U.S. organizations to maintain a minimum amount of loss-absorbing instruments, including a minimum amount of unsecured long-term debt (the “TLAC Rule”).LTD. The TLAC Rule which amends Regulation YY, applies to U.S. global systemically important banksGSIBs and to IHCs with $50 billion or more in U.S. non-branch assets that are controlled by a global systemically important FBOs.FBO. The Company is such an IHC.


Under the TLAC Rule, companies are required to maintain a minimum amount of TLAC, which consists of a minimum amount of long-term debt (“LTD”)LTD and Tier 1 capital. As a result, SHUSA will need tomust hold the higher of 18% of its risk-weighted assets ("RWAs")RWAs or 9% of its total consolidated assets in the form of TLAC.TLAC, of which 6% of its RWAs or 3.5% of total consolidated assets must consist of LTD. In addition, SHUSA must maintain a TLAC buffer composed solely of CET1 capital and will be subject to restrictions on capital distributions and discretionary bonus payments based on the size of the TLAC buffer it maintains. In addition

Volcker Rule

Section 13 of the BHCA, commonly referred to TLAC,as the “Volcker Rule,” prohibits a “banking entity” from engaging in “proprietary trading” or engaging in any of the following activities with respect to a Covered Fund: (i) acquiring or retaining any equity, partnership or other ownership interest in the Covered Fund; (ii) controlling the Covered Fund; or (iii) engaging in certain transactions with the fund if the banking entity or any affiliate is an investment adviser or sponsor to the Covered Fund. These prohibitions are subject to certain exemptions for permitted activities.

Because the term “banking entity” includes an IDI, a depository institution holding company and any of their affiliates, the Volcker Rule has sweeping worldwide application and covers entities such as Santander, the Company, and certain of the Company’s subsidiaries (including SBNA and SC), as well as other Santander subsidiaries in the United States and abroad.

The Company implemented certain policies and procedures, training programs, recordkeeping, internal controls and other compliance requirements that were necessary to comply with the Volcker Rule. As required by the Volcker Rule, the compliance infrastructure has been tailored to each banking entity based on its size and its level of trading and Covered Fund activities. SHUSA's compliance program includes, among other things, processes for prior approval of new activities and investments permitted under the Volcker Rule, and testing and auditing for compliance.

Risk Retention Rule

The Federal Reserve's final credit risk retention rule generally requires sponsors of ABS to retain at least five percent of the credit risk of the assets collateralizing ABS. SHUSA, primarily through SC and SBNA, is an active participant in the structured finance markets and complies with these retention requirements.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



Market Risk Rule

The market risk rule requires certain national banks to measure and hold risk-based regulatory capital for the market risk of their covered positions. The bank must measure and hold capital for its market risk using its internal risk-based models. The market risk rule outlines quantitative requirements for the bank's internal risk-based models, as well as qualitative requirements for the bank's management of market risk. Banks subject to the market risk rule must also measure and hold market risk regulatory capital for the specific risk associated with certain debt and equity positions.

A bank is subject to the market risk capital rules if its consolidated trading activity, defined as the sum of trading assets and liabilities as reported in its FFIEC 031 and FR Y-9C for the previous quarter, equals the lesser of: (1) 10 percent or more of the bank's total assets as reported in its Call Report and FR Y-9C for the previous quarter, or (2) $1 billion or more. The Bank and the Company are required to comply with the market risk component within RWAs of the risk-based capital ratios and submit the FFIEC 102 - Market Risk Regulatory Report.

SHUSA is integrating SanCap's market risk exposures into SHUSA’s U.S. market risk rule program which is a primary driver of the decline in market risk RWAs during the quarter.

Heightened Standards

OCC guidelines to hold LTDstrengthen the governance and risk management practices of large financial institutions are commonly referred to as “heightened standards.” The heightened standards apply to insured national banks, like SBNA, with $50 billion or more in an amount no less than the greater of 6% of its RWAs or 3.5% of its total consolidated assets. The final rule is effective January 1, 2019.heightened standards require covered institutions to establish and adhere to a written risk governance framework to manage and control their risk-taking activities. The heightened standards also provide minimum standards for the institutions’ boards of directors to oversee the risk governance framework.


Transactions with Affiliates


Depository institutions must remain in compliance with Sections 23A and 23B of the Federal Reserve Act and FRBthe Federal Reserve's Regulation W, ("Reg. W"), which governs the activities of the Companytransactions between SBNA and its banking subsidiaries with affiliated companies and individuals. Section 23A placesimposes limits on certain specified “covered transactions,” which include loans, lines, and letters of credit to affiliated companies or individuals, and investments in affiliated companies, andas well as certain other transactions with affiliated companies and individuals. The aggregate of all covered transactions is limited to 10% of a bank’s capital and surplus for any one affiliate and 20% for all affiliates. Certain covered transactions also must meet collateral requirements that range from 100% to 130% depending on the type of transaction.


Section 23B of the Federal Reserve Act prohibits ana depository institution from engaging in certain transactions with affiliates unless the transactions are considered arm`s-length. To meet the definition of arms-length, the terms of the transaction must be the same, or at least as favorable, as those for similar transactions with non-affiliated companies.

arms'-length. As a U.S. domiciled subsidiary of a global parent with significant non-bank affiliates, the Company faces elevated compliance risk in this area.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations



Regulation AB II


In August 2014, the SEC unanimously voted to adopt final rules known as Regulation AB II, that, among other things, expanded disclosure requirements and modified the offering and shelf registration process for asset-backed securities (“ABS”). AllABS. SC must comply with these rules, which impact all offerings of publicly registered ABS and all reports under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”) for outstanding publicly-registered ABS, were required to comply with the new rules and disclosures on and after November 23, 2015, except for asset-level disclosures. Compliance with the new rules regarding asset-level disclosures was required for all offerings of publicly registered ABS on and after November 23, 2016. SC must comply with these rules, which affects theaffect SC's public securitization platform.


Community Reinvestment Act ("CRA")CRA


SBNA and Banco Santander Puerto Rico areis subject to the requirements of the CRA, which requires the appropriate Federalfederal financial supervisory agency to assess an institution's record of helping to meet the credit needs of the local communities in which it is located. Banco Santander Puerto Rico’sSBNA’s current CRA rating is “Outstanding.” The Bank’s most recent public CRA report of examination rated the Bank as “Needs to Improve” for the January 1, 2011 through December 31, 2013 evaluation period. The Bank’s rating based solely on the applicable CRA lending, service and investment tests would have been “Satisfactory.” However, the overall rating was lowered to “Needs to Improve” due to previously disclosed instances of non-compliance by the Bank that are being remediated."Outstanding." The OCC takes into account the Bank’sSBNA’s CRA rating in considering certain regulatory applications the BankSBNA makes, including applications related to establishing and relocating branches, and the Federal Reserve does the same with respect to certain regulatory applications the Company makes.

In addition, thereOctober 2023, the supervisory agencies jointly adopted a final CRA rule to modernize the regulation. The rule intends to adapt to industry changes, such as the growth of online, mobile, and branchless banking and hybrid models, while continuing a focus on low and moderate communities.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



The rule also seeks to introduce greater clarity and consistency by implementing a metrics-based approach to evaluate performance and expanding activity that may be some negative impacts on aspectsconsidered for CRA credit. This results in significant data collection and reporting requirements for banks with over $10 billion in assets such as SBNA. The rule also imposes new criteria for banks to establish assessment areas outside of the Bank’s business ascommunities in which they have a resultphysical presence if certain criteria are met.

In March 2024, a preliminary injunction was granted to pause implementation of the downgrade. For example, certain categories of depositors are restricted from making deposits in banks with a “Needs to Improve” rating.

Other Regulatory Matters

On March 23, 2017,new rule while the Company and SC entered into a written agreement with the FRB of Boston. Under the terms of this written agreement, SC is required to enhance its compliance risk management program, SC’s Board and management are required to enhance their oversight of SC’s risk management program, and the Company is required to enhance, among other matters, its Board oversight of SC’s management and operations.

On February 25, 2015, we entered into a consent order with the DOJ, approved by the United StatesFederal District Court for the Northern District of Texas which resolvesdecides the DOJ’s claimsmerits of a lawsuit brought by the American Bankers Association against the Company that certain of its repossession and collection activities duringregulatory agencies for exceeding their statutory authority in adopting the period of time between January 2008 and February 2013 violatedrule.

SBNA remains committed to the SCRA. The consent order requires us to pay a civil fine in the amount of $55,000, as well as at least $9.4 million to affected servicemembers, consisting of $10,000 per servicemember plus compensation for any lost equity (with interest) for each repossession by us and $5,000 per servicemember for each instance where we sought to collect repossession-related fees on accounts where a repossession was conducted by a prior account holder. The consent order also requires us to undertake additional remedial measures. The consent order also subjects us to monitoring by the DOJ for compliance with SCRA for a period of five years.


Disclosure Pursuant to Section 219goals of the Iran Threat ReductionCRA and Syria Human Rights Act

Pursuantsupports efforts to Section 219modernize the rule through greater transparency regarding evaluation ratings, promoting consistent interpretations of CRA, and encouraging increased economic development in low and moderate-income communities. Management continues to monitor he court proceedings and will adjust SBNA's CRA plans once the status of the Iran Threat Reductionnew rule becomes known.

Broker-Dealer Regulation

The Broker-Dealers are registered with the SEC and Syria Human Rights Act of 2012, which added Section 13(r)subject to the Exchange Act, an issuer isregulation of the SEC, FINRA, the CFTC, the CME, and the NFA. These entities are subject to the SEC’s uniform net capital rule, which requires the maintenance of minimum net capital levels. In addition, these entities are required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


The following activitiesmaintain proper controls over customer funds and securities and ensure that customer assets are disclosed in response to Section 13(r) with respect to affiliates of SHUSA within the Santander Group.

During the period covered by this report:

Santander UK plc ("Santander UK") holds two savings accounts and one current account for two customers resident in the UK who are currently designated by the U.S. under the Specially Designated Global Terrorist ("SDGT") sanctions program. Revenues and profits generated by Santander UK on these accounts in the three-month and nine-month periods ended September 30, 2017 were negligible relative to the overall profits of Santander.
Santander UK holds two frozen current accounts for two UK nationals who are designated by the U.S. under the SDGT sanctions program. The accounts held by each customer have been frozen since their designation and remained frozen through the three-month and nine-month periods ended September 30, 2017. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by the Santander UK Collections and Recoveries Department. No revenues or profits were generated by Santander UK on this account in the three-month and nine-month periods ended September 30, 2017.

Santander also has certain legacy performance guaranteesnot used for the benefit of Bank Sepahthe Broker-Dealer. These requirements also restrict the Broker-Dealer’s ability to withdraw capital. Prior written notification to and Bank Mellat (standby lettersapproval from the applicable regulators is required for withdrawals exceeding 30 percent of the Broker-Dealer’s excess net capital and also where the Broker-Dealer’s net capital would be less than 25 percent of deductions from its net worth in computing net capital.

Edge Act Corporation Requirements

Edge Act corporations such as BSI are chartered under Section 25A of the Federal Reserve Act. These entities are subject to specific regulatory requirements under Regulation K. Permissible activities of Edge Act and agreement corporations include those incidentals to international or foreign business. Deposit-taking, credit, and fiduciary and investment advisor services are subject to guaranteeapplicable Federal Reserve regulations. Edge Act corporations are also subject to the obligations - eitherUSA Patriot Act as well as all applicable laws and regulations designed to combat money laundering and the financing of terrorist activities.


Reference Rate Reform

The U.S. dollar LIBOR reference rate panel ceased publication of LIBOR tenors on June 30, 2023. Although 1-, 3-, and 6-month LIBOR settings continue to be published in synthetic form, these rates are not representative of the markets and, as a result, are not generally used unless required by the underlying contract. Under the guidance of our cross-functional LIBOR transition program, the Company offered products linked to alternative reference rates and remediated existing contracts that used LIBOR reference rates. On December 1, 2022, we ceased originations of new LIBOR-referenced products that did not fall under tender documents or under contracting agreements -'approved use' categories.

As of contractors who participated in public bids in Iran)March 31, 2024, the Company had an immaterial amount of loans with LIBOR exposure and no derivative contracts with LIBOR exposure. All remaining LIBOR loans utilize a LIBOR reference rate that were in placewas fixed prior to April 27, 2007.

InLIBOR cessation and generally will move to alternative rates at the aggregate, alltime of their next contractual rate reset. Transition away from LIBOR to new reference rates presents legal, financial, reputational, and operational risks to the transactions described above resulted in gross revenues and net profitsCompany as well as to other participants in the three-monthmarket.

As of March 31, 2024, the Company has largely completed its LIBOR-to-SOFR transition program.


79



Item 2.    Management’s Discussion and nine-month periods ended September 30, 2017 which were negligible relative to the overall revenuesAnalysis of Financial Condition and profitsResults of Santander. Santander has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities or issuing export letters of credit, except for the legacy transactions described above. The Group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). Accordingly, Santander intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.Operations


The Company does not have any activities, transactions, or dealings which would require disclosure under Section 13(r) of the Exchange Act.


100

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


RESULTS OF OPERATIONS
CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS



On July 1, 2016, ownership
Three months ended March 31, 2024 and 2023
2024 (1)
2023 (1)
InterestChange due to
(dollars in thousands)Average
Balance		Interest
Yield/
Rate(2)
Average
Balance		Interest
Yield/
Rate(2)
Increase/(Decrease)VolumeRate
Interest-earning deposits$12,168,993 $217,053 7.13 %$8,816,468 $154,365 7.00 %$62,688 $59,767 $2,921 
Federal funds sold and securities purchased under resale or similar agreements, gross (3)
47,513,633 637,711 5.37 %48,073,553 522,390 4.35 %115,321 (6,031)121,352 
Federal funds sold and securities purchased under resale or similar agreements, netting(37,076,262)(32,441,091)
Federal funds sold and securities purchased under resale or similar agreements, net10,437,371 15,632,462 
AFS7,053,412 97,892 5.55 %6,942,199 66,071 3.81 %31,821 1,079 30,742 
HTM8,980,796 44,829 2.00 %9,489,199 47,257 1.99 %(2,428)(2,679)251 
Trading securities10,999,523 128,691 4.68 %7,053,159 72,462 4.11 %56,229 45,062 11,167 
Other investments1,324,375 12,691 3.83 %1,186,714 8,253 2.78 %4,438 1,043 3,395 
TOTAL SECURITIES FINANCING ACTIVITIES, INVESTMENTS AND INTEREST-EARNING DEPOSITS$50,964,470 $1,138,867 8.94 %$49,120,201 $870,798 7.09 %$268,069 $98,241 $169,828 
LOANS (4):
      
C&I12,279,841 109,888 3.58 %15,815,717 137,397 3.47 %(27,509)(32,053)4,544 
CRE8,941,695 169,865 7.60 %8,211,846 140,480 6.84 %29,385 13,059 16,326 
Other commercial loans7,173,824 96,312 5.37 %7,550,347 82,748 4.38 %13,564 (3,840)17,404 
Multifamily10,386,730 126,986 4.89 %10,080,259 112,821 4.48 %14,165 3,533 10,632 
Total commercial loans38,782,090 503,051 5.19 %41,658,169 473,446 4.55 %29,605 (19,301)48,906 
Consumer loans:  
Residential mortgages4,770,498 41,762 3.50 %5,163,843 44,553 3.45 %(2,791)(3,447)656 
Home equity loans and lines of credit2,391,357 47,229 7.90 %2,923,800 49,863 6.82 %(2,634)(20,198)17,564 
Total consumer loans secured by real estate7,161,855 88,991 4.97 %8,087,643 94,416 4.67 %(5,425)(23,645)18,220 
RICs and auto loans44,068,394 1,406,627 12.77 %44,542,246 1,297,064 11.65 %109,563 (13,630)123,193 
Personal unsecured3,913,665 111,906 11.44 %4,156,799 116,032 11.17 %(4,126)(6,654)2,528 
Other consumer56,315 4,444 31.57 %88,044 393 1.79 %4,051 (90)4,141 
Total consumer55,200,229 1,611,968 11.68 %56,874,732 1,507,905 10.61 %104,063 (44,019)148,082 
Total loans93,982,319 2,115,019 9.00 %98,532,901 1,981,351 8.04 %133,668 (63,320)196,988 
TOTAL EARNING ASSETS144,946,789 3,253,886 8.98 %147,653,102 2,852,149 7.73 %401,737 34,921 366,816 
Non-interest bearing assets (5)
24,114,745 26,528,224 
TOTAL ASSETS$169,061,534 $174,181,326 
INTEREST BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:      
Interest-bearing demand deposits$12,086,681 $45,425 1.50 %$12,670,006 $23,651 0.75 %$21,774 $(1,052)$22,826 
Savings4,253,400 2,438 0.23 %5,173,298 931 0.07 %1,507 (127)1,634 
Money market25,481,449 203,631 3.20 %28,149,230 127,441 1.81 %76,190 (10,728)86,918 
CDs19,939,334 247,426 4.96 %14,667,982 136,814 3.73 %110,612 57,684 52,928 
TOTAL INTEREST-BEARING DEPOSITS61,760,864 498,920 3.23 %60,660,516 288,837 1.90 %210,083 45,777 164,306 
Federal funds purchased and securities sold under agreements to repurchase, gross (3)
56,519,516 763,840 5.41 %50,865,267 570,275 4.48 %193,565 67,496 126,069 
Federal funds purchased and securities sold under agreements to repurchase, netting(37,076,262)(31,012,976)
Federal funds purchased and securities sold under agreements to repurchase, net19,443,254 19,852,291 
Trading liabilities3,434,353 39,078 4.55 %3,268,665 31,856 3.90 %7,222 1,684 5,538 
FHLB advances4,961,019 62,438 5.03 %5,299,833 65,421 4.94 %(2,983)(4,172)1,189 
Other borrowings39,246,873 512,101 5.22 %38,846,370 385,366 3.97 %126,735 4,017 122,718 
TOTAL SECURITIES FINANCING ACTIVITIES AND BORROWED FUNDS67,085,499 1,377,457 8.21 %67,267,159 1,052,918 6.26 %324,539 69,025 255,514 
TOTAL INTEREST-BEARING FUNDING LIABILITIES128,846,363 1,876,377 5.83 %127,927,675 1,341,755 4.20 %534,622 114,802 419,820 
Non-interest-bearing liabilities (6)
23,065,692 27,963,353 
TOTAL LIABILITIES151,912,055 155,891,028 
Mezzanine equity2,000,000 498,949 
STOCKHOLDER’S EQUITY15,149,479 17,791,349 
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY$169,061,534 $174,181,326 
NET INTEREST SPREAD (7)
  3.15 %3.53 %
NET INTEREST MARGIN (8)
  3.80 %4.09 %
NET INTEREST INCOME$1,377,509 $1,510,394 
80



Item 2.    Management’s Discussion and Analysis of several Santander subsidiaries,Financial Condition and Results of Operations



(1)Average balances are based on daily averages when available. When daily averages are unavailable, mid-month averages are substituted.
(2)Yields calculated using taxable equivalent net interest income.
(3)Represents the average gross Securities Financing Activities balance, including Santander BanCorp, BSI, SIS activity that qualifies for balance sheet netting, as discussed further in Note 11 to these Condensed Consolidated Financial Statements.
(4)Interest on loans includes amortization of premiums and SSLLC, were transferred to the Company. As these entities werediscounts on purchased loan portfolios and are solely ownedamortization of deferred loan fees, net of origination costs. Average loan balances include non-accrual loans and controlled by Santander prior toLHFS.
(5)Includes allowance for loan losses and after July 1, 2016, in accordance with ASC 805, the transaction has been accounted for under the common control guidance, which requires the Company to recognize theOther assets including leases, goodwill and liabilities transferred at their historical cost of the transferring entity at the date of the transfer. Additionally, as this transaction represents a change in reporting entity, the guidance requires retrospective combination of the entities for all periods presented in these financial statements as if the combination had been in effect since inception of common control. On July 1, 2017, an additional Santander subsidiary, SFS, a finance company located in Puerto Rico, was transferred to the Companyintangibles, premise and accounted for prospectively.equipment, net deferred tax assets, equity method investments, BOLI, accrued interest receivable, derivative assets, miscellaneous receivables, prepaid expenses and MSRs. Refer to Note 16 to the Condensed Consolidated Financial Statements for additional information.further discussion.

(6)Includes Non-interest-bearing deposits and Other liabilities primarily including accounts payable and accrued expenses, derivative liabilities, net deferred tax liabilities and the unfunded lending commitments liability.
RESULTS OF OPERATIONS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016(7)Represents the difference between the yield on total earning assets and the cost of total funding liabilities on a managed basis.
(8)Represents annualized, taxable equivalent net interest income divided by average interest-earning assets.
.

NET INTEREST INCOME
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,		 QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease) Percentage Dollar increase/(decrease) Percentage
 (in thousands) (dollars in thousands)
Net interest income$1,574,060
 $1,621,130
 $4,818,373
 $4,981,817
 $(47,070) (2.9)% $(163,444) (3.3)%
Provision for credit losses(652,120) (687,912) (1,992,334) (2,200,154) (35,792) (5.2)% (207,820) (9.4)%
Total non-interest income794,722
 727,573
 2,252,111
 2,148,815
 67,149
 9.2 % 103,296
 4.8 %
General and administrative expenses(1,343,545) (1,281,275) (3,995,019) (3,775,490) 62,270
 4.9 % 219,529
 5.8 %
Other expenses(42,642) (45,550) (130,264) (204,277) (2,908) (6.4)% (74,013) (36.2)%
Income before income taxes330,475
 333,966
 952,867

950,711
 (3,491) (1.0)% 2,156
 0.2 %
Income tax provision(93,448) (108,320) (264,368) (339,968) (14,872) (13.7)% (75,600) (22.2)%
Net income(1)
$237,027
 $225,646
 $688,499
 $610,743
 $11,381
 5.0 % $77,756
 12.7 %
(1)Includes non-controlling interest ("NCI").

The Company reported pre-tax income of $330.5 million and $952.9 million for the three-month and nine-month periods ended September 30, 2017, compared to pre-tax income of $334.0 million and $950.7 million for the three-month and nine-month periods ended September 30, 2016. Factors contributing to these changes were as follows:

Net interest income decreased $47.1 million and $163.4$132.9 million for the three-month and nine-month periodsthree months ended September 30, 2017March 31, 2024 compared to the corresponding periods in 2016. These decreasesthree months ended March 31, 2023. The most significant factors contributing to this change were primarily due to a decrease in interestas follows:

•Interest income earned on loans due to declining yields on consumer loans.

The provision for credit losses decreased $35.8 million and $207.8increased $133.7 million for the three-month and nine-month periodsthree months ended September 30, 2017 compared to the corresponding periods in 2016. These decreases were primarily due to activity in the RIC and auto loan portfolio and the related provisions for these portfolios, the decrease in the Corporate Banking provision and personal unsecured loans and credit cards as well as a decrease in the total average loans held by SHUSA.

Total non-interest income increased $67.1 million and $103.3 million for the three-month and nine-month periods ended September 30, 2017 compared to the corresponding periods of 2016. These increases were primarily in lease income associated with the continued growth of the lease portfolio, and increases in miscellaneous income. These were offset by a decrease in consumer loan fees due to a reduction of loans serviced by the Company for the three-month and nine-month periods ended September 30, 2017.

Total general and administrative expenses increased $62.3 million and $219.5 million for the three-month and nine-month periods ended September 30, 2017 compared to the corresponding periods in 2016. These increases were primarily due to an increase in lease expense due to the growth of the Company's leased vehicle portfolio and an increase in compensation expense due to employee headcount, offset by a decrease in consulting fees.


101

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Other expenses decreased $2.9 million and $74.0 million for the three-month and nine-month periods ended September 30, 2017March 31, 2024 compared to the corresponding period in 2016. These were primarily due2023. This change is attributed to a decrease in expenses associated with loss on debt repurchases.
The income tax provision decreased $14.9average loan volume of $63.3 million and $75.6an increase in average rates of $197.0 million.
•Interest income on interest-earning deposits increased $62.7 million for the three-month and nine-month periodsthree months ended September 30, 2017,March 31, 2024 compared to the corresponding periodsperiod in 2016. These decreases were predominantly due2023. This change is attributed to the undistributed net earningsan increase in average interest-bearing deposits volume of a Puerto Rico subsidiary that will be indefinitely reinvested outside the U.S.

102

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


                
CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
 THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016
 
2017 (1)
 
2016 (1)
 InterestChange due to
 
Average
Balance
 Interest 
Yield/
 Rate(2)
 
Average
Balance
 Interest 
Yield/
Rate(2)
 Increase/(Decrease)VolumeRate
 (dollars in thousands)
EARNING ASSETS               
INVESTMENTS AND INTEREST EARNING DEPOSITS$26,528,717
 $131,516
 1.98% $23,417,007
 $81,885
 1.39% $49,631
$11,832
$37,799
LOANS(3):
               
Commercial loans32,319,061
 307,933
 3.81% 37,164,361
 332,340
 3.56% (24,407)(52,902)28,495
Multifamily8,220,959
 76,413
 3.72% 9,110,535
 82,610
 3.61% (6,197)(9,008)2,811
Total commercial loans40,540,020
 384,346
 3.79% 46,274,896
 414,950
 3.57% (30,604)(61,910)31,306
Consumer loans:               
Residential mortgages8,540,609
 85,956
 4.03% 7,888,262
 62,882
 3.17% 23,074
5,390
17,684
Home equity loans and lines of credit5,881,885
 60,736
 4.13% 6,055,344
 54,888
 3.61% 5,848
(1,451)7,299
Total consumer loans secured by real estate14,422,494
 146,692
 4.07% 13,943,606
 117,770
 3.36% 28,922
3,939
24,983
RICs and auto loans27,381,594
 1,126,517
 16.46% 26,922,199
 1,198,698
 17.71% (72,181)23,011
(95,192)
Personal unsecured2,355,848
 150,951
 25.63% 2,179,968
 137,764
 25.14% 13,187
10,621
2,566
Other consumer(4)
670,318
 13,878
 8.28% 879,136
 19,895
 9.00% (6,017)(4,501)(1,516)
Total consumer44,830,254
 1,438,038
 12.83% 43,924,909
 1,474,127
 13.35% (36,089)33,070
(69,159)
Total loans85,370,274
 1,822,384
 8.54% 90,199,805
 1,889,077
 8.33% (66,693)(28,840)(37,853)
Allowance for loan and lease losses (5)
(3,971,133) —
 —% (3,784,242) —
 —%    
NET LOANS81,399,141
 1,822,384
 8.96% 86,415,563
 1,889,077
 8.70% (66,693)(28,840)(37,853)
Intercompany investments9,531
 133
 5.58% 14,640
 226
 6.14% (93)(74)(19)
TOTAL EARNING ASSETS107,937,389
 1,954,033
 7.24% 109,847,210
 1,971,188
 7.14% (17,155)(17,082)(73)
Other assets(6)
26,566,056
     29,935,299
        
TOTAL ASSETS$134,503,445
     $139,782,509
        
INTEREST BEARING FUNDING LIABILITIES               
Deposits and other customer related accounts:               
Interest-bearing demand deposits$9,851,544
 $6,227
 0.25% $10,977,842
 $6,384
 0.23% $(157)$(1,030)$873
Savings5,967,134
 2,531
 0.17% 6,001,890
 3,299
 0.22% (768)(19)(749)
Money market24,718,439
 31,977
 0.52% 25,199,241
 31,383
 0.50% 594
(542)1,136
Certificates of deposit ("CDs")5,744,488
 15,972
 1.11% 9,515,447
 23,222
 0.97% (7,250)(11,403)4,153
TOTAL INTEREST-BEARING DEPOSITS46,281,605
 56,707
 0.49% 51,694,420
 64,288
 0.49% (7,581)(12,994)5,413
BORROWED FUNDS:               
Federal Home Loan Bank ("FHLB") advances, federal funds, and repurchase agreements4,868,414
 18,973
 1.56% 7,633,696
 24,783
 1.29% (5,810)(13,761)7,951
Other borrowings38,570,714
 304,160
 3.15% 38,314,163
 260,761
 2.71% 43,399
1,719
41,680
TOTAL BORROWED FUNDS (7)
43,439,128
 323,133
 2.98% 45,947,859
 285,544
 2.47% 37,589
(12,042)49,631
TOTAL INTEREST-BEARING FUNDING LIABILITIES89,720,733
 379,840
 1.69% 97,642,279
 349,832
 1.43% 30,008
(25,036)55,044
Noninterest bearing demand deposits15,862,813
     15,107,001
        
Other liabilities(8)
5,339,995
     4,614,098
        
TOTAL LIABILITIES110,923,541
     117,363,378
        
STOCKHOLDER’S EQUITY23,579,904
     22,419,131
        
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY$134,503,445
     $139,782,509
        
                
NET INTEREST SPREAD (9)
    5.55%     5.71%    
NET INTEREST MARGIN (10)
    5.83%     5.87%    
NET INTEREST INCOME  $1,574,060
     $1,621,130
      
(1)Average balances are based on daily averages when available. When daily averages are unavailable, mid-month averages are substituted.
(2)Yields calculated using taxable equivalent net interest income.
(3)Interest on loans includes amortization of premiums and discounts on purchased loan portfolios and amortization of deferred loan fees, net of origination costs. Average loan balances includes non-accrual loans and loans held for sale ("LHFS").
(4)Other consumer primarily includes recreational vehicle ("RV") and marine loans.
(5)Refer to Note 4 to the Condensed Consolidated Financial Statements for further discussion.

