Santander Holdings USA (SOV) 10-Q/A 2015 Q3 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF 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

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 or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company 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 number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 31, 2015
Common Stock (no par value)	530,391,043 shares

EXPLANATORY NOTE

Santander Holdings USA, Inc. ("SHUSA" or the "Company") is filing this Amendment No. 1 on Form 10-Q/A for the quarter ended September 30, 2015 (the "Form 10-Q/A").

This Form 10-Q/A amends the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, as originally filed with the Securities and Exchange Commission (the "SEC") on November 13, 2015 (the "Original Filing"). This Form 10-Q/A is being filed to restate our unaudited Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2015 and 2014 to make related corrections to certain disclosures in the Original Filing. The restatement of our financial statements in this Form 10-Q/A reflects the correction of errors primarily related to (i) errors in our methodology for estimating credit loss allowance for retail installment contracts ("RICs") held for investment (ii) errors related to the lack of consideration of net discounts when estimating the allowance for credit losses ("ACL") for the non-troubled debt restructurings ("TDRs") portfolio of RICs held for investment, (iii) errors in our methodology for accreting / amortizing dealer discounts, subvention payments from manufacturers, and capitalized origination costs on RICs held for investment, and (iv) errors in computing the present value of expected future cash flow whereby the TDRs' weighted average original contractual interest rate was utilized rather than the TDRs' weighted average original effective interest rate, as required by accounting principles generally accepted in the United States of America ("GAAP"). The restatement also includes the correction of errors related to the income tax effects of the above errors as well as the correction of additional items for the three and nine months ended September 30, 2015 and 2014. Further explanation regarding the restatement is set forth in Note 18 to the unaudited Condensed Consolidated Financial Statements included in this Form 10-Q/A.

The following sections in the Original Filing have been corrected in this Form 10-Q/A to reflect this restatement:

• Part I - Item 1: Condensed Consolidated Financial Information

• Part I - Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

• Part I - Item 4: Controls and Procedures

• Part II - Item 6: Exhibits

Our principal executive officer and principal financial officer have also provided new certifications as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications are included in the Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and 32.2.

For the convenience of the reader, this Form 10-Q/A sets forth the information in the Original Filing in its entirety, as such information is modified and superseded where necessary to reflect the restatement. Except as provided above, this amendment does not reflect events occurring after the filing of the Original Filing and does not amend or otherwise update any information in the Original Filing.

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 regarding the financial condition, results of operations, business plans and future performance of the Company. Words such as “may,” “could,” “should,” “looking forward,” “will,” “would,” “believe,” “expect,” “hope,” “anticipate,” “estimate,” “intend,” “plan,” “assume” or similar expressions are intended to indicate forward-looking statements.

Although SHUSA 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 based on various factors and assumptions. Among the factors that could cause SHUSA’s financial performance to differ materially from that suggested by forward-looking statements are:

• the effects of regulation and policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency (the “OCC”) and the Consumer Financial Protection Bureau (the “CFPB”), including changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, the failure to adhere to which could subject SHUSA to formal or informal regulatory compliance and enforcement actions;

• the strength of the United States 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;

• 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, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets;

• adverse movements and volatility in debt and equity capital markets and adverse changes in the securities markets, including those related to the financial condition of significant issuers in SHUSA’s investment portfolio;

• SHUSA’s ability to manage changes in the value and quality of its assets, changing market conditions that may force management to alter the implementation or continuation of cost savings or revenue enhancement strategies and the possibility that revenue enhancement initiatives may not be successful in the marketplace or may result in unintended costs;

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

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

• the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, capital, liquidity, proper accounting treatment, securities and insurance, the applications and interpretations thereof by regulatory bodies and the impact of changes in and interpretations of generally accepted accounting principles in the United States of America ("GAAP");

• the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "DFA"), enacted in July 2010, which is a significant development for the industry, the full impact of which will not be known until the rule-making processes mandated by the legislation are complete, although the impact has involved and will involve higher compliance costs that have affected and will affect SHUSA’s revenue and earnings negatively;

• competitors of SHUSA that may have greater financial resources or lower costs, may innovate more effectively, or may develop products and technology that enable those competitors to compete more successfully than SHUSA;

• acts of terrorism or domestic or foreign military conflicts; and acts of God, including natural disasters;

• the costs and effects of regulatory or judicial proceedings;

• 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;

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

1

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

Santander Holdings USA, Inc. provides the following list of abbreviations and acronyms as a tool for the reader 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.

2015 Amendment: OCC consent order signed by Santander Bank, National Association on June 16, 2015 which amended prior orders signed by Santander Bank, National Association and the Office of the Comptroller of the Currency on April 13, 2011 and January 7, 2013	GCB: Global Corporate Banking
ABS: Asset-backed securities	GSE: Government-sponsored entities
ACL: Allowance for credit losses	IHC: U.S. intermediate holding company
Alt-A: Loans originated through brokers outside the Bank's geographic footprint, often lacking full documentation	IPO: Initial public offering
ASC: Accounting Standards Codification	IRS: Internal Revenue Service
ASU: Accounting Standards Update	ISDA: International Swaps and Derivatives Association, Inc.
Bank: Santander Bank, National Association	Legacy Covered Funds: Investments in and relationships with covered funds that were in place prior to December 31, 2013.
BB&T: BB&T Corp.	LCR: Liquidity coverage ratio
BHC: Bank holding company	LHFS: Loans held-for-sale
BNY Mellon: Bank of New York Mellon	LIBOR: London Interbank Offered Rate
BOLI: Bank-owned life insurance	LTD: Long-term debt
Brokers: Independent parties	LTV: Loan-to-value
CBP: Citizens Bank of Pennsylvania	MBS: Mortgage-backed securities
CCAR: Comprehensive Capital Analysis and Review	MD&A: Management's Discussion and Analysis of Financial Condition and Results of Operations
CD: Certificate(s) of deposit	MSR: Mortgage servicing right
CEVF: Commercial equipment vehicle funding	MVE: Market value of equity
CET1: Common equity tier 1	NCI: Non-controlling interest
CFPB: Consumer Financial Protection Bureau	NMD: Non-maturity deposits
Change in Control: First quarter 2014 change in control and consolidation of SCUSA	NPL: Non-performing loans
Chrysler Agreement: Ten-year private label financing agreement with the Chrysler Group signed by SCUSA	NPR: Notice or proposed rulemaking
Chrysler Capital: trade name used in providing services under the Chrysler Agreement.	NSFR: Net stable funding ratio
Chrysler Group: Chrysler Group LLC (FCA US LLC as of December 14, 2014)	OCC: Office of the Comptroller of the Currency
CID: Civil investigative demand	OEM: Original equipment manufacturer
CLO: Collateralized loan obligations	OIS: Overnight indexed swap
CLTV: Combined loan-to-value	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.
CMO: Collateralized mortgage obligation	OREO: Other real estate owned
CODM: Chief Operating Decision Maker	Original Filing:Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, as originally filed with the SEC on November 13, 2015
Company: Santander Holdings USA, Inc.	OTS: Office of Thrift Supervision
Consent Order: Consent order signed by the Bank with the OCC on April 17, 2015 that resolved issues related to the sale and servicing of the identify theft protection product.	OTS Order: Consent order signed by the Bank and other parties with the OTS on April 13, 2011 resolving certain of the Bank's and other parties' foreclosure activities.
CPR: Changes in anticipated loan prepayment rates	OTTI: Other-than-temporary impairment
DCF: Discounted cash flow	REIT: Real estate investment trust
DDFS: Dundon DFS LLC	RV: Recreational vehicle

2

DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act	RWA: Risk weight assets
DOJ: Department of Justice	S&P: Standard & Poor's
DOJ Order: Consent order signed by SCUSA with the DOJ on February 25, 2015 that resolved claims related to certain of SCUSA's repossession and collection activities.	Santander: Banco Santander, S.A.
DTI: Debt-to-income	Santander NY: New York branch of Banco Santander, S.A.
ECOA: Equal Credit Opportunity Act	Santander UK: Santander UK plc
EPS: Enhanced Prudential Standards	SBNA: Santander Bank, National Association
Exchange Act: Securities Exchange Act of 1934, as amended	SCF: Statement of Cash Flows
FASB: Financial Accounting Standards Board	SCUSA: Santander Consumer USA Holdings Inc. and its subsidiaries
FBO: Foreign banking organization	SCUSA Common Stock: Common shares of SCUSA
FDIC: Federal Deposit Insurance Corporation	SDART: Santander Drive Auto Receivables Trust, a SCUSA securitization platform
Federal Reserve: Board of Governors of the Federal Reserve System	SDGT: Specially Designated Global Terrorist
FHLB: Federal Home Loan Bank	SEC: Securities and Exchange Commission
FHLMC: Federal Home Loan Mortgage Corporation	Securities Act: Securities Act of 1933, as amended
FICO: Fair Isaac Corporation® credit scoring model	Separation Agreement: Agreement entered into by Thomas Dundon, the former Chief Executive Officer of SCUSA, SCUSA, DDFS, Santander Consumer USA Inc. and Banco Santander, S.A on July 2, 2015.
Final Rule: Rule implementing certain of the EPS mandated by Section 165 of the DFA	SHUSA: Santander Holdings USA, Inc.
FNMA: Federal National Mortgage Association	SPE: Special purpose entity
FOMC: Federal Open Market Committee	Sponsor Holdings: Sponsor Auto Finance Holding Series LP
FRB: Federal Reserve Bank	Steck Lawsuit: purported securities class action lawsuit filed against SCUSA on August 26, 2014.
FSB: Financial Stability Board	TDR: Troubled debt restructuring
FVO: Fair value option	TLAC: Total loss absorbing capacity
GAAP: Accounting principles generally accepted in the United States of America	Trusts: Securitization trusts
	UPB: Unpaid Principal Balance
	VIE: Variable interest entity

3

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements(As Restated)
Condensed Consolidated Balance Sheets at September 30, 2015 and December 31, 2014 (As Restated)	5
Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2015 and 2014 (As Restated)	6
Condensed Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended September 30, 2015 and 2014 (As Restated)	7
Condensed Consolidated Statements of Stockholders' Equity for the nine-month periods ended September 30, 2015 and 2014 (As Restated)	8
Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2015 and 2014 (As Restated)	9
Notes to Condensed Consolidated Financial Statements	10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	105
Item 3. Quantitative and Qualitative Disclosures About Market Risk	155
Item 4. Controls and Procedures	155
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	161
Item 1A. Risk Factors	161
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	161
Item 3. Defaults upon Senior Securities	161
Item 4. Mine Safety Disclosures	161
Item 5. Other Information	161
Item 6. Exhibits	162
SIGNATURES	163
Ex-31.1 Certification
Ex-31.2 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

4

PART 1- FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2015			December 31, 2014
	(As Restated - Note 18)			(As Restated - Note18)
	(in thousands, except per share data)
ASSETS
Cash and cash equivalents	$	4,619,782		$	2,201,783
Investment securities:
Available-for-sale at fair value	21,051,184			15,908,078
Trading securities at fair value	—			833,936
Other investments	999,232			816,991
Loans held for investment (1) (5)	78,583,198			75,995,467
Allowance for loan losses (5)	(2,767,144		)	(1,701,602		)
Net loans held for investment	75,816,054			74,293,865
Loans held-for-sale (2)	2,990,708			260,252
Premises and equipment, net (3)	881,468			854,671
Leased vehicles, net (5)(6)	8,072,195			6,623,970
Accrued interest receivable (5)	586,350			559,962
Equity method investments	268,213			227,991
Goodwill	8,951,484			8,951,484
Intangible assets	657,957			706,988
Bank-owned life insurance	1,716,353			1,686,491
Restricted cash (5)	2,431,103			2,024,838
Other assets (4) (5)	1,944,788			2,869,580
TOTAL ASSETS	$	130,986,871		$	118,820,880
LIABILITIES
Accrued expenses and payables	$	1,525,332		$	1,891,235
Deposits and other customer accounts	55,543,255			52,474,007
Borrowings and other debt obligations (5)	48,371,320			39,679,382
Advance payments by borrowers for taxes and insurance	208,521			166,144
Deferred tax liabilities, net	1,279,719			1,159,971
Other liabilities (5)	713,512			722,685
TOTAL LIABILITIES	107,641,659			96,093,424
STOCKHOLDER'S EQUITY
Preferred stock (no par value; $25,000 liquidation preference; 7,500,000 shares authorized; 8,000 shares outstanding at September 30, 2015 and at December 31, 2014)	195,445			195,445
Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 and 530,391,043 shares outstanding at September 30, 2015 and at December 31, 2014, respectively)	14,729,506			14,729,609
Accumulated other comprehensive loss	(68,873		)	(96,410		)
Retained earnings	4,144,731			3,846,417
TOTAL SHUSA STOCKHOLDER'S EQUITY	19,000,809			18,675,061
Noncontrolling interest	4,344,403			4,052,395
TOTAL STOCKHOLDER'S EQUITY	23,345,212			22,727,456
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	130,986,871		$	118,820,880

⁽¹⁾ Loans held for investment includes $374.2 million and $845.9 million of loans recorded at fair value at September 30, 2015 and December 31, 2014, respectively.