103

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


(6)Other assets primarily includes goodwill and intangibles, premise and equipment, net deferred tax assets, equity method investments, bank-owned life insurance ("BOLI"), accrued interest receivable, derivative assets, miscellaneous receivables, prepaid expenses and MSRs. Refer to Note 8 to the Condensed Consolidated Financial Statements for further discussion.
(7)Refer to Note 10 to the Condensed Consolidated Financial Statements for further discussion.
(8)Other liabilities primarily includes accounts payable and accrued expenses, derivative liabilities, net deferred tax liabilities and the unfunded lending commitments liability.
(9)Represents the difference between the yield on total earning assets and the cost of total funding liabilities.
(10)Represents annualized, taxable equivalent net interest income divided by average interest-earning assets.


104

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


                
CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016
 
2017 (1)
 
2016 (1)
 InterestChange due to
 
Average
Balance
 Interest 
Yield/
Rate(2)
 
Average
Balance
 Interest 
Yield/
Rate(2)
 Increase/(Decrease)VolumeRate
 (dollars in thousands)
EARNING ASSETS               
INVESTMENTS AND INTEREST EARNING DEPOSITS$27,141,702
 $378,698
 1.86% $25,581,579
 $302,965
 1.58% $75,733
$19,388
$56,345
LOANS(3):
            


Commercial loans33,400,685
 913,332
 3.65% 37,472,514
 993,965
 3.54% (80,633)(112,927)32,294
Multifamily8,367,176
 234,418
 3.74% 9,223,167
 250,375
 3.63% (15,957)(23,693)7,736
Total commercial loans41,767,861
 1,147,750
 3.66% 46,695,681
 1,244,340
 3.56% (96,590)(136,620)40,030
Consumer loans:               
Residential mortgages8,341,638
 248,210
 3.97% 7,816,089
 187,430
 3.20% 60,780
13,274
47,506
Home equity loans and lines of credit5,926,996
 172,634
 3.88% 6,095,190
 165,639
 3.63% 6,995
(4,676)11,671
Total consumer loans secured by real estate14,268,634
 420,844
 3.93% 13,911,279
 353,069
 3.39% 67,775
8,598
59,177
RICs and auto loans27,100,719
 3,444,811
 16.95% 26,597,271
 3,657,493
 18.37% (212,682)68,973
(281,655)
Personal unsecured2,570,206
 469,517
 24.36% 2,341,387
 436,724
 24.92% 32,793
42,585
(9,792)
Other consumer(4)
718,719
 47,317
 8.78% 940,577
 63,547
 9.02% (16,230)(14,584)(1,646)
Total consumer44,658,278
 4,382,489
 13.08% 43,790,514
 4,510,833
 13.76% (128,344)105,572
(233,916)
Total loans86,426,139
 5,530,239
 8.53% 90,486,195
 5,755,173
 8.50% (224,934)(31,048)(193,886)
Allowance for loan and lease losses (5)
(3,919,362) —
 —% (3,609,242) —
 —% 





NET LOANS82,506,777
 5,530,239
 8.94% 86,876,953
 5,755,173
 8.85% (224,934)(31,048)(193,886)
Intercompany investments12,918
 596
 6.15% 14,640
 677
 6.18% (81)(78)(3)
TOTAL EARNING ASSETS109,661,397
 5,909,533
 7.19% 112,473,172
 6,058,815
 7.20% (149,282)(11,738)(137,544)
Other assets(6)
26,432,133
     30,212,877
        
TOTAL ASSETS$136,093,530
     $142,686,049
   ��    
INTEREST BEARING FUNDING LIABILITIES               
Deposits and other customer related accounts:               
Interest-bearing demand deposits$10,269,643
 $16,299
 0.21% $11,788,832
 $35,809
 0.41% $(19,510)$(4,078)$(15,432)
Savings5,998,369
 8,250
 0.18% 6,012,640
 9,425
 0.21% (1,175)(19)(1,156)
Money market25,488,561
 96,061
 0.50% 24,836,343
 95,377
 0.51% 684
2,700
(2,016)
Certificates of deposit ("CDs")7,040,527
 56,914
 1.08% 9,875,505
 72,524
 0.98% (15,610)(24,219)8,609
TOTAL INTEREST-BEARING DEPOSITS48,797,100
 177,524
 0.49% 52,513,320
 213,135
 0.54% (35,611)(25,616)(9,995)
BORROWED FUNDS:               
Federal Home Loan Bank ("FHLB") advances, federal funds, and repurchase agreements4,761,700
 53,028
 1.48% 10,517,500
 108,061
 1.37% (55,033)(64,493)9,460
Other borrowings38,389,955
 860,012
 2.99% 38,193,757
 755,125
 2.64% 104,887
3,912
100,975
TOTAL BORROWED FUNDS (7)
43,151,655
 913,040
 2.82% 48,711,257
 863,186
 2.37% 49,854
(60,581)110,435
TOTAL INTEREST-BEARING FUNDING LIABILITIES91,948,755
 1,090,564
 1.58% 101,224,577
 1,076,321
 1.42% 14,243
(86,197)100,440
Noninterest bearing demand deposits15,625,300
     13,899,407
        
Other liabilities(8)
5,207,748
     5,408,527
        
TOTAL LIABILITIES112,781,803
     120,532,511
        
STOCKHOLDER’S EQUITY23,311,727
     22,153,538
        
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY$136,093,530
     $142,686,049
        
                
NET INTEREST SPREAD (9)
    5.61%     5.78%    
NET INTEREST MARGIN (10)
    5.86%     5.92%    
NET INTEREST INCOME  $4,818,373
     $4,981,817
      
(1)Average balances are based on daily averages when available. When daily averages are unavailable, mid-month averages are substituted.
(2)Yields calculated using taxable equivalent net interest income.
(3)Interest on loans includes amortization of premiums and discounts on purchased loan portfolios and amortization of deferred loan fees, net of origination costs. Average loan balances includes non-accrual loans and loans held for sale ("LHFS").
(4)Other consumer primarily includes recreational vehicle ("RV") and marine loans.
(5)Refer to Note 4 to the Condensed Consolidated Financial Statements for further discussion.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


(6)Other assets primarily includes goodwill and intangibles, premise and equipment, net deferred tax assets, equity method investments, bank-owned life insurance ("BOLI"), accrued interest receivable, derivative assets, miscellaneous receivables, prepaid expenses and MSRs. Refer to Note 8 to the Condensed Consolidated Financial Statements for further discussion.
(7)Refer to Note 10 to the Condensed Consolidated Financial Statements for further discussion.
(8)Other liabilities primarily includes accounts payable and accrued expenses, derivative liabilities, net deferred tax liabilities and the unfunded lending commitments liability.
(9)Represents the difference between the yield on total earning assets and the cost of total funding liabilities.
(10)Represents annualized, taxable equivalent net interest income divided by average interest-earning assets.


NET INTEREST INCOME

 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,		 QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease) Percentage Dollar increase/(decrease) Percentage
 (in thousands) (dollars in thousands)
INTEREST INCOME:               
Interest-earning deposits$24,370
 $13,400
 $63,279
 $41,890
 $10,970
 81.9 % $21,389
 51.1 %
Investments available-for-sale93,599
 60,844
 270,041
 235,851
 32,755
 53.8 % 34,190
 14.5 %
Investments held-to-maturity8,859
 —
 29,502
 —
 8,859
 100%
 29,502
 100%
Other investments4,688
 7,641
 15,876
 25,224
 (2,953) (38.6)% (9,348) (37.1)%
Total interest income on investment securities and interest-earning deposits131,516
 81,885
 378,698
 302,965
 49,631
 60.6 % 75,733
 25.0 %
Interest on loans1,822,384
 1,889,077
 5,530,239
 5,755,173
 (66,693) (3.5)% (224,934) (3.9)%
Total Interest Income1,953,900
 1,970,962
 5,908,937
 6,058,138
 (17,062) (0.9)% (149,201) (2.5)%
INTEREST EXPENSE:        
   
 
Deposits and customer accounts56,707
 64,288
 177,524
 213,135
 (7,581) (11.8)% (35,611) (16.7)%
Borrowings and other debt obligations323,133
 285,544
 913,040
 863,186
 37,589
 13.2 % 49,854
 5.8 %
Total Interest Expense379,840
 349,832
 1,090,564
 1,076,321
 30,008
 8.6 % 14,243
 1.3 %
 NET INTEREST INCOME$1,574,060
 $1,621,130
 $4,818,373
 $4,981,817
 $(47,070) (2.9)% $(163,444) (3.3)%
         
      

Net interest income decreased $47.1$59.8 million and $163.4an increase in average rates of $2.9 million. This change is primarily driven by the changing interest rate environment.
•Interest and fees on federal funds sold and securities purchased under resale agreements or similar arrangements increased $115.3 million for the three-month and nine-month periodsthree months ended September 30, 2017March 31, 2024, compared to the corresponding periodsperiod in 2016. These overall decreases were primarily due2023. This change is attributed to a decreasean increase in interest income earned on loans as well as increased interest expense on borrowings.average rates of $121.4 million.

Interest Income on Investment Securities and Interest-Earning Deposits

•Interest income on investment securities and interest-earning deposits increased $49.6 million and $75.7$90.1 million for the three-month and nine-month periodsthree months ended September 30, 2017March 31, 2024 compared to the corresponding periodsperiod in 2016. The2023. This change is attributed to an increase in average balance of investment securities volume of $44.5 million and interest-earning deposits for the nine-month period ended September 30, 2017 was $27.1 billion with an increase in average yieldrates of 1.86%, compared to$45.6 million. The change is primarily driven by an average balance of $25.6 billion with an average yield of 1.58% for the corresponding period in 2016. The increase in interest income on investment securities and interest-earning deposits forrates during the three-month and nine-month periods ended September 30, 2017 was primarily attributable to an increase of $8.9 million and $29.5 million in interest income on investments held-to-maturity due to increased volume and an increase of $32.8 million and $34.2 million in interest income on investments available-for-sale.year.


106

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Interest Income on Loans

Interest income on loans decreased $66.7 million and $224.9 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016, primarily due to a decline in the balance of total loans. The average balance of total loans was $86.4 billion with an average yield of 8.53% for the nine-month period ended September 30, 2017, compared to $90.5 billion with an average yield of 8.50% for the corresponding period in 2016. The decrease in the average balance of total loans of $4.1 billion was primarily due to a decline in the balance of the commercial loan portfolio. The average balance of commercial loans was $41.8 billion with an average yield of 3.66% for the nine-month period ended September 30, 2017, compared to $46.7 billion with an average yield of 3.56% for the corresponding period in 2016.

Interest Expense on Deposits and Related Customer Accounts

•Interest expense on deposits and related customer accounts decreased $7.6 million and $35.6increased $210.1 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively,March 31, 2024, compared to the corresponding periodsperiod in 2016,2023. This change is attributed to an increase in average interest-bearing deposit volume of $45.8 million and an increase in average rates of $164.3 million. The increase in average rates is primarily dueattributed to money market and CD products.
•Interest expense on Securities Financing Activities and borrowed funds increased $324.5 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This change is attributed to an increase in average Securities Financing Activities and borrowed funds volume of $69.0 million and an increase in average rates of $255.5 million.
81



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



CREDIT LOSS EXPENSE (BENEFIT)

The Company had credit loss expense of $405.0 million for the three months ended March 31, 2024, compared to a decrease in interest-bearing deposits. The average balancecredit loss expense of total interest-bearing deposits was $48.8 billion with an average cost of 0.49% for the nine-month period ended September 30, 2017, compared to an average balance of $52.5 billion with an average cost of 0.54%$542.4 million for the corresponding period in 2016.2023. The credit loss expense during the three months ended March 31, 2024 was mainly due to RICs and personal unsecured loans charge-offs, partially offset by the decrease in ACL driven by improvement in the macroeconomic outlook for certain macro variables, seasonally expected lower delinquencies in RICs and auto loans, sale of certain RICs and auto loans and lower exposure in Personal unsecured loans.


Interest Expense on Borrowed Funds

InterestCredit loss expense on borrowed funds increased $37.6 million and $49.9commercial loans decreased $37.3 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively,March 31, 2024, compared to the corresponding periodsperiod in 2016. The increase in interest2023, primarily driven by improved macroeconomic scenarios during Q1 2024.

Credit loss expense on borrowed funds was dueconsumer loans decreased $96.4 million for the three months ended March 31, 2024, compared to the corresponding period in 2023, primarily driven by the release of approximately $96.0 million of reserves related to the sale of approximately $1.1 billion of gross RICs. Net charge-offs on the consumer loan portfolios increased $132.9 million for the three months ended March 31, 2024, compared to the corresponding period in 2023, as current year activity reflects normalization in credit performance post pandemic. In addition, there has been an increase in net charge-offs in the interest rate paid for the three-monthpersonal unsecured loan portfolio because of high borrowing costs and nine-month periods ended September 30, 2017. persistent inflation.

The average balance of total borrowings was $43.4 billion and $43.2 billion with an average cost of 2.98% and 2.82% for the three-month and nine-month periods ended September 30, 2017, respectively, compared to an average balance of $45.9 billion and $48.7 billion with an average cost of 2.47% and 2.37% for the corresponding periods in 2016. The average balance of borrowed funds decreased from September 30, 2016 to September 30, 2017, primarily due to the decrease in FHLB advances as a result of maturities and terminations. The increase in interestcredit loss expense on borrowed funds is due to the Company issuing $3.5 billion of long-term debt at higher fixed rates in 2017 to increase liquidity and meet the FRB's TLAC requirement.

107

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


PROVISION FOR CREDIT LOSSES

The provision for credit losses is based on credit loss experience, growth or contraction of specific segments of the loan portfolio, and the estimate of losses inherent in the portfolio. The provision forunfunded credit losses for the three-month and nine-month periodsthree months ended September 30, 2017 was $652.1March 31, 2024 increased $3.7 million and $2.0 billion, respectively, compared to $687.9 million and $2.2 billion for the corresponding periods in 2016. The decrease for the nine-month period ended September 30, 2017 was primarily related to the buildup of the ALLL coverage ratio throughout 2016, mainly on the RIC and auto loan portfolio. The provision continues to reflect the growth of the RIC and auto loan portfolio.
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,
 2017 2016 2017 2016
 (in thousands)
ALLL, beginning of period$3,953,607
 $3,765,887
 $3,814,464
 $3,246,145
Charge-offs:       
Commercial(30,576) (41,660) (117,263) (118,273)
Consumer(1,224,296) (1,249,370) (3,590,495) (3,424,199)
Total charge-offs(1,254,872) (1,291,030) (3,707,758) (3,542,472)
Recoveries:       
Commercial9,635
 21,359
 29,266
 68,640
Consumer594,959
 608,915
 1,818,335
 1,828,621
Total recoveries604,594
 630,274
 1,847,601
 1,897,261
Charge-offs, net of recoveries(650,278) (660,756) (1,860,157) (1,645,211)
Provision for loan and lease losses (1)
647,177
 709,151
 1,996,199
 2,213,348
Other(2):
       
Commercial356
 —
 356
 —
Consumer5,283
 —
 5,283
 —
ALLL, end of period$3,956,145
 $3,814,282
 $3,956,145
 $3,814,282
Reserve for unfunded lending commitments, beginning of period$111,811
 $156,898
 $122,419
 $149,021
Provision for unfunded lending commitments (1)
4,943
 (21,239) (3,865) (13,194)
Loss on unfunded lending commitments(668) (1,094) (2,468) (1,262)
Reserve for unfunded lending commitments, end of period116,086
 134,565
 116,086
 134,565
Total allowance for credit losses ("ACL"), end of period$4,072,231
 $3,948,847
 $4,072,231
 $3,948,847

(1) The provision for credit losses in the Condensed Consolidated Statement of Operations is the sum of the total provision for loan and lease losses and the provision for unfunded lending commitments.
(2) Includes transfers in for the period ending September 30, 2017.

The Company's net charge-offs decreased $10.5 million for the three-month period ended September 30, 2017, and increased $214.9 million for the nine-month period ended September 30, 2017 compared to the corresponding periodsperiod in 2016.2023.


Consumer charge-offs decreased $25.1 million and increased $166.3 million for the three-month and nine-month periods ended September 30, 2017, respectively compared to the corresponding periods in 2016. The three-month decrease was primarily due to a $21.5 million decrease in consumer auto loan charge-offs, and the nine-month increase was due to a $173.5 million increase in consumer auto loan charge-offs which were primarily attributable to portfolio aging and mix shift, lower realized recovery rates, and less benefit from bankruptcy sales.

Consumer recoveries decreased $14.0 million and decreased $10.3 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The three-month decrease was primarily due to a $13.7 million decrease in consumer auto recoveries and the nine-month decrease was primarily due to a $6.0 million decrease in consumer auto loan recoveries, a $1.6 million decrease in home equity recoveries, and a $3.2 million decrease in other consumer recoveries.

Consumer net charge-offs as a percentage of average consumer loans were 1.4% and 4.0% for the three-month and nine-month periods ended September 30, 2017, respectively, compared to 1.5% and 3.6% for the corresponding periods in 2016.


108

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Commercial charge-offs decreased $11.1 million and $1.0 million for the three-month and nine-month periods ended September 30, 2017, respectively compared to the corresponding periods in 2016. The three-month decrease was primarily due to a $10.4 million decrease in Commercial real estate charge-offs, and the nine-month decrease was primarily due to a $22.6 million decrease in Commercial Fleet charge-offs, offset by a $10.6 million increase in Commercial Banking charge-offs and a $10.8 million increase in Commercial charge-offs to commercial loans held in Puerto Rico.

Commercial recoveries decreased $11.7 million and $39.4 million for the three-month and nine-month periods ended September 30, 2017, respectively compared to the corresponding periods in 2016. The three-month decrease was primarily due to a $9.2 million decrease in commercial real estate recoveries, and a $2.5 million decrease in commercial fleet recoveries.

Commercial loan net charge-offs as a percentage of average commercial loans, including multifamily loans, were 0.05% and 0.21% for the three-month and nine-month periods ended September 30, 2017, respectively.


NON-INTEREST INCOME
Three months ended March 31,YTD Change
(dollars in thousands)20242023Dollar increase/(decrease)Percentage
Consumer fees$54,486 $52,066 $2,420 4.6 %
Commercial fees29,731 38,263 (8,532)(22.3)%
Lease income593,447 628,424 (34,977)(5.6)%
Capital market revenue115,970 37,082 78,888 212.7 %
Miscellaneous income, net78,931 107,472 (28,541)(26.6)%
Net gains recognized in earnings65,166 36,960 28,206 76.3 %
Total non-interest income$937,731 $900,267 $37,464 4.2 %
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,		 QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease) Percentage Dollar increase/(decrease) Percentage
 (in thousands) (dollars in thousands)
Consumer fees$105,624
 $120,956
 $337,738
 $381,943
 $(15,332) (12.7)% $(44,205) (11.6)%
Commercial fees46,282
 50,728
 130,871
 153,640
 (4,446) (8.8)% (22,769) (14.8)%
Mortgage banking income, net14,783
 22,537
 43,049
 50,005
 (7,754) (34.4)% (6,956) (13.9)%
Bank-owned life insurance17,807
 14,150
 49,159
 44,315
 3,657
 25.8 % 4,844
 10.9 %
Lease income509,714
 483,929
 1,494,801
 1,365,519
 25,785
 5.3 % 129,282
 9.5 %
Miscellaneous income93,805
 35,637
 180,217
 94,842
 58,168
 163.2 % 85,375
 90.0 %
Net gains recognized in earnings6,707
 (364) 16,276
 58,551
 7,071
 (1,942.6)% (42,275) (72.2)%
Total non-interest income$794,722
 $727,573
 $2,252,111
 $2,148,815
 $67,149
 9.2 % $103,296
 4.8 %


Total non-interest income increased $67.1 million and $103.3$37.5 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The increases for the three-month and nine-month periods ended September 30, 2017 were primarily due to increase in lease income associated with the continued growth of the lease portfolio and increases in miscellaneous income. These increases were offset by decreases in consumer loan fees due to the reduction of loans serviced by the Company three-month and nine-month periods ended September 30, 2017.

Consumer Fees

Consumer fees decreased $15.3 million and $44.2 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The decrease in consumer fees for the three-month and nine-month periods ended September 30, 2017 was primarily due to $24.7 million and $73.3 million decrease in loan fee income, which was attributable to the reduction of loans serviced by the Company due to loan sales and payoffs and lower reserve recourse releases in 2017. This was partially offset by an increase of $3.9 million and $12.3 million in consumer deposit fees for the three-month and nine-month periods ended September 30, 2017.

Commercial Fees

Commercial fees consists of deposit overdraft fees, deposit automated teller machine ("ATM") fees, cash management fees, letter of credit fees, and loan syndication fees for commercial accounts. Commercial fees decreased $4.4 million and $22.8 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016, primarily due to lower capital markets income.


109

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Mortgage Banking Revenue
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,		 QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease) Percentage Dollar increase/(decrease) Percentage
 (dollars in thousands)        
Mortgage and multifamily servicing fees$10,244
 $10,772
 $31,320
 $32,387
 $(528) (4.9)% $(1,067) (3.3)%
Net gains on sales of residential mortgage loans and related securities13,582
 8,049
 19,258
 18,127
 5,533
 68.7 % 1,131
 6.2 %
Net gains on sales of multifamily mortgage loans1,000
 1,097
 2,200
 2,397
 (97) (8.8)% (197) (8.2)%
Net gains (losses) on hedging activities(3,134) 655
 6,812
 33,624
 (3,789) (578.5)% (26,812) (79.7)%
Net gains/(losses) from changes in MSR fair value(1,578) 7,711
 (1,315) (18,113) (9,289) (120.5)% 16,798
 (92.7)%
MSR principal reductions(5,331) (5,747) (15,226) (18,417) 416
 (7.2)% 3,191
 (17.3)%
     Total mortgage banking income, net$14,783
 $22,537

$43,049

$50,005
 $(7,754) (34.4)% $(6,956) (13.9)%

Mortgage banking income consisted of fees associated with servicing loans not held by the Company, as well as originations, amortization, and changes in the fair value of MSRs and recourse reserves. Mortgage banking income also included gains or losses on the sale of mortgage loans, home equity loans, home equity lines of credit, and mortgage-backed securities ("MBS"). Gains or losses on mortgage banking derivative and hedging transactions are also included in Mortgage banking income.

Mortgage banking revenue decreased $7.8 million and $7.0 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The decrease for the three-month period ended September 30, 2017 was primarily attributable to $9.3 million of net losses from changes in MSR fair value, and $3.8 million of change due to net losses on hedging activities, offset by $5.5 million of higher net gains on sales of residential mortgage loans and related securities. The decrease for the nine-month period ended September 30, 2017 was attributable to $26.8 million of lower net gains on hedging activities, offset by $16.8 million of higher net gain from changes in MSR fair value.

Since 2015, mortgage interest rates have remained stable, resulting in relative stability in mortgage banking fees from rate changes.

The following table details interest rates on certain residential mortgage loans for the Bank as of the dates indicated:
 30-Year Fixed 15-Year Fixed
December 31, 20154.13% 3.38%
March 31, 20163.63% 2.88%
June 30, 20163.50% 2.75%
September 30, 20163.50% 2.88%
December 31, 20164.38% 3.63%
March 31, 20174.25% 3.50%
June 30, 20174.13% 3.38%
September 30, 20174.13% 3.75%

Other factors, such as portfolio sales, servicing, and re-purchases, have continued to affect mortgage banking revenue.

Mortgage and multifamily loan servicing fees decreased $0.5 million and $1.1 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. At September 30, 2017 and 2016, the Company serviced mortgage and multifamily real estate loans for the benefit of others with a principal balance totaling $294.9 million and $688.8 million, respectively. The decrease in loans serviced for others is primarily due to pay-downs received during 2017.


110

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Net gains on sales of residential mortgage loans and related securities increased $5.5 million and $1.1 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. For the three-month and nine-month periods ended September 30, 2017, the Company sold $454.2 million and $1.4 billion of mortgage loans for gains of $13.6 million and $19.3 million, compared to $639.8 million and $1.5 billion of loans sold for gains of $8.0 million and $18.1 million for the corresponding periods in 2016.

The Company periodically sells qualifying mortgage loans to the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association and the Federal National Mortgage Association ("FNMA") in return for MBS issued by those agencies. The Company records these transactions as sales when the transfers meet all of the accounting criteria for a sale. For those loans sold to the agencies for which the Company retains the servicing rights, the Company recognizes the servicing rights at fair value. These loans are also generally sold with standard representation and warranty provisions, which the Company recognizes at fair value. Any difference between the carrying value of the transferred mortgage loans and the fair value of the MBS, servicing rights, and representation and warranty reserves is recognized as gain or loss on sale.

The net gains on sales of multifamily mortgage loans for the three-month and nine-month periods ended September 30, 2017 changed by an immaterial amount when compared to the corresponding periods in 2016. These changes were primarily due to a $1.0 million and $2.2 million release in the FNMA recourse reserve for the three-month and nine-month periods ended September 30, 2017, respectively, compared to $1.1 million and $2.4 million releases for the corresponding periods in 2016.

The Company previously sold multifamily loans in the secondary market to FNMA while retaining servicing. In September 2009, the Bank elected to stop selling multifamily loans to FNMA and, since that time, has retained all production for the multifamily loan portfolio. Under the terms of the multifamily sales program with FNMA, the Company retained a portion of the credit risk associated with those loans. As a result of that agreement, the Company retains a 100% first loss position on each multifamily loan sold to FNMA under the program until the earlier to occur of (i) the aggregate approved losses on the multifamily loans sold to FNMA reaching the maximum loss exposure for the portfolio as a whole or (ii) all of the loans sold to FNMA under the program are fully paid off.

At September 30, 2017, the Company serviced loans with a principal balance of $152.6 million for FNMA compared to $341.7 million at DecemberMarch 31, 2016. These loans had a credit loss exposure of $34.4 million as of both September 30, 2017 and December 31, 2016. Losses, if any, resulting from representation and warranty defaults would be in addition to the Company's credit loss exposure. The servicing asset for these loans has completely amortized.

The Company has established a liability related to the fair value of the retained credit exposure for multifamily loans sold to FNMA. This liability represents the amount the Company estimates it would have to pay a third party to assume the retained recourse obligation. The estimated liability represents the present value of the estimated losses the portfolio is projected to incur based upon internal specific information and an industry-based default curve with a range of estimated losses. As of September 30, 2017 and December 31, 2016, the Company had a liability of $1.6 million and $3.8 million, respectively, related to the fair value of the retained credit exposure for multifamily loans sold to the FNMA under this program.

Net gains on hedging activities decreased $3.8 million and $26.8 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The variances for the three-month and nine-month periods ended September 30, 2017 were primarily due to the decrease in the value of mortgage loan pipeline and the Company's hedging strategy in the current mortgage rate environment.

Net gains/losses from changes in MSR fair value were a loss of $1.6 million and a loss of $1.3 million for the three-month and nine-month periods ended September 30, 2017, respectively, as compared to a net gain of $7.7 million and a net loss of $18.1 million for the corresponding period in 2016. The value of the related MSRs carried at fair value at September 30, 2017 and December 31, 2016 was $143.5 million and $146.6 million, respectively. The MSR asset fair value changes for the three-month and nine-month periods ended September 30, 2017 were the result of fluctuations in interest rates.

The Company recognized $5.3 million and $15.2 million of principal reductions for the three-month and nine-month periods ended September 30, 2017, respectively, compared to $5.7 million and $18.4 million for the corresponding periods in 2016. Principal reduction activity is impacted by changes in the level of prepayments and mortgage refinancing.


111

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Bank Owned Life Insurance ("BOLI")

BOLI income represents fluctuations in the cash surrender value of life insurance policies on certain employees. The Bank is the beneficiary and the recipient of the insurance proceeds. Income from BOLI increased $3.7 million and $4.8 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016 as a result of an increase in death benefits received.

Lease income

Lease income increased $25.8 million and $129.3 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. These increases were the result of the growth of the Company's lease portfolio with an average balance of $10.1 billion for the nine-month period ended September 30, 2017, and $9.2 billion for the same periods in 2016.

Miscellaneous Income

Miscellaneous income increased $58.2 million and $85.4 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The miscellaneous income increased for the three-month period ended September 30, 2017 was primarily due a decrease in the lower of cost or market adjustments required to a loan portfolio that is held for sale of $60.8 million and an increase of $20.1 million on gain on sale of fixed assets, offset by a decrease of $37.4 million due to change in fair value of loan portfolio and $10.3 million in capital markets revenue, respectively,2024 compared to the corresponding period in 2016. The increased2023. This change was primarily comprised of:

•Lease income decreased $35.0 million for the nine-month periodthree months ended September 30, 2017 was primarily due to a gain on sale of operating lease of $49.9 million, an increase in gain on sale of fixed assets of $30.6 million, offset by a decrease in other income of $20.0 million, respectively,March 31, 2024 compared to the corresponding periodsperiod in 2016. For further discussion, see Note 162023, primarily due to the Condensed Consolidated Financial Statements.less active leased vehicle units.

Net gains recognized in earnings

The Company recognized $6.7 million and $16.3•Capital market revenue increased $78.9 million for the three-month and nine-month periodsthree months ended September 30, 2017, in net gains on the sale of AFS investment securities as a result of overall balance sheet management and in order to reposition the investment portfolio with securities that decreased the Company's risk weighted assets. The net gain realized for the three-month period ended September 30, 2017 was primarily comprised of the sale of MBS's, including FHLMC residential debt securities and collateralized mortgage obligations ("CMOs"), with a book value of $558.6 million for a gain of $7.0 million. The net gain realized for the nine-month period ended September 30, 2017 was primarily comprised of the sale of U.S. Treasury securities with a book value of $739.4 million for a gain of $1.8 million, and the sale of MBS's, including FHLMC residential debt securities and collateralized mortgage obligations ("CMOs"), with a book value of $1.1 billion for a gain of $16.3 million.

The Company recognized $58.6 million for the nine-month period ended September 30, 2016, in net gains on the sale of AFS investment securities as a result of overall balance sheet and interest rate risk management. The net gain realized for the nine-month period ended September 30, 2016 was primarily comprised of the sale of state and municipal securities with a book value of $748.0 million for a gain of $19.9 million, the sale of U.S. Treasury securities with a book value of $3.2 billion for a gain of $7.0 million, corporate debt securities sold with a book value of $1.4 billion for a gain of $5.9 million, and the sale of MBS, including FHLMC residential debt securities and CMOs, with a book value of $1.3 billion for a gain of $24.7 million.

112

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


GENERAL AND ADMINISTRATIVE EXPENSES
 Three-Month Period
Ended September 30,		 Nine-Month Period Ended September 30, QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease)Percentage Dollar increase/(decrease)Percentage
 (dollars in thousands)
Compensation and benefits$452,587
 $426,162
 $1,360,444
 $1,282,094
 $26,425
6.2 % $78,350
6.1 %
Occupancy and equipment expenses165,201
 156,611
 491,465
 453,687
 8,590
5.5 % 37,778
8.3 %
Technology expense59,056
 56,449
 181,331
 183,039
 2,607
4.6 % (1,708)(0.9)%
Outside services46,994
 57,742
 154,272
 207,472
 (10,748)(18.6)% (53,200)(25.6)%
Marketing expense23,424
 35,944
 91,641
 77,986
 (12,520)(34.8)% 13,655
17.5 %
Loan expense91,147
 101,101
 285,364
 307,992
 (9,954)(9.8)% (22,628)(7.3)%
Lease expense409,424
 338,077
 1,137,456
 953,142
 71,347
21.1 % 184,314
19.3 %
Other administrative expenses95,712
 109,189
 293,046
 310,078
 (13,477)(12.3)% (17,032)(5.5)%
Total general and administrative expenses$1,343,545
 $1,281,275
 $3,995,019
 $3,775,490
 $62,270
4.9 % $219,529
5.8 %

Total general and administrative expenses increased $62.3 million and $219.5 million for the three-month and nine-month periods ended September 30, 2017, respectively,March 31, 2024 compared to the corresponding periodsperiod in 2016. Factors contributing to this increase were as follows:

Compensation and benefits expense increased $26.4 million and $78.4 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The primary driver of these increases was the Company's salary expense which resulted in a $15.2 million and $37.6 million increase for the three-month and nine-month periods ended September 30, 2017, respectively. Commission expense increased $6.1 million and $11.7 million for the three-month and nine-month periods ended September 30, 2017, respectively. Additionally, other compensation and benefit expense increased $5.3 million and $24.0 million for the three-month and nine-month periods ended September 30, 2017, respectively. These increases were offset by decreases in bonus expense of $4.6 million and $9.7 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.
Occupancy and equipment expenses increased $8.6 million and $37.8 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. This was2023, primarily due to an increase in depreciation expense of $6.2 millioninvestment banking fee income and $18.0trading derivatives gains.
•Miscellaneous income, net decreased $28.5 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively. These increases were primarily due to more assets being placed in service and an increase in depreciation for assets that were moved to held for sale and sold during the periods. There were also $1.2 million and $10.2 million increases in maintenance and repair expense and other occupancy and equipment expenses for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.
Outside services decreased $10.7 million and $53.2 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. This was primarily due to a decrease in consulting service fees of $8.9 million and $42.4 million, respectively, which related to regulatory initiatives, including preparation for meeting the requirements of the IHC during 2016.
Marketing expense decreased $12.5 million and increased $13.7 million for the three-month and nine-month periods ended September 30, 2017, respectively,March 31, 2024 compared to the corresponding period in 2016. These variances were primarily due to expenses such as direct mail, advertising and outside marketing associated with corporate marketing campaigns.2023, discussed further below.
Loan expense decreased $10.0 million and $22.6•Net gains recognized in earnings increased $28.2 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively,March 31, 2024 compared to the corresponding periodsperiod in 2016. These decreases were2023, primarily due to decreases of $12.0 million and $14.2 million in loan collection expenses.

an increase from trading securities gains during 2024.
113
82



SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations





Miscellaneous income
Lease expense increased $71.3 million and $184.3
Three months ended March 31,YTD Change
(dollars in thousands)20242023Dollar increase/(decrease)Percentage
Mortgage banking income, net$13,750 $4,184 $9,566 228.6 %
BOLI18,194 15,570 2,624 16.9 %
Net gain on sale of operating leases22,759 22,383 376 1.7 %
Asset and wealth management fees80,603 61,133 19,470 31.8 %
Gain/(Loss) on sale of non-mortgage loans(740)(4,701)3,961 84.3 %
Other miscellaneous income / (loss), net(55,635)8,903 (64,538)(724.9)%
Total miscellaneous income$78,931 $107,472 $(28,541)(26.6)%

Miscellaneous income decreased $28.5 million for the three-month and nine-month periodsthree months ended September 30, 2017March 31, 2024 compared to the corresponding periodsperiod in 2016. These increases were2023. This change was primarily comprised of:

•an increase in asset and wealth management fees due to the continued growthan increase in brokerage income.
•a decrease in Other miscellaneous income / (loss), net due to a decrease in gains on securitizations and a decrease in miscellaneous fee income.

83



Item 2.    Management’s Discussion and Analysis of the Company's leased vehicle portfolioFinancial Condition and accumulationResults of depreciation associated with that portfolio.Operations

Other

GENERAL, ADMINISTRATIVE AND OTHER EXPENSES
Three months ended March 31,YTD Change
(dollars in thousands)20242023Dollar increase/(decrease)Percentage
Compensation and benefits$533,780 $491,751 $42,029 8.5 %
Occupancy and equipment expenses157,550 169,740 (12,190)(7.2)%
Technology, outside services, and marketing expense184,310 169,293 15,017 8.9 %
Loan expense83,575 104,444 (20,869)(20.0)%
Lease expense461,521 486,967 (25,446)(5.2)%
Other expenses138,545 120,979 17,566 14.5 %
Total general, administrative and other expenses$1,559,281 $1,543,174 $16,107 1.0 %

Total general, administrative and other expenses decreased $13.5 million and $17.0increased $16.1 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively,March 31, 2024 compared to the corresponding periodsperiod in 2016. These decreases were2023. This change was primarily attributable to lower operational risk expensescomprised of:

•Compensation and other non income tax expenses, offset bybenefits increased in miscellaneous expenses for three-month and nine-month periods ended September 30, 2017.


OTHER EXPENSES
 Three-Month Period
Ended September 30,		 Nine-Month Period Ended September 30, QTD Change YTD Change
 2017 2016 2017 2016 Dollar (decrease)/increase Percentage Dollar (decrease)/increase Percentage
 (dollars in thousands)
Amortization of intangibles$15,288
 $17,174
 $46,204
 $52,860
 $(1,886) (11.0)% $(6,656) (12.6)%
Deposit insurance premiums and other expenses19,792
 17,950
 55,218
 56,966
 1,842
 10.3 % (1,748) (3.1)%
Loss on debt extinguishment5,582
 10,228
 16,321
 88,672
 (4,646) (45.4)% (72,351) (81.6)%
Other miscellaneous expenses1,980
 198
 12,521
 5,779
 1,782
 900.0 % 6,742
 116.7 %
Total other expenses$42,642
 $45,550
 $130,264
 $204,277
 $(2,908) (6.4)% $(74,013) (36.2)%

Total other expenses decreased $2.9 million and $74.0$42.0 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively,March 31, 2024 compared to the corresponding periodsperiod in 2016. The primary factors contributing2023, from investment in personnel related to these decreases were:our strategic initiatives.

Amortization of intangibles decreased $1.9 million•Technology, outside services, and $6.7marketing expense increased $15.0 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively,March 31, 2024 compared to the corresponding periodsperiod in 2016. These decreases were primarily2023 due to a portion of the Company's core deposit intangibles becoming fully amortized in the second quarter of 2016, thereby reducing intangibles in 2017.higher technology vendor expense, corporate function projects, and higher advertising costs.

Deposit insurance premiums and other expenses increased $1.8 million and•Loan expense decreased $1.7$20.9 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively,March 31, 2024 compared to the corresponding periodsperiod in 2016. The2023 due to decreased servicing, origination, and collection expenses.
•Lease expense for the three-month and nine-month periods ended September 30, 2016 included a higher contingent loss on the transfer of unfunded credit facilities to Santander, which did not recur in 2017. This decrease in cost was offset by increases in other expenses and FDIC insurance premium.

Losses on debt extinguishment decreased $4.6 million and $72.4$25.4 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively,March 31, 2024, compared to the corresponding periodsperiod in 2016. These expenses were primarily related to early termination fees incurred by the Company in association with the termination of FHLB advances in 2016. During the three-month and nine-month periods ended September 30, 2016, the Bank terminated $1.3 billion and $2.8 billion of FHLB advances, respectively, incurring costs of $32.9 million and $78.4 million. The Bank also terminated $750.0 million and $3.5 billion of FHLB advances during the three-month and nine-month periods ended September 30, 2016. During the three-month period ended September 30, 2017, a $5.1 million expense on tender offer was incurred. Additionally, for the nine-month period ended September 30, 2017, a $4.0 million charge on the buyback of REIT preferred stock, and a tender offer on Bank debt resulted in a charge of $6.7 million.

Other miscellaneous expenses increased $1.8 million and $6.7 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. These increases were primarily2023, due to the impairment of capitalized software of $1.5 million and $8.0 millionlower auto lease volumes resulting in the three-month and nine-month periods ended September 30, 2017.lower depreciation expense.


114

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


INCOME TAX PROVISION


An incomeIncome tax provisionexpense of $93.4$7.8 million and $264.4$28.2 million was recorded for the three-monththree months ended March 31, 2024 and nine-month periods2023, respectively. This resulted in an ETR of 2.2% for the three months ended September 30, 2017, respectively,March 31, 2024 compared to $108.3 million and $340.0 million8.7% for the corresponding periodsperiod in 2016. This resulted in effective2023.

The income tax rates ("ETR") of 28.3% and 27.7%expense recorded (and related ETR) for the three-month and nine-month periodsthree months ended September 30, 2017, respectively,March 31, 2024 was directly impacted by an increase in forecasted electric vehicle tax credits expected to be generated in 2024 when compared to 32.4% and 35.8% for the corresponding periods in 2016.first quarter of 2023.

The decrease in the ETR for the three-month and nine-month periods ended September 30, 2017 was predominantly due to the undistributed net earnings of a Puerto Rico subsidiary that will be indefinitely reinvested outside the U.S.


The Company's ETR in future periods will be affected by the results of operations allocated to the various tax jurisdictions in which the Company operates, any change in income tax laws or regulations within those jurisdictions, and interpretations of income tax regulations that differ from the Company's interpretations by tax authorities that examine tax returns filed by the Company or any of its subsidiaries.


84




Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



LINE OF BUSINESS RESULTS


GeneralThe Company manages its business activities by it six reportable segments, Auto, CBB, C&I, CRE, CIB, and Wealth Management. The tables below reflect certain information by reportable segment and includes additional supplementary information related to consumer activities and commercial activities.The supplementary information is deemed to be useful as it represents a view in how we manage the business and also aligns with how our parent, Santander, manages its business from a global perspective.


Consumer Activities

Consumer activities consist of the Company's Auto and CBB reportable segments.

Three months ended March 31,20242023Total Consumer Activities
AutoCBBTotal Consumer activitiesAutoCBBTotal Consumer ActivitiesDollar increase/(decrease)Percentage
Net interest income$885,622 $377,814 $1,263,436 $920,272 $400,246 $1,320,518 $(57,082)(4.3)%
Total non-interest income571,158 61,348 $632,506 650,683 65,974 $716,657 $(84,151)(11.7)%
Credit loss expense379,652 52,034 $431,686 417,766 109,095 $526,861 $(95,175)(18.1)%
Total expenses807,303 353,005 $1,160,308 824,726 368,348 $1,193,074 $(32,766)(2.7)%
Income/(loss) before income taxes269,825 34,123 $303,948 328,463 (11,223)$317,240 $(13,292)(4.2)%
Total assets61,259,798 11,747,388 $73,007,186 62,163,190 13,174,180 $75,337,370 $(2,330,184)(3.1)%

The Company's segments at September 30, 2017 consistedCompany reported total income before income taxes related to its Consumer activities of Consumer and Business Banking, Commercial Banking, Commercial Real Estate, Global Corporate Banking ("GCB"), and SC. For additional information with respect$303.9 million for the three months ended March 31, 2024 compared to income before income taxes of $317.2 million for the corresponding period in 2023. The most significant drivers of this change were:

•Total non-interest income decreased $84.2 million for the three months ended March 31, 2024 compared to the Company's reporting segments, see Note 17corresponding period of 2023, primarily due to Auto, which decreased $79.5 million. This change was primarily due to a reduction of the lease portfolio and higher electric vehicle mix and a loss on sale related to a strategic portfolio sale in the first quarter of 2024.
•Credit loss expense decreased $95.2 million for the three months ended March 31, 2024 compared to the Condensed Consolidatedcorresponding period in 2023, comprised of a decrease in CBB of $57.1 million and a decrease in $38.1 million in Auto driven by net reserve releases related to a portfolio sale in auto.

85



Item 2.    Management’s Discussion and Analysis of Financial Statements.Condition and Results of Operations

Results Summary


ConsumerCommercial Activities

Commercial activities consist of the Company's C&I reportable segment and Business BankingCRE reportable segment.


Three months ended March 31,
20242023Total Commercial Activities
C&ICRETotal Commercial ActivitiesC&ICRETotal Commercial ActivitiesDollar increase/(decrease)Percentage
Net interest income$86,401 $124,191 $210,592 $82,942 $105,132 $188,074 $22,518 12.0 %
Total non-interest income14,070 8,953 $23,023 10,929 4,997 $15,926 $7,097 44.6 %
Credit loss expense / (benefit)(21,395)8,737 $(12,658)2,094 30,383 $32,477 $(45,135)(139.0)%
Total expenses52,986 32,366 $85,352 59,023 31,781 $90,804 $(5,452)(6.0)%
Income before income taxes68,880 92,041 $160,921 32,754 47,965 $80,719 $80,202 99.4 %
Total assets4,080,901 23,845,435 $27,926,336 6,021,239 21,921,029 $27,942,268 $(15,932)(0.1)%

The Company reported total income before income taxes related to its Commercial activities of $160.9 million for the three months ended March 31, 2024 compared to income before income taxes of $80.7 million for the corresponding period in 2023. The most significant drivers of this change were:

•Net interest income increased $22.5 million for the three months ended March 31, 2024 compared to the corresponding period of 2023. This was primarily related to CRE, which increased $19.1 million due to the impact of the December 2023 acquisition of a multifamily portfolio through a joint venture partnership with the FDIC.
•Total non-interest income increased $7.1 million for the three months ended March 31, 2024 compared to the corresponding period of 2023, driven by servicing fees associated with the aforementioned joint venture.
•Credit loss expense decreased $45.1 million for the three months ended March 31, 2024 compared to the corresponding period of 2023. This was primarily driven by reserve releases in C&I attributed to lower loan balances and specific reserve releases in CRE due to payoffs and lower credit loss expense associated with lower reserve builds during the first quarter of 2024.
•Total expenses decreased $5.5 million for the three months ended March 31, 2024 compared to the corresponding period of 2023 driven by transformation initiatives underway in the business.


86



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,		 QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease) Percentage Dollar increase/(decrease) Percentage
 (in thousands) (dollars in thousands)
Net interest income$324,539
 $297,952
 $945,102
 $793,345
 $26,587
 8.9 % $151,757
 19.1 %
Total non-interest income100,583
 104,736
 282,360
 297,311
 (4,153) (4.0)% (14,951) (5.0)%
Provision for credit losses20,716
 19,872
 64,577
 40,215
 844
 4.2 % 24,362
 60.6 %
Total expenses379,299
 395,759
 1,169,247
 1,162,090
 (16,460) (4.2)% 7,157
 0.6 %
Income/(loss) before income taxes25,107
 (12,943) (6,362) (111,649) 38,050
 294.0 % 105,287
 94.3 %
Intersegment revenue/(expense)(1)
3,076
 9,656
 9,226
 34,111
 (6,580) (68.1)% (24,885) (73.0)%
Total assets19,716,199
 19,735,459
 19,716,199
 19,735,459
 (19,260) (0.1)% (19,260) (0.1)%
CIB

 
Three months ended March 31
YTD Change
(dollars in thousands)20242023Dollar increase/(decrease)Percentage
Net interest income$26,911 $59,789 $(32,878)(55.0)%
Total non-interest income164,850 89,735 75,115 83.7 %
Credit loss expense / (benefit)(12,743)(11,122)(1,621)(14.6)%
Total expenses195,479 120,139 75,340 62.7 %
Income before income taxes9,025 40,507 (31,482)(77.7)%
Total assets26,842,241 36,282,779 (9,440,538)(26.0)%
Consumer and Business Banking
CIB reported income before income taxes of $25.1$9.0 million and a lossfor the three months ended March 31, 2024 compared to income before income taxes of $6.4$40.5 million for the three-month and nine-month periodscorresponding period in 2023. Factors contributing to this change were:

•Net interest income decreased $32.9 million for the three months ended September 30, 2017, respectively,March 31, 2024 compared to lossesthe corresponding periods in 2023 driven by lower volume.
•Total non-interest income increased $75.1 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This increase was due to fees generated from the CIB build out initiative and increased gains on trading activity.
•Total expenses increased $75.3 million for the three months ended March 31, 2024 compared to the corresponding period in 2023, driven by upfront cost in the CIB build out initiative launched in the third quarter of 2023.
•Total assets decreased $9.4 billion for the three months ended March 31, 2024 compared to the corresponding period in 2023. This decrease was driven by strategic initiatives.

Wealth Management

 
Three months ended March 31
YTD Change
(dollars in thousands)20242023Dollar increase/(decrease)Percentage
Net interest income$60,684 $70,019 $(9,335)(13.3)%
Total non-interest income83,732 57,655 26,077 45.2 %
Total expenses66,870 68,522 (1,652)(2.4)%
Income before income taxes77,546 59,152 18,394 31.1 %
Total assets7,322,916 8,267,535 (944,619)(11.4)%

Wealth Management reported income before income taxes of $12.9 million and $111.6$77.5 million for the three-month and nine-month periodsthree months ended September 30, 2016. Factors contributingMarch 31, 2024, compared to these changes were as follows:

Net interest income increased $26.6 million and $151.8before income taxes of $59.2 million for the three-month and nine-monthcorresponding period in 2023. The primary factors contributing to this change were:

•Total non-interest income increased $26.1 million for the three months ended March 31, 2024 compared to the corresponding periods in 2023, driven by higher security transaction income.
•Total assets decreased $944.6 million for the three months ended September 30, 2017,March 31, 2024, respectively, compared to the corresponding periods in 2016. These increases were primarily2023, driven by deposit product margin where despite rising interest rates, costs have been managed down.a reduction of loans and securities, as the higher rate environment lessened renewals at maturity.



115
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations





Other
 
Three months ended March 31
YTD Change
(dollars in thousands)20242023Dollar increase/(decrease)Percentage
Net interest income$(184,114)$(128,006)$(56,108)(43.8)%
Total non-interest income33,620 20,294 13,326 65.7 %
Credit loss expense / (benefit)(1,287)(5,815)4,528 77.9 %
Total expenses51,272 70,635 (19,363)(27.4)%
Loss before income taxes(200,479)(172,532)(27,947)(16.2)%
Total assets30,667,061 29,727,891 939,170 3.2 %

The Other category reported a loss before income taxes of $200.5 million for the three months ended March 31, 2024, compared to a loss before income taxes of $172.5 million for the corresponding period in 2023. The primary factors contributing to this change were:

•Net interest income decreased $56.1 million for the three months ended March 31, 2024 compared to the corresponding period of 2023. This decline was mainly due to increased costs of funding as a result of the higher rate environment.
•Total non-interest income decreased $4.2 million and $15.0increased $13.3 million for the three-month and nine-month periodsthree months ended September 30, 2017, respectively,March 31, 2024 compared to the corresponding periods of 2023. This increase was mainly driven by gains from a hedge position closed in 2016.the first quarter of 2024.
The provision for credit losses increased by $24.4•Total expenses decreased $19.4 million for the nine-month periodthree months ended September 30, 2017March 31, 2024 compared to the corresponding period in 2016 due to increased consumer loan delinquencies in 2017 compared to the corresponding periods in 2016.
Total expenses decreased $16.5 million and increased $7.2 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016, driven mainly by increased marketing expenses in 2017 that were partially offset by lower overhead costs.

Commercial Banking
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,		 QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease) Percentage Dollar increase/(decrease) Percentage
 (in thousands) (dollars in thousands)
Net interest income$87,176
 $91,259
 $259,502
 $257,421
 $(4,083) (4.5)% $2,081
 0.8 %
Total non-interest income15,837
 16,947
 45,729
 51,094
 (1,110) (6.5)% (5,365) (10.5)%
Provision for credit losses5,857
 (20,162) 16,115
 32,686
 26,019
 129.0 % (16,571) (50.7)%
Total expenses51,677
 51,156
 154,587
 157,672
 521
 1.0 % (3,085) (2.0)%
Income/(loss) before income taxes45,479
 77,212
 134,529
 118,157
 (31,733) (41.1)% 16,372
 13.9 %
Intersegment revenue/(expense)(1)
1,619
 3,616
 4,553
 12,927
 (1,997) (55.2)% (8,374) (64.8)%
Total assets11,606,759
 12,174,784
 11,606,759
 12,174,784
 (568,025) (4.7)% (568,025) (4.7)%

Commercial Banking reported income before income taxes of $45.5 million and $134.5 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to income before income taxes of $77.2 million and $118.2 million for the three-month and nine-month periods ended September 30, 2016. Factors contributing to these changes were as follows:

Net interest income decreased $4.1 million and increased $2.1 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. Total average gross loans were $11.6 billion and $11.6 billion for the three-month and nine-month periods ended September 30, 2017, respectively, compared to $12.2 billion and $11.9 billion for the corresponding periods in 2016. The decline in average gross loans is primarily related to a decrease in the Middle Market portfolio.
Total non-interest income decreased $1.1 million and $5.4 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.
The provision for credit losses increased $26.0 million and decreased $16.6 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The2023. This increase in provision during the three-month period ended September 30, 2017 compared to the corresponding period in 2016 is driven by increased reserves within the Middle Market portfolio. The decrease in provision for the nine-month period ended September 30, 2017 is due to increased provisions required for the Energy Finance portfolio in the prior year that did not recur in 2017.
Total expenses increased $0.5 million and decreased $3.1 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Commercial Real Estate
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,		 QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease) Percentage Dollar increase/(decrease) Percentage
 (in thousands) (dollars in thousands)
Net interest income$72,870
 $74,992
 $220,580
 $212,035
 $(2,122) (2.8)% $8,545
 4.0 %
Total non-interest income2,855
 5,124
 8,121
 16,445
 (2,269) (44.3)% (8,324) (50.6)%
Provision for credit losses(2,824) 2,945
 (8,784) 23,905
 (5,769) (195.9)% (32,689) (136.7)%
Total expenses17,530
 20,556
 57,162
 66,819
 (3,026) (14.7)% (9,657) (14.5)%
Income/(loss) before income taxes61,019
 56,615
 180,323
 137,756
 4,404
 7.8 % 42,567
 30.9 %
Intersegment revenue/(expense)(1)
500
 2,523
 1,997
 9,940
 (2,023) (80.2)% (7,943) (79.9)%
Total assets$14,073,894
 $15,005,335
 $14,073,894
 $15,005,335
 $(931,441) (6.2)% $(931,441) (6.2)%

Commercial Real Estate reported income before income taxes of $61.0 million and $180.3 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to income before income taxes of $56.6 million and $137.8 million for the three-month and nine-month periods ended September 30, 2016. Factors contributing to these changes were as follows:

Net interest income decreased $2.1 million and increased $8.5 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The average balance of this segment's gross loans decreased to $14.1 billion and $14.3 billion for the three-month and nine-month periods ended September 30, 2017, respectively, compared to $15.2 billion and $15.3 billion for the corresponding periods in 2016. The balance decline is driven by higher runoff in the Multi-Family portfolio outpacing originations. The average balance of deposits was $778.4 million and $867.2 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to $817.2 million and $788.1 million for the corresponding periods in 2016.
Total non-interest income decreased $2.3 million and $8.3 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.
The provision for credit losses decreased $5.8 million and $32.7 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared the corresponding periods in 2016. The decrease in provisions is primarily related to a provision release in the real estate construction portfolio.
Total expenses decreased $3.0 million and $9.7 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. Total assets were $14.1 billion as of September 30, 2017, compared to $15.0 billion as of September 30, 2016.