⁽²⁾ Recorded at the fair value option ("FVO") or lower of cost or fair value.

⁽³⁾ Net of accumulated depreciation of $804.6 million and $638.0 million at September 30, 2015 and December 31, 2014, respectively.

⁽⁴⁾ Includes mortgage servicing rights ("MSRs") of $143.5 million and 145.0 million at September 30, 2015 and December 31, 2014, respectively, for which the Company has elected the FVO. See Note 9 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 7 to these Condensed Consolidated Financial Statements for additional information.

⁽⁶⁾ Net of accumulated depreciation of $1.6 billion and $817.9 million at September 30, 2015 and December 31, 2014, respectively.

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

5

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2015			2014			2015			2014
	(As Restated - Note 18)			(As Restated - Note 18)			(As Restated - Note 18)			(As Restated - Note 18)
	(in thousands)
INTEREST INCOME:
Loans	$	1,834,853		$	1,813,023		$	5,574,758		$	4,909,503
Interest-earning deposits	2,518			2,250			5,337			5,811
Investment securities:
Available-for-sale	85,293			61,069			239,755			182,324
Other investments	10,787			9,205			39,880			26,950
TOTAL INTEREST INCOME	1,933,451			1,885,547			5,859,730			5,124,588
INTEREST EXPENSE:
Deposits and other customer accounts	65,605			53,952			194,191			151,708
Borrowings and other debt obligations	233,957			215,592			681,814			624,702
TOTAL INTEREST EXPENSE	299,562			269,544			876,005			776,410
NET INTEREST INCOME	1,633,889			1,616,003			4,983,725			4,348,178
Provision for credit losses	937,165			746,663			2,956,055			1,633,889
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	696,724			869,340			2,027,670			2,714,289
NON-INTEREST INCOME:
Consumer fees	122,529			93,183			332,078			276,052
Commercial fees	44,940			44,515			133,766			130,044
Mortgage banking income, net	31,317			97,576			85,484			127,285
Equity method investments income/(loss), net	1,624			(4,397		)	(5,543		)	8,083
Bank-owned life insurance	15,590			13,373			44,430			44,536
Lease income	364,634			232,298			1,017,711			516,718
Miscellaneous income	140,354			127,067			384,384			471,649
TOTAL FEES AND OTHER INCOME	720,988			603,615			1,992,310			1,574,367
OTTI recognized in earnings	—			—			(1,092		)	—
Gain on Change in Control	—			—			—			2,417,563
Net (loss)/gain on sale of investment securities	(1,993		)	131			18,363			11,480
Net (loss)/gain recognized in earnings	(1,993		)	131			17,271			2,429,043
TOTAL NON-INTEREST INCOME	718,995			603,746			2,009,581			4,003,410
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and benefits	344,055			290,121			990,666			892,680
Occupancy and equipment expenses	128,868			117,697			397,647			350,788
Technology expense	43,534			40,806			130,690			124,874
Outside services	80,688			57,870			184,588			136,979
Marketing expense	25,731			11,858			57,913			37,077
Loan expense	85,718			80,968			274,522			237,691
Lease expense	261,668			178,813			755,945			385,560
Other administrative expenses	88,150			90,456			258,547			223,626
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES	1,058,412			868,589			3,050,518			2,389,275
OTHER EXPENSES:
Amortization of intangibles	15,887			17,730			49,031			50,670
Deposit insurance premiums and other expenses	13,809			14,958			42,987			43,937
Loss on debt extinguishment	—			8,311			—			11,946
Investment expense on qualified affordable housing projects	35			—			119			—
Impairment of long-lived assets	—			—			—			64,546
TOTAL OTHER EXPENSES	29,731			40,999			92,137			171,099
INCOME BEFORE INCOME TAXES	327,576			563,498			894,596			4,157,325
Income tax provision	201,369			208,303			363,352			1,502,375
NET INCOME INCLUDING NONCONTROLLING INTEREST	126,207			355,195			531,244			2,654,950
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST	75,383			111,319			221,980			383,466
NET INCOME ATTRIBUTABLE TO SHUSA	$	50,824		$	243,876		$	309,264		$	2,271,484

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

6

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2015			2014			2015			2014
	(As Restated - Note 18)			(As Restated - Note 18)			(As Restated - Note 18)			(As Restated - Note 18)
	(in thousands)
NET INCOME INCLUDING NONCONTROLLING INTEREST	$	126,207		$	355,195		$	531,244		$	2,654,950
OTHER COMPREHENSIVE INCOME / (LOSS), NET OF TAX
Net unrealized (losses)/gains on cash flow hedge derivative financial instruments, net of tax	(27,713		)	17,381			(35,614		)	24,022
Net unrealized gains/(losses) on available-for-sale investment securities, net of tax	83,722			(17,697		)	61,479			111,291
Pension and post-retirement actuarial gain, net of tax	620			272			1,672			1,107
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX	56,629			(44		)	27,537			136,420
COMPREHENSIVE INCOME	$	182,836		$	355,151		$	558,781		$	2,791,370
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST	75,383			111,319			221,980			383,466
COMPREHENSIVE INCOME ATTRIBUTABLE TO SHUSA	$	107,453		$	243,832		$	336,801		$	2,407,904

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

7

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014

(Unaudited)

(in thousands)

As Restated - Note 18	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, December 31, 2013	520,307	$	195,445	$	12,209,816		$	(254,368	)	$	1,426,205		$	—		$	13,577,098
Comprehensive income	—	—		—			136,420			2,271,484			—			2,407,904
Comprehensive income attributable to Noncontrolling Interest	—	—		—			—			—			383,466			383,466
SCUSA Change in Control(1)	—	—		—			—			—			3,483,445			3,483,445
Impact of SC Stock Option Activity	—	—		—			—			—			110,958			110,958
Issuance of common stock	10,084	—		2,521,000			—			—			—			2,521,000
Stock issued in connection with employee benefit and incentive compensation plans	—	—		(1,207		)	—			—			—			(1,207		)
Dividends paid on Noncontrolling Interest	—	—		—			—			—			(20,667		)	(20,667		)
Dividends paid on preferred stock	—	—		—			—			(10,950		)	—			(10,950		)
Balance, September 30, 2014	530,391	$	195,445	$	14,729,609		$	(117,948	)	$	3,686,739		$	3,957,202		$	22,451,047

(1) Refer to Note 3 to the Condensed Consolidated Financial Statements for further discussion.

As Restated - Note 18	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, December 31, 2014	530,391	$	195,445	$	14,729,609		$	(96,410	)	$	3,846,417		$	4,052,395	$	22,727,456
Comprehensive income	—	—		—			27,537			309,264			—		336,801
Comprehensive Income Attributable to Noncontrolling Interest	—	—		—			—			—			221,980		221,980
Impact of SCUSA Stock Option Activity	—	—		(2,004		)	—			—			70,028		68,024
Stock issued in connection with employee benefit and incentive compensation plans	—	—		1,901			—			—			—		1,901
Dividends paid on preferred stock	—	—		—			—			(10,950		)	—		(10,950		)
Balance, September 30, 2015	530,391	$	195,445	$	14,729,506		$	(68,873	)	$	4,144,731		$	4,344,403	$	23,345,212

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

8

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine-Month Period Ended September 30,
	2015			2014
	(As Restated - Note 18)			(As Restated - Note 18)
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including noncontrolling interest	$	531,244		$	2,654,950
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on SCUSA Change in Control	—			(2,280,027		)
Net gain on sale of SCUSA shares	—			(137,536		)
Gain on sale of branches	—			(10,648		)
Impairment of capitalized software	—			64,546
Provision for credit losses	2,956,055			1,633,889
Deferred tax expense	55,721			1,176,742
Depreciation, amortization and accretion	249,373			(179,928		)
Net gain on sale of loans	(127,426		)	(135,511		)
Net gain on sale of investment securities	(18,363		)	(11,480		)
Gain on residential loan securitizations	(9,373		)	(37,905		)
Net gain on sale of leased vehicles	(22,548		)	(4,570		)
OTTI recognized in earnings	1,092			—
Loss on debt extinguishment	—			11,946
Net loss/(gain) on real estate owned and premises and equipment	426			(2,384		)
Stock-based compensation	19,530			3,312
Equity loss/(earnings) on equity method investments	5,543			(8,083		)
Originations of loans held-for-sale, net of repayments	(5,565,455		)	(3,604,794		)
Proceeds from sales of loans held-for-sale	4,674,352			3,941,367
Purchases of trading securities	(390,192		)	(211,590		)
Proceeds from sales of trading securities	823,801			88,718
Net change in:
Other assets and bank-owned life insurance	270,431			258,715
Other liabilities	253,267			148,020
Other	—			14,760
NET CASH PROVIDED BY OPERATING ACTIVITIES	3,707,478			3,372,509
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available-for-sale investment securities	2,751,790			311,019
Proceeds from prepayments and maturities of available-for-sale investment securities	3,748,529			1,711,253
Purchases of available-for-sale investment securities	(11,010,911		)	(3,852,941		)
Proceeds from sales of other investments	293,016			263,059
Proceeds from maturities of other investments	—			20,000
Purchases of other investments	(451,634		)	(265,411		)
Net change in restricted cash	(236,121		)	(286,806		)
Proceeds from sales of loans held for investment	1,842,583			1,555,557
Proceeds from the sales of equity method investments	14,988			—
Distributions from equity method investments	11,708			6,454
Contributions to equity method investments	(89,994		)	(18,566		)
Purchases of loans held for investment	(1,753,931		)	(1,147,709		)
Net change in loans other than purchases and sales	(7,388,215		)	(5,345,759		)
Purchases of leased vehicles	(4,738,987		)	(4,842,410		)
Proceeds from the sale of leased vehicles	1,758,531			409,944
Manufacturer incentives	991,326			768,304
Proceeds from sales of real estate owned and premises and equipment	55,572			50,964
Purchases of premises and equipment	(183,154		)	(204,626		)
Net cash transferred on the sale of branches	—			(151,286		)
Proceeds from sale of SCUSA shares	—			320,145
Cash acquired in SCUSA Change in Control	—			11,076
NET CASH USED IN INVESTING ACTIVITIES	(14,384,904		)	(10,687,739		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits and other customer accounts	3,069,248			2,034,024
Net change in short-term borrowings	(5,450,000		)	82,039
Net proceeds from long-term borrowings	41,022,868			29,060,843
Repayments of long-term borrowings	(34,995,331		)	(26,911,107		)
Proceeds from FHLB advances (with maturities greater than 90 days)	14,200,000			—
Repayments of FHLB advances (with maturities greater than 90 days)	(4,870,000		)	(921,946		)
Net change in advance payments by borrowers for taxes and insurance	42,377			20,678
Cash dividends paid to preferred stockholders	(10,950		)	(10,950		)
Dividends paid to noncontrolling interest	—			(20,668		)
Proceeds from the issuance of common stock	87,213			1,787,285
NET CASH PROVIDED BY FINANCING ACTIVITIES	13,095,425			5,120,198
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS	2,417,999			(2,195,032		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	2,201,783			4,226,947
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	4,619,782		$	2,031,915
SUPPLEMENTAL DISCLOSURES
Income taxes (received)/paid, net	$	(134,241	)	$	(135,644	)
Interest paid	904,715			884,032
NON-CASH TRANSACTIONS(1)
Loans transferred to other real estate owned	53,024			41,207
Operating leases transferred to repossessed vehicles	27,821			115,466
Loans transferred from held for investment to held for sale, net	3,464,436			(371,377		)
Unsettled purchases of investment securities	697,057			—
Conversion of debt to common equity	—			750,000
Liquidation of common equity securities	—			(24,742		)
Residential loan securitizations	234,547			1,566,612
(1) The first quarter 2014 change in control and consolidation of SCUSA (the "Change in Control") was accounted for as a non-cash transaction. See Note 3 to the Condensed Consolidated Financial Statements for detail on the Change in Control.

See accompanying notes to unaudited Condensed Consolidated Financial Statements

9

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Introduction

SHUSA is the parent company of Santander Bank, National Association, (the "Bank"), a national banking association, and Santander Consumer USA Holdings Inc. (together with its subsidiaries, "SCUSA"), a consumer finance company focused on vehicle finance. SHUSA is headquartered in Boston, Massachusetts and the Bank's main office is in Wilmington, Delaware. SHUSA is a wholly-owned subsidiary of Banco Santander, S.A. ("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, multi-family loans, residential mortgage loans, home equity loans and lines of credit, and auto and other 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.

SCUSA wholly owns Santander Consumer USA Inc., which is headquartered in Dallas, Texas, and is a full-service, technology-driven consumer finance company focused on vehicle finance.

On January 22, 2014, SCUSA's registration statement for an initial public offering ("IPO") of shares of its common stock (the “SCUSA Common Stock”), was declared effective by the Securities and Exchange Commission (the "SEC"). Prior to the IPO, the Company owned approximately 65% of the shares of SCUSA Common Stock.

On January 28, 2014, the IPO was consummated, and certain stockholders of SCUSA, including the Company and Sponsor Auto Finance Holdings Series LP ("Sponsor Holdings"), sold 85,242,042 shares of SCUSA Common Stock. Immediately following the IPO, the Company owned approximately 61% of the shares of SCUSA Common Stock. In connection with these sales, certain board representation, governance and other rights granted to Dundon DFS LLC ("DDFS") and Sponsor Holdings were terminated as a result of the reduction in DDFS and Sponsor Holdings’ collective ownership of shares of SCUSA Common Stock below certain ownership thresholds, causing the Change in Control.

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

On July 2, 2015, the Company announced that it had entered into an agreement with former SCUSA Chief Executive Officer Thomas G. Dundon, DDFS, and Santander related to Mr. Dundon's departure from SCUSA (the “Separation Agreement”). Pursuant to the Separation Agreement the Company was deemed to have delivered an irrevocable notice to exercise its option to acquire all of the shares of SCUSA 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 SCUSA Common Stock held by DDFS ("the DDFS Shares") represented approximately 9.8% of SCUSA 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. Santander is expected to assume the Company’s obligation to purchase the DDFS shares and contribute those shares to SHUSA. 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 LIBOR rate on the third business day preceding the consummation of the Call Transaction plus 100 basis points with respect to the shares of SCUSA Common Stock that were ultimately sold in the Call Transaction. For additional detail regarding this transaction and the Separation Agreement, refer to the Form 8-K the Company filed with the SEC on July 2, 2015 and Note 14 to these Condensed Consolidated Financial Statements.

10

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

See Note 3 to the Consolidated Financial Statements for a detailed discussion of the Company's consolidation of SCUSA in accordance with ASC 805.

Basis of Presentation

These Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries, including the Bank, SCUSA, and certain special purpose financing trusts utilized in financing transactions that are considered variable interest entities ("VIEs"). The Company consolidates VIEs for which it is deemed the primary beneficiary. The Condensed Consolidated Financial Statements have been prepared by the Company, without audit, pursuant to SEC regulations. All intercompany balances and transactions have been eliminated in consolidation. Additionally, where applicable, the Company's accounting policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. However, in the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments of a normal and recurring nature necessary to present fairly the Condensed Consolidated Balance Sheets, Condensed Statements of Operations, Condensed Statements of Comprehensive Income, Condensed Statements of Stockholder's Equity and Condensed Statements of Cash Flows for the periods indicated, and contain adequate disclosure to make the information presented not misleading.

Significant Accounting Policies

Management has identified accounting for consolidation, business combinations, the allowance for loan losses for originated and purchased loans and the reserve for unfunded lending commitments, loan modifications and troubled debt restructurings, goodwill, derivatives and hedge activities, and income taxes as the Company's significant accounting policies and estimates, in that they are important to the portrayal of the Company's financial condition and 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, 2014.

As of September 30, 2015, with the exception of the items noted in the section "Changes in Accounting Policies" below, there have been no significant changes to the Company's accounting policies as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2014.

Changes in Accounting Policies

During the first quarter of 2015, the Company adopted the following Financial Accounting Standards Board (the "FASB") Accounting Standards Updates ("ASUs"), none of which had a material impact to the Company's Condensed Consolidated financial statements:

• The Company adopted the FASB ASU 2014-01, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects, which allows an entity to make an accounting policy election toaccount for its investments in qualified affordable housing projects using the proportional amortization method, if certain conditions are met. Under this method, an investor would amortize the cost of its investments in proportion to the tax credits and other tax benefits received and will recognize the amortization, net of tax credits and other tax benefits, in the income statement as a component of income tax expense. This ASU is required to be adopted on a retrospective basis for all periods presented. The adoption of this ASU did not have a material effect to the Company’s prior periods’ consolidated financial statements to warrant retrospective application. The cumulative effect of the adoption was recognized in the first quarter of 2015 and was not material to the Company’s Condensed Consolidated Financial Statements.

11

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

• The Company adopted FASB ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, on a prospective basis. Under this ASU, an in-substance repossession or foreclosure occurs when the creditor obtains legal title to the residential real estate property or the borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The Company’s adoption of this ASU did not have a material effect on its Condensed Consolidated Financial Statements.

• The Company adopted FASB ASU 2014-14, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. This ASU requires that a government-guaranteed mortgage loan be de-recognized, and that a separate other receivable be recognized, upon foreclosure if the three criteria identified in the ASU are met. Upon foreclosure and meeting the three criteria, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) that is expected to be recovered from the guarantor. The Company’s adoption of this ASU did not have a material effect on its Condensed Consolidated Financial Statements.

• During the third quarter of 2015, the Company early adopted FASB ASU 2015-03, Interest- Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, on a retrospective basis. This ASU simplifies the presentation of debt issuance costs and requires that debt issuance costs be presented as a deduction from the recognized debt liability, and eliminates prior guidance which required that debt issuance costs be recorded as a deferred charge. The Company’s adoption of this ASU resulted in the re-classification of $59.0 million and $30.3 million in debt issuance costs from Other assets to Borrowings as of September 30, 2015 and December 31, 2014, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates pertain to consolidation, fair value measurements, allowance for loan and lease losses and reserve for unfunded lending commitments, estimates of expected residual values of leased vehicles subject to operating leases, goodwill, derivatives and hedge activities, and income taxes. Actual results may differ from the estimates, and the differences may be material to the Condensed Consolidated Financial Statements.

Subsequent Events

The Company evaluated events from the date of the Condensed Consolidated Financial Statements on September 30, 2015 through the Original Filing of these Condensed Consolidated Financial Statements and has determined that there have been no material events that would require recognition in its Condensed Consolidated Financial Statements or disclosure in the Notes to the Condensed Consolidated Financial Statements for the quarter ended September 30, 2015 other than the transactions disclosed within Note 18 of these Condensed Consolidated Financial Statements.

12

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2. RECENT ACCOUNTING DEVELOPMENTS

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), superseding the revenue recognition requirements in ASC 605. This ASU requires an entity to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment includes a five-step process to assist an entity in achieving the main principle(s) of revenue recognition under ASC 605. In August 2015, the FASB issued ASU 2015-14, which formalized the deferral of the effective date of the amendment for a period of one-year from the original effective date. Following the issuance of ASU 2015-14, the amendment will be effective for the Company for the first annual period ending after December 15, 2017. The amendment should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. Early adoption of the guidance is not permitted. The Company is currently evaluating the impact of adopting this ASU on its financial position, results of operations and disclosures.

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (Topic 718). This ASU requires that a performance target that affects vesting, and could be achieved after the requisite service period, be treated as a performance condition. Application of existing guidance in ASC 718 as it relates to awards with performance conditions that affect vesting should continue to be used to account for such awards. The amendment will be effective for the Company for the first reporting period ending after December 15, 2015. Adoption of this amendment should be applied on a prospective basis to awards that are granted or modified on or after the effective date. There also is an option to apply the amendments on a modified retrospective basis for performance targets outstanding on or after the beginning of the first annual period presented as of the adoption date. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its financial position, results of operations and disclosures.

In August 2014, the FASB also issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40). This ASU requires management to perform an assessment of going concern and provides specific guidance on when and how to assess or disclose going concern uncertainties. The new standard also defines terms used in the evaluation of going concern, such as "substantial doubt." Following application, the Company will be required to perform assessments at each annual and interim period, provide an assessment period of one year from the issuance date, and make disclosures in certain circumstances in which substantial doubt is identified. The amendment will be effective for the Company for the first reporting period ending after December 15, 2016. Earlier application is permitted. The Company does not expect the adoption of this ASU to have an impact on its financial position, result of operations, or disclosures.

In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This ASU eliminates the concept of extraordinary items from GAAP, which previously required the separate classification, presentation, and disclosure of extraordinary events and transactions. The amendment will be effective for the Company for the first reporting period ending after December 15, 2015, with early adoption permitted if the guidance is applied from the beginning of the fiscal year of adoption. Adoption of the amendment by the Company can be either on a prospective or retrospective basis. The Company plans to apply this amendment effective for reporting periods beginning after December 15, 2015 and will apply it prospectively, as the Company has not reported any extraordinary items in the three prior fiscal years. The Company does not expect the adoption of this ASU to have an impact on its financial position, results of operations, or disclosures.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 820): Amendments to the Consolidation Analysis. This ASU changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendment will be effective for the Company for the first reporting period ending after December 15, 2015, with early adoption permitted if the guidance is applied from the beginning of the fiscal year of adoption. Adoption of the amendment by the Company may be on a retrospective or modified retrospective basis. The Company is in the process of evaluating the impacts of the adoption of this ASU.