GCB
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,		 QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease) Percentage Dollar increase/(decrease) Percentage
 (in thousands) (dollars in thousands)
Net interest income$35,494
 $60,436
 $119,968
 $182,024
 $(24,942) (41.3)% $(62,056) (34.1)%
Total non-interest income23,205
 26,319
 48,808
 65,818
 (3,114) (11.8)% (17,010) (25.8)%
Provision for credit losses11,599
 (2,487) 23,871
 28,889
 14,086
 566.4 % (5,018) (17.4)%
Total expenses24,615
 26,830
 75,945
 89,952
 (2,215) (8.3)% (14,007) (15.6)%
Income/(loss) before income taxes22,485
 62,412
 68,960
 129,001
 (39,927) (64.0)% (60,041) (46.5)%
Intersegment revenue/(expense)(1)
(1,823) (702) (5,867) (780) (1,121) (159.7)% (5,087) (652.2)%
Total assets$6,109,131
 $10,551,939
 $6,109,131
 $10,551,939
 $(4,442,808) (42.1)% $(4,442,808) (42.1)%


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


GCB reported income before income taxes of $22.5 million and $69.0 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to income before income taxes of $62.4 million and $129.0 million for the three-month and nine-month periods ended September 30, 2016. Factors contributing to these changes were as follows:

Net interest income decreased $24.9 million and $62.1 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The average balance of this segment's gross loans were $5.5 billion and $6.3 billion for the three-month and nine-month periods ended September 30, 2017, respectively, compared to $8.8 billion and $9.5 billion for the corresponding periods in 2016. The average balance of deposits was $2.1 billion and $2.2 billion for the three-month and nine-month periods ended September 30, 2017, respectively, compared to $2.4 billion and $2.1 billion for the corresponding periods in 2016. The decrease in loan balances is attributed to the strategic goal of building a less capital intensive US franchise, which was attained by transferring assets to Santander by pro-actively reducing exposures for weaker credit clients related to the Commodities and Oil & Gas sectors.
Total non-interest income decreased $3.1 million and $17.0 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.
The provision for credit losses increased $14.1 million and decreased $5.0 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The provision for the three-month period ended September 30, 2017 is higher reserves required to Oil & Gas clients, while the provisions for the nine-month period ended September 30, 2017 is lower due to an overall lower need for an allowance related related to the Oil & Gas portfolio compared to the same period in 2016.
Total expenses decreased $2.2 million and $14.0 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.

Other
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,		 QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease) Percentage Dollar increase/(decrease) Percentage
 (in thousands) (dollars in thousands)
Net interest income$27,665
 $(45,680) $62,738
 $(8,180) $73,345
 160.6 % $70,918
 867.0 %
Total non-interest income181,047
 189,825
 548,945
 608,810
 (8,778) (4.6)% (59,865) (9.8)%
Provision for credit losses48,812
 4,426
 80,472
 31,247
 44,386
 1,002.8 % 49,225
 157.5 %
Total expenses234,270
 260,723
 739,912
 852,990
 (26,453) (10.1)% (113,078) (13.3)%
Income/(loss) before income taxes(74,370) (121,004) (208,701) (283,607) 46,634
 38.5 % 74,906
 26.4 %
Intersegment revenue/(expense)(1)
(3,372) (15,093) (9,909) (56,198) 11,721
 77.7 % 46,289
 82.4 %
Total assets$41,714,577
 $43,782,904
 $41,714,577
 $43,782,904
 $(2,068,327) (4.7)% $(2,068,327) (4.7)%

The Other category reported losses before income taxes of $74.4 million and $208.7 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to losses before income taxes of $121.0 million and $283.6 million for the three-month and nine-month periods ended September 30, 2016. Factors contributing to these changes were as follows:

Net interest income increased $73.3 million and $70.9 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.
Total non-interest income decreased $8.8 million and $59.9 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.
The provision for credit losses increased $44.4 million and $49.2 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.
Total expenses decreased $26.5 million and $113.1 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


SC
 Three-Month Period
Ended September 30,		 Nine-Month Period
Ended September 30,		 QTD Change YTD Change
 2017 2016 2017 2016 Dollar increase/(decrease) Percentage Dollar increase/(decrease) Percentage
 (in thousands) (dollars in thousands)
Net interest income$989,140
 $1,095,060
 $3,085,739
 $3,388,276
 $(105,920) (9.7)% $(302,537) (8.9)%
Total non-interest income496,728
 389,375
 1,363,948
 1,109,894
 107,353
 27.6 % 254,054
 22.9 %
Provision for credit losses536,447
 610,398
 1,692,015
 1,782,489
 (73,951) (12.1)% (90,474) (5.1)%
Total expenses671,648
 570,017
 1,910,365
 1,645,156
 101,631
 17.8 % 265,209
 16.1 %
Income/(loss) before income taxes277,773
 304,020
 847,307
 1,070,525
 (26,247) (8.6)% (223,218) (20.9)%
Intersegment revenue/(expense)(1)
—
 —
 —
 —
 —
 0%
 —
 0%
Total assets$38,765,557
 $38,771,636
 $38,765,557
 $38,771,636
 $(6,079) — % $(6,079) — %

SC reported income before income taxes of $277.8 million and $847.3 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to income before income taxes of $304.0 million and $1.1 billion for the three-month and nine-month periods ended September 30, 2016. Factors contributing to these changes were as follows:

Net interest income decreased $105.9 million and $302.5 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The decrease was primarily related to an increase in interest expense during the period. SC's cost of funds increased during 2017 due to higher market rates and increased spreads.
Total non-interest income increased $107.4 million and $254.1 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016 due to the continual growth in the operating lease vehicle portfolio since SC launched Chrysler Capital in 2013.
The provision for credit losses decreased $74.0 million and $90.5 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016 primarily due to a lower build of the ACL as a result of the decline in originations during the nine-months ended September 30, 2017, compared to the corresponding period in 2016.transformation initiatives underway.
Total expenses increased $101.6 million and $265.2 million for the three-month and nine-month periods ended September 30, 2017, respectively, compared to the corresponding periods in 2016, primarily due to the continual growth in the operating lease vehicle portfolio since SC launched Chrysler Capital in 2013.




119
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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIESItem 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations





FINANCIAL CONDITION


LOAN PORTFOLIO


The Company's LHFI portfolioconsisted of the following at the dates indicated:
 September 30, 2017 December 31, 2016 September 30, 2016
 Amount Percent Amount Percent Amount Percent
 (dollars in thousands)
Commercial LHFI:           
Commercial real estate loans$9,690,850
 11.9% $10,112,043
 11.8% $10,165,990
 11.7%
Commercial and industrial loans and other commercial22,073,060
 27.1% 25,644,405
 29.9% 26,400,792
 30.4%
Multifamily8,293,232
 10.1% 8,683,680
 10.1% 9,021,275
 10.4%
Total Commercial Loans (1)
40,057,142
 49.1% 44,440,128
 51.8% 45,588,057
 52.5%
Consumer loans secured by real estate:           
Residential mortgages8,476,935
 10.4% 7,775,272
 9.1% 7,588,663
 8.7%
Home equity loans and lines of credit5,855,086
 7.2% 6,001,192
 7.0% 6,041,629
 7.0%
Total consumer loans secured by real estate14,332,021
 17.6% 13,776,464
 16.1% 13,630,292
 15.7%
Consumer loans not secured by real estate:           
RICs and auto loans - originated23,074,936
 28.3% 22,104,918
 25.8% 21,602,717
 24.9%
RICs and auto loans - purchased2,162,540
 2.7% 3,468,803
 4.0% 4,005,079
 4.6%
Personal unsecured loans1,262,591
 1.5% 1,234,094
 1.4% 1,219,942
 1.4%
Other consumer659,469
 0.8% 795,378
 0.9% 848,252
 0.9%
Total consumer loans41,491,557
 50.9% 41,379,657
 48.2% 41,306,282
 47.5%
Total LHFI$81,548,699
 100.0% $85,819,785
 100.0% $86,894,339
 100.0%
Total LHFI with:           
Fixed$49,274,614
 60.4% $51,752,761
 60.3% $53,357,078
 61.4%
Variable32,274,085
 39.6% 34,067,024
 39.7% 33,537,261
 38.6%
Total LHFI$81,548,699
 100.0% $85,819,785
 100.0% $86,894,339
 100.0%
    
March 31, 2024December 31, 2023Dollar Increase / (Decrease)Percent Increase (Decrease)
(dollars in thousands)AmountPercentAmountPercent
Commercial LHFI:
CRE$9,073,614 9.9 %$8,747,544 9.4 %$326,070 3.7 %
C&I10,825,263 11.8 %11,181,962 12.0 %(356,699)(3.2)%
Multifamily10,232,335 11.2 %10,548,905 11.3 %(316,570)(3.0)%
Other commercial7,484,125 8.2 %7,476,113 8.0 %8,012 0.1 %
Total commercial loans (1)
37,615,337 41.1 %37,954,524 40.7 %(339,187)(0.9)%
Consumer loans secured by real estate:
Residential mortgages4,726,561 5.2 %4,816,218 5.2 %(89,657)(1.9)%
Home equity loans and lines of credit2,335,081 2.5 %2,448,454 2.6 %(113,373)(4.6)%
Total consumer loans secured by real estate7,061,642 7.7 %7,264,672 7.8 %(203,030)(2.8)%
Consumer loans not secured by real estate:
RICs and auto loans43,238,767 47.1 %43,705,359 47.0 %(466,592)(1.1)%
Personal unsecured loans3,711,491 4.0 %4,062,700 4.4 %(351,209)(8.6)%
Other consumer52,551 0.1 %59,954 0.1 %(7,403)(12.3)%
Total consumer loans54,064,451 58.9 %55,092,685 59.3 %(1,028,234)(1.9)%
Total LHFI$91,679,788 100.0 %$93,047,209 100.0 %$(1,367,421)(1.5)%
Total LHFI with:
Fixed$63,946,587 69.7 %$65,960,370 70.9 %$(2,013,783)(3.1)%
Variable27,733,201 30.3 %27,086,839 29.1 %646,362 2.4 %
Total LHFI$91,679,788 100.0 %$93,047,209 100.0 %$(1,367,421)(1.5)%
(1)As of September 30, 2017,March 31, 2024, the Company had $240.3$331.0 million of commercial loans that were denominated in a currency other than the U.S. dollar.



89



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



Loans by Maturity and Interest Rate Sensitivity
At March 31, 2024, Maturing
(in thousands)In One Year
Or Less		One to Five
Years		Five to 15 YearsAfter 15
Years		Total
Fixed Rates:
CRE loans$106,787 $185,691 $150,470 $6,977 $449,925 
C&I115,476 669,349 394,754 7,729 1,187,308 
Multifamily loans566,051 3,937,321 2,972,892 — 7,476,264 
Other commercial824,725 2,142,278 1,071,295 — 4,038,298 
Total Commercial$1,613,039 $6,934,639 $4,589,411 $14,706 $13,151,795 
Residential mortgages798 30,945 558,913 3,651,758 4,242,414 
Home equity loans and lines of credit18,002 11,028 46,852 24,876 100,758 
RICs and auto loans558,313 26,177,727 16,502,694 33 43,238,767 
Personal unsecured loans111,212 2,857,177 344,568 — 3,312,957 
Other consumer1,062 42,945 3,890 4,654 52,551 
Total Fixed Rates$2,302,426 $36,054,461 $22,046,328 $3,696,027 $64,099,242 
Variable Rates:
CRE loans$3,143,060 $5,349,457 $423,019 $103,828 $9,019,364 
C&I1,667,531 7,699,003 296,638 26,496 9,689,668 
Multifamily loans709,603 1,347,483 706,502 1,747 2,765,335 
Other commercial3,214,276 231,552 — — 3,445,828 
Total Commercial$8,734,470 $14,627,495 $1,426,159 $132,071 $24,920,195 
Residential mortgages276 3,970 115,510 504,089 623,845 
Home equity loans and lines of credit789 1,643 552,882 1,679,009 2,234,323 
Personal unsecured loans3,130 154,163 239,973 1,268 398,534 
Other consumer— — — — — 
Total Variable Rates$8,738,665 $14,787,271 $2,334,524 $2,316,437 $28,176,897 
Total$11,041,091 $50,841,732 $24,380,852 $6,012,464 $92,276,139 

Commercial


Commercial loans decreased approximately $4.4 billion,$339.2 million, or 9.9%,0.9% from December 31, 20162023 to September 30, 2017, and decreased $5.5 billion, or 12.1%, from September 30, 2016 to September 30, 2017. TheMarch 31, 2024. This decrease from December 31, 2016 to September 30, 2017 was primarily dueattributed to a decrease in commercial and industrialC&I loans of $3.6 billion, which included payoffs to approximately 1,050 loans totaling $1.2 billion. Additionally, there was$356.7 million, a decrease in multifamilyMultifamily loans of $390.4$316.6 million, as the Company switches its focus to commercial real estate banking. Commercial real estatepartially offset by an increase in CRE loans decreased $421.2of $326.1 million.
 At September 30, 2017, Maturing
 
In One Year
Or Less
 
One to Five
Years
 
After Five
Years
 
Total(1)
 (in thousands)
Commercial real estate loans$2,374,562
 $5,734,318

$1,581,970
 $9,690,850
Commercial and industrial loans and other8,971,086
 11,299,673

1,885,580
 22,156,339
Multi-family loans869,308
 6,358,473

1,065,451
 8,293,232
Total$12,214,956

$23,392,464

$4,533,001
 $40,140,421
Loans with:       
Fixed rates$3,750,183
 $10,359,663

$1,638,295
 $15,748,141
Variable rates8,464,773
 13,032,801

2,894,706
 24,392,280
Total$12,214,956

$23,392,464

$4,533,001
 $40,140,421
(1) Includes LHFS.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations



Consumer Loans Secured By Real Estate


Consumer loans secured by real estate increased $555.6decreased $203.0 million or 4.0%, from December 31, 20162023 to September 30, 2017, and increased $701.7 million, or 5.1%,March 31, 2024. This decrease primarily resulted from September 30, 2016the Company’s decision to September 30, 2017. The increase from December 31, 2016 to September 30, 2017 was comprisedstop the origination of an increase in thenew residential mortgage portfolio of $701.7 million due to an increase in new loan originations, offset by a decrease in theand home equity loans and lines of credit portfolio of $146.1 million.

The increase from September 30, 2016 to September 30, 2017 was due to an increase in the residential mortgage portfoliofirst quarter of $888.3 million, offset by a decrease in the home equity and lines of credit portfolio of $186.5 million.2022.


Consumer Loans Not Secured By Real Estate


The consumer loan portfolio not secured by real estate decreased $443.7 million, or 1.6%, from December 31, 2016 to September 30, 2017, and decreased $516.5 million, or 1.9%, from September 30, 2016 to September 30, 2017. These decreases in the RICRICs and auto loan portfolio were primarily due to a decrease in the RIC and auto loan portfolio - purchased portfolio of $1.3 billion which was offset by a $1.0 billion increase in new originations. This decrease is due to run-off of the portfolio from normal paydown and chargeoff activity.loans


The decrease from September 30, 2016 to September 30, 2017 was primarily due to a decrease in the RICs and auto loans - purchased portfoliodecreased $466.6 million from December 31, 2023 to March 31, 2024. During the first quarter of $1.82024, the Company transferred $1.1 billion offsetof RICs loans to a newly-formed off-balance sheet trust . Refer to Note 7 of these Condensed Consolidated Financial Statements for more information.

RICs are collateralized by an increasevehicle titles, and the lender has the right to repossess the vehicle in new originationsthe event the consumer defaults on the payment terms of $1.5 billion.the contract. A significant portion of the Company's RICs HFI are pledged against warehouse lines or securitization bonds. Refer to further discussion of these in Note 9 to the Condensed Consolidated Financial Statements.



90



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



As of September 30, 2017, 70.2%March 31, 2024, 59.7% of the Company's RIC and auto loan portfolio balance was comprised of nonprime loans (defined by the Company as customers with a Fair Isaac Corporation ("FICO®") score of below 640) with customers who did not qualify for conventional consumer finance products as a result of, among other things, a lack of or adverse credit history, low income levels and/or the inability to provide adequate down payments. This also includes 6.1% of loans for which no FICO score was available. While underwriting guidelines wereare designed to establish that the customer would be a reasonable credit risk, nonprime loans will nonetheless experience higher default rates than a portfolio of obligations of prime customers. Additionally, higher unemployment rates, higher gasoline prices, unstable real estate values, re-sets of adjustable rate mortgages to higher interest rates, the general availability of consumer credit, and other factors that impact consumer confidence or disposable income could lead to an increase in delinquencies, defaults, and repossessions, as well as decreasedecreased consumer demand for used automobiles and other consumer products, weaken collateral values and increase losses in the event of default. Because SC'sof the historical focus for such credit has been predominantly on nonprime consumers, the actual rates of delinquencies, defaults, repossessions, and losses on these loans could be more dramatically affected by a general economic downturn.

The Company's automated originations process for these credits reflects a disciplined approach to credit risk management to mitigate the risks of nonprime customers. The Company's robust historical data on both organically originated and acquired loans provides it with the ability to perform advanced loss forecasting. Each applicant is automatically assigned a proprietary custom score using information such as FICO scores, debt-to-income ("DTI")DTI ratios, loan-to-value ("LTV")LTV ratios, and over 30 other predictive factors, placing the applicant in one of 100 pricing tiers. The pricing in each tier is continuously monitored and adjusted to reflect market and risk trends. In addition to the Company's automated process, it maintains a team of underwriters for manual review, consideration of exceptions, and review of deal structures with dealers.


Personal unsecured and other consumer loans
  September 30, 2017 December 31, 2016
Credit Score Range(2)
 
RICs and auto loans(3)
 
RICs and auto loans(3)
  
Standard file(4)
 
Non-Standard file(5)
 
Standard file(4)
 
Non-Standard file(5)
         
No FICO(1)
 5.0% 59.6% 5.5% 61.7%
<600 61.4% 20.5% 60.1% 20.6%
600-639 19.0% 9.5% 19.4% 7.9%
>=640 14.6% 10.4% 15.0% 9.8%
Total 100.0% 100.0% 100.0% 100.0%

(1) ConsistsPersonal unsecured and other consumer loans HFI decreased $358.6 million from December 31, 2023 to March 31, 2024. This decrease was primarily of loans for which credit scores are not consideredattributable to run-off in the ALLL model.Lending Club portfolio.
(2) Credit scores updated quarterly.
(3) RICs include $762.6 million and $924.7 million of LHFS at September 30, 2017 and December 31, 2016, respectively, that do not have an allowance.
(4) Defined as borrowers with greater than 36 months of credit history or four or more trade lines.
(5) Defined as borrowers with less than 36 months of credit history or less than four trade lines.


121
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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations





At September 30, 2017, a typical RIC was originated with an average annual percentage rate of 16.1%March 31, 2024, the CRE and was purchased frommultifamily portfolios included the dealer at a discount of 1.2%. Allfollowing:

As of March 31, 2024
(in thousands)BalancePercentage of Total CRE and Multifamily
CRE loans$9,073,614 47.0 %
Multifamily loans (1)
10,232,335 53.0 %
Total CRE and multifamily loans$19,305,949 100.0 %
CRE loans by type
Multifamily construction$3,193,947 16.5 %
Office1,850,690 9.6 %
Retail1,183,373 6.1 %
Industrial2,036,569 10.5 %
Other809,035 4.2 %
Total$9,073,614 
(1) Occupied properties


Multifamily lending (occupied and construction) continues to be our focus, representing 70% of the Company's RICstotal CRE and auto loans are fixed-rate loans.

Nonprime RICs and personal unsecured loans have a higher inherent risk of loss than prime loans. The Company records an ALLL to cover its estimate of inherent losses on its RICs incurred as of the balance sheet date. As of September 30, 2017, SC's personal unsecured portfolio was held for sale and thus does not have a related allowance.

As a result of the strategic evaluation of SC's personal lending portfolio, in the third quarter of 2015, SC began reviewing strategic alternatives for exiting its personal loan portfolios. In connection with this review, on October 9, 2015, SC delivered a 90-day notice of termination of its loan purchase agreement with LendingClub. On February 1, 2016, SC completed the sale of substantially all of its LendingClub loans to a third-party buyer at an immaterial premium to par value. On April 14, 2017, SC sold the remaining portfolio, comprised of personal installment loans, to a third-party buyer.

SC's other significant personal lending relationship is with Bluestem. SC continues to perform in accordance with the terms and operative provisions of the agreements under which it is obligated to purchase personal revolving loans originated by Bluestem for a term ending in 2020, or 2022 if extended at Bluestem's option. The Bluestem loan portfolio is carried as held for sale in our Condensed Consolidated Financial Statements. Accordingly, the Company has recorded lower-of-cost-or-market adjustments on thismultifamily portfolio and there may be further such adjustments required in future periods' financial statements. Management is currently evaluating alternatives for15% of total LHFI. Overall, occupancy across the Bluestem portfolio.


CREDIT RISK MANAGEMENT

Extending credit to customers exposes the Company to credit risk, which is the risk that contractual principal and interest due on loans will not be collected due to the inability or unwillingness of the borrower to repay the loan. The Company manages credit risk in its loan portfolio through adherence to consistent standards, guidelines, and limitations established by the Company’s Board of Directors as set forth in its Board-approved Risk Appetite Statement. Written loan policies establish underwriting standards, lending limits, and other standards or limits deemed necessary and prudent. Various approval levels based on the amount of the loan and other key credit attributes have also been established. To ensure credit quality, authority to approve loans are executed in accordance with the Company’s credit and governance standards consistent with its Enterprise Risk Management Framework. Loans over certain dollar thresholds require approval by the Company's credit committees, with higher balance loans requiring approval by more senior level committees.

The Credit Risk Review group conducts ongoing independent reviews of the credit quality of the Company’s loan portfolios and credit management processes to ensure the accuracy of the risk ratings and adherence to established policies and procedures, verify compliance with applicable laws and regulations, provide objective measurement of the risk inherent in themultifamily loan portfolio and ensure that proper documentation exists. The results of these periodic reviewsour primary markets such as New York City, continues to be stable. Our construction originations are reportedconcentrated to business line management, Risk Managementwell-established and the Audit Committee of both the Companyproven builders and the Bank. The Company maintains a classification system forsponsors.

Office CRE loans that identifies those requiring a higher level of monitoring by management because of one or more factors, including borrower performance, business conditions, industry trends, the naturerepresent 9.6% of the collateral, collateral margin, economic conditions, or other factors. Loan credit quality is subject to scrutiny by business unit management, credit risk professionals,total CRE and Internal Audit.multifamily portfolio and 2% of total LHFI. The Company's office exposure primarily consists of investment grade, single tenants with long leases.


The following discussion summarizesCompany's retail CRE portfolio represents 6.1% of the underwriting policiestotal CRE and procedures for the major categories within the loanmultifamily portfolio and addresses SHUSA’s strategies for managing1% of total LHFI. The retail portfolio is anchored by institutional or investment grade tenants, which have demonstrated recovery following the related credit risk. Additional credit risk management related considerations are discussed further inCOVID-19 pandemic.

The Company's CRE and Multifamily portfolio, by state at the "Allowance for Loan and Lease Losses" section of this MD&A.date indicated was;


Commercial Loans

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

As of March 31, 2024
(dollars in thousands)BalancePercentage of Total CRE and Multifamily
State
 New York$6,210,779 32.2 %
 New Jersey2,370,949 12.3 %
 Massachusetts1,759,631 9.1 %
Texas1,754,542 9.1 %
All other states7,210,048 37.3 %
Total$19,305,949 100.0 %
122
92



SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



Consumer Loans Secured by Real Estate


Credit risk in the direct and indirect consumer loan portfolio is controlled by strict adherence to underwriting standards that consider DTI levels, the creditworthiness of the borrower, and collateral values. In the home equity loan portfolio, combined LTV ("CLTV") ratios are generally limited to 90% for both first and second liens. SHUSA originates and purchases fixed-rate and adjustable rate residential mortgage loans that are secured by the underlying 1-4 family residential properties. Credit risk exposure in this area of lending is minimized by the evaluation of the creditworthiness of the borrower, including debt-to-equity ratios, credit scores, and adherence to underwriting policies that emphasize conservative LTV ratios of generally no more than 80%. Residential mortgage loans originated or purchased in excess of an 80% LTV ratio are generally insured by private mortgage insurance, unless otherwise guaranteed or insured by the Federal, state, or local government. SHUSA also utilizes underwriting standards which comply with those of the FHLMC or FNMA. Credit risk is further reduced, since a portion of the Company’s fixed-rate mortgage loan production is sold to investors in the secondary market without recourse.

Consumer Loans Not Secured by Real Estate

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

Collections

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

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


NON-PERFORMING ASSETS


The following table presents the composition of non-performing assets at the dates indicated:
Period EndedChange
(dollars in thousands)March 31, 2024December 31, 2023DollarPercentage
Non-accrual loans:  
Commercial:  
CRE$257,807 $267,537 $(9,730)(3.6)%
C&I159,037 143,504 15,533 10.8 %
Multifamily102,024 97,228 4,796 4.9 %
Other commercial7,320 5,621 1,699 30.2 %
Total commercial loans526,188 513,890 12,298 2.4 %
Consumer loans secured by real estate:  
Residential mortgages51,648 52,718 (1,070)(2.0)%
Home equity loans and lines of credit79,499 86,332 (6,833)(7.9)%
Consumer loans not secured by real estate:
RICs and auto loans1,829,983 2,194,509 (364,526)(16.6)%
Personal unsecured loans20,302 21,267 (965)(4.5)%
Other consumer13,598 15,733 (2,135)(13.6)%
Total consumer loans1,995,030 2,370,559 (375,529)(15.8)%
Total non-accrual loans2,521,218 2,884,449 (363,231)(12.6)%
OREO19,422 24,246 (4,824)(19.9)%
Repossessed vehicles267,545 265,368 2,177 0.8 %
Other repossessed assets2,030 1,666 364 21.8 %
Total OREO and other repossessed assets288,997 291,280 (2,283)(0.8)%
Total non-performing assets$2,810,215 $3,175,729 $(365,514)(11.5)%
Past due 90 days or more as to interest or principal and accruing interest$7,917 $7,947 $(30)(0.4)%
Non-performing assets as a percentage of total assets1.7 %1.9 %   n/a   n/a




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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



 September 30, 2017 December 31, 2016
 (dollars in thousands)
Non-accrual loans:   
Commercial:   
Commercial real estate$146,916
 $179,220
Commercial and industrial loans and other commercial204,856
 193,465
Multifamily10,715
 8,196
Total commercial loans362,487
 380,881
Consumer: 
  
Residential mortgages284,415
 287,140
Consumer loans secured by real estate116,482
 120,065
RICs and auto loans - originated1,553,954
 1,045,587
RICs - purchased274,374
 284,486
Personal unsecured and other consumer15,805
 17,895
Total consumer loans2,245,030
 1,755,173
Total non-accrual loans2,607,517
 2,136,054
    
Other real estate owned146,362
 116,705
Repossessed vehicles157,757
 173,754
Other repossessed assets1,711
 3,838
Total other real estate owned and other repossessed assets305,830
 294,297
Total non-performing assets$2,913,347
 $2,430,351
    
Past due 90 days or more as to interest or principal and accruing interest$96,256
 $93,846
Annualized net loan charge-offs to average loans (1)
2.9% 2.7%
Non-performing assets as a percentage of total assets2.2% 1.8%
Non-performing loans ("NPLs") as a percentage of total loans3.1% 2.4%
ALLL as a percentage of total NPLs151.7% 178.6%
CREDIT RATIOS


As of and for the year ended
(dollars in thousands)March 31, 2024March 31, 2023December 31, 2023
ACL to total loan outstanding7.4%7.07%7.5%
ACL$6,799,350$7,001,026$6,992,815
Total loans outstanding92,276,13998,958,24293,207,327
NPL to total loans outstanding2.7%1.8%3.1%
NPL$2,521,218$1,787,988$2,884,449
Total loans outstanding92,276,13998,958,24293,207,327
ACL to NPL269.7%391.6%242.4%
ACL$6,799,350$7,001,026$6,992,815
NPL2,521,2181,787,9882,884,449
Net charge-offs during the period to average loans outstanding:
Commercial0.03%0.02%0.2%
Net charge-offs / (recoveries) during the period (1)
$10,986$7,585$91,924
Average amount outstanding38,782,09041,658,16940,904,656
Consumer1.06%0.80%3.63%
Net charge-offs / (recoveries) during the period (1)
$587,477$454,611$2,062,520
Average amount outstanding55,200,22956,874,73256,837,616
(1) Annualized net loan charge-offs are based on year to average loans is calculated as annualizeddate charge-offs.