13

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2. RECENT ACCOUNTING DEVELOPMENTS (continued)

In May 2015, the FASB issued ASU 2015-7, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) (a consensus of the Emerging Issues Task Force). This ASU removes the requirement to categorize investments fair valued using the net asset value per share practical expedient within the fair value hierarchy. It also modifies disclosure requirements to include only investments for which the entity elects to use the practical expedient rather than the prior guidance which required disclosures for all investments eligible to use the practical expedient. This amendment will be effective for the Company for the first reporting period beginning after December 15, 2015, with early adoption permitted. Adoption of the amendment by the Company must be on a retrospective basis for all periods presented. The Company is in the process of evaluating the impacts of the adoption of this ASU.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments. This amendment eliminates the requirement to retrospectively account for adjustments to provisional amounts recognized in a business combination. Instead, the acquirer will recognize the adjustments to provisional amounts during the period in which the adjustments are determined, including the effect on earnings of any amounts the acquirer would have recorded in previous periods if the accounting had been completed at the acquisition date. This amendment will be effective for the Company for the first reporting period beginning after December 15, 2015, with earlier adoption permitted for financial statements that have not been issued. Adoption of the amendment by the Company must be on a prospective basis to adjustments to provisional amounts that occur after the effective date. The Company does not expect the adoption of this ASU to have an impact on its financial position, results of operations, or disclosures.

NOTE 3. BUSINESS COMBINATIONS (As Restated)

General

On January 28, 2014, the Company obtained a controlling financial interest in SCUSA in connection with the Change in Control. The financial information set forth in these Condensed Consolidated Financial Statements gives effect to the Company’s consolidation of SCUSA as a result of the Change in Control.

Consolidated Assets acquired and Liabilities assumed

The Company did not incur any material transaction-related expenses in connection with the Change in Control, and no cash, equity interests, or other forms of consideration were transferred from the Company in connection with the Change in Control. As a result, the Company measured goodwill by reference to the fair value of SCUSA's equity as implied by the IPO price. The following table summarizes these equity related interests in SCUSA which constitute the purchase price and the identified assets acquired and liabilities assumed:

14

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3. BUSINESS COMBINATIONS (As Restated) (continued)

	January 28, 2014
	(in thousands)
Fair value of noncontrolling interest in SCUSA	$	3,273,265
Fair value of SCUSA employee vested stock options	210,181
Fair value of SHUSA remaining ownership interest in SCUSA	5,063,881
Fair value of equity-related interests in SCUSA	$	8,547,327
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	11,075
Restricted cash	1,704,906
Loan receivables - held for sale	990,137
Loan receivables - retail installment contracts	19,870,790
Loan receivables from dealers	102,689
Loan receivables - unsecured	1,009,896
Premises and equipment	74,998
Leased vehicles, net	2,486,929
Intangibles	768,750
Miscellaneous receivables and other assets	1,061,351
Deferred tax asset	7,210
Borrowings and other debt obligations	(24,497,607		)
Accounts payable and accrued liabilities	(570,852		)
Total identifiable net assets	3,020,272
Goodwill	$	5,527,055

The fair value of the non-controlling interest ("NCI") of $3.3 billion and the fair value of the Company's remaining ownership interest in SCUSA of $5.1 billion were determined on the basis of the market price of SCUSA Common Stock on the Change in Control date.

The Company recognized SCUSA’s stock option awards that were outstanding as of the IPO date at fair value, which in aggregate amounted to $369.3 million. The portion of the total fair value of the stock option awards that is attributable to pre-business combination service amounting to $210.2 million represented an NCI in SCUSA as of the IPO date, while $159.1 million of the total amount pertains to the post-business combination portion, which will be recognized as stock compensation expense over the remaining vesting period of the awards in the Company’s post-business combination consolidated financial statements. Of the total $159.1 million, $82.6 million was immediately recognized as stock compensation expense as a result of the acceleration of the vesting of certain of the stock option awards upon the closing of the IPO. The fair value of stock option awards was estimated using the Black-Scholes option valuation model. The Company also recognized SCUSA's restricted stock awards that were outstanding as of the IPO date at fair value. These shares of restricted stock were granted to certain SCUSA executives on December 28, 2013 and had an aggregate fair value of approximately $12.0 million as of the IPO date. The grant date fair value was determined based on SCUSA's per share prices as of the IPO closing date.

The fair value of the assets acquired includes finance receivables. SHUSA estimated the fair value of loans acquired from SCUSA by utilizing a methodology in which similar loans were aggregated into pools. Cash flows for each pool were determined by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value based on a market rate for similar loans. There was no carryover of SCUSA's allowance for loan losses associated with the loans SHUSA acquired as the loans were initially recorded at fair value.

15

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3. BUSINESS COMBINATIONS (As Restated) (continued)

	January 28, 2014
	(in thousands)
Fair value of loan receivables (1)	$	19,870,790
Gross contractual amount of loan receivables (1)	31,410,699
Estimate of contractual cash flows not expected to be collected at acquisition (1)	4,301,586
(1) Fair value of receivables does not include amounts related to the loan receivables - unsecured and loan receivables from dealers due to the short-term and revolving nature of the receivables.

The loans purchased in the Change in Control were recognized at fair value, which was at a discount to the unpaid principal balance ("UPB") of the loans. Discounts on purchased loans are accreted over the remaining expected lives of the loans using the retrospective effective interest method. The unamortized portion of the purchase discount is a reduction to the loans’ recorded investment and therefore reduces allowance requirements. Because the loans purchased in a bulk purchase or in a business combination are initially recognized at fair value with no allowance, the Company considers the entire unaccreted discount on these loans available to absorb credit losses in the purchased portfolio when determining the ACL. For these loans, the Company records provisions for credit losses when incurred losses exceed the unaccreted purchase discount. This policy does not apply to purchases of loan portfolios acquired with evidence of credit deterioration, on which we elected to apply the fair value option ("FVO"), or to RICs originated after the Change in Control.

	January 28, 2014
	(in thousands)
UPB (1)	$	20,343,356
UPB - FVO (2)	2,611,446
Total UPB	22,954,802
Purchase Marks (3)	(3,084,012		)
Total	19,870,790

⁽¹⁾  UPB does not include amounts related to loan receivables - unsecured and loan receivables from dealers due to the short-term and revolving nature of the receivables.

⁽²⁾  The Company elected to account for these loans under the FVO.

⁽³⁾  Includes purchase marks of $741.1 million related to purchase loan portfolios on which we elected to apply the FVO.

Goodwill recognized in connection with the Change in Control is attributable to SCUSA's workforce as well as the experience, proven track record, and strong capabilities of its senior management team. The goodwill associated with the Change in Control was allocated to the SCUSA segment and is not deductible for tax purposes.

	January 28, 2014
	Fair Value		Weighted Average Amortization Period
	(dollars in thousands)
Intangibles subject to amortization:
Dealer networks	$	580,000	17.5 years (a)
Chrysler relationship	138,750		9.2 years
Intangibles not subject to amortization:
Trade name	50,000		indefinite lived
Total Intangibles	$	768,750
(a) The amortization periods of the dealer network range between 7 and 20 years.

16

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3. BUSINESS COMBINATIONS (As Restated) (continued)

Gain on Change in Control

The Company recognized a pre-tax gain of $2.4 billion in connection with the Change in Control in Non-interest income in the Condensed Consolidated Statement of Operations.

	January 28, 2014
	(in thousands)
Gain attributable to SCUSA shares sold	$	137,536
Gain attributable to the remaining equity interest	2,280,027
Total pre-tax gain	$	2,417,563

In connection with the closing of the IPO on January 28, 2014, the Company sold 13,895,243 shares of SCUSA Common Stock, which generated proceeds of $320.1 million and a realized gain on sale of $137.5 million.

Proforma Financial Information (Unaudited)

The results of SCUSA are included in the Company's results beginning January 28, 2014. The following table summarizes the actual unaudited amounts of Total revenue, net of Total interest expense and Net income including Noncontrolling Interest of SCUSA included in the Condensed Consolidated Financial Statements for the three-month and nine-month periods ended September 30, 2014 and the supplemental pro forma consolidated Total revenue, net of total interest expense and Net income including noncontrolling interest of SHUSA entity for the three-month and nine-month periods ended September 30, 2014 as if the Change in Control had occurred on January 1, 2013. These results include the impact of amortizing certain purchase accounting adjustments such as intangible assets as well as fair value adjustments to loans and issued debt. These pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual consolidated results of operations of SHUSA that would have been achieved had the Change in Control occurred at January 1, 2013, nor are they intended to represent or be indicative of future results of operations.

	SCUSA Amounts Included in Results for the				Supplemental Pro Forma Combined (b)
	Three-Month Period Ended September 30, 2014		Nine-Month Period Ended September 30, 2014		Three-Month Period Ended September 30, 2014		Nine-Month Period Ended September 30, 2014
	(in thousands)
Total Revenue, Net of Total Interest Expense (a)	$	1,534,644	$	4,112,641	$	2,232,312	$	6,239,871
Net Income including Noncontrolling Interest	280,138		925,556		289,417		655,055
(a) Total Revenue, Net of Total Interest Expense is calculated as the sum of Total Interest Income and Total Non-Interest Income, less Total Interest Expense.
(b) Includes the impact of recording provision for loan losses necessary to bring the retail installment contracts and personal unsecured loans to their expected carrying values considering the required allowance for loan losses on their recorded investment amounts.

These amounts have been calculated after applying SHUSA's accounting policies and adjusting the results of SCUSA to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to loans, debt, premises and equipment had been applied from January 1, 2013 with the consequential tax effects.

17

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4. INVESTMENT SECURITIES

Investments Available-for-sale

Investment Securities Summary - Available-for-sale

The following tables present the amortized cost, gross unrealized gains and losses and approximate fair values of securities available-for-sale at the dates indicated:

	September 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss			Fair Value
	(in thousands)
U.S. Treasury securities	$	3,191,564	$	18,299	$	—		$	3,209,863
Corporate debt securities	1,554,216		17,224		(8,341		)	1,563,099
Asset-backed securities ("ABS")	1,938,581		7,111		(1,041		)	1,944,651
Equity securities	10,826		3		(301		)	10,528
State and municipal securities	750,946		12,524		(2,148		)	761,322
Mortgage-backed securities:
U.S. government agencies - Residential	4,077,361		31,836		(16,724		)	4,092,473
U.S. government agencies - Commercial	986,989		10,283		(5,109		)	992,163
FHLMC and FNMA - Residential debt securities (1)	8,379,831		46,998		(89,154		)	8,337,675
FHLMC and FNMA - Commercial debt securities	138,383		1,402		(427		)	139,358
Non-agency securities	52		—		—			52
Total investment securities available-for-sale	$	21,028,749	$	145,680	$	(123,245	)	$	21,051,184

(1) Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA")

	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss			Fair Value
	(in thousands)
U.S. Treasury securities	$	1,692,838	$	2,985	$	(56	)	$	1,695,767
Corporate debt securities	2,159,681		29,630		(6,910		)	2,182,401
Asset-backed securities	2,707,207		17,787		(4,591		)	2,720,403
Equity securities	10,619		3		(279		)	10,343
State and municipal securities	1,790,776		35,071		(2,385		)	1,823,462
Mortgage-backed securities:
U.S. government agencies - Residential	2,151,111		1,626		(33,811		)	2,118,926
U.S government agencies - Commercial	472,611		183		(7,186		)	465,608
FHLMC and FNMA - Residential debt securities	4,971,045		12,817		(129,990		)	4,853,872
FHLMC and FNMA - Commercial debt securities	23,929		157		(171		)	23,915
Non-agency securities	12,842		539		—			13,381
Total investment securities available-for-sale	$	15,992,659	$	100,798	$	(185,379	)	$	15,908,078

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.

During the second quarter of 2015, SHUSA sold $234.5 million of qualifying residential loans to FHLMC in return for $243.9 million of mortgage-backed securities ("MBS") issued by FHLMC resulting in a net realized gain on sale of $9.8 million which is included in Mortgage banking income, net line of the Company's Condensed Consolidated Statement of Operations.

18

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4. INVESTMENT SECURITIES (continued)

As of September 30, 2015 and December 31, 2014, the Company had investment securities available-for-sale with an estimated fair value of $4.1 billion and $3.5 billion, respectively, pledged as collateral, which was made up of the following: $3.5 billion and $2.6 billion were pledged to secure public fund deposits; $122.6 million and $301.6 million, respectively, were pledged at various independent parties ("Brokers") to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; and $450.6 million and $560.6 million, respectively, were pledged to secure the Bank's customer overnight sweep product.

At September 30, 2015 and December 31, 2014, the Company had $64.5 million and $67.3 million, respectively, of accrued interest related to investment securities which is included in the Accrued Interest Receivable line of the Company's Condensed Consolidated Balance Sheet.

The Company's state and municipal bond portfolio primarily consists of general obligation bonds of states, cities, counties and school districts. The portfolio had a weighted average underlying credit risk rating of AA+ as of September 30, 2015. The largest geographic concentrations of state and local municipal bonds are in Washington, Massachusetts, and Connecticut, which represented 21.4%, 14.5%, and 12.2%, respectively, of the total portfolio. No other state comprised more than 10% of the total portfolio.

Contractual Maturity of Debt Securities

Contractual maturities of the Company’s debt securities available-for-sale at September 30, 2015 are as follows:

	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	676,336	$	674,564
Due after 1 year but within 5 years	5,847,161		5,883,134
Due after 5 years but within 10 years	361,297		363,618
Due after 10 years	14,133,129		14,119,340
Total	$	21,017,923	$	21,040,656

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

Gross Unrealized Loss and Fair Value of Securities Available-for-Sale

The following tables present the aggregate amount of unrealized losses as of September 30, 2015 and December 31, 2014 on securities in the Company’s available-for-sale investment portfolio classified according to the amount of time that those securities have been in a continuous loss position:

	September 30, 2015
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
Corporate debt securities	$	500,998	$	(6,427	)	$	136,932	$	(1,914	)	$	637,930	$	(8,341	)
Asset-backed securities	143,150		(1,041		)	—		—			143,150		(1,041		)
Equity securities	376		(2		)	9,850		(299		)	10,226		(301		)
State and municipal securities	203,170		(1,217		)	25,430		(931		)	228,600		(2,148		)
Mortgage-backed securities:
U.S. government agencies - Residential	400,513		(735		)	972,042		(15,989		)	1,372,555		(16,724		)
U.S government agencies - Commercial	216,806		(2,551		)	116,893		(2,558		)	333,699		(5,109		)
FHLMC and FNMA - Residential	1,219,050		(4,080		)	2,245,972		(85,074		)	3,465,022		(89,154		)
FHLMC and FNMA - Commercial	42,195		(427		)	—		—			42,195		(427		)
Total	$	2,726,258	$	(16,480	)	$	3,507,119	$	(106,765	)	$	6,233,377	$	(123,245	)

19

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4. INVESTMENT SECURITIES (continued)

	December 31, 2014
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
US Treasury securities	$	298,914	$	(56	)	$	—	$	—		$	298,914	$	(56	)
Corporate debt securities	538,108		(3,262		)	214,852		(3,648		)	752,960		(6,910		)
Asset-backed securities	632,936		(1,437		)	424,333		(3,154		)	1,057,269		(4,591		)
Equity securities	55		—			9,879		(279		)	9,934		(279		)
State and municipal securities	45,128		(90		)	192,091		(2,295		)	237,219		(2,385		)
Mortgage-backed securities:
U.S. government agencies - Residential	415,731		(2,693		)	1,348,908		(31,118		)	1,764,639		(33,811		)
U.S. government agencies - Commercial	281,258		(2,459		)	136,269		(4,727		)	417,527		(7,186		)
FHLMC and FNMA - Residential debt securities	399,176		(2,019		)	2,607,695		(127,971		)	3,006,871		(129,990		)
FHLMC and FNMA - Commercial debt securities	11,269		(171		)	—		—			11,269		(171		)
Total	$	2,622,575	$	(12,187	)	$	4,934,027	$	(173,192	)	$	7,556,602	$	(185,379	)

Other-Than-Temporary Impairment ("OTTI")

Management evaluates all investment products in an unrealized loss position for OTTI on at least a quarterly basis. Individual securities are further assessed for OTTI as deemed necessary. 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 prospects of the issuer, as well as Company news 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 credit scoring model ("FICO") scores and weighted average loan-to-value ("LTV") ratio, rating or scoring, credit ratings and market spreads, as applicable.

The Company assesses and recognizes OTTI 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 prior to the recovery of the amortized cost basis but the Company has determined that OTTI exists, it recognizes the credit-related portion of the decline in value of the security in earnings.

There was no OTTI recognized in the first quarter of 2015. During the second quarter of 2015, the Company began implementing a strategy to improve the Bank's liquidity by selling non-high-quality liquid assets and reinvesting the funds into high-quality liquid assets. At June 30, 2015, 9 securities totaling a book value of $377 million in an unrealized loss position had not yet been sold. Because the Company could no longer assert that it does not have the intent to sell these securities, the Company determined that the impairment was other-than-temporary. As a result, these securities were written down to fair value, resulting in a $1.1 million OTTI charge. These securities were sold during the third quarter of 2015 for an additional loss of $1.0 million. The Company did not record any OTTI in earnings related to its investment securities in the third quarter of 2015 or in the three-month and nine-month periods ended September 30, 2014.

20

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4. INVESTMENT SECURITIES (continued)

Management has concluded that the unrealized losses on its debt and equity securities for which it has not recognized OTTI (which was comprised of 277 individual securities at September 30, 2015) are temporary in nature since (1) they are not related to the underlying credit quality of the issuers, (2) the entire contractual principal and interest due on these securities is currently expected to be recoverable, (3) the Company does not intend to sell these investments at a loss and (4) it is more likely than not that the Company will not be required to sell the investments before recovery of the amortized cost basis, which may be at maturity. Accordingly, the Company has concluded that the impairment on these securities is not other-than-temporary.

Gains (Losses) and Proceeds on Sales of Securities

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

	Three-Month Period Ended September 30,					Nine-Month Period Ended September 30,
	2015			2014		2015			2014
	(in thousands)
Proceeds from the sales of available-for-sale securities	$	497,182		$	21,138	$	2,751,790		$	311,019
Gross realized gains	$	533		$	131	$	23,592		$	11,547
Gross realized losses	(2,526		)	—		(5,229		)	(67		)
OTTI	—			—		(1,092		)	—
Net realized (losses)/gains	$	(1,993	)	$	131	$	17,271		$	11,480

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

The net loss realized for the three-month period ended September 30, 2015 was primarily comprised of the sale of corporate debt securities with a book value of $63.7 million for a gain of $0.4 million, and the sale of ABS with a book value of $419.6 million for a loss of $1.4 million. The net gain for the nine-month period ended September 30, 2015 was primarily comprised of the sale of state and municipal securities with a book value of $421.5 million for a gain of $12.1 million, the sale of corporate debt securities with a book value of $517.6 million for a gain of $7.0 million, and the sale of ABS with a book value of $683.9 million for a loss of $0.2 million, offset by OTTI of $1.1 million. The net gain realized for the three-month period ended September 30, 2014 was primarily due to the sale of corporate debt securities with a book value of $88.4 million for a gain of $0.1 million. The net gain realized for the nine-month period ended September 30, 2014 was primarily comprised of the sale of state and municipal securities with a book value of $89.0 million for a gain of $5.2 million, the sale of corporate debt securities with a book value of $434.8 million for a gain of $4.7 million, and the sale of MBS with a book value of $21.6 million for a gain of $1.3 million.

Trading Securities

The Company did not hold any trading securities at September 30, 2015, compared to $833.9 million held at December 31, 2014. Gains and losses on trading securities are recorded within Mortgage banking income, net, in the Company's Condensed Consolidated Statement of Operations as the Company utilized trading securities portfolio to economically hedge the MSR portfolio. The realized activity of trading gains and losses related to trading securities are as follows:

	Three-Month Period Ended September 30,					Nine-Month Period Ended September 30,
	2015		2014			2015		2014
	(in thousands)
Net gains recognized during the period on trading securities	$	—	$	1,899		$	6,391	$	3,386
Less: Net gains recognized during the period on trading securities sold during the period	—		2,047			6,391		3,782
Unrealized losses during the reporting period on trading securities still held at the reporting date	$	—	$	(148	)	$	—	$	(396	)

21

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4. INVESTMENT SECURITIES (continued)

As of September 30, 2015, the Company had no trading securities pledged as collateral. As of September 30, 2014, the Company had trading securities with an estimated fair value of $33.0 million pledged as collateral to secure the Bank's customer overnight sweep product.

Other Investments

Other investments at September 30, 2015 were $999.2 million, compared to $817.0 million at December 31, 2014. Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the Federal Reserve Bank ("FRB") with aggregate carrying amounts of $975.6 million and $817.0 million as of September 30, 2015 and December 31, 2014, respectively. The stocks do not have readily determinable fair values because their ownership is restricted and they lack a market. The stocks can be sold back only at their par value of $100 per share and only to FHLBs or to another member institution. Accordingly, these stocks are carried at cost. During the three-month and nine-month periods endedSeptember 30, 2015, the Company purchased $208.0 million and $447.9 million of FHLB stock at par, respectively, and redeemed $105.4 million and $344.6 million of FHLB stock at par, respectively. The Company also purchased $3.7 million of FRB stock at par during the nine-month period ended September 30, 2015. The Company did not purchase any FRB stock at par during the three-month period ended September 30, 2015. There was no gain or loss associated with these sales. Other investments also include $23.6 million of Low Income Housing Tax Credit Investments as of September 30, 2015.

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

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated)

Overall

The Company's loans are 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 provide for losses inherent in its portfolios. Certain loans are pledged as collateral for borrowings, securitizations, or special purpose entities ("SPEs"). These loans totaled $58.6 billion at September 30, 2015 and $51.7 billion at December 31, 2014.

Loans that the Company intends to sell are classified as loans held-for-sale ("LHFS"). The LHFS portfolio balance at September 30, 2015 was $3.0 billion, compared to $260.3 million at December 31, 2014. LHFS that are residential mortgage portfolio are reported at fair value. All other LHFS are accounted for at the lower of cost or fair value. For a discussion on the valuation of LHFS at fair value, see Note 16 to the Condensed Consolidated Financial Statements. As of September 30, 2015, the Company determined that it no longer intended to hold certain personal lending assets at SCUSA for investment. As a result, $1.9 billion of personal unsecured loans were transferred to held for sale during the third quarter. In connection with this reclassification to held for sale, the Company adjusted the credit loss allowance associated with SCUSA's personal loan portfolio to value the portfolio at the lower of cost or market, and the adjusted credit loss allowance was released through the provision for credit losses; reflected as a charge-off against the credit loss allowance. Future loan originations and purchases under SCUSA’s personal lending platform will also be classified as held for sale.

During the third quarter of 2015, the Company repurchased a portfolio of performing multi-family loans from FNMA for $1.4 billion.

Interest income on loans is accrued based on the contractual interest rate and the principal amount outstanding, except for those loans classified as non-accrual. At September 30, 2015 and December 31, 2014, accrued interest receivable on the Company's loans was $521.9 million and $492.7 million, respectively.