Commercial net loan charge-offs divided by the average loan balance for the year-to-date period ended September 30, 2017.

Potential problem loans are loans not currently classified as NPLs for which management has doubts about the borrowers’ ability to comply with the present repayment terms. These assets are principally loans delinquent more than 30 days but less than 90 days. Potential problem commercial loans totaled approximately $242.1 million and $120.7 million at September 30, 2017 and December 31, 2016, respectively. Potential problem consumer loans amounted to $4.4 billion and $4.3 billion at September 30, 2017 and December 31, 2016, respectively. Management has included these loans in its evaluation and reserved for them during the respective periods.

Non-performing assets increased during the period to $2.9 billion, or 2.2% of total assets, at September 30, 2017, comparedaverage loans increased from March 31, 2023 to $2.4 billion, or 1.8% of total assets, at DecemberMarch 31, 2016,2024. The increase in net charge-offs was primarily attributabledue to deterioration in the portfolio and other factors such as high interest rates and persistent inflation. Consumer net charge-offs during the period to average loans increased from March 31, 2023 to March 31, 2024. This increase was primarily due to current year activity in RICs reflecting normalization in credit performance post pandemic. In addition, there has been an increase in NPLsnet charge-offs in the commercial and industrial and RIC portfolios, offset by a decrease in the mortgage and home equity loan portfolios.

General

Non-performing assets consist of NPLs, which represent loans and leases no longer accruing interest, other real estate owned ("OREO") properties, and other repossessed assets. When interest accruals are suspended, accrued but uncollected interest income is reversed, with accruals charged against earnings. The Company generally places all commercial loans and consumer loans secured by real estate on non-performing status at 90 days past due for interest, principal or maturity, or earlier if it is determined that the collection of principal or interest on the loan is in doubt. For certain individual portfolios, including the RIC portfolio, non-performing status will begin at 60 days past due. Personalpersonal unsecured loans including credit cards, generally continue to accrue interest until they are 180 days delinquent, at which point they are charged-offportfolio because of high borrowing costs and all accrued but uncollected interest is removed from interest income. persistent inflation.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


In general, when the borrower's ability to make required interest and principal payments has resumed and collectability is no longer believed to be in doubt, the loan or lease is returned to accrual status. Generally, commercial loans categorized as non-performing remain in non-performing status until the payment status is current and an event occurs that fully remediates the impairment or the loan demonstrates a sustained period of performance without a past due event, and there is reasonable assurance as to the collectability of all amounts due. Within the residential mortgage and home equity portfolios, accrual status is generally systematically driven, so that if the customer makes a payment that brings the loan below 90 days past due, the loan automatically returns to accrual status.


Commercial


Commercial NPLs decreased $18.4increased $12.3 million from December 31, 20162023 to September 30, 2017. At both September 30, 2017 and DecemberMarch 31, 2016, commercial2024. Commercial NPLs accounted for 0.9%1.4% of commercial LHFI.LHFI at March 31, 2024. The decreasechange in commercial NPLs was primarily comprised of a $32.3an increase of $4.8 million in the commercial real estatemultifamily portfolio, offseta decrease of $9.7 million in the CRE portfolio and an increase of $15.5 million in the C&I portfolio. Increases in NPLs in these portfolios are primarily driven by a $11.4 million increase in commercialhigher interest rates, persistent inflation, and industrial NPLs.deteriorated macroeconomic outlook.


Consumer Loans Secured by Real Estate


The following table shows NPLs comparedin the residential mortgage portfolio decreased year-over-year primarily resulting from the Company’s decision to total loans outstanding forstop the origination of new residential mortgage and home equity portfolios asloans in the first quarter of September 30, 2017 and December 31, 2016, respectively:
 September 30, 2017 December 31, 2016
 Residential mortgages Home equity loans and lines of credit Residential mortgages Home equity loans and lines of credit
 (dollars in thousands)
NPLs$284,415
 $116,482
 $287,140
 $120,065
Total LHFI8,476,935
 5,855,086
 7,775,272
 6,001,192
NPLs as a percentage of total LHFI3.4% 2.0% 3.7% 2.0%
NPLs in foreclosure status50.8% 32.9% 58.6% 38.4%

The NPL ratio is significantly higher for the Company's residential mortgage loan portfolio compared to its2022. Foreclosures on consumer loans secured by real estate portfolio duewere $64.6 million or 49.3% of non-performing consumer loans secured by real estate at March 31, 2024, compared to a number$67.1 million, or 48.3%, of factors, including the prolonged workout and foreclosure resolution processes for residential mortgageconsumer loans differences in risk profiles, and mortgage loans located outside the Northeast and Mid-Atlantic United States.secured by real estate at December 31, 2023.


Consumer Loans Not Secured by Real Estate


RICs and amortizing term personal loans

RICs are classified as non-performing when they are greatermore than 60 days past dueDPD (i.e., 61 or more DPD) with respect to principal or interest. Except for loans accounted for using the FVO, at the time a loan is placed on non-performing status, previously accrued and uncollected interest is reversed against interest income. When an account is 60 days or less past due, it is returned to a performing status and the Company returns to accruing interest on the loan. NPLs in the RIC and auto loan portfolio decreased by $364.5 million from December 31, 2023 to March 31, 2024. Non-performing RICs and auto loans accounted for 4.2% and 5.0% of total RICs and auto loans at March 31, 2024 and December 31, 2023, respectively.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



Personal unsecured loans

The accrual of interest on revolving personal loans continues until the loan is charged off.

Interest is accrued Credit cards are charged off when earned in accordance withthey are 180 days delinquent or within 60 days after the termsreceipt of notification of the RIC. For certain RICs originated priorcardholder’s death or bankruptcy. NPLs in the personal unsecured portfolio decreased by $1.0 million from December 31, 2023 to January 1, 2017,March 31, 2024. Non-performing personal unsecured loans accounted for 0.5% and 0.5% of total personal unsecured loans at March 31, 2024 and December 31, 2023, respectively.

Delinquencies

Early stage delinquency in commercial loans totaled approximately $177.9 million and $201.2 million at March 31, 2024 and December 31, 2023, respectively. Early stage delinquency consumer loans amounted to $4.8 billion and $5.6 billion at March 31, 2024 and December 31, 2023, respectively. Management has included these loans in its evaluation of the Company's ACL and reserved for them during the respective periods.

The Company generally considers 50% of a single payment due sufficientan account delinquent when an obligor fails to qualifypay substantially all (defined as a payment for past due classification purposes. For RICs originated after January 1, 2017, the required minimum payment is 90%) of the scheduled payment regardless of through which origination channelby the receivable was originated. The Company aggregates partial payments in determining whether a full payment has been missed in computing past due status.

NPLs in the RIC and auto loan portfolio increased $498.3 milliondate.    Overall, total delinquencies decreased by $0.9 billion from December 31, 20162023 to September 30, 2017.March 31, 2024. The increase was comprisedmain driver of a $508.4 million increase in RICs and auto loans-originated offset by a $10.1 millionthis is the decrease in RICs - purchased. At September 30, 2017, non-performing RICs andpast due auto loans accounted for 7.2% of total RIC and auto LHFI, compared to 5.2% of total RICs and auto loans at December 31, 2016. NPLs in the unsecured and other consumer loan portfolio decreased $2.1 million from December 31, 2016 to September 30, 2017. At September 30, 2017 and December 31, 2016, non-performing personal unsecured and other consumer loans accounted for 0.8% and 0.9% of total unsecured and other consumer loans, respectively.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Foreclosure Activity

The percentage of NPLs in foreclosure status decreased from 58.6% at December 31, 2016 to 50.8% at September 30, 2017 for residential mortgages and from 38.4% at December 31, 2016 to 32.9% at September 30, 2017 for Home Equity loans.

The dollar value of NPLs in foreclosure status decreased from $168.2 million at December 31, 2016 to $144.4 million at September 30, 2017 for residential mortgages and from $46.2 million at December 31, 2016 to $38.3 million at September 30, 2017 for home equity loans.

The NPL ratio is significantly higher for the Company's residential mortgage loan portfolio compared to its consumer loans secured by real estate portfolio due to a number of factors, including: the prolonged workout and foreclosure resolution processes for residential mortgage loans; differencesseasonal improvement in risk profiles; and mortgage loans located outside the Northeast and Mid-Atlantic United States.payment performance.


In recent years, select states within the Bank’s footprint have experienced delays in the foreclosure process and therefore, impact NPL volume. Counties in New Jersey have historically displayed significant delays in foreclosure sale timelines and New York has been experiencing similar court delays which impacts foreclosure inventory outflow.

Loan Modifications
Puerto Rico’s economy remains in an economic and fiscal crisis that has already extended for 11 years. The island’s economy continues experiencing adjustments related to the aftermath of the housing market crisis, the banking industry consolidation in 2010 and multiple rounds of austerity measures implemented in recent years in an attempt to stabilize the public sector fiscal crisis. These circumstances have eroded confidence and prolonged the contraction in economic activity. Refer to the Economic and Business Environment section of MD&A for additional information on the impact of Hurricane Maria on Puerto Rico.

The following table represents the concentration of foreclosures by state and U.S territory for the Company as a percentage of total foreclosures at September 30, 2017 and December 31, 2016, respectively:
 September 30, 2017 December 31, 2016
    
Puerto Rico60.6% 60.0%
New York6.7% 10.7%
Massachusetts3.4% 7.0%
All other states(1)
29.3% 22.3%
(1)States included in this category individually represent less than 10% of total foreclosures.

The foreclosure closings issue has a greater impact on the residential mortgage portfolio than the consumer real estate secured portfolio due to the larger volume of loans in first lien position in that portfolio which have equity upon which to foreclose. Exclusive of Chapter 7 bankruptcy NPL accounts, approximately 98.8% of the 90+ day delinquent loan balances in the residential mortgage portfolio are secured by a first lien, while only 54.4% of the 90+ day delinquent loan balances in the consumer real estate secured portfolio are secured by a first lien. Consumer real estate secured NPLs may get charged off more quickly due to the lack of equity to foreclose from a second lien position.

Alt-A Loans

The Alt-A segment consists of loans with limited documentation requirements and a portion of which were originated through independent parties ("Brokers") outside the Bank's geographic footprint. At September 30, 2017 and December 31, 2016, the residential mortgage portfolio included the following Alt-A loans:
 September 30, 2017 December 31, 2016
 (dollars in thousands)
    
Alt-A loans$408,735
 $476,229
Alt-A loans as a percentage of the residential mortgage portfolio(1)
4.7% 5.8%
Alt-A loans in NPL status$39,413
 $48,189
Alt-A loans in NPL status as a percentage of residential mortgage NPLs13.9% 16.8%
(1) Includes residential mortgage held for sale

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


The performance of the Alt-A segment has remained poor, averaging a 9.6% NPL ratio in 2017. Alt-A mortgage originations were discontinued in 2008 and have continued to run off at an average rate of 1.5% per month. Alt-A NPL balances represented 64.6% of the total residential mortgage loan portfolio NPL balance at the end of the first quarter of 2009, when the portfolio was placed in run-off, compared to 13.9% at September 30, 2017. As the Alt-A segment runs off and higher quality residential mortgages are added to the portfolio, the shift in product mix is expected to lower NPL balances.


Troubled Debt Restructurings ("TDRs")

TDRs are loans that have been modified as the Company has agreed to make certain concessions to both meet the needs of the customers and maximize its ultimate recovery on the loans. TDRsLoan modifications occur when a borrower is experiencing or is expected to experience, financial difficulties and the loan is modified with terms that would otherwise not be granted to the borrower. In these cases, the Company agrees to make certain concessions to both meet the needs of customers and maximize its ultimate recovery on the loans. The types of concessions granted are generally interest rate reductions, limitations on accrued interest charged, term extensions, covenant waivers and deferments of principal.


TDRsModified loans are generally placed inon nonaccrual status upon modification, unless the loan was performing immediately prior to modification. For most portfolios, TDRsmodified loans may return to accrual status after demonstrating at least six consecutive monthsa sustained period of sustained payments following modification,repayment performance, as long as the Company believes the principal and interest of the restructured loan will be paid in full. RIC TDRsmodifications are placed on nonaccrual status when the Company believes repayment under the revised terms is not reasonably assured and, at the latest, when the account becomes more than 60 DPD. RIC modifications are considered for return to accrual when a sustained period of repayment performance has been achieved.the account becomes 60 days or less past due. To the extent the TDRmodified loan is determined to be collateral-dependent, and the source of repayment depends on the operation of the collateral, the loan may be returned to accrual status based on the foregoing parameters. To the extent the TDRmodified loan is determined to be collateral-dependent, and the source of repayment depends on disposal of the collateral, the loan may not be returned to accrual status.

The following table summarizes TDRs at the dates indicated:
 September 30, 2017 December 31, 2016
 (in thousands)
Performing   
Commercial$162,147
 $214,474
Residential mortgage282,646
 268,777
RICs and auto loans5,385,839
 4,556,770
Other consumer128,905
 129,767
Total performing5,959,537
 5,169,788
Non-performing   
Commercial137,596
 148,038
Residential mortgage124,346
 139,274
RICs and auto loans638,036
 604,864
Other consumer41,958
 44,951
Total non-performing941,936
 937,127
Total$6,901,473
 $6,106,915

Performing TDRs totaled $6.0 billion at September 30, 2017, an increase of $789.7 million compared to December 31, 2016. Non-performing TDRs totaled $941.9 million at September 30, 2017, an increase of $4.8 million compared to December 31, 2016.

The following table provides a summary of TDR activity:
  Nine-Month Period Ended September 30, 2017 Nine-Month Period Ended September 30, 2016
  RICs and auto loans All other loans RICs and auto loans 
All other loans(1)
  (in thousands)
TDRs, beginning of period $5,161,935
 $944,981
 $3,877,660
 $923,857
New TDRs(1)
 3,175,818
 209,551
 2,654,582
 63,137
Charged-Off TDRs (1,538,242) (230,672) (1,167,132) (16,609)
Sold TDRs (8,092) (9,239) 5,351
 (7,452)
Payments on TDRs (767,544) (37,023) (516,270) (97,521)
TDRs, end of period $6,023,875
 $877,598
 $4,854,191
 $865,412

(1) New TDRs includes drawdowns on lines of credit that have previously been classified as TDRs.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Commercial

Performing commercial TDRs were $162.1 million, or 54.1% of total commercial TDRs at September 30, 2017 compared to $214.5 million, or 59.2% of total commercial TDRs at December 31, 2016. The change in performing commercial TDRs is primarily attributable to payoffs from two significant borrowers who were current and performing. The increase in non-performing commercial TDRs can be attributed to four significant new obligors being modified during the period, comprising $75.3 million of the increase.

Residential Mortgages

Performing residential mortgage TDRs increased from $268.8 million, or 65.9% of total residential mortgage TDRs at December 31, 2016, to $282.6 million, or 69.4% of total residential TDRs at September 30, 2017.

RICs

The RIC and auto LHFI is primarily comprised of nonprime loans (70.2% at September 30, 2017), which lead to a higher rate of modifications and deferrals, and thus a higher volume of TDRs, than other portfolios. Total RIC and auto loan portfolio TDRs (performing and non-performing) comprised 20.2% of the Company’s total RIC and auto loan portfolio at December 31, 2016 and 23.2% at September 30, 2017. As a percentage of the RIC and auto loan portfolio recorded investment, there have been no significant increases in modification or deferral activity during the reporting period. The increased TDR activity at SHUSA may continue until the loan portfolios acquired as part of the Change in Control either pay off or charge-off.

In accordance with its policies and guidelines, the Company at times offers payment deferrals to borrowers on its RICs, under which the consumer is allowed to move up to three delinquent payments to the end of the loan. More than 90% of deferrals granted are for two months. The policies and guidelines limit the number and frequency of deferrals that may be granted to one deferral every six months and eight months over the life of a loan, while some marine and RV contracts have a maximum of twelve months in extensions to reflect their longer term. Additionally, the Company generally limits the granting of deferrals on new accounts until a requisite number of payments has been received. During the deferral period, the Company continues to accrue and collect interest on the loan in accordance with the terms of the deferral agreement.

At the time a deferral is granted, all delinquent amounts may be deferred or paid, resulting in the classification of the loan as current and therefore not considered a delinquent account. Thereafter, the account is aged based on the timely payment of future installments in the same manner as any other account. TDRs are placed on nonaccrual status when the Company believes repayment under the revised terms is not reasonably assured, and considered for return to accrual when a sustained period of repayment performance has been achieved.

The Company evaluates the results of its deferral strategies based upon the amount of cash installments that are collected on accounts after they have been deferred compared to the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, the Company believes that payment deferrals granted according to its policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.


Changes in deferral levels do not have a direct impact on the ultimate amount of consumer finance receivables charged off.charged-off. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent deferrals impact the ultimate timing of when an account is charged off,charged-off, historical charge-off ratios, loss confirmation periods, and cash flow forecasts used in the determination of the adequacy of the ALLL for loans classified as TDRsmodified are also impacted. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the ALLL and related provision for loan and lease losses.credit loss expense. Changes in these ratios and periods are considered in determining the appropriate level of the ALLL and related provisioncredit loss expense.


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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



Effective January 1, 2023, the Company adopted ASU 2022-02. This guidance removes the specific accounting and disclosure guidance for TDR designations and enhances disclosure requirements related to modifications of receivables made to borrowers experiencing financial difficulty. The Company adopted the new guidance on January 1, 2023 on a modified retrospective basis with a cumulative effect adjustment to retained earnings. The effect of this implementation was an increase in the ACL of approximately $55.2 million, a decrease in retained earnings of approximately $41.4 million and a decrease in deferred tax liabilities of approximately $13.8 million. Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information on modified loans.

CREDIT RISK

The risk inherent in the Company’s loan and lease losses. For loansportfolios is driven by credit and collateral quality and is affected by borrower-specific and economy-wide factors such as changes in unemployment, GDP, HPI, CRE price index, used vehicle index, and other factors. In general, there is an inverse relationship between credit quality of transactions and projections of impairment losses so that transactions with better credit quality require a lower expected loss. The Company manages this risk through its underwriting, pricing and credit approval guidelines and servicing policies and practices, as well as geographic and other concentration limits.
The Company's ACL is principally based on various models subject to the Company's Model Risk Management Framework. New models are classified as TDRs,approved by the Company's Model Risk Management Committee. Models, inputs and documentation are further reviewed and validated at least annually, and the Company generally compares the present valuecompletes a detailed variance analysis of expected cash flows to the outstanding recorded investment of TDRs to determine the amount of allowance and related provision for credit losses that should be recorded. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured basedhistorical model projections against actual observed results on the fair value of the collateral, less its estimated costs to sell.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Other Consumer Loans

Performing other consumer loan TDRs decreaseda quarterly basis. Required actions resulting from $129.8 million, or 74.3% of total other consumer loan TDRs, at December 31, 2016, to $128.9 million, or 75.4% of total other consumer loan TDRs, at September 30, 2017. If a customer’s financial difficulty is not temporary, the Company may agree, or be required by a bankruptcy court, to grant a modification involving one or a combination of the following: a reduction in interest rate, a reduction in the loan's principal balance, or an extension of the maturity date. The servicer also may grant concessions on the Company's revolving personal loans inanalysis, if necessary, are governed by its ACL Committee.

To the form of principal or interest rate reductions or payment plans.

TDR activity in the personal loan and other consumer portfolios was negligible compared to overall TDR activity.


Delinquencies

At September 30, 2017 and December 31, 2016, the Company's delinquencies consisted of the following:
 September 30, 2017 December 31, 2016
 Consumer Loans Secured by Real EstateRICs and auto loansOther Consumer LoansCommercial LoansTotal Consumer Loans Secured by Real EstateRICs and auto loansOther Consumer LoansCommercial LoansTotal
 (dollars in thousands)
Total Delinquencies$618,995$4,314,809$242,608$383,798$5,560,210 $568,517$4,261,192$245,588$257,152$5,332,449
Total Loans(1)
$14,544,659$26,000,107$2,851,609$40,140,421$83,536,796 $14,239,357$26,498,469$3,107,074$44,561,193$88,406,093
Delinquencies as a % of Loans4.3%16.6%8.5%1.0%6.7% 4.0%16.1%7.9%0.6%6.0%

(1) Includes LHFS.

Overall, total delinquencies increasedextent permitted by $227.8 million, or 4.3%, from December 31, 2016 to September 30, 2017. Consumer loans secured by real estate delinquencies increased $50.5 million, primarily due to a decrease in credit quality in the residential mortgage portfolio. RICs and auto loan and other consumer loan delinquencies increased $53.6 million and decreased $3.0 million, respectively, primarily due to seasonality in the RIC and auto loan portfolio, where delinquencies tend to be highest during the holiday months of November to January. Commercial delinquencies increased $126.6 million.


ALLOWANCE FOR CREDIT LOSSES ("ACL")

The ACL is maintained at levels management considers adequate to provide for losses based upon an evaluation of known and inherent risks in the loan portfolio. Management's evaluation takes into consideration the risks inherent in the portfolio, past loan and lease loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, the level of originations, credit quality metrics such as FICOscores and CLTV, internal risk ratings, economic conditions and other relevant factors. Whileapplicable law, management uses the bestqualitative framework to exercise judgment about matters that are inherently uncertain and that are not considered by the quantitative framework. These adjustments are documented and reviewed through the Company’s risk management processes. Furthermore, management reviews, updates, and validates its process and loss assumptions on a periodic basis. This process involves an analysis of data integrity, review of loss and credit trends, a retrospective evaluation of actual loss information available to make such evaluations, future adjustments to the loss forecasts, and other analyses.

ACL may be necessary if conditions differ substantiallylevels are collectively reviewed for adequacy and approved quarterly. Required actions resulting from the assumptions used in makingCompany's analysis, if necessary, are governed by its ACL Committee. The ACL levels are approved by the evaluations.Board-level committees quarterly.



ACL
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations



The following table presents the allocationCompany's ACL was $6.8 billion at March 31, 2024, a decrease of the ALLL and the percentage of each loan type to total LHFI at the dates indicated:
 September 30, 2017 December 31, 2016
 Amount 
% of Loans
to Total LHFI
 Amount % of Loans
to Total LHFI
 (dollars in thousands)
Allocated allowance:       
Commercial loans$424,791
 49.1% $449,837
 51.8%
Consumer loans3,484,331
 50.9% 3,317,604
 48.2%
Unallocated allowance47,023
 n/a
 47,023
 n/a
Total ALLL3,956,145
 100.0% 3,814,464
 100.0%
Reserve for unfunded lending commitments116,086
   122,418
  
Total ACL$4,072,231
   $3,936,882
  

General

The ACL increased $135.3$193.5 million from December 31, 2016 to September 30, 2017.2023. The increasedecrease in the overall ACL was primarily attributabledriven by improvement in the macroeconomic outlook for certain macro variables, seasonally expected lower delinquencies in RICs and auto loans, sale of certain RICs and auto loans and lower exposure in Personal unsecured loans. The ACL for the consumer segment decreased by $163.6 million, and the ACL for the commercial segment decreased $29.8 million for the period ended March 31, 2024 compared to the increased amount of TDR's within SC's RIC and auto loan portfolio, and $37.0 million of reserves booked for possible losses from Hurricane Maria.

Management regularly monitorsperiod ended December 31, 2023. Refer to the condition of the Company's portfolio, considering factors such as historical loss experience, trends in delinquencies and NPLs, changes in risk composition and underwriting standards, the experience and ability of staff, and regional and national economic conditions and trends.

Generally, the Company’s LHFI are carried at amortized cost, net of ALLL, which includes the estimate of any related net discounts that are expected at the time of charge-off. In the case of loans purchased in a bulk purchase or business combination, the entire discount on the loan portfolio is considered as available to absorb the credit losses when determining the ALLL. For these loans, the Company records provisions for credit losses when incurred losses exceed the unaccreted purchase discount.

The risk factors inherent in the ACL are continuously reviewed and revised by management when conditions indicate that the estimates initially applied are different from actual results. The Company also performs a comprehensive analysisrollforward of the ACL on a quarterly basis. In addition, the Company performs a review each quarter of allowance levels and trends by major portfolio against the levels of peer banking institutions to benchmark our allowance and industry norms.

Commercial

For the commercial loan portfolio excluding small business loans (businesses with annual sales of up to $3.0 million), the Company has specialized credit officers, a monitoring unit, and workout units that identify and manage potential problem loans. Changes in management factors, financial and operating performance, company behavior, industry factors and external events and circumstances are evaluated on an ongoing basis to determine whether potential impairment is evident and/or additional analysis is needed. For the commercial loan portfolios, risk ratings are assigned to each loan to differentiate risk within the portfolio, reviewed on an ongoing basis by credit risk management and revised, if needed, to reflect the borrower’s current risk profile and the related collateral position. The risk ratings consider factors such as financial condition, debt capacity and coverage ratios, market presence and quality of management. Generally, credit officers reassess a borrower’s risk rating on at least an annual basis, and more frequently if warranted. This reassessment process is managed by credit officers and is overseen by the credit monitoring group to ensure consistency and accuracy in risk ratings, as well as the appropriate frequency of risk rating reviews by the Company’s credit officers. The Company’s Credit Risk Review Committee assesses whether the Company’s Credit Risk Review Framework and risk management guidelines established by the Company’s Board and applicable laws and regulations are being followed, and reports key findings and relevant informationNote 3 to the Board. The Company’s Credit Risk Review group regularly performs loan reviews and assesses the appropriateness of assigned risk ratings. When credits are downgraded below a certain level, the Company’s Workout Department becomes responsible for managing the credit risk. Risk rating actions are generally reviewed formally by one or more credit committees depending on the size of the loan and the type of risk rating action being taken. Detailed analyses are completed that support the risk rating and management’s strategies for the customer relationship going forward.Condensed Consolidated Financial Statements.



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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


A loan is considered to be impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay (e.g., less than 90 days) or insignificant shortfall in the amount of payments does not necessarily result in the loan being identified as impaired. Impaired commercial loans are comprised of all TDRs plus non-accrual loans in excess of $1 million that are not TDRs. In addition, the Company may perform a specific reserve analysis on loans that fail to meet this threshold if the nature of the collateral or business conditions warrant. The Company performs a specific reserve analysis on certain loans regardless of loan size. If a loan is identified as impaired and is collateral-dependent, an initial appraisal is obtained to provide a baseline to determine the property’s fair market value. The frequency of appraisals depends on the type of collateral being appraised. If the collateral value is subject to significant volatility (due to location of the asset, obsolescence, etc.), an appraisal is obtained more frequently. At a minimum, updated appraisals for impaired loans are obtained within a 12-month period if the loan remains outstanding for that period of time.

If a loan is identified as impaired and is not collateral-dependent, impairment is measured based on a discounted cash flow ("DCF") methodology.

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

The portion of the ALLL related to the commercial portfolio was $424.8 million at September 30, 2017 (1.1% of commercial LHFI) and $449.8 million at December 31, 2016 (1.0% of commercial LHFI). The primary factor resulting in the decreased ACL allocated to the commercial portfolio is, in part, due to the current economic environment impacting our commercial customers, primarily in the energy sector. Management recorded additional reserves for this portfolio during the first quarter of 2016.

Consumer

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

Residential mortgages not adequately secured by collateral are generally charged-off to fair value less cost to sell when deemed to be uncollectible or are delinquent 180 days or more, whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Examples that would demonstrate repayment likelihood include a loan that is secured by collateral and is in the process of collection, a loan supported by a valid guarantee or insurance, or a loan supported by a valid claim against a solvent estate.

For residential mortgage loans, loss severity assumptions are incorporated into the loan and lease loss reserve models to estimate loan balances that will ultimately charge-off. These assumptions are based on recent loss experience within various CLTV bands in these portfolios. CLTVs are refreshed quarterly by applying Federal Housing Finance Agency Home Price Index changes at a state-by-state level to the last known appraised value of the property to estimate the current CLTV. The Company's ALLL incorporates the refreshed CLTV information to update the distribution of defaulted loans by CLTV as well as the associated loss given default for each CLTV band. Reappraisals at the individual property level are not considered cost-effective or necessary on a recurring basis; however, reappraisals are performed on certain higher risk accounts to support line management activities and default servicing decisions, or when other situations arise for which the Company believes the additional expense is warranted.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


A home equity loan or line of credit not adequately secured by collateral is treated similarly to the way residential mortgages are treated. The Company incorporates home equity loan or line of credit loss severity assumptions into the loan and lease loss reserve model following the same methodology as for residential mortgage loans. To ensure the Company has captured losses inherent in its home equity portfolios, the Company estimates its ALLL for home equity loans and lines of credit by segmenting its portfolio into sub-segments based on the nature of the portfolio and certain risk characteristics such as product type, lien positions, and origination channels. Projected future defaulted loan balances are estimated within each portfolio sub-segment by incorporating risk parameters, including the current payment status as well as historical trends in delinquency rates. Other assumptions, including prepayment and attrition rates, are also calculated at the portfolio sub-segment level and incorporated into the estimation of the likely volume of defaulted loan balances. The projected default volume is stratified across CLTV ratio bands, and a loss severity rate for each CLTV band is applied based on the Company's historical net credit loss experience. This amount is then adjusted, as necessary, for qualitative considerations to reflect changes in underwriting, market, or industry conditions, or changes in trends in the composition of the portfolio, including risk composition, seasoning, and underlying collateral.

The Company considers the delinquency status of its senior liens in cases in which the Company services the lien. The Company currently services the senior lien on 25.9% of its junior lien home equity principal balances. Of the junior lien home equity loan and line of credit balances that are current, 0.8% have a senior lien that is one or more payments past due. When the senior lien is delinquent but the junior lien is current, allowance levels are adjusted to reflect loss estimates consistent with the delinquency status of the senior lien. The Company also extrapolates these impacts to the junior lien portfolio when the senior lien is serviced by another investor and the delinquency status of that senior lien is unknown.

Depository and lending institutions in the U.S. generally are expected to experience a significant volume of home equity lines of credit that will be approaching the end of their draw periods over the next several years, following the growth in home equity lending experienced during 2003 through 2007. As a result, many of these home equity lines of credit will either convert to amortizing loans or have principal due as balloon payments. The Company's home equity lines of credit generated after 2007 are generally open-ended, revolving loans with fixed-rate lock options and draw periods of up to 10 years, along with amortizing repayment periods of up to 20 years. The Company currently monitors delinquency rates for amortizing and non-amortizing lines, as well as other credit quality metrics, including FICO credit scoring model scores and LTV ratios. The Company's home equity lines of credit are generally underwritten considering fully drawn and fully amortizing levels. As a result, the Company currently does not anticipate a significant deterioration in credit quality when these home equity lines of credit begin to amortize.

For RICs and personal unsecured loans at SC, the Company estimates the ALLL at a level considered adequate to cover probable credit losses inherent in the non-TDR portfolio, and records impairment on the TDR portfolio using a DCF model. RICs and personal unsecured loans are considered separately in assessing the required ALLL using product-specific allowance methodologies applied on a pooled basis. For RICs, the Company segregates the portfolio based on homogeneity into pools based on source, then further stratifies each pool by vintage and custom loss forecasting score. For each vintage and risk segment, the Company's vintage model predicts the timing of unit losses and the loan balance at the time of default. Auto loans are charged off when an account becomes 120 days delinquent if the Company has not repossessed the vehicle. The Company writes the vehicle down to the estimated recovery amount of the collateral when the automobile is repossessed and legally available for disposition.

The Company considers changes in the used vehicle index when forecasting recovery rates to apply to the gross losses forecasted by the vintage model. Its models do not include other macro-economic factors. Instead, the ALLL process considers factors such as unemployment rates and bankruptcy trends as potential qualitative overlays. Management reviews idiosyncratic and systemic risks facing the business. This qualitative overlay framework enables the ALLL process to arrive at a provision that reflects all relevant information, including both quantitative model outputs and qualitative overlays.

The allowance for consumer loans was $3.5 billion and $3.3 billion at September 30, 2017 and December 31, 2016, respectively. The allowance as a percentage of held-for-investment consumer loans was 8.4% at September 30, 2017 and 8.0% at December 31, 2016. The increase in the allowance for consumer loans was primarily attributable to SC's RIC and auto loan portfolio growth.

The Company's allowance models and reserve levels are back-tested on a quarterly basis to ensure that both remain within appropriate ranges. As a result, management believes that the current ALLL is maintained at a level sufficient to absorb inherent losses in the consumer portfolios.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Unallocated

Additionally, the Company reserves for certain inherent but undetected, losses that are probable within the loan and lease portfolios. This is considered to be reasonably sufficient to absorb imprecisions of models or to otherwise provide for coverage of inherent losses in the Company's entire loan and lease portfolios. These imprecisions may include loss factors inherent in the loan portfolio that may not have been discreetly contemplated in the general and specific components of the allowance, as well as potential variability in estimates. Period-to-period changes in the Company's historical unallocated ALLL positions are considered in light of these factors. The unallocated ALLL was $47.0 million at September 30, 2017 and December 31, 2016.

Reserve for Unfunded Lending Commitments

In addition to the ALLL, the Company estimates probable losses related to unfunded lending commitments. The reserve for unfunded lending commitments consists of two elements: (i) an allocated reserve, which is determined by an analysis of historical loss experience and risk factors, current economic conditions, performance trends within specific portfolio segments, and any other pertinent information, and (ii) an unallocated reserve to account for a level of imprecision in management's estimation process. Additions to the reserve for unfunded lending commitments are made by charges to the provision for credit losses, and this reserve is classified within Other liabilities on the Company's Condensed Consolidated Balance Sheet. Once an unfunded lending commitment becomes funded and is carried as a loan, the corresponding reserves are transferred to the ALLL.


The reserve for unfunded lending commitments decreased from $122.4$60.8 million at December 31, 20162023 to $116.1$57.2 million at September 30, 2017. This change was primarily due to a reduction during 2016 in off-balance sheet lending commitments. During the three-monthMarch 31, 2024.
96



Item 2.    Management’s Discussion and nine-month periods ended September 30, 2017, SBNA transferred $6.8 billionAnalysis of unfunded commitments to extend credit to an unconsolidated related party. The net impactFinancial Condition and Results of the change in the reserve for unfunded lending commitments to the overall ACL was immaterial.Operations





INVESTMENT SECURITIES


InvestmentThe following table presents the Company's investment portfolio at the dates indicated:
(in thousands)March 31, 2024December 31, 2023
Investment securities AFS:
U.S. Treasury securities and government agencies$3,477,738 $3,336,467 
FNMA and FHLMC securities1,979,558 2,038,307 
Beneficial interest in Structured LLC1,082,348 1,122,510 
Other securities (1)
551,869 542,253 
Total investment securities AFS7,091,513 7,039,537 
Investment securities HTM:
U.S. government agencies7,581,191 7,625,337 
FNMA and FHLMC securities1,387,873 1,414,367 
Total investment securities HTM8,969,064 9,039,704 
Trading securities9,003,612 7,967,875 
Other investments1,346,020 1,353,278 
Total investment portfolio$26,410,209 $25,400,394 
(1) Other securities consist primarily include corporate debt securities and ABS.


The Company’s AFS investment strategy is to purchase liquid fixed-rate and floating-rate investments to manage the Company's liquidity position and interest rate risk adequately. The Company's AFS investment portfolioconsisted of U.S. Treasuries, MBS, ABS and stock in the FHLB and FRB. MBS consist of pass-through, collateralized mortgage obligations ("CMOs"), and adjustable rate mortgages issued by federal agencies.following at the dates indicated:

 March 31, 2024December 31, 2023ChangePercent
(in thousands)Fair ValueFair Value
U.S. Treasury securities$226,359 $25,409 $200,950 790.9 %
Corporate debt securities2,130 31,590 (29,460)(93.3)%
ABS549,739 510,663 39,076 7.7 %
Beneficial interest in Structured LLC1,082,348 1,122,510 $(40,162)(3.6)%
MBS(1):
GNMA - Residential2,740,234 2,792,844 (52,610)(1.9)%
GNMA - Commercial511,145 518,214 (7,069)(1.4)%
FHLMC and FNMA - Residential1,891,009 1,949,419 (58,410)(3.0)%
FHLMC and FNMA - Commercial88,549 88,888 (339)(0.4)%
Total investments in debt securities AFS$7,091,513 $7,039,537 $51,976 0.7 %
(1) The Company’s MBS are either guaranteed as to principal and interest by the issuer or have ratings of “AAA” by S&P and Moody’s Investor Service at the date of issuance.

The Company’sunrealized gain / (loss) position of the AFS investment strategy is to purchase liquid fixed-rate and floating-rate investments to manage the Company's liquidity position and interest rate risk adequately.portfolio


Total investment securities AFS increased $208.8 million to $17.2 billion at September 30, 2017, compared to $17.0 billion at December 31, 2016. During the nine-month period ended September 30, 2017, the composition
(in thousands)March 31, 2024December 31, 2023Change in unrealized gain/(loss)Percent
Total unrealized loss$(866,320)$(886,414)$20,094 (2.3)%
Total unrealized gain319 61 258 423.0 %
Total unrealized gain/(loss) position$(866,001)$(886,353)$20,352 (2.3)%

The average life of the Company'sAFS investment portfolio changed due(excluding certain ABS) at March 31, 2024 was approximately 7.16 years. The average effective duration of the investment portfolio (excluding certain ABS) at March 31, 2024 was approximately 5.65 years. The actual maturities of MBS AFS will differ from contractual maturities because borrowers have the right to an increase in MBS, which were offset by a decrease in ABS. MBS increased by $1.0 billion primarily due to investment purchasesprepay obligations without prepayment penalties.

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Item 2.    Management’s Discussion and Analysis of $4.2 billion, offset by $3.1 billionFinancial Condition and Results of principal paydowns and maturities. ABS decreased $674.9 million, primarily due to $447.0 million of principal paydowns. For additional information with respect to the Company’s investment securities, see Note 3 to the Condensed Consolidated Financial Statements.Operations


Debt securities for which the Company has the positive intent and ability to hold the securities until maturity are classified as held-to-maturity securities. Held-to-maturity

HTM securities are reported at cost and adjusted for amortization of premium and accretion of discount. Total investment securities held-to-maturity were $1.6 billion at September 30, 2017. The Company had 23349 investment securities classified as held-to-maturityHTM as of September 30, 2017.

Total trading securities increased $7.5 million to $9.1 million at September 30, 2017, compared to $1.6 million at DecemberMarch 31, 2016.

Total gross unrealized losses decreased by $57.9 million to $175.7 million during the nine-month period ended September 30, 2017. The majority of the decrease in unrealized losses was in the MBS portfolios. The unrealized losses decreased within the MBS portfolios by $56.5 million. Refer to Note 3 to the Condensed Consolidated Financial Statements for additional details.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Other investments, which consists primarily of FHLB stock and FRB stock, decreased from $730.8 million at December 31, 2016 to $708.3 million at September 30, 2017, primarily due to the Company redeeming $205.4 million of FHLB stock at par, partially offset by the Company's purchase of $154.8 million of FHLB stock at par. There was no gain or loss associated with these redemptions. During the period ended September 30, 2017, the Company did not purchase any FRB stock.

The average life of the available-for-sale investment portfolio (excluding certain ABS) at September 30, 2017 was approximately 4.47 years. The average effective duration of the investment portfolio (excluding certain ABS) at September 30, 2017 was approximately 3.02 years. The actual maturities of MBS AFS will differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.

The following table presents the fair value of investment securities by obligor at the dates indicated:

 September 30, 2017 December 31, 2016
 (in thousands)
Investment securities AFS:   
U.S. Treasury securities and government agencies$8,242,685
 $8,163,027
FNMA and FHLMC securities8,399,780
 7,639,823
State and municipal securities25
 30
Other securities (1)
590,556
 1,221,345
Total investment securities AFS17,233,046
 17,024,225
Investment securities held-to-maturity:   
U.S. government agencies1,560,850
 1,658,644
Total investment securities held-to-maturity (2)
1,560,850
 1,658,644
Trading securities9,098
 1,630
Other investments708,294
 730,831
Total investment portfolio$19,511,288
 $19,415,330

(1) Other securities primarily include corporate debt securities and ABS.
(2) Held-to-maturity securities are measured and presented at amortized cost.

2024. The following table presents the securities of single issuers (other than obligations of the United States and its political subdivisions, agencies, and corporations) having an aggregate book value in excess of 10% of the Company's stockholder's equity that were held by the Company at September 30, 2017:March 31, 2024:

September 30, 2017
Amortized Cost Fair Value
(in thousands)
March 31, 2024March 31, 2024
(in thousands)(in thousands)Amortized CostFair Value
FNMA$4,333,536
 $4,280,822
FHLMC4,172,562
 4,118,958
Government National Mortgage Association (1)
8,180,180
 8,116,671
Government - Treasuries1,669,963
 1,668,107
GNMA (1)
Total$18,356,241
 $18,184,558
Total
Total
(1) Includes U.SU.S. government agency MBS.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations



GOODWILL


The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired less the fair value of liabilities assumed as goodwill. Consistent with ASC 350, the Company does not amortize goodwill, and reviews the goodwill recorded for impairment on an annual basis or more frequently when events or changes in circumstances indicate the potential for goodwill impairment. At September 30, 2017,March 31, 2024, goodwill totaled $4.5$2.8 billion and represented 3.4%1.7% of total assets and 19.0%17.4% of total stockholder's equity. The following table shows goodwill by reporting units at September 30, 2017:

  Consumer and Business Banking Commercial Real Estate Commercial Banking Global Corporate Banking SC Santander BanCorp Total
  (in thousands)
Goodwill at September 30, 2017 $1,880,303
 $870,411
 $542,584
 $131,130
 $1,019,960
 $10,537
 $4,454,925

The Company conducted its most recent annual goodwill impairment tests as of October 1, 20162023 using generally accepted valuation methods. After conducting an analysis of the fair value of each reporting unit as of October 1, 2016, the Company determined thatmethods and noted no impairments of goodwill were identified as a result of the annual impairment tests.impairment.


The Company completes a quarterly review for impairment indicators over each of its reporting units, which includes consideration of economic and organizational factors that could impact the fair value of the Company's reporting units. At the completionAs of the thirdmost recent review completed at the end of the first quarter review,of 2024, the Company did not identify any indicators which resulted in the Company's conclusion that an interim impairment test would be required to be completed.



DEFERRED TAXES AND OTHER TAX ACTIVITY


The Company'sCompany had a net deferred tax liabilityasset balance of $684.3$195.7 million at September 30, 2017March 31, 2024 (consisting of a deferred tax asset balance of $958.2$235.0 million and a deferred tax liability balance of $1,642.5 million)$39.3 million with respect to jurisdictional netting), compared to a net deferred tax liabilityasset balance of $430.5$150.1 million at December 31, 20162023 (consisting of a deferred tax asset balance of $989.8$234.3 million and a deferred tax liability balance of $1,420.3 million). The $253.8 million increase of net deferred liabilities for the nine-month period ended September 30, 2017 was primarily due$84.2 million. Refer to an increase in deferred tax liabilities related to accelerated depreciation on leasing transactions, partially offset by a decrease in deferred tax liabilities related to unremitted foreign earnings of a subsidiary of SC.

The Company filed a lawsuit against the United States in 2009 in Federal District Court in Massachusetts relating to the proper tax consequences of two financing transactions with an international bank through which the Company borrowed $1.2 billion. As a result of these financing transactions, the Company paid foreign taxes of $264.0 million during the years 2003 through 2007 and claimed a corresponding foreign tax credit for foreign taxes paid during those years, which the Internal Revenue Service ("IRS") disallowed. The IRS also disallowed the Company's deductions for interest expense and transaction costs, totaling $74.6 million in tax liability, and assessed penalties and interest totaling approximately $92.5 million. The Company has paid the taxes, penalties and interest associated with the IRS adjustments for all tax years, and the lawsuit will determine whether the Company is entitled to a refund of the amounts paid.

On November 13, 2015, the Federal District Court issued a written opinion in favor of the Company on all contested issues, and in a judgment issued on January 13, 2016, ordered amounts assessed by the IRS for the years 2003 through 2005 to be refunded to the Company. The IRS appealed that judgment. On DecemberNote 15 2016, the U.S. Court of Appeals for the First Circuit partially reversed the judgment of the Federal District Court. Pursuant to the First Circuit's decision, the Company is not entitled to claim the foreign tax credits it claimed but will be allowed to exclude from income $132.0 million (representing half of the U.K. taxes the Company paid) and claim the interest expense deductions. The First Circuit ordered the case to be remanded to the Federal District Court for further proceedings to determine, among other issues, whether penalties should be sustained. On March 16, 2017, the Company filed a petition requesting the U.S. Supreme Court to hear its appeal of the First Circuit Court’s decision. On June 26, 2017 the U.S. Supreme Court denied the Company’s request, and the case has now been remanded to the Federal District Court as ordered by the Court of Appeals. On remand, the parties are awaiting the Court’s decision on motions for summary judgment filed by the Company regarding the remaining issues.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


In response to the First Circuit's decision, at December 31, 2016 the Company used its previously established $230.1 million tax reserve to write off the deferred tax assets and a portion of the receivable that would not be realized under the Court's decision. Additionally, the Company established a $36.0 million tax reserve in relation to items that have not yet been determined by the courts, including potential penalties. The Company believes that this reserve amount adequately provides for potential exposure to the IRS related to these items. Over the next 12 months, it is reasonably possible that changes in the reserve for uncertain tax positions could range from a decrease of $36.0 million to no change.


OFF-BALANCE SHEET ARRANGEMENTS

See further discussion of the Company's off-balance sheet arrangements in Note 6 and Note 14 to the Condensed Consolidated Financial Statements and the Liquidity and Capital Resources section of this MD&A.


PREFERRED STOCK

In April 2006, the Company’s Board of Directors authorized 8,000 shares of Series C Preferred Stock, and granted the Company authority to issue fractional sharesfor further discussion of the Series C Preferred Stock. Dividends on each sharechange in deferred tax balances.
98



Item 2.    Management’s Discussion and Analysis of Series C Preferred Stock are payable quarterly, on a non-cumulative basis, at an annual rateFinancial Condition and Results of 7.30%, when and if declared by the Company's Board of Directors. In May 2006, the Company issued 8,000,000 depository shares of Series C Preferred Stock for net proceeds of $195.4 million. Each depository share represents 1/1000th ownership interest in a share of Series C Preferred Stock. As a holder of depository shares, the depository shareholder is entitled to all proportional rights and preferences of the Series C Preferred Stock. The Company’s Board of Directors paid cash dividends to preferred stockholders totaling $11.0 million and $11.5 million for the nine-month periods ended September 30, 2017 and 2016, respectively.Operations


The shares of Series C Preferred Stock are redeemable in whole or in part for cash, at the Company’s option, at a redemption price of $25,000 per share (equivalent to $25 per depository share), subject to the prior approval of the FRB. As of September 30, 2017, no shares of the Series C Preferred Stock had been redeemed.


On October 3, 2017, the Company's Board of Directors declared a cash dividend on the Company's preferred stock of $0.45625 per share, which is payable on November 15, 2017 to shareholders of record as of the close of business on November 1, 2017.

In August 2010, Santander BanCorp, a subsidiary of the Company, issued 3.0 million shares of Series B preferred stock, $25 par value, designated as the 8.75% noncumulative preferred stock, to an affiliate. The shares of the Series B preferred stock were redeemable in whole or in part for cash on or after September 30, 2015, and semiannually thereafter on each March 31 and September 30 at the option of Santander BanCorp, with the consent of the FDIC and any other applicable regulatory authority. Dividends on the Series B preferred stock were payable when, as and if declared by the Board of Directors of Santander BanCorp.

On January 29, 2016, BSPR redeemed the outstanding $75.0 million of Series B preferred stock. In accordance with the notice of full redemption, each share of preferred stock was redeemed at the redemption price, corresponding to $25 per preference share, plus any unpaid dividends in respect of the most recent dividend period.


BANK REGULATORY CAPITAL


The Company'sCompany’s capital priorities are to support client growth and business investment while maintaining appropriate capital in lightfor a range of economic uncertainty and the Basel III framework. The Company continues to improve its capital levels and ratios through the retention of quarterly earnings and risk-weighted asset ("RWA") optimization.macroeconomic outcomes.


The Company is subject to the regulations of certain federal, state, and foreign agencies and undergoes periodic examinations by those regulatory authorities. At September 30, 2017March 31, 2024 and December 31, 2016,2023, based on the Bank’sSBNA’s capital calculations, the BankSBNA was considered well-capitalized under the applicable capital framework. In addition, the Company's capital levels as of September 30, 2017March 31, 2024 and December 31, 2016,2023, based on the Company’s capital calculations, exceeded the required capital ratios for BHCs.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations



For a discussion of U.S. Basel III, which became effective for SHUSA and the Bank on January 1, 2015, including the standardized approach and related anticipated future changes to the minimum U.S. regulatory capital ratios, see the section captioned "Regulatory Matters" in this MD&A.


Federal banking laws, regulations and policies also limit the Bank'sSBNA’s ability to pay dividends and make other distributions to the Company. The BankSBNA must obtain prior OCC approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the Bank's total distributions to SHUSA within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years;years, (2) the Bank would not meet capital levels imposed by the OCC in connection with any order;order, (3) the Bank has negative retained earnings, or (3)(4) the Bank is not adequately capitalized at the time. The OCC's prior approval would also be required if the BankSBNA were notified by the OCC that it is a problem institution or in troubled condition.


Any dividend declared and paid or return of capital has the effect of reducing capital ratios. Refer to the section captioned "Liquidity and Capital Resources" in this MD&A for discussion of the Company's dividends.


The following schedule summarizes the actual capital balancesratios of SHUSA and SBNA at March 31, 2024:
SHUSA
March 31, 2024Well-capitalized RequirementMinimum Requirement
CET1 capital ratio12.53 %6.50 %4.50 %
Tier 1 capital ratio14.40 %8.00 %6.00 %
Total capital ratio16.52 %10.00 %8.00 %
Leverage ratio9.75 %5.00 %4.00 %

SBNA
March 31, 2024Well-capitalized RequirementMinimum Requirement
CET1 capital ratio16.00 %6.50 %4.50 %
Tier 1 capital ratio16.00 %8.00 %6.00 %
Total capital ratio17.26 %10.00 %8.00 %
Leverage ratio11.50 %5.00 %4.00 %


The Company utilizes fair value hedging strategies to mitigate the Bankrisk of unrealized losses in its investments in debt securities AFS. As of December 31, 2023, the Company had $6.7 billion of notional in fair value hedges which decreased to $6.5 billion at September 30, 2017:March 31, 2024. Refer to the notional and fair value of these hedging instruments in Note 12 to these Condensed Consolidated Financial Statements.




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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



  SHUSA
       
  September 30, 2017 
Well-capitalized Requirement(1)
 
Minimum Requirement(1)
CET1 capital ratio 15.66% 6.50% 4.50%
Tier 1 capital ratio 17.39% 8.00% 6.00%
Total capital ratio 19.10% 10.00% 8.00%
Leverage ratio 13.40% 5.00% 4.00%
DEPOSITS


The Company reported deposits of $77.7 billion and $77.1 billion at March 31, 2024 and December 31, 2023, respectively.

At March 31, 2024, SBNA had $76.3 billion of U.S.-based deposits, including $4.1 billion of deposits from SHUSA affiliates that eliminate in consolidation. Uninsured U.S.-based deposits were $27.7 billion and $26.3 billion at March 31, 2024 and December 31, 2023, respectively, and represented approximately 36% and 35% of all U.S. deposits at March 31, 2024 and December 31, 2023, respectively.

SBNA attracts deposits primarily through its retail branch network located within the Mid-Atlantic and Northeastern areas of the United States, focused throughout Pennsylvania, New Jersey, New York, New Hampshire, Massachusetts, Connecticut, Rhode Island, and Delaware. Many of these deposit customers have more than one bank product including small business loans, middle market, large and global commercial loans, multi-family loans, and auto and other consumer loans. In addition, SBNA obtains deposits through third-party brokerage firms.

The following shows the Company's deposits by business as of March 31, 2024:

Consumer (1)
Commercial (2)
CIBWealth Management
Other and eliminations (3)
Total
(dollars in thousands)Balance
Interest-bearing demand deposits$39,407,202 $9,518,961 $3,763,810 $2,973,269 $6,843,328 $62,506,570 
Non-interest-bearing demand deposits9,284,154 3,270,669 115,498 2,496,954 10,625 15,177,900 
Total deposits (1)
$48,691,356 $12,789,630 $3,879,308 $5,470,223 $6,853,953 $77,684,470 
(1) As defined by Federal Reserve regulations. TheConsumer consists of deposits related to the Company's ratios are presented under a Basel III phasing in basis.

  BANK
       
  September 30, 2017 
Well-capitalized Requirement(2)
 
Minimum Requirement(2)
CET1 capital ratio 18.08% 6.50% 4.50%
Tier 1 capital ratio 18.08% 8.00% 6.00%
Total capital ratio 19.20% 10.00% 8.00%
Leverage ratio 13.69% 5.00% 4.00%

Auto and CBB reportable segments.
(2) As defined by OCC regulations. The Bank's ratios are presented under a Basel III phasing in basis.

In June 2017, the Company announced that the Federal Reserve did not objectCommercial consists of deposits related to the planned capital actions described in the Company’s capital plan submitted as partCompany's C&I and CRE reportable segments.
(3) Other consists of deposits related to certain of the CCAR process. That capital plan included planned capital distributions acrossCompany's immaterial subsidiaries and corporate treasury deposits.

During the following categories: (1) common stock dividends from SHUSA to Santander, (2) common stock dividends from SC, (3) redemption of the remaining balance of SHUSA’s 7.908% trust preferred securities, and (4) dividends on the Company’s preferred stock and payments on its trust preferred securities. On June 28, 2017, SHUSA’s Board of Directors approved the following capital distributions for the thirdfirst quarter of 2017: (1) a dividend payment2024, deposits remained stable across our consumer and commercial businesses with changes to overall deposit balances being primarily driven by strategic deposits in CIB.

100



Item 2.    Management’s Discussion and Analysis of $0.45625 per share on the Company’s preferred stock, (2) a common stock dividend payment to SantanderFinancial Condition and Results of $5.0 million, and (3) redemption of the remaining balance of the Company’s trust preferred securities.Operations


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations




LIQUIDITY AND CAPITAL RESOURCES

Overall

The Company continues to maintain strong liquidity positions.liquidity. Liquidity represents the ability of the Company to obtain cost-effective funding to meet the needs of customers as well as the Company's financial obligations. Factors that impact the liquidity position of the Company include loan origination volumes, loan prepayment rates, the maturity structure of existing loans, core deposit growth levels, CD maturity structure and retention, the Company's credit ratings, investment portfolio cash flows, the maturity structure of the Company's wholesale funding, and other factors. These risks are monitored and managed centrally. The Company's Asset/Liability Committee reviews and approves the Company's liquidity policy and guidelines on a regular basis. This process includes reviewing all available wholesale liquidity sources. The Company also forecasts future liquidity needs and develops strategies to ensure adequate liquidity is available at all times. SHUSA conducts monthly liquidity stress test analyses to manage its liquidity under a variety of scenarios, all of which demonstrate that the Company has ample liquidity to meet its short-term and long-term cash requirements.

Further changesEnhanced Monitoring of Liquidity

In addition to its normal monitoring of liquidity, SBNA enhanced monitoring of its liquidity position since the recent financial system market disruption that began in March 2023 and the ensuing market volatility. Additionally, SBNA continues to optimize contingent sources of liquidity. Some of these actions include the pledge of additional loans to the FRB discount window, and the transfer of loans from the discount window to the FHLB in order to receive more favorable discounts. Overall, the available capacity from the FRB and FHLB remained stable throughout and since 2023.