22

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

Loan and Lease Portfolio Composition

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

	September 30, 2015				December 31, 2014
	Amount		Percent		Amount		Percent
	(in thousands)
Commercial loans held for investment:
Commercial real estate loans	$	8,495,182	10.8	%	$	8,739,233	11.5	%
Commercial and industrial loans	19,363,022		24.6	%	17,092,828		22.5	%
Multi-family loans	9,600,527		12.2	%	8,705,890		11.5	%
Other commercial(2)	2,366,742		3.0	%	2,084,232		2.7	%
Total commercial loans held for investment	39,825,473		50.6	%	36,622,183		48.2	%
Consumer loans secured by real estate:
Residential mortgages	6,408,164		8.2	%	6,773,575		8.9	%
Home equity loans and lines of credit	6,159,536		7.8	%	6,211,298		8.2	%
Total consumer loans secured by real estate	12,567,700		16.0	%	12,984,873		17.1	%
Consumer loans not secured by real estate:
Retail installment contracts and auto loans - originated	17,573,943		22.4	%	9,935,503		13.1	%
Retail installment contracts and auto loans - purchased	6,888,523		8.8	%	12,449,526		16.4	%
Personal unsecured loans	644,548		0.8	%	2,696,820		3.5	%
Other consumer(3)	1,083,011		1.4	%	1,306,562		1.7	%
Total consumer loans	38,757,725		49.4	%	39,373,284		51.8	%
Total loans held for investment(1)	$	78,583,198	100.0	%	$	75,995,467	100.0	%
Total loans held for investment:
Fixed rate	$	46,704,335	59.4	%	$	45,109,343	59.4	%
Variable rate	31,878,863		40.6	%	30,886,124		40.6	%
Total loans held for investment(1)	$	78,583,198	100.0	%	$	75,995,467	100.0	%

(1)Total loans held for investment includes deferred loan fees, net of deferred origination costs and unamortized purchase premiums, net of discounts as well as purchase accounting adjustments. These items resulted in a net decrease in loan balances of $269.9 million as of September 30, 2015 and a net decrease in loan balances of $1.5 billion as of December 31, 2014, respectively.

(2)Other commercial primarily includes commercial equipment vehicle funding ("CEVF") leveraged leases and loans.

(3)Other consumer primarily includes recreational vehicles ("RV") and marine loans.

Portfolio segments and classes

GAAP requires that entities disclose information about the credit quality of their financing receivables at disaggregated levels, specifically defined as “portfolio segments” and “classes,” based on management’s systematic methodology for determining the ACL. For this, compared to the financial statement categorization of loans, the Company utilizes an alternate categorization 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.

23

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

The commercial segmentation reflects line of business distinctions. The three commercial real estate lines of business distinctions include “Corporate banking,” which includes commercial and industrial owner-occupied real estate, “Middle market commercial real estate,” which represents the portfolio of 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" loans includes non-real estate-related commercial and industrial loans. "Multi-family" represents loans for multi-family residential housing units. “Other commercial” primarily represents the CEVF business.

The following table reconciles the Company's recorded investment classified by its major loan classifications to its commercial loan classifications utilized in its determination of the allowance for loan losses and other credit quality disclosures at September 30, 2015 and December 31, 2014, respectively:

Commercial Portfolio Segment(2)
Major Loan Classifications(1)	September 30, 2015		December 31, 2014
	(in thousands)
Commercial loans held for investment:
Commercial real estate:
Corporate Banking	$	2,967,780	$	3,218,150
Middle Markets Real Estate	3,965,173		3,743,099
Santander Real Estate Capital	1,562,229		1,777,984
Total commercial real estate	8,495,182		8,739,233
Commercial and industrial loans (3)	19,363,022		17,092,828
Multi-family loans	9,600,527		8,705,890
Other commercial	2,366,742		2,084,232
Total commercial loans held for investment	$	39,825,473	$	36,622,183

(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 allowance for loan and lease losses in accordance with ASC 310-10.

(3) Excludes zero and $19.1 million of Commercial and Industrial LHFS at September 30, 2015 and December 31, 2014, respectively.

The Company's portfolio segments 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. "Retail installment contracts and auto loans" includes the Company's direct automobile loan portfolios, but excludes RV and marine retail installment contracts. "Personal unsecured loans" includes personal revolving loans and credit cards. “Other consumer” includes an acquired portfolio of marine and RV contracts as well as indirect auto loans.

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 discount balance that is expected at the time of charge-off, while it considers the entire 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.

24

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

Consumer Portfolio Segment(2)
Major Loan Classifications(1)	September 30, 2015		December 31, 2014
	(in thousands)
Consumer loans secured by real estate:
Residential mortgages(3)	$	6,408,164	$	6,773,575
Home equity loans and lines of credit	6,159,536		6,211,298
Total consumer loans secured by real estate	12,567,700		12,984,873
Consumer loans not secured by real estate:
Retail installment contracts and auto loans - originated(4)	17,573,943		9,935,503
Retail installment contracts and auto loans - purchased	6,888,523		12,449,526
Personal unsecured loans(5)	644,548		2,696,820
Other consumer	1,083,011		1,306,562
Total consumer loans held for investment	$	38,757,725	$	39,373,284

(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 allowance for loan and lease losses in accordance with ASC 310-10.

(3) Home mortgages exclude $280.8 million and $195.7 million of LHFS at September 30, 2015 and December 31, 2014, respectively.

(4) Retail installment contracts and auto loans exclude $825.8 million and $45.4 million of LHFS at September 30, 2015 and December 31, 2014, respectively.

(5) Personal unsecured loans exclude $1.9 billion of LHFS at September 30, 2015. There were no personal unsecured loans HFS at December 31, 2014.

The RICs and auto loan portfolio is comprised of: (1) RICs originated by SC prior to 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, 2015			December 31, 2014
	(in thousands)
RICs - Purchased:
UPB (1)	$	7,577,731		$	13,366,188
UPB - FVO (2)	195,909			716,923
Total UPB	7,773,640			14,083,111
Purchase Marks (3)	(885,117		)	(1,633,585		)
Total RICs - Purchased	6,888,523			12,449,526
RICs - Originated:
UPB (1)	18,110,589			10,273,931
Net discount	(555,952		)	(367,369		)
Total RICs - Originated	17,554,637			9,906,562
SBNA auto loans	19,306			28,941
Total RICs originated post-change in control	17,573,943			9,935,503
Total RICs and auto loans	$	24,462,466		$	22,385,029

(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 $42.3 million and $130.2 million as of September 30, 2015 and December 31, 2014, respectively, related to purchased loan portfolios on which we elected to apply the FVO.

25

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

ACL Rollforward by Portfolio Segment

The activity in the ACL by portfolio segment for the three-month and nine-month periods ended September 30, 2015 and 2014 was as follows:

	Three-Month Period Ended September 30, 2015
	Commercial			Consumer			Unallocated			Total
	(in thousands)
Allowance for loan and lease losses, beginning of period	$	402,695		$	2,360,366		$	71,592		$	2,834,653
Provision for/ (Recovery of) loan losses	26,337			937,086			(26,258		)	937,165
Charge-offs	(45,467		)	(1,480,645		)	—			(1,526,112		)
Recoveries	25,091			496,347			—			521,438
Charge-offs, net of recoveries	(20,376		)	(984,298		)	—			(1,004,674		)
Allowance for loan and lease losses, end of period	$	408,656		$	2,313,154		$	45,334		$	2,767,144
Reserve for unfunded lending commitments, beginning of period	$	137,641		$	—		$	—		$	137,641
Provision for unfunded lending commitments	—			—			—			—
Loss on unfunded lending commitments	—			—			—			—
Reserve for unfunded lending commitments, end of period	137,641			—			—			137,641
Total allowance for credit losses, end of period	$	546,297		$	2,313,154		$	45,334		$	2,904,785
	Nine-Month Period Ended September 30, 2015
	Commercial			Consumer			Unallocated			Total
	(in thousands)
Allowance for loan losses, beginning of period	$	401,553		$	1,267,025		$	33,024		$	1,701,602
Provision for/ (Recovery of) loan losses	64,491			2,874,254			12,310			2,951,055
Other(1)	—			(27,117		)	—			(27,117		)
Charge-offs	(96,652		)	(3,302,922		)	—			(3,399,574		)
Recoveries	39,264			1,501,914			—			1,541,178
Charge-offs, net of recoveries	(57,388		)	(1,801,008		)	—			(1,858,396		)
Allowance for loan and lease losses, end of period	$	408,656		$	2,313,154		$	45,334		$	2,767,144
Reserve for unfunded lending commitments, beginning of period	$	132,641		$	—		$	—		$	132,641
Provision for unfunded lending commitments	5,000			—			—			5,000
Loss on unfunded lending commitments	—			—			—			—
Reserve for unfunded lending commitments, end of period	137,641			—			—			137,641
Total allowance for credit losses, end of period	$	546,297		$	2,313,154		$	45,334		$	2,904,785
Ending balance, individually evaluated for impairment(2)	$	57,517		$	745,671		$	—		$	803,188
Ending balance, collectively evaluated for impairment	351,139			1,567,483			45,334			1,963,956
Financing receivables:
Ending balance	$	39,825,473		$	41,748,433		$	—		$	81,573,906
Ending balance, evaluated under the fair value option or lower of cost or fair value	—			3,364,866			—			3,364,866
Ending balance, individually evaluated for impairment(2)	367,865			3,771,421			—			4,139,286
Ending balance, collectively evaluated for impairment	39,457,608			34,612,146			—			74,069,754

(1) The "Other" amount represents the impact on the allowance for loan and lease losses in connection with SCUSA classifying approximately $1.0 billion of retail installment contracts ("RICs") as held-for-sale during the first quarter of 2015.

(2) Consumer loans individually evaluated for impairment consists of loans in TDR status

26

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

	Three-Month Period Ended September 30, 2014
	Commercial			Consumer			Unallocated			Total
	(in thousands)
Allowance for loan and lease losses, beginning of period	$	369,893		$	888,761		$	39,001		$	1,297,655
Provision for / (Recovery of) loan losses	25,317			751,850			(10,504		)	766,663
Other(1)	—			(61,220		)	—			(61,220		)
Charge-offs	(28,686		)	(973,284		)	—			(1,001,970		)
Recoveries	8,844			408,754			—			417,598
Charge-offs, net of recoveries	(19,842		)	(564,530		)	—			(584,372		)
Allowance for loan and lease losses, end of period	$	375,368		$	1,014,861		$	28,497		$	1,418,726
Reserve for unfunded lending commitments, beginning of period	$	170,274		$	—		$	—		$	170,274
Provision for unfunded lending commitments	(20,000		)	—			—			(20,000		)
Loss on unfunded lending commitments	(633		)	—			—			(633		)
Reserve for unfunded lending commitments, end of period	149,641			—			—			149,641
Total allowance for credit losses, end of period	$	525,009		$	1,014,861		$	28,497		$	1,568,367
	Nine-Month Period Ended September 30, 2014
	Commercial			Consumer			Unallocated			Total
	(in thousands)
Allowance for loan losses, beginning of period	$	443,074		$	363,647		$	27,616		$	834,337
Provision for / (Recovery of) loan losses	(5,095		)	1,703,103			881			1,698,889
Other(1)	—			(61,220		)	—			(61,220		)
Charge-offs	(81,163		)	(1,729,911		)	—			(1,811,074		)
Recoveries	18,552			739,242			—			757,794
Charge-offs, net of recoveries	(62,611		)	(990,669		)	—			(1,053,280		)
Allowance for loan losses, end of period	$	375,368		$	1,014,861		$	28,497		$	1,418,726
Reserve for unfunded lending commitments, beginning of period	$	220,000		$	—		$	—		$	220,000
Provision for unfunded lending commitments	(65,000		)	—			—			(65,000		)
Loss on unfunded lending commitments	(5,359		)	—			—			(5,359		)
Reserve for unfunded lending commitments, end of period	149,641			—			—			149,641
Total allowance for credit losses, end of period	$	525,009		$	1,014,861		$	28,497		$	1,568,367
Ending balance, individually evaluated for impairment(2)	$	73,074		$	33,513		$	—		$	106,587
Ending balance, collectively evaluated for impairment	302,294			981,348			28,497			1,312,139
Financing receivables:
Ending balance	$	35,683,463		$	39,093,619		$	—		$	74,777,082
Ending balance, evaluated under the fair value option or lower of cost or fair value(1)	19,167			1,284,403			—			1,303,570
Ending balance, individually evaluated for impairment(2)	503,098			1,075,907			—			1,579,005
Ending balance, collectively evaluated for impairment	35,161,198			36,733,309			—			71,894,507

(1) The "Other" amount represents the impact on the allowance for loan and lease losses in connection with the sale of approximately $484 million of troubled debt restructurings ("TDRs") and non-performing loans ("NPLs") classified as held-for-sale during the quarter ended September 30, 2014.