Impact of Changes to Credit Rating on Liquidity and Capital Resources

Changes to the credit ratings of SHUSA, Santander and its affiliates or the Kingdom of Spain could have a material adverse effect on SHUSA's business, including its liquidity and capital resources. The credit ratings of SHUSA have changed in the past and may change in the future, which could impact its cost of and access to sources of financing and liquidity. Any reductions in the long-term or short-term credit ratings of SHUSA would increase its borrowing costs and require it to replace funding lost due to the downgrade, which may include the loss of customer deposits, and limit its access to capital and money markets and trigger additional collateral requirements in derivatives contracts and other secured funding arrangements. See further discussion on the impacts of credit ratings actions in the Economic"Economic and Business EnvironmentEnvironment" section of this MD&A.

Sources of Liquidity
Company and Bank

The Company and the Bank havehas several sources of funding to meet liquidity requirements, including the Bank's core deposit base, liquid investment securities portfolio, ability to acquire large deposits, FHLB borrowings, wholesale deposit purchases, and federal funds purchased, as well as through securitizations in the ABS market and committed credit lines from third-party banks and Santander. TheIn addition, the Company has the following majorother sources of funding to meet its liquidity requirements:requirements such as dividends and returns of investments from its subsidiaries, short-term investments held by non-bank affiliates, and access to the capital markets.

On July 2, 2015, the Company entered into a written agreement with the FRBThe specialized consumer financing of Boston. Under the terms of this written agreement, the Company is required to make enhancements with respect to, among other matters, Board oversight of the consolidated organization, risk management, capital planning and liquidity risk management.
Until recently, the Company was subject to an additional written agreement with the FRB of Boston on stress testing and capital adequacy. That written agreement was entered into on September 15, 2014, and was terminated on August 17, 2017.
SC

SCRICs requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. SCThe Company funds itsthese operations through its lending relationships with 13 third-party banks, SHUSASantander and Santander, as well asaffiliates, and through securitizations in the ABS market and large flow agreements. SCmarket. The Company seeks to issue debt that appropriately matches the cash flows of the assets that it originates. SC has over $5.8 billionThe Company uses liquidity for debt service and repayment of stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements.borrowings, as well as for funding loan commitments.


During the nine-month periodthree months ended September 30, 2017, SCMarch 31, 2024, the Company's subsidiaries completed on-balance and off-balance sheet funding transactions totaling approximately $12.3$4.9 billion, including:


three •securitizations on its Santander Drive Auto Receivables Trust ("SDART") platform for $3.1 billion;
issuance of two retained bonds on itsSC's SDART platform for $155.0 million;approximately $1.1 billion
four •securitizations on its Drive Auto Receivables Trust (“DRIVE"), deeper subprime platform for $4.1 billion;
issuance of 1 retained bond on itsSC's DRIVE platform for $113.0 million;approximately $0.9 billion
four private amortizing •lease facilitiessecuritizations on SBNA's SBALT platform for $1.6 billion; andapproximately $1.5 billion
seven top-ups and two re-levers•issuance of private amortizing loan and lease facilitiesretained bonds for $3.2 billion.approximately $0.5 billion

•off-balance sheet securitization on SBNA's SBAT platform for approximately $1.0 billion

138
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations






SC also completed $3.0
Santander provides a liquidity line to SHUSA for the purpose of supporting additional liquidity for SHUSA and its subsidiaries CIB business activities. At March 31, 2024, SHUSA had $4.0 billion in asset sales,available liquidity on the line, of which consisted of $300.0 million of recurring monthly sales with its third-party flow partners and $2.6 billion in sales to Santander and $100.0 million in sales to SBNA.it had drawn zero.


For information regarding SC's debt, see Note 10 to the Condensed Consolidated Financial Statements.

IHC

SIS entered into a two-year revolving subordinated loan agreement with Santander effective June 8, 2015, not to exceed $290.0 million in the aggregate, which matured on June 8, 2017. On June 6, 2017, SIS entered into a revolving subordinated loan agreementIntercompany Borrowings with SHUSA notaffiliates

SHUSA provides notes payable and revolving loans and lines to exceed $290.0 millionits subsidiaries as needed for a two-year termthe purpose of providing additional liquidity to mature in 2019. On September 13, 2017, the revolving subordinated loan agreement with SHUSA was increased to $350.0 million and on October 6, 2017, it was increased to $495.0 million.

As needed, SIS will draw down from a another subordinated loan with Santander in order to enable SIS to underwrite certain large transactions in excess of the foregoing subordinated loan. At September 30, 2017, there was no outstanding balance on the subordinated loan.

BSI's primary sources of liquidity are from customer deposits and deposits from affiliated banks.

BSPR's primary sources of liquidity include core deposits, FHLB borrowings, wholesale and broker deposits, and liquid investment securities.

Institutional borrowings

The Company regularly projects its funding needs under various stress scenarios, and maintains contingency plans consistent with the Company’s access to diversified sources of contingent funding. The Company maintains a substantial level of total available liquidity in the form of on-balance sheet and off-balance sheet funding sources. These include cash, unencumbered liquid assets, and capacity to borrowsupport business operations at the FHLB and the FRB’s discount window. subsidiary level.


Available Liquidity


As of September 30, 2017, the Bankperiods indicated, the Company and its subsidiaries had approximately $20.5 billion in committed liquidity from the FHLB and the FRB. Of this amount, $15.2 billion was unused and therefore provides additional borrowing capacity and liquidityfollowing available liquidity:

March 31, 2024December 31, 2023
Total CapacityUsedAvailableTotal CapacityUsedAvailable
Cash on deposit at FRB$12,068,490 $10,101,462 
Liquidity from released government deposit collateral (1)
3,231,593 — 3,231,593 3,241,729 — 3,241,729 
Liquidity from unencumbered securities4,577,238 — 4,577,238 2,856,561 — 2,856,561 
FHLB13,920,497 $4,451,510 9,468,987 13,435,777 6,624,791 6,810,986 
FRB:
Discount window12,043,121 — 12,043,121 9,085,296 — 9,085,296 
BTFP— — — 7,302,070 — 7,302,070 
Total FRB$12,043,121 — $12,043,121 $16,387,366 — $16,387,366 
Total available liquidity$41,389,429 $39,398,104 
(1) Includes high quality liquid assets that are encumbered as collateral for the Company. uninsured government deposits.

At September 30, 2017 and DecemberMarch 31, 2016,2024, unencumbered highly liquid assets (cash and cash equivalents and LHFS), andinvestments in debt securities available-for-saleAFS exclusive of securities pledged as collateral) totaled approximately $20.0 billion and $21.1 billion, respectively. These amounts$23.5 billion. This amount represented 32.2% and 31.4%30.2% of total deposits at September 30, 2017March 31, 2024.

102



Item 2.    Management’s Discussion and December 31, 2016, respectively. AsAnalysis of September 30, 2017, the Bank, BSIFinancial Condition and BSPR had $1.1 billion, $2.8 billion, and $1.1 billion, respectively, in cash held at the FRB. Management believes that the Company has ample liquidity to fund its operations.Results of Operations


BSPR has $855.6 million in committed liquidity from the FHLB, all of which was unused as of September 30, 2017, as well as $304.3 million in liquid assets aside from cash unused as of September 30, 2017.


Cash, and cash equivalents, and restricted cash

  Nine-Month Period
Ended September 30,
  2017 2016
  (in thousands)
Net cash provided by operating activities $4,011,727
 $3,135,457
Net cash provided by investing activities 1,367,478
 2,514,922
Net cash used in financing activities (7,505,439) (3,267,636)
Three months ended March 31,YTD Change
(in thousands)20242023Increase/(Decrease)
Net cash flows from operating activities$(187,252)$(250,582)$63,330 
Net cash flows from investing activities1,078,787 (5,515,761)6,594,548 
Net cash flows from financing activities219,396 8,166,212 (7,946,816)


Cash provided byflows from operating activities


Net cash provided byflow from operating activities was $4.0 billion forincreased by $63.3 million from the nine-month periodthree months ended September 30, 2017, which wasMarch 31, 2023 to the three months ended March 31, 2024, primarily comprised ofdue to the change in net trading activity, an increase in net income, of $688.5 million, $4.3 billionand an increase in proceeds from the sales of LHFS, and $758.9 million in depreciation, amortization and accretion, partiallycollections on LHFS, offset by $3.8 billion ofan increase in originations and purchases of LHFS net of repayments. Operating activities were adjusted for the provision for credit losses of $2.0 billion during the period.three months ended March 31, 2024.


139Cash flows from investing activities

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations



Net cash providedflow from investing activities increased by operating activities was $3.1$6.6 billion forfrom the nine-month periodthree months ended September 30, 2016, which was comprised ofMarch 31, 2023 to the three months ended March 31, 2024 primarily driven by the net income of $610.7 million, $3.9 billionchange in proceeds from sales of LHFS,Securities Financing Activities and $746.6 million in depreciation, amortization and accretion, and partially offset by $4.6 billion of originations of LHFS,due to lower net of repayments. Operating activities were adjusted for the provision for credit losses of $2.2 billion during the period.loan activity.


Cash used in investing activities

For the nine-month period ended September 30, 2017, net cash provided by investing activities was $1.4 billion, primarily due to $6.1 billion of purchases of investment securities available-for-sale and $4.7 billion in operating lease purchases and originations, partially offset by $2.3 billion in normal loan activity, $5.6 billion of available-for-sale investment securities sales, maturities and prepayments, $2.9 billion in proceedsflows from sales and terminations of operating leases, $1.1 billion in proceeds from sales of LHFI and $778.7 million in manufacturer incentives.

For the nine-month period ended September 30, 2016, net cash provided by investing activities was $2.5 billion, primarily due to $9.4 billion of purchases of investment securities available-for-sale, $1.7 billion in normal loan activity, and $4.6 billion in operating lease purchases and originations, partially offset by $14.7 billion of available-for-sale investment securities sales, maturities and prepayments, $1.4 billion in proceeds from sales of LHFI, and $1.7 billion in proceeds from sales and terminations of operating leases.

Cash used in financing activities

For the nine-month period ended September 30, 2017, net cash used in financing activities was $7.5 billion, which was primarily due to a decrease in net borrowing activity of $2.4 billion and a $5.2 billion decrease in deposits.


Net cash used inflow from financing activities fordecreased by $7.9 billion from the nine-month periodthree months ended September 30, 2016 was $3.3 billion, which wasMarch 31, 2023 to the three months ended March 31, 2024 primarily due to a decreasedriven by the net change in net borrowing activity of $5.3 billion, partially offset by a $2.1 billion increase in deposits.Securities Financing Activities.


See the Condensed Consolidated Statements of Cash Flows ("SCF")SCF for further details on the Company's sources and uses of cash.


Credit Facilities


Third-Party Revolving Credit Facilities


Warehouse FacilitiesLines


SC uses warehouse lines to fund its originations. Each line specifies the required collateral characteristics, collateral concentrations,The Company's subsidiaries have a credit enhancement, and advance rates. SC's warehouse lines generally are backed by auto RICs and, in some cases, leases or personal loans. These credit lines generally have one- or two-year commitments, staggered maturities and floating interest rates. SC maintains daily funding forecasts for originations, acquisitions, and other large outflows, such as tax payments in order to balance the desire to minimize funding costsfacility with its liquidity needs.

SC's warehouse lines generally have net spread, delinquency, and net loss ratio limits. Generally, these limits are calculated based on the portfolio collateralizing the respective line; however, for certain of SC's warehouse lines, delinquency and net loss ratios are calculated with respect to its serviced portfolio as a whole. Failure to meet any of these covenants could trigger increased overcollateralization requirements or, in the case of limits calculated with respect to the specific portfolio underlying certain credit lines, result in an event of default under these agreements. If an event of default occurred under one of these agreements, the lenders could elect to declare all amounts outstanding under the agreement immediately due and payable, enforce their interests against collateral pledged under the agreement, restrict SC's ability to obtain additional borrowings under the agreement, and/or remove SC as servicer. SC has never had a warehouse line terminated due to failure to comply with any ratio or meet any covenant. A default under one of these agreements can be enforced only with respect to the impacted warehouse line.

SC has two credit facilities with eightseveral banks providing an aggregate commitment of $3.9 billion$700.0 million for the exclusive use of supplyingproviding short-term liquidity needs to support Chrysler Capital retailpreferred auto lessor financing. As of September 30, 2017 and DecemberMarch 31, 2016,2024, there werewas an outstanding balancesbalance of $412.1 million on these facilities of $2.8 billion and $3.7 billion, respectively. One of the facilities can be used exclusively for loan financing, and the other for lease financing. Both facilities requirethis facility. The facility requires reduced advance rates in the event of delinquency, credit loss, or residual loss ratios, as well as other metrics exceeding specified thresholds.



140

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Repurchase Facilities

SC also obtains financing through four investment management agreements under which it pledges retained subordinated bonds on its own securitizations as collateralIn addition, the Company's subsidiaries have credit facilities with several banks providing an aggregate commitment of $5.7 billion for repurchase agreements with various borrowersthe exclusive use of providing short-term liquidity to support core and at renewable terms ranging up to 365 days.preferred lender financing. As of September 30, 2017 and DecemberMarch 31, 2016,2024, there werewas an outstanding balancesbalance of $658.5 million and $743.3 million, respectively, under$3.0 billion on these repurchase facilities.

Santander Credit Facilities

Santander historically has provided, and continues to provide, SC's business with significant funding supportfacilities in the form of committed credit facilities. Through Santander’s New York branch (“Santander NY"), Santander provides SC with $2.8 billion of long-term committed revolving credit facilities.

The facilities offered through Santander NY are structured as three- and five-year floating rate facilities, with current maturity dates of December 31, 2017 and 2018.aggregate. These facilities currently permit unsecured borrowing, but generally are collateralized by RICsreduced advance rates in the event of delinquency, credit loss, as well as securitization notes payable and residuals owned by SC. Any secured balances outstanding under the facilities at the time of their maturity will amortize to match the maturities and expected cash flows of the corresponding collateral.various other metrics exceeding specific thresholds.


Securities Financing Activities

The Company provides SC with $3.0 billion of committed revolving credit that can be drawn onmay enter into Securities Financing Activities primarily to deploy the Company’s excess cash and investment positions. Securities Financing Activities are treated as collateralized financings and are included in "Federal funds sold and securities purchased under resale agreements or similar arrangements" an unsecured basis maturing in March 2019. The Company also provides SC with $2.1 billion in various term loans with maturities ranging from March 2019 to March 2022. These loans eliminate in the consolidation of SHUSA.

On October 10, 2017, the Company entered into a $400.0 million loan with SC. Interest accrues on this loan at the rate of 3.10%. The note has a maturity date of October 10, 2020. This loan will eliminate in the consolidation of SHUSA.

In August 2015,d "Federal funds purchased and securities loaned or sold under a new agreement with Santander, SC agreed to begin paying Santander a fee of 12.5 basis points per annum on certain warehouse facilities, as they renew, for which Santander provides a guarantee of SC's servicing obligations. For revolving commitments, the guarantee fee will be paidrepurchase agreements" on the total committed amount and for amortizing commitments,Company’s Condensed Consolidated Balance Sheets. Refer to Note 11to the guarantee fee will be paid against each month's ending balance. The guarantee fee will be applicable onlyCondensed Consolidated Financial Statements for additional facilities uponinformation about the execution of the counter-guaranty agreement related to a new facility or if reaffirmation is required on existing revolving or amortizing commitments as evidenced by an executed counter-guaranty agreement. SC recognized guarantee fee expense of $4.6 million and $4.8 million for the nine-months ended September 30, 2017 and 2016, respectively.Company's Securities Financing Activities.


Secured Structured Financings


SC'sThe Company's subsidiaries' secured structured financings primarily consist of public, SEC-registered securitizations. SC also executessecuritizations, as well as private securitizations under Rule 144A of the Securities Act, of 1933, as amended (the “Securities Act”), and privately issuesissued amortizing notes. SC has completed eleven securitizations year-to-date in 2017 and currently has 37As of March 31, 2024, there were on-balance sheet securitizations outstanding in the market with a cumulative ABS balance of approximately $15.0$20.0 billion.


103



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



Deficiency and Debt Forward Flow AgreementsAgreement


In addition to SC's credit facilities and secured structured financings, SC has a flow agreement in place with a third party for charged-off assets. Previously, SC also had flow agreements with Bank of America and CBP. However, those agreements were terminated effective January 31 and May 1, 2017, respectively.

Loans and leases sold under these flow agreements are not on SC's balance sheet but provide a stable stream of servicing fee income, and may also provide a gain or loss on sale. SC continues to actively seek additional such flow agreements.sheet.


Off-Balance Sheet Financing


BeginningSC agreed to provide SBNA with origination support services in March 2017, SC hasconnection with the option to sell a contractually determined amountprocessing, underwriting, and purchasing of eligible primeretail loans to Santander, through the SPAIN securitization platform. Asand leases, all of which are serviced by SC. These loans and leases are on the notes and residual interests in the securitization are issued to Santander, SC recorded these transactions as true salesbalance sheet of the RICs securitized, and removed the sold assets from its Condensed Consolidated Balance Sheets.SBNA.


141

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


SC also continues to periodically execute Chrysler Capital-branded securitizations under Rule 144A of the Securities Act. Historically, as all of the notes and residual interests in these securitizations were issued to third parties, SC recorded these transactions as true sales of the RICs securitized, and removed the sold assets from its Condensed Consolidated Balance Sheets.


Uses of Liquidity


The Company uses liquidity for debt service and repayment of borrowings, as well as for funding loan commitments and satisfying deposit withdrawal requests.

SIS uses liquidity primarily to support underwriting transactions.

The primaryborrowings. In addition, our subsidiaries use of liquidity for BSI is to meet customer liquidity requirements, such as loan financing, maturing deposits, investment activities, fund transfers, and payment of its operating expenses.

BSPR uses liquidity for funding loan commitments, satisfying deposit withdrawal requests, supporting underwriting transactions and repayments of borrowings.meeting customer liquidity requirements.

Dividends and Stock Issuances


At September 30, 2017,March 31, 2024, the Company's liquidity to meet debt payments, debt service and debt maturities was in excess of 12 months.


During the three-monthContractual Obligations and nine-month periods ended September 30, 2017, the Company paid dividends of $5.0 million to its sole shareholder, Santander.Other Commitments

As of September 30, 2017, the Company had 530,391,043 of common stock outstanding.

During the three-month and nine-month periods ended September 30, 2017 the Company paid dividends of $3.65 million and $10.95 million, respectively, on its preferred stock.

On October 3, 2017, SHUSA’s Board of Directors declared a cash dividend on the Company’s preferred stock of $0.45625 per share, which is payable on November 15, 2017 to shareholders of record as of the close of business on November 1, 2017.

On October 20, 2017, SHUSA's Board of Directors declared a cash dividend on the Company's common stock in the amount of $5 million, which is payable on November 16, 2017 to Santander.

On October 25, 2017, SC declared a cash dividend of $0.03 per share, to be paid November 17, 2017 to SC shareholders of record as of close of business November 7, 2017. SC's capital action plan also includes dividend payments for SC's stockholders of $0.05 per share in the first and second quarters of 2018.

During the third quarter of 2017, SHUSA's subsidiaries had the following dividend activity which eliminated in consolidation:
The Bank declared and paid a $50.0 million dividend to SHUSA;
BSI declared and paid a $30.0 million dividend to SHUSA; and
Services and Promotions, LLC declared and paid a $9.0 million dividend to SHUSA.

On November 7, 2017, BSI declared an additional $5.0 million dividend to SHUSA payable on November 28, 2017 which will eliminate in the consolidation of SHUSA.


142

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


CONTRACTUAL OBLIGATIONS


The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and asset/liability management and to meet required capital needs. These obligations require the Company to make cash payments over time as detailed intime.

As of March 31, 2024, the table below.
 Payments Due by Period
 Total Less than
1 year		 Over 1 yr
to 3 yrs		 Over 3 yrs
to 5 yrs		 Over
5 yrs
 (in thousands)
FHLB advances (1)
$4,590,010
 $4,032,940
 $557,070
 $—
 $—
Notes payable - revolving facilities5,231,289
 3,971,055
 1,260,234
 —
 —
Notes payable - secured structured financings23,310,484
 1,619,104
 5,219,206
 12,065,609
 4,406,565
Other debt obligations (1) (2)
11,352,184
 2,971,398
 4,177,059
 1,939,251
 2,264,476
Junior subordinated debentures due to capital trust entities (1) (2)
151,746
 151,746
 —
 —
 —
CDs (1)
5,865,838
 2,924,011
 1,902,414
 1,031,681
 7,732
Non-qualified pension and post-retirement benefits128,328
 12,903
 26,203
 25,396
 63,826
Operating leases(3)
735,481
 124,166
 237,167
 157,472
 216,676
Total contractual cash obligations$51,365,360
 $15,807,323
 $13,379,353
 $15,219,409
 $6,959,275
(1) Includes interest on both fixedCompany had total contractual cash obligations of $87.7 billion, which included FHLB advances, notes payable, other debt obligations, CDs, repurchase agreements, non-qualified pension and variable rate obligations. The interest associated with variable ratepost-retirement benefits, and operating leases. Of this amount, approximately $51.9 billion of the total contractual cash obligations is based on interest rates in effect at September 30, 2017. The contractual amountsdue within one year. In addition, the Company had other commitments of $25.9 billion, which consisted of commitments to be paid on variable rate obligations are affected by changes in market interest rates. Future changes in market interest rates could materially affectextend credit and letters of credit. Of this amount, approximately $6.9 billion of the contractual amounts to be paid.
(1)Includes all carrying value adjustments, such as unamortized premiums and discounts and hedge basis adjustments.
(2)Does not include future expected sublease income.

other commitments is due within one year.
Excluded from the above table are deposits of $56.1 billion that are due on demand by customers.


The Company is a party to financial instruments and other arrangements with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and manage its exposure to fluctuations in interest rates. See further discussion on these risks in Note 1112 and Note 1416 to the Condensed Consolidated Financial Statements.


Lending ArrangementsDividends, Contributions and Stock Issuances

SC is obligated to make purchase price holdback payments to a third-party originator of auto loans SC has purchased, when losses are lower than originally expected. SC is also obligated to make total return settlement payments to this third-party originator in 2017 if returns on the purchased loans are greater than originally expected. These obligations are accounted for as derivatives.

As a result of the strategic evaluation of its personal lending portfolio, in the third quarter of 2015, SC began reviewing strategic alternatives for exiting the personal loan portfolios. On February 1, 2016, SC completed the sale of substantially all LendingClub loans to a third-party buyer at an immaterial premium to par value. On April 14, 2017, SC sold the remaining portfolio comprised of personal installment loans to a third-party buyer.

SC's other significant personal lending relationship is with Bluestem. SC continues to perform in accordance with the terms and operative provisions of agreements under which it is obligated to purchase personal revolving loans originated by Bluestem for a term ending in 2020, or 2022 if extended at Bluestem's option. The Bluestem portfolio is carried as held for sale in SC's Condensed Consolidated Financial Statements. Accordingly, SC has recorded $238 million year-to-date in lower of cost or market adjustments on this portfolio, and there may be further such adjustments required in future periods' financial statements. SC is currently evaluating alternatives for sale of the Bluestem portfolio, which had a carrying value of $930 million at September 30, 2017.

Employment and Other Agreements

On July 2, 2015, SC announced the departure of Mr. Dundon from his roles as Chairman of the Board and Chief Executive Officer ("CEO) of SC, effective as of the close of business on July 2, 2015. In connection with Mr. Dundon's departure, and subject to the terms and conditions of his employment agreement, including Mr. Dundon's execution of a release of claims against SC, he became entitled to receive certain payments and benefits under his employment agreement. The separation agreement also provided for the modification of terms for certain other equity-based awards. Certain of the payments, agreements to make payments and benefits may be effective only upon receipt of certain required regulatory approvals.

143

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations



As of September 30, 2017, SC has not made any payments to Mr. Dundon, nor recorded any liability or obligation, arising from or pursuant to the terms of the separation agreement. Discussions with respect to this matter are ongoing, and, if all applicable conditions are satisfied, including receipt of required regulatory approvals and satisfaction of any conditions thereto, SC will be obligated to make a cash payment to Mr. Dundon of up to $115.1 million. This amount would be recorded as compensation expense in its Consolidated Statement of Income and Comprehensive Income.

The Company entered into an agreement with Mr. Dundon, Dundon DFS LLC ("DDFS"), and Santander related to Mr. Dundon’s
departure from SC. Pursuant to the separation agreementMarch 31, 2024, the Company was deemed to have delivered an irrevocable notice to exercise its option to acquire all of the 34,598,506had 530,391,043 shares of SC Common Stock owned by DDFS and consummate the transactions contemplated by the call option notice, subject to the receipt of all required regulatory approvals (the "Call Transaction"). At that date, the SC Common Stock held by DDFS (the "DDFS Shares") represented approximately 9.7% of SC Common Stock. The separation agreement did not affect Santander’s option to assume the Company’s obligation under the Call Transaction as provided in the Shareholders Agreement that was entered into by the same parties on January 28, 2014 (the "Shareholders Agreement"). Under the separation agreement, because the Call Transaction was not consummated prior to October 15, 2015 (the “Call End Date”), DDFS is free to transfer any or all of the DDFS Shares, subject to the terms and conditions of the Amended and Restated Loan Agreement dated as of July 16, 2014, between DDFS and Santander. In the event the Call Transaction were to be completed after the Call End Date, interest would accrue on the price paid per share in the Call Transaction at the overnight London Interbank Offered Rate (“LIBOR") rate on the third business day preceding the consummation of the Call Transaction plus 100 basis points with respect to the shares of SC Common Stock that were ultimately sold in the Call Transaction. The Amended and Restated Loan Agreement provides for a $300.0 million revolving loan, which as of September 30, 2017 and December 31, 2016 had an unpaid principal balance ("UPB") of approximately $290.0 million. Pursuant to the loan agreement, 29,598,506 shares of SC common stock owned by DDFS LLC are pledged as collateral under a related pledge agreement (the “Pledge Agreement”). The Shareholders Agreement further provides that Santander may, atoutstanding.

During the three months ended March 31, 2024, the Company paid dividends of $44.4 million on its option, become the direct beneficiarypreferred stock.
.
104



Item 2.    Management’s Discussion and Analysis of the Call Option,Financial Condition and Santander has exercised this option. If consummated in full, DDFS LLC would receive $928.3 million plus interest that has accrued since the Call End Date. To date, the Call Transaction has not been consummated.Results of Operations


Pursuant to the loan agreement, if at any time the value of SC Common Stock pledged under the pledge agreement is less than 150% of the aggregate principal amount outstanding under the loan agreement, DDFS has an obligation to either (a) repay a portion of the outstanding principal amount such that the value of the pledged collateral is equal to at least 200% of the outstanding principal amount, or (b) pledge additional shares of SC Common Stock such that the value of the additional shares of SC Common Stock, together with the 29,598,506 shares already pledged under the pledge agreement, is equal to at least 200% of the outstanding principal amount. The value of the pledged collateral is less than 150% of aggregate principal amount outstanding under the loan agreement, and DDFS has not taken any of the collateral posting actions described in clauses (a) or (b) above.


In connection with, and pursuant to, the separation agreement, on July 2, 2015, DDFS LLC and Santander entered into amendments to the loan agreement and the Pledge Agreement that provide, among other things, the outstanding balance under the loan agreement will become due and payable upon the consummation of the Call Transaction and that the amount otherwise payable to DDFS under the Call Transaction will be reduced by the amount outstanding under the loan agreement, including principal, interest and fees, and further that any net cash proceeds received by DDFS on account of sales of SC Common Stock after the Call End Date are applied to the outstanding balance under the loan agreement.

On April 17, 2017, the Loan Agreement matured and became due and payable with a UPB of approximately $290 million as of that date. Because the borrower failed to pay obligations under the loan agreement on April 17, 2017, the borrower is in default and is currently being charged the default interest rate as defined by the loan agreement. The loan agreement generally defines the default interest rate as the Base Rate plus 2%. The Base Rate as defined in the loan agreement is the higher of (i) the federal funds rate plus ½ of 1% or (ii) the prime rate, which is the annual rate of interest publicly announced by the New York Branch of Santander from time to time. As of April 21, 2017, the prime rate as announced by the New York Branch of Santander was 4%.

The parties continue in discussions on these matters. Completion of the transactions with Mr. Dundon is subject to receipt of applicable regulatory approvals.

144

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


ASSET AND LIABILITY MANAGEMENT


Interest Rate Risk


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


Interest rate risk focuses on managing four elements of risk associated with interest rates: basis risk, repricing risk, yield curve risk and option risk. Basis risk stems from rate index timing differences with rate changes, such as differences in the extent of changes in Federal funds rates compared with the three-month LIBOR.term SOFR. Repricing risk stems from the different timing of contractual repricing, such as one-month versus three-month reset dates, as well as the related maturities. Yield curve risk stems from the impact on earnings and market value resulting from different shapes and levels of yield curves. Option risk stems from prepayment or early withdrawal risk embedded in various products. These four elements of risk are analyzed through a combination of net interest income and balance sheet valuation simulations, shocks to those simulations, and scenario and market value analyses, and the subsequent results are reviewed by management. NumerousSeveral assumptions and models are madeused to produce these analyses, including assumptions about new business volumes, loan and investment prepayment rates, deposit flows, interest rate curves, economic conditions, and competitor pricing. Certain models use historical data analyses to estimate future customer behavior, such as deposit re-pricing and attrition. Estimates from these models can differ from actual behavior, depending on various factors such as macroeconomic conditions, competitor response, etc.

105



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



Net Interest Income Simulation Analysis


The Company utilizes a variety of measurement techniques to evaluate the impact of interest rate risk, including simulating the impact of changing interest rates on expected future interest income and interest expense, to estimate the Company's net interest income sensitivity. This simulation is run monthly and includes various scenarios that help management understand the potential risks in the Company's net interest income sensitivity. These various scenarios include bothparallel, non-parallel, gradual parallel and gradual non-parallel rate shocks applied relative to the implied market-based forward curve, as well as other scenarios that are consistent with quantifying the four elementsmeasures of risk described above. The shocks below are extended using the parallel scenario and are applied instantaneously to the implied forward curve as of the stated month-end. The 200 basis point down shock has been added as market rates have increased. This set of shocks represents a range of plausible rate shocks, as an instantaneous shock 200 basis points down can be analogous to a gradual ramp-down of 400 basis points over one year. This information is used to develop proactive strategies to ensure that the Company’s risk position remains within SHUSA Board of Directors-approved limits so that future earnings are not significantly adversely affected by future interest rates.


The table below reflects the estimated sensitivity to the Company’s net interest income based on interest rate changes at September 30, 2017March 31, 2024 and December 31, 2016:2023:

The following estimated percentage increase/(decrease) to
net interest income would result
If interest rates changed in parallel by the amounts belowMarch 31, 2024December 31, 2023
Down 200 basis points(6.05)%(4.14)%
Down 100 basis points(2.90)%(1.94)%
Up 100 basis points2.83 %1.82 %
Up 200 basis points5.65 %3.63 %

  
The following estimated percentage increase/(decrease) to
net interest income would result
If interest rates changed in parallel by the amounts below September 30, 2017 December 31, 2016
Down 100 basis points (2.70)% (2.14)%
Up 100 basis points 2.38 % 2.36 %
Up 200 basis points 4.49 % 4.36 %

Market Value of Equity ("MVE")MVE Analysis


The Company also evaluates the impact of interest rate risk by utilizing MVE modeling. This analysis measures the present value of all estimated future cash flows of the Company over the estimated remaining life of the balance sheet. MVE is calculated as the difference between the market value of assets and liabilities. The MVE calculation utilizes only the current balance sheet, and therefore does not factor in any future changes in balance sheet size, balance sheet mix, yield curve relationships or product spreads, which may mitigate the impact of any interest rate changes.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations



Management examines the effect of interest rate changes on MVE. The sensitivity of MVE to changes in interest rates is a measure of longer-term interest rate risk and highlights the potential capital at risk due to adverse changes in market interest rates. The following table discloses the estimated sensitivity to the Company’s MVE at September 30, 2017March 31, 2024 and December 31, 2016.2023.

The following estimated percentage
increase/(decrease) to MVE would result
If interest rates changed in parallel by the amounts belowMarch 31, 2024December 31, 2023
Down 200 basis points6.73 %6.68 %
Down 100 basis points4.12 %4.05 %
Up 100 basis points(4.45)%(4.49)%
Up 200 basis points(8.65)%(8.76)%
  
The following estimated percentage
increase/(decrease) to MVE would result
If interest rates changed in parallel by the amounts below September 30, 2017 December 31, 2016
Down 100 basis points (2.39)% (1.23)%
Up 100 basis points (0.36)% (0.76)%
Up 200 basis points (2.43)% (2.50)%


As of September 30, 2017,March 31, 2024, the Company’s profile reflected an increase of MVE profile showed a decrease of 2.39%4.12% for downward parallel interest rate shocks of 100 basis points and a decrease of 0.36%4.45% for upward parallel interest rate shocks of 100 basis points. The asymmetrical sensitivity between upa 100 basis point increase and downa 100 shockbasis point decrease is due to the negative convexity as a result of the prepayment option embedded in mortgage-related products, the impact of which is not fully offset by the behavior of the funding base (largely non-maturity deposits ("NMDs"))NMDs).


In downward parallel interest rate shocks, mortgage-related products’ prepayments increase, their duration decreases, and their market value appreciation is therefore limited. At the same time, with deposit rates already close to zero,remaining at comparatively low levels, the Company cannot effectively transfer interest rate declines to its NMD customers. For upward parallel interest rate shocks, extension risk weighs on a sizable portion of the Company’s mortgage-related products, which are predominantly long-term and fixed-rate; and for larger shocks, the loss in market value is not offset by the change in NMD.NMDs.


106



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations



Limitations of Interest Rate Risk Analyses


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


Uses of Derivatives to Manage Interest Rate and Other Risks


To mitigate interest rate risk and, to a lesser extent, foreign exchange, equity and credit risks, the Company uses derivative financial instruments to reduce the effects that changes in interest rates may have on net income, the fair value of assets and liabilities, and cash flows.


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


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

Prior to 2017, the Company entered into cross-currency swaps to hedge its foreign currency exchange risk on certain Euro-denominated investments, which were sold in 2016.

The Company's derivative portfolio includes mortgage banking interest rate lock commitments, forward sale commitments and interest rate swaps. As part of its overall business strategy, the Bank originates fixed-rate residential mortgages. It sells a portion of this production to the FHLMC, the FNMA, and private investors. The Company uses forward sales as a means of hedging against the economic impact of changes in interest rates on the mortgages that are originated for sale and on interest rate lock commitments.


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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations



The Company typically retains the servicing rights related to residential mortgage loans that are sold. The majority of the Company's residential MSRs are accounted for at fair value. As deemed appropriate, the Company economically hedges MSRs, using interest rate swaps and forward contracts to purchase MBS. For additional information on MSRs, see Note 813 to the Condensed Consolidated Financial Statements.


The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate.

The Company also utilizes forward contracts to manage market risk associated with certain expected investment securities sales and equity options, which manage its market risk associated with certain customer deposit products.sales.


For additional information on foreign exchange contracts, derivatives and hedging activities, see Note 1112 to the Condensed Consolidated Financial Statements.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Incorporated by reference from Part I, Item 2, MD&A of Financial Condition and Results of Operations — Asset"Asset and Liability ManagementManagement" above.



ITEM 4 - CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


Our management, with the participation of our CEO and Chief Financial Officer ("CFO"),CFO, has evaluated the effectiveness of our disclosure controls and procedures (asas defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act),Act, as of the end of the period covered by this Quarterly Report on Form 10-Q.March 31, 2024 (the "Evaluation Date"). Based on suchthis evaluation, our CEO and CFO have concluded that as of September 30, 2017, we did not maintain effectivethe Evaluation Date, the Company’s disclosure controls and procedures because of the material weaknesses in internal control over financial reporting described below. Notwithstanding these material weaknesses, based on the additional analysis and other post-closing procedures performed, management believesare effective to ensure that the Condensed Consolidated Financial Statements includedinformation required to be disclosed by the Company in this report fairly present in all material respects our financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with GAAP.

A material weakness (as defined in Rule 12b-2reports that it files or submits under the Exchange Act)Act is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis. We have identifiedrecorded, processed, summarized, and reported within the following material weaknesses:

1.Control Environment

The Company's financial reporting involves complex accounting matters emanating from our majority-owned subsidiary SC. We determined there was a material weaknesstime periods specified in the designSEC’s rules and operating effectiveness of the controls pertainingforms, and that such information is accumulated and communicated to our oversight ofmanagement, including our SC subsidiary's accounting for transactions that are significantCEO and CFO, as appropriate to the Company’s internal control over financial reporting. These deficiencies included (a) ineffective oversight to ensure accountability at SC for the performance of internal controls over financial reporting, and to ensure corrective actions, where necessary, were appropriately prioritized and implemented in aallow timely manner; and (b) inadequate resources and technical expertise at SHUSA to perform effective oversight of the application of accounting and financial reporting activities that are significant to the Company’s consolidated financial statements.decisions regarding required disclosure.



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We have identified the following material weaknesses emanating from SC:

2.SC’s Control Environment, Risk Assessment, Control Activities and Monitoring

We did not maintain effective internal control over financial reporting related to the following areas: control environment, risk assessment, control activities and monitoring:

Management did not effectively execute a strategy to hire and retain a sufficient complement of personnel with an appropriate level of knowledge, experience, and training in certain areas important to financial reporting.
The tone at the top was insufficient to ensure there were adequate mechanisms and oversight to ensure accountability for the performance of internal control over financial reporting responsibilities and to ensure corrective actions were appropriately prioritized and implemented in a timely manner.
There was not adequate management oversight of accounting and financial reporting activities in implementing certain accounting practices to conform to the Company’s policies and GAAP.
There was not an adequate assessment of changes in risks by management that could significantly impact internal control over financial reporting or an adequate determination and prioritization of how those risks should be managed.
There was not adequate management oversight and identification of models, spreadsheets and completeness and accuracy of data material to financial reporting.
There were insufficiently documented Company accounting policies and insufficiently detailed Company procedures to put policies into effective action.
There was a lack of appropriate tone at the top in establishing an effective control owner for the risk and controls self-assessment process, which contributed to a lack of clarity about ownership of risk assessments and control design and effectiveness.
There was insufficient governance, oversight and monitoring of the credit loss allowance and accretion processes and a lack of defined roles and responsibilities in monitoring functions.

3. Application of Effective Interest Method for Accretion

The Company’s policies and controls related to the methodology used for applying the effective interest rate method in accordance with GAAP, specifically as it relates the review of key assumptions over prepayment curves, pool segmentation and presentation in financial statements either were not designed appropriately or failed to operate effectively. Additionally the resources dedicated to the reviews were not sufficient to identify all relevant instances of non-compliance with policies and GAAP and did not sufficiently review supporting methodologies and practices to identify variances from the Company’s policy and GAAP.

This resulted in errors in the Company’s application of the effective interest method for accreting discounts, which include discounts upon origination of the loan, subvention payments from manufacturers, and other origination costs on individually acquired retail installment contracts.

This material weakness relates to the following financial statement line items: loans held for investment, loans held-for-sale, the allowance for loan and lease losses, interest income-loans, the provision for credit losses, miscellaneous income, and the related disclosures within Note 4 - Loans and Allowance for Credit Losses.

4. Methodology to Estimate Credit Loss Allowance

The Company’s policies and controls related to the methodology used for estimating the credit loss allowance in accordance with GAAP, specifically as it relates to the calculation of impairment for TDRs separately from the general allowance on loans not classified as TDRs, the consideration of net discounts and the calculation of selling costs when estimating the allowance either were not designed appropriately or failed to operate effectively. Additionally the resources dedicated to the reviews were not sufficient to identify all relevant instances of non-compliance with policies and GAAP and did not sufficiently review supporting methodologies and practices to identify variances from the Company’s policies and GAAP.

This resulted in errors in the Company’s methodology for determining the credit loss allowance, specifically not calculating impairment for TDRs separately from a general allowance on loans not classified as TDRs, inappropriately omitting the consideration of net discounts when estimating the allowance and recording charge-offs, and calculating appropriate selling costs for inclusion in the analysis.

This material weakness relates to the following financial statement line items: the allowance for loan and lease losses, the provision for credit losses, and the related disclosures within Note 4 - Loans and Allowance for Credit Losses.


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5. Loans Modified as TDRs

The following controls over the identification of TDRs and inputs used to estimate TDR impairment did not operate effectively:

Review controls of the TDR footnote disclosures and supporting information did not effectively identify that parameters used to query the loan data were incorrect.
A review of inputs used to estimate the expected and present value of cash flows of loans modified in TDRs did not identify errors in types of cash flows included and in the assumed timing and amount of defaults and did not identify that the discount rate was incorrect.

As a result, management determined that it had incorrectly identified the population of loans that should be classified as TDRs and, separately, had incorrectly estimated the impairment on these loans due to model input errors.

This material weakness relates to the following financial statement line items: the allowance for loan and lease losses, the provision for credit losses, and the related disclosures within Note 4 - Loans and Allowance for Credit Losses.

6. Development, Approval, and Monitoring of Models Used to Estimate the Credit Loss Allowance

Various deficiencies were identified in the credit loss allowance process related to review, monitoring and approval processes over models and model changes that aggregated to a material weakness. The following controls did not operate effectively:

Review controls over completeness and accuracy of data, inputs and assumptions in models and spreadsheets used for estimating credit loss allowance and related model changes were not effective and management did not adequately challenge significant assumptions.
Review and approval controls over the development of new models to estimate credit loss allowance and related model changes were ineffective.
Adequate and comprehensive performance monitoring over related model output results was not performed and we did not maintain adequate model documentation.

This material weakness relates to the following financial statement line items: the allowance for loan and lease losses, provision for credit losses, and the related disclosures within Note 4 - Loans and Allowance for Credit Losses.

7. Identification, Governance, and Monitoring of Models Used to Estimate Accretion

Various deficiencies were identified in the accretion process related to review, monitoring and approval processes over models and model changes that aggregated to a material weakness. The following controls did not operate effectively:

Review controls over completeness and accuracy of data, inputs, calculation and assumptions in models and spreadsheets used for estimating accretion were not effective and management did not adequately challenge significant assumptions.
Review and approval controls over the development of new models to estimate accretion and related model changes were ineffective.
Adequate and comprehensive performance monitoring over related model output results was not performed and we did not maintain adequate model documentation.

This material weakness relates to the following financial statement line items: loans held for investment, loans held for sale, the allowance for loan and lease losses, interest income - loans, provision for credit losses, miscellaneous income and the related disclosures within Note 4 - Loans and Allowance for Credit Losses.

8. Review of New, Unusual or Significant Transactions

Management identified an error in the accounting treatment of certain transactions related to separation agreements with the former Chairman of the Board and CEO of SC. Specifically, controls over the review of new, unusual or significant transactions related to application of the appropriate accounting and tax treatment to this transaction in accordance with GAAP did not operate effectively in that management failed to detect as part of the review procedures that regulatory approval was a prerequisite to recording the transaction and that approval had not been obtained prior to recording the transaction and therefore should have not been recorded.

This material weakness relates to the following financial statement line items: compensation and benefits expense, other liabilities, deferred tax liabilities, net, and common stock and paid-in capital and the related disclosures within Note 13 - Accumulated Other Comprehensive Income/(Loss).

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In addition to the above items emanating from SC, the following material weaknesses were identified at the SHUSA level:

9. Review of Statement of Cash Flows and Footnotes

Management identified a material weakness in internal control over the Company's process to prepare and review the SCF and Notes to the Consolidated Financial Statements. Specifically, the Company concluded that it did not have adequate controls designed and in place over the preparation and review of such information.

10. Goodwill Impairment Assessment

In connection with the annual goodwill impairment assessment, the Company determined there was a material weakness in the operating effectiveness of management’s review control over the calculation of the carrying value of the Company’s SC reporting unit used in the Company’s Step One goodwill impairment tests performed in accordance with GAAP. Additionally, the Company determined there was a material weakness in the operating effectiveness of the review control over data utilized in Step Two of the impairment test for the SC reporting unit.

Remediation Status of Reported Material Weaknesses

The Company is currently working to remediate the material weaknesses described above, including assessing the need for additional remediation steps and implementing additional measures to remediate the underlying causes that gave rise to the material weaknesses. The Company is committed to maintaining a strong internal control environment and to ensure that a proper, consistent tone is communicated throughout the organization, including the expectation that previously existing deficiencies will be remediated through implementation of processes and controls ensuring strict compliance with GAAP.

To address the material weakness in the control environment (material weakness 1, noted above), the Company is in the process of strengthening its processes and controls as follows:

Established regular working group meetings, with appropriate oversight by management, to strengthen accountability for performance of internal control over financial reporting responsibilities and prioritization of corrective actions.
Appointed a Head of Internal Controls with significant public company financial reporting experience and the requisite skillsets in areas important to financial reporting.
Developed a plan to enhance its risk assessment processes, control procedures and documentation.
Established policies and procedures for the oversight of subsidiaries that includes accountability for each subsidiary for maintenance of accounting policies, evaluation of significant and unusual transactions, and regular reporting and review of changes in the control environment and related accounting processes.

To address the material weakness in SC’s control environment, risk assessment, control activities and monitoring (material weakness 2, noted above), the Company is in the process of strengthening its processes and controls as follows:

Appointed an additional independent director to the Audit Committee of the Board with extensive experience as a financial expert in our industry to provide further experience on the committee.
Established regular working group meetings, with appropriate oversight by management of both SC and SHUSA to strengthen accountability for performance of internal control over financial reporting responsibilities and prioritization of corrective actions.
Hired a Chief Accounting Officer and other key personnel with significant public company financial reporting experience and the requisite skillsets in areas important to financial reporting.
Developed and implemented a plan to enhance its risk assessment processes, control procedures and documentation.
Developed and implemented additional documentation, controls and governance for the credit loss allowance and accretion processes.
Reallocated additional Company resources to improve the oversight for certain financial models.
Increased accounting resources with qualified permanent resources to ensure sufficient staffing to conduct enhanced financial reporting procedures and to continue the remediation efforts.
Improved management documentation, review controls and oversight of accounting and financial reporting activities to ensure accounting practices conform to the Company’s policies and U.S. GAAP.
Increased accounting participation in critical governance activities to ensure an adequate assessment of risk which may impact financial reporting or the related internal controls.
Completed a comprehensive review and update of all accounting policies, process descriptions and control activities.


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To address the material weaknesses related to the application of effective interest method for accretion (material weakness 3, noted above) and the identification, governance and monitoring of models used to estimate accretion (material weakness 7, noted above), the Company has taken the following measures:

Enhanced its accounting documentation and review procedures of key assumptions to ensure the Company’s accretion methodology conforms to Company policy and GAAP.
Automated the process for the application of the effective interest rate method for accreting discounts, subvention payments from manufacturers and other origination costs on individually acquired RICs.
Implemented comprehensive review controls over data, inputs and assumptions used in the models.
Strengthened review controls and change management procedures over the models used to estimate accretion.
Developed a comprehensive accretion model documentation manual and implemented on-going performance monitoring to ensure compliance with required standards.
Increased accounting resources with qualified, permanent resources to ensure an adequate level of review and execution of control activities.

To address the material weaknesses related to themethodology to estimate credit loss allowance (material weakness 4, noted above), loans modified as TDRs (material weakness 5, noted above), and development, approval, and monitoring of models used to estimate the credit loss allowance (material weakness 6, noted above), the Company is in the process of strengthening its processes and controls as follows:

Conducted a comprehensive design effectiveness review and augmentation of the controls to ensure all critical risks are addressed.
Enhanced its accounting documentation and review procedures relating to credit loss allowance and TDRs to demonstrate how the Company’s policies and procedures align with GAAP and produce a repeatable process.
Increased resources dedicated to analysis, review and documentation to ensure compliance with GAAP and the Company’s policies.
Implemented enhanced review controls over financial statement disclosures for the credit loss allowance and TDRs to ensure compliance with the Company’s policies and GAAP.
Implemented a more comprehensive monitoring plan for the credit loss allowance and TDRs with a specific focus on model inputs, changes in model assumptions and model outputs to ensure effective execution of the Company’s risk strategy.
Implemented a more comprehensive monitoring plan for credit loss allowance and TDRs with a specific focus on model inputs, changes in model assumptions and model outputs to ensure an effective execution of the Company’s risk strategy.
Conducted a comprehensive design effectiveness review and augmentation of the controls to ensure all critical risks are addressed.
Enhanced the Company’s communication on related issues with its senior leadership team and the Board, including the Risk Committee and the Audit Committee.
To address the material weakness in the review of new, unusual or significant transactions (material weakness 8, noted above), the Company has taken the following measures:

Increasing the documentation, analysis and governance over new, significant and unusual transactions to ensure that these transactions are recorded in accordance with Company’s policies and GAAP.

To address the material weaknesses in the review of SCF and footnotes (material weakness 9, noted above), the Company has taken the following measures:

Improving the review controls over financial statements and the related disclosures to include a more comprehensive disclosure checklist and improved review procedures from certain members of the management.
Designed and implemented additional controls over the preparation and the review of the SCF and Notes to the Consolidated Financial Statements.
Strengthened the review controls, reconciliations and supporting documentation related to the classification of cash flows between operating activities and investing activities in the SCF.
Implemented additional reviews at a detailed level at the statement preparation and data provider levels.

To address the material weaknesses in the goodwill impairment assessment (material weakness 10, noted above), the Company has taken the following measures:

Improved reconciliation of carrying value to key information sources.
Increased management reviews of the goodwill carrying value calculation.

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Improved communication protocols with appropriate personnel and third-party valuation specialists to provide additional transparency for information used for valuation.
Improved reviews of information provided by appropriate personnel and reconciliation of valuation assumptions to information provided by the Company.

While progress has been made to enhance processes, procedures and controls related to these areas, we are still in the process of developing and implementing these processes and procedures and testing these controls and believe additional time is required to complete development and implementation, and to demonstrate the sustainability of these procedures. We believe our remedial actions will be effective in remediating the material weaknesses and we will continue to devote significant time and attention to these remedial efforts. However, the material weaknesses cannot be considered remediated until the applicable remedial processes and procedures have been in place for a sufficient period of time and management has concluded, through testing, that these controls are effective. Accordingly, the material weaknesses were not remediated at September 30, 2017.

Limitations on Effectiveness of Disclosure Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting


There were no changes in the Company'sCompany’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three monthsquarter ended September 30, 2017March 31, 2024 that have materially affected, or are reasonably likely to materially affect, itsour internal control over financial reporting.


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PART IIII. OTHER INFORMATION



ITEM 1 - LEGAL PROCEEDINGS


Reference should be madeRefer to Note 12 to the Condensed Consolidated Financial Statements for disclosure regarding the lawsuit filed by SHUSA against the IRS and Note 1416 to the Condensed Consolidated Financial Statements for SHUSA’s litigation disclosure,disclosures, which are incorporated herein by reference.



ITEM 1A - RISK FACTORS


The Company is subject to a number of risks potentially impacting its business, financial condition, results of operations, and cash flows. There have been no material changes from the risk factors set forth under Part I, Item IA,1A, Risk Factors, in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2023.



ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


Not applicable.



ITEM 3 - DEFAULTS UPON SENIOR SECURITIES


Not applicable.



ITEM 4 - MINE SAFETY DISCLOSURES


None.
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ITEM 5 - OTHER INFORMATION


None.

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
(Amounts presented as actuals)

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.

The following activities are disclosed in response to Section 13(r) with respect to Santander and its affiliates. During the period covered by this report:

•Santander UK holds ten blocked accounts for seven customers that are currently designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander UK on these accounts for the three months ended March 31, 2024, were negligible relative to the overall profits of Santander.

•Santander Consumer Finance, S.A. holds through its Belgian branch seven blocked correspondent accounts for an Iranian bank that is currently designated by the U.S. under the SDGT sanctions program. The accounts have been blocked since 2008. No revenues or profits were generated by the Belgian branch on these accounts in the three months ended March 31, 2024.

•Santander Brasil holds three blocked accounts for three customers with domicile in Brazil designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander Brasil on these accounts in the three months ended March 31, 2024 were negligible relative to the overall profits of Santander.

•Santander also has certain legacy performance guarantees for the benefit of an Iranian bank that is currently designated by the U.S. under the SDGT sanctions program (standby letters of credit to guarantee the obligations, either under tender documents or under contracting agreements, of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.

In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the three months ended March 31, 2024 which were negligible relative to the overall revenues and profits of Santander. Santander has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. Santander is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, Santander intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

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Table of Contents



ITEM 6 - EXHIBITS

(3.1)
(2.1)
(3.1)
Amended and Restated Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 30, 2009)December 21, 2022) (Commission File Number 001-16581)
(3.2
(3.2))
(3.3)
Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed February 5, 2010) (Commission File Number 001-16581)
(3.4)
Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.2 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed June 21, 2011) (Commission File Number 001-16581)
(3.5)
Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 3, 2017) (Commission File Number 001-16581)
(3.6)
Amended and Restated BylawsArticles of Santander Holdings USA, Inc.Incorporation (Incorporated by reference to Exhibit 3.1 of Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 30, 2012)June 15, 2023) (Commission File Number 001-16581)
(3.3)
(4.1
(3.4))
(4.1)Santander Holdings USA, Inc. has certain debt obligations outstanding. None of the instruments evidencing such debt authorizes an amount of securities in excess of 10% of the total assets of Santander Holdings USA, Inc. and its subsidiaries on a consolidated basis; therefore, copies of such instruments are not included as exhibits to this Quarterly Report on Form 10-Q. Santander Holdings USA, Inc. agrees to furnish copies to the SEC on request.
(10.1(31.1))
Underwriting Agreement dated January 22, 2014 among Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the underwriters listed therein, Santander Consumer USA Holdings Inc., Santander Consumer Illinois, Santander Holdings USA, Inc. and the other Selling Stockholders listed in Schedule II thereto (Incorporated by reference to Exhibit 1.1 to the Company's Current Report on Form 8-K filed January 28, 2014) (Commission File Number 001-16581)
(10.2)
Shareholders Agreement dated January 28, 2014 among the Company, Santander Consumer USA Holdings Inc., Sponsor Holdings, DDFS, Thomas G. Dundon and Banco Santander, S.A. (Incorporated by reference to Exhibit 1.2 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 28, 2014) (Commission File Number 001-16581)
(10.3)
Written Agreement, dated as of July 2, 2015, by and between Santander Holdings USA, Inc. and the Federal Reserve Bank of Boston (Incorporated by reference to Exhibit 99.1 of Santander Holdings USA, Inc.’s Current Report on Form 8-K filed July 7, 2015) (Commission File Number 001-16581)
(10.4)
Written Agreement, dated as of March 21, 2017, by and among Santander Holdings USA, Inc., Santander Consumer USA Inc., and the Federal Reserve Bank of Boston (Incorporated by reference to Exhibit 99.1 of Santander Holdings USA, Inc.'s Current Report on Form 8-K filed March 23, 2017) (Commission File Number 001-16581)
(31.1)
Chief Executive Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

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(31.2)
(31.2)
Chief Financial Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
(32.1(32.1))
Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
(32.2(32.2))
Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
(101.INS)Inline XBRL Instance Document (Filed herewith)
(101
(101.SCH))Interactive Data File (XBRL).Inline XBRL Taxonomy Extension Schema (Filed herewith)
(101.CAL)Inline XBRL Taxonomy Extension Calculation Linkbase (Filed herewith)
(101.DEF)Inline XBRL Taxonomy Extension Definition Linkbase (Filed herewith)
(101.LAB)Inline XBRL Taxonomy Extension Label Linkbase (Filed herewith)
(101.PRE)Inline XBRL Taxonomy Extension Presentation Linkbase (Filed herewith)

110
155



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SANTANDER HOLDINGS USA, INC.

(Registrant)
Date:May 6, 2024/s/ Juan Carlos Alvarez de Soto
Date:November 13, 2017/s/ Madhukar DayalJuan Carlos Alvarez de Soto
Madhukar Dayal
Chief Financial Officer and Senior Executive Vice President
Date:November 13, 2017May 6, 2024/s/ David L. Cornish
David L. Cornish
Chief Accounting Officer, Corporate Controller and Executive Vice President





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