27

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

The following table presents the activity in the Allowance for loan losses for the Retail Installment Contracts acquired ("Purchased") in the Change in Control and those originated by SC subsequent to the Change in Control.

	Three Month Period Ended September 30, 2015						Nine Month Period Ended September 30, 2015
	Purchased		Originated		Total		Purchased		Originated		Total
	(in thousands)						(in thousands)
Allowance for loan and lease losses, beginning of period	542,709		1,219,134		1,761,843		963		709,024		709,987
Provision for / (Release of) loan and lease losses	129,109		686,563		815,672		958,738		1,520,920		2,479,658
Other	—		—		—		(27,117	)	—		(27,117	)
Charge-offs	(328,624	)	(612,318	)	(940,942	)	(1,216,036	)	(1,268,524	)	(2,484,560	)
Recoveries	218,962		251,748		470,710		845,608		583,707		1,429,315
Charge-offs, net of recoveries	(109,662	)	(360,570	)	(470,232	)	(370,428	)	(684,817	)	(1,055,245	)
Allowance for loan and lease losses, end of period	562,156		1,545,127		2,107,283		562,156		1,545,127		2,107,283

	Three Month Period Ended September 30, 2014									Nine Month Period Ended September 30, 2014
	Purchased			Originated			Total			Purchased			Originated			Total
	(in thousands)									(in thousands)
Allowance for loan and lease losses, beginning of period	$	—		$	394,736		$	394,736		$	—		$	—		$	—
Provision for / (Release of) loan and lease losses	240,616			286,784			527,400			540,855			697,158			1,238,013
Other	(9,887		)	—			(9,887		)	(9,887		)	—			(9,887		)
Charge-offs	(557,995		)	(168,008		)	(726,003		)	(1,149,494		)	(189,589		)	(1,339,083		)
Recoveries	327,267			45,716			372,983			618,527			51,659			670,186
Charge-offs, net of recoveries	(230,728		)	(122,292		)	(353,020		)	(530,967		)	(137,930		)	(668,897		)
Allowance for loan and lease losses, end of period	$	1		$	559,228		$	559,229		$	1		$	559,228		$	559,229

28

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Non-accrual loans by Class of Financing Receivable

The recorded investment in non-accrual loans disaggregated by class of financing receivables is summarized as follows:

	September 30, 2015		December 31, 2014
	(in thousands)
Non-accrual loans:
Commercial:
Commercial real estate:
Corporate banking	$	60,450	$	90,579
Middle market commercial real estate	38,605		71,398
Santander real estate capital	3,505		5,803
Commercial and industrial	65,901		54,567
Multi-family	7,319		9,639
Other commercial	4,365		4,136
Total commercial loans	180,145		236,122
Consumer:
Residential mortgages	184,828		231,316
Home equity loans and lines of credit	126,628		142,026
Retail installment contracts and auto loans - originated	538,929		227,132
Retail installment contracts and auto loans - purchased	412,175		755,590
Personal unsecured loans	12,683		14,007
Other consumer	31,242		22,095
Total consumer loans	1,306,485		1,392,166
Total non-accrual loans	1,486,630		1,628,288
Other real estate owned ("OREO")	40,692		65,051
Repossessed vehicles	154,057		126,309
Foreclosed and other repossessed assets	377		11,375
Total OREO and other repossessed assets	195,126		202,735
Total non-performing assets	$	1,681,756	$	1,831,023

29

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

Age Analysis of Past Due Loans

The age of recorded investments in past due loans and accruing loans greater than 90 days past due disaggregated by class of financing receivables is summarized as follows:

	As of September 30, 2015
		30-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables(1)		Recorded Investment > 90 Days and Accruing
	(in thousands)
Commercial:
Commercial real estate:
Corporate banking		$	23,789	$	22,015	$	45,804	$	2,921,976	$	2,967,780	$	—
Middle market commercial real estate		3,964		21,190		25,154		3,940,019		3,965,173		—
Santander real estate capital		659		—		659		1,561,570		1,562,229		—
Commercial and industrial		28,408		38,771		67,179		19,295,843		19,363,022		—
Multi-family		21,830		635		22,465		9,578,062		9,600,527		—
Other commercial		7,656		3,496		11,152		2,355,590		2,366,742		—
Consumer:
Residential mortgages		144,232		155,947		300,179		6,388,749		6,688,928		—
Home equity loans and lines of credit		31,268		80,107		111,375		6,048,161		6,159,536		—
Retail installment contracts and auto loans - originated		1,704,700		168,183		1,872,883		16,526,813		18,399,696		—
Retail installment contracts and auto loans - purchased		1,264,913		111,737		1,376,650		5,511,873		6,888,523		—
Personal unsecured loans		92,965		86,739		179,704		2,349,035		2,528,739		77,528
Other consumer		40,476		40,102		80,578		1,002,433		1,083,011		—
Total		$	3,364,860	$	728,922	$	4,093,782	$	77,480,124	$	81,573,906	$	77,528

(1) Financing receivables include LHFS.

30

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

	As of December 31, 2014
		30-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables(1)		Recorded Investment > 90 Days and Accruing
	(in thousands)
Commercial:
Commercial real estate:
Corporate banking		$	18,363	$	37,708	$	56,071	$	3,162,079	$	3,218,150	$	—
Middle market commercial real estate		3,179		33,604		36,783		3,706,316		3,743,099		—
Santander real estate capital		4,329		2,115		6,444		1,771,540		1,777,984		—
Commercial and industrial		26,778		23,434		50,212		17,061,710		17,111,922		—
Multi-family		13,810		5,512		19,322		8,686,568		8,705,890		—
Other commercial		5,054		1,245		6,299		2,077,933		2,084,232		—
Consumer:
Residential mortgages		165,270		200,818		366,088		6,603,221		6,969,309		—
Home equity loans and lines of credit		36,074		86,749		122,823		6,088,475		6,211,298		—
Retail installment contracts and auto loans - originated		811,912		65,703		877,615		9,103,311		9,980,926		—
Retail installment contracts and auto loans - purchased		2,317,941		202,889		2,520,830		9,928,697		12,449,527		—
Personal unsecured loans		92,905		111,917		204,822		2,491,998		2,696,820		93,152
Other consumer		56,708		31,745		88,453		1,218,109		1,306,562		—
Total		$	3,552,323	$	803,439	$	4,355,762	$	71,899,957	$	76,255,719	$	93,152

(1) Financing receivables include LHFS.

31

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (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, 2015
	Recorded Investment(1)		Unpaid Principal Balance		Related Specific Reserves		Average Recorded Investment
	(in thousands)
With no related allowance recorded:
Commercial:
Commercial real estate:
Corporate banking	$	40,866	$	43,717	$	—	$	39,301
Middle market commercial real estate	79,320		124,268		—		103,556
Santander real estate capital	2,860		2,860		—		2,921
Commercial and industrial	2,721		4,144		—		5,323
Multi-family	4,834		5,864		—		13,663
Other commercial	2,604		2,622		—		1,346
Consumer:
Residential mortgages	20,040		20,040		—		21,724
Home equity loans and lines of credit	22,999		22,999		—		25,115
Retail installment contracts and auto loans - originated	—		—		—		—
Retail installment contracts and auto loans - purchased	92,073		115,026		—		939,599
Personal unsecured loans(2)	14,635		14,635		—		7,614
Other consumer	13,558		16,657		—		9,579
With an allowance recorded:
Commercial:
Commercial real estate:
Corporate banking	33,744		42,396		10,664		46,847
Middle market commercial real estate	36,936		42,635		10,656		48,517
Santander real estate capital	—		—		—		1,939
Commercial and industrial	80,420		89,708		35,285		72,302
Multi-family	5,762		5,767		463		5,871
Other commercial	2,429		2,527		449		2,181
Consumer:
Residential mortgages	139,279		164,278		28,812		135,046
Home equity loans and lines of credit	62,328		73,254		4,832		61,230
Retail installment contracts and auto loans  – Originated	916,385		941,146		293,459		486,449
Retail installment contracts and auto loans - purchased	2,471,369		2,793,045		414,352		1,235,685
Personal unsecured loans	1,660		1,950		496		9,068
Other consumer	15,877		20,639		3,720		16,086
Total:
Commercial	$	292,496	$	366,508	$	57,517	$	343,767
Consumer	3,770,203		4,183,669		745,671		2,947,195
Total	$	4,062,699	$	4,550,177	$	803,188	$	3,290,962

(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.

32

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

The Company recognized interest income, not including the impact of purchase accounting adjustments, of $187.9 million for the nine-month period ended September 30, 2015 on approximately $3.4 billion of TDRs that were in performing status as of September 30, 2015.

	December 31, 2014
	Recorded Investment(1)		Unpaid Principal Balance		Related Specific Reserves		Average Recorded Investment
	(in thousands)
With no related allowance recorded:
Commercial:
Commercial real estate:
Corporate banking	$	37,735	$	40,453	$	—	$	40,610
Middle market commercial real estate	127,792		172,766		—		114,465
Santander real estate capital	2,982		2,982		—		1,867
Commercial and industrial	7,925		17,732		—		10,529
Multi-family	22,492		22,492		—		24,762
Other commercial	88		88		—		44
Consumer:
Residential mortgages	23,408		23,408		—		57,776
Home equity loans and lines of credit	27,230		27,230		—		29,152
Retail installment contracts and auto loans - originated	—		—		—		—
Retail installment contracts and auto loans - purchased	1,787,124		2,040,785		—		893,563
Personal unsecured loans	592		592		—		296
Other consumer	5,600		5,600		—		6,973
With an allowance recorded:
Commercial:
Corporate banking	59,950		66,328		25,322		56,856
Middle market commercial real estate	60,098		66,024		17,004		89,472
Santander real estate capital	3,878		6,356		364		6,630
Commercial and industrial	64,183		72,488		35,848		82,204
Multi-family	5,979		7,076		1,475		8,699
Other commercial	1,932		1,995		688		1,055
Consumer:
Residential mortgages	130,813		156,669		23,628		339,071
Home equity loans and lines of credit	60,132		69,374		5,002		57,516
Retail installment contracts and auto loans - originated	56,513		58,229		16,997		28,258
Retail installment contracts and auto loans - purchased	—		—		—		—
Personal unsecured loans	16,476		16,815		6,508		9,506
Other consumer	16,295		22,812		3,264		16,889
Total:
Commercial	$	395,034	$	476,780	$	80,701	$	437,193
Consumer	2,124,183		2,421,514		55,399		1,439,000
Total	$	2,519,217	$	2,898,294	$	136,100	$	1,876,193

(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.

The Company recognized interest income of $115.5 million for the year ended December 31, 2014 on approximately $2.0 billion of TDRs that were returned to performing status as of December 31, 2014.

33

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

Commercial Lending Asset Quality Indicators

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

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

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

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

DOUBTFUL. Exhibits the inherent weaknesses of a substandard credit. Additional characteristics 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:

	Commercial Real Estate
September 30, 2015	Corporate banking		Middle market commercial real estate		Santander real estate capital		Commercial and industrial		Multi-family		Remaining commercial		Total(1)
	(in thousands)
Regulatory Rating:
Pass	$	2,623,982	$	3,765,920	$	1,392,754	$	18,529,081	$	9,333,083	$	2,320,236	$	37,965,056
Special Mention	118,536		48,842		121,441		374,448		195,710		29,950		888,927
Substandard	215,912		127,213		47,375		429,623		71,301		16,251		907,675
Doubtful	9,350		23,198		659		29,870		433		305		63,815
Total commercial loans	$	2,967,780	$	3,965,173	$	1,562,229	$	19,363,022	$	9,600,527	$	2,366,742	$	39,825,473

(1) Financing receivables include LHFS.

	Commercial Real Estate
December 31, 2014	Corporate banking		Middle market commercial real estate		Santander real estate capital		Commercial and industrial		Multi-family		Remaining commercial		Total(1)
	(in thousands)
Regulatory Rating:
Pass	$	2,910,957	$	3,472,448	$	1,564,983	$	16,495,836	$	8,533,427	$	2,064,947	$	35,042,598
Special Mention	83,122		61,166		133,950		237,331		131,677		8,475		655,721
Substandard	192,911		174,882		76,232		358,782		40,355		10,311		853,473
Doubtful	31,160		34,603		2,819		19,973		431		499		89,485
Total commercial loans	$	3,218,150	$	3,743,099	$	1,777,984	$	17,111,922	$	8,705,890	$	2,084,232	$	36,641,277

(1) Financing receivables include LHFS.

34

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

Consumer Lending Asset Quality Indicators-Credit Score

Consumer financing receivables for which credit score is a core component of the allowance model are summarized by credit score as follows:

September 30, 2015
Credit Score Range(2)	Retail installment contracts and auto loans(3)		Percent		Personal unsecured loans balance(3)		Percent
	(in thousands)
<600	$	12,961,005	51.3	%	$	405,059	16.0	%
600-639	4,105,660		16.2	%	406,943		16.1	%
>=640	3,059,119		12.1	%	1,071,993		42.4	%
N/A(1)	5,162,435		20.4	%	644,744		25.5	%
Total	$	25,288,219	100.0	%	$	2,528,739	100.0	%

(1) Consists primarily of loans for which credit scores are not considered in the ALLL model.

(2) Credit scores updated quarterly.

(3) RICs and Personal unsecured loans include $825.8 million and $1.9 billion, respectively of LHFS at September 30, 2015 that do not have an allowance.

December 31, 2014
Credit Score Range(2)	Retail installment contracts and auto loans(3)		Percent		Personal unsecured loans balance		Percent
	(in thousands)
<600	$	11,669,878	52.0	%	$	491,984	18.2	%
600-639	4,046,452		18.0	%	446,995		16.6	%
640-679	4,046,452		18.0	%	1,163,203		43.1	%
680-719	—		—	%	64,610		2.4	%
720-759	—		—	%	72,235		2.7	%
>=760	—		—	%	78,234		2.9	%
N/A(1)	2,667,671		12.0	%	379,559		14.1	%
Total	$	22,430,453	100.0	%	$	2,696,820	100.0	%

(1) Consists primarily of loans for which credit scores are not considered in the ALLL model.

(2) Credit scores updated quarterly.

(3) RICs include $45.4 million of LHFS at December 31, 2014 that do not have an allowance.

35

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

Consumer Lending Asset Quality Indicators-FICO and Combined Loan-to-Value ("CLTV")

Residential mortgage and home equity financing receivables by CLTV range are summarized as follows:

	Residential Mortgages
September 30, 2015	N/A		LTV<=70%		70.01-80%		80.01-90%		90.01-100%		100.01-110%		LTV>110%		Grand Total
	(in thousands)
N/A	$	511,932	$	12,469	$	1,911	$	—	$	—	$	—	$	—	$	526,312
<600	133		235,909		74,340		32,482		17,798		10,463		9,814		380,939
600-639	1		163,673		47,512		24,478		16,017		5,629		8,704		266,014
640-679	237		259,330		84,767		35,774		29,088		10,259		13,600		433,055
680-719	21		487,624		183,363		65,314		45,454		11,277		27,042		820,095
720-759	344		711,855		322,421		76,584		52,347		12,440		22,610		1,198,601
>=760	87		2,109,059		725,490		120,411		61,042		22,409		25,414		3,063,912
Grand Total	$	512,755	$	3,979,919	$	1,439,804	$	355,043	$	221,746	$	72,477	$	107,184	$	6,688,928

	Home Equity Loans and Lines of Credit
September 30, 2015	N/A		LTV<=70%		70.01-90%		90.01-110%		LTV>110%		Grand Total
	(in thousands)
N/A	$	199,048	$	1,388	$	909	$	62	$	—	$	201,407
<600	11,964		149,242		80,251		25,356		23,108		289,921
600-639	9,447		140,744		81,919		20,422		18,578		271,110
640-679	11,194		246,235		173,486		35,345		26,511		492,771
680-719	13,692		430,783		323,493		54,890		31,492		854,350
720-759	13,473		606,189		436,434		75,449		46,248		1,177,793
>=760	29,329		1,603,426		1,018,991		142,533		77,905		2,872,184
Grand Total	$	288,147	$	3,178,007	$	2,115,483	$	354,057	$	223,842	$	6,159,536

	Residential Mortgages
December 31, 2014	N/A		LTV<=70%		70.01-80%		80.01-90%		90.01-100%		100.01-110%		LTV>110%		Grand Total
	(in thousands)
N/A	$	437,215	$	14,801	$	643	$	8,676	$	14,934	$	—	$	—	$	476,269
<600	94		279,197		91,037		41,341		17,271		15,017		16,327		460,284
600-639	200		154,557		50,238		25,861		13,218		6,337		13,446		263,857
640-679	—		303,319		87,055		40,863		26,618		11,456		19,530		488,841
680-719	25		528,979		161,023		66,898		40,456		11,503		34,473		843,357
720-759	314		758,315		271,983		80,077		42,872		16,344		39,927		1,209,832
>=760	124		2,328,907		633,004		132,640		60,434		29,738		42,022		3,226,869
Grand Total	$	437,972	$	4,368,075	$	1,294,983	$	396,356	$	215,803	$	90,395	$	165,725	$	6,969,309

36

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

	Home Equity Loans and Lines of Credit
December 31, 2014	N/A		LTV<=70%		70.01-90%		90.01-110%		LTV>110%		Grand Total
	(in thousands)
N/A	$	217,607	$	2,265	$	863	$	336	$	148	$	221,219
<600	13,543		158,712		69,381		24,069		20,989		286,694
600-639	9,748		154,887		76,431		23,410		14,118		278,594
640-679	14,717		279,397		157,214		38,057		25,117		514,502
680-719	15,984		488,982		272,083		56,560		33,714		867,323
720-759	15,643		672,971		381,828		64,993		45,810		1,181,245
>=760	36,962		1,736,574		885,774		125,773		76,638		2,861,721
Grand Total	$	324,204	$	3,493,788	$	1,843,574	$	333,198	$	216,534	$	6,211,298

For both residential mortgage and home equity loans, loss severity assumptions are incorporated in the loan loss reserve models to estimate loan balances that will ultimately charge-off. These assumptions are based on recent loss experience within various current CLTV bands within 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 allowance for loan losses 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 on a recurring basis 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, default servicing decisions, or when other situations arise for which the Company believes the additional expense is warranted.

Troubled Debt Restructurings

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

	September 30, 2015		December 31, 2014
	(in thousands)
Performing	$	3,428,202	$	2,041,653
Non-performing	522,628		343,522
Total	$	3,950,830	$	2,385,175

Commercial Loan TDRs

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

37

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

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") 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 retail installment contracts and autos, the terms of the modifications generally include one or a combination of the following: a reduction of the stated interest rate of the loan at a rate of interest lower than the current market rate for new debt with similar risk or an extension of the maturity date.

Consumer 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). Any loan that has remained current for the six months immediately prior to modification will remain on accrual status after the modification is enacted. Exceptions to this policy include retail installment contracts, which may begin accruing as soon as they are made current. The TDR classification will remain on the loan until it is paid in full or liquidated.

In addition to those identified as TDRs above, the guidance also requires loans discharged under Chapter 7 bankruptcy to be considered TDRs and collateral-dependent, regardless of delinquency status. These loans must be written down to fair market value and classified as non-accrual/non-performing for the remaining life of the loan. During the quarter ended September 30, 2015, the Company reassessed its TDR definition and has determined that certain modifications should not be reported as a TDR.  An example of that are retail installment contracts that have received modifications under the Service members Civil Relief Act (the "SCRA"). The inclusion of these modified loans were not material to prior periods.

TDR Impact to Allowance for Loan Losses

The allowance for loan losses 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, 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 such 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 using the effective interest rate or fair value of collateral. The amount of the required valuation allowance is equal to the difference between the loan’s impaired value and the recorded investment.

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

Typically, commercial loans whose terms are modified 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 its estimated cost to sell. Accordingly, upon TDR modification or if a TDR modification subsequently defaults, the allowance methodology remains unchanged.

38

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

Financial Impact and TDRs by Concession Type

The following tables detail the activity of TDRs for the three-month and nine-month periods ended September 30, 2015 and September 30, 2014, respectively:

	Three-Month Period Ended September 30, 2015
	Number of Contracts	Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(2)
	(in thousands)
Commercial:
Commercial real estate:
Corporate Banking	—	$	—	$	—
Middle market commercial real estate	—	—		—
Santander real estate capital	—	—		—
Commercial and industrial	210	6,818		6,816
Multi-family	—	—		—
Other commercial	—	—		—
Consumer:
Residential mortgages(3)	25	3,758		4,028
Home equity loans and lines of credit	31	2,581		2,992
Retail installment contracts and auto loans - originated	23,726	447,622		447,362
Retail installment contracts and auto loans - purchased	33,436	446,122		445,189
Personal unsecured loans	4,058	4,894		4,870
Other consumer	3	310		328
Total	61,489	$	912,105	$	911,585
	Nine-Month Period Ended September 30, 2015
	Number of Contracts	Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(2)
	(in thousands)
Commercial:
Commercial real estate:
Corporate Banking	12	$	11,673	$	13,227
Middle market commercial real estate	1	14,439		14,439
Santander real estate capital	—	—		—
Commercial and industrial	418	21,941		19,226
Multi-family	—	—		—
Other commercial	—	—		—
Consumer:
Residential mortgages(3)	114	17,929		18,765
Home equity loans and lines of credit	92	7,274		8,281
Retail installment contracts and auto loans - originated	50,252	957,309		956,871
Retail installment contracts and auto loans - purchased	152,943	2,120,303		2,115,473
Personal unsecured loans	13,217	15,774		15,685
Other consumer	20	1,441		1,484
Total	217,069	$	3,168,083	$	3,163,451

(1) Pre-modification outstanding recorded investment amount is the month-end balance prior to the month the modification occurred.

(2) Post-modification outstanding recorded investment amount is the month-end balance for the month that the modification occurred.

(3) The post-modification outstanding recorded investment amounts for residential mortgages exclude interest reserves.

39

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

	Three-Month Period Ended September 30, 2014
	Number of Contracts	Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(2)
	(in thousands)
Commercial:
Commercial real estate:
Corporate banking	2	$	16,739	$	16,615
Middle markets commercial real estate	2	19,024		19,024
Commercial and industrial	26	769		769
Other commercial	2	1,456		1,445
Consumer:
Residential mortgages(3)	65	13,096		13,444
Home equity loans and lines of credit	32	2,813		2,813
Retail installment contracts and auto loans - originated	318	6,102		6,063
Retail installment contracts and auto loans - purchased	40,331	554,184		551,689
Personal unsecured loans	5,653	6,284		6,311
Other consumer	2	124		124
Total	46,433	$	620,591	$	618,297
	Nine-Month Period Ended September 30, 2014
	Number of Contracts	Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(2)
	(in thousands)
Commercial:
Commercial real estate:
Corporate banking	23	$	70,017	$	68,656
Middle markets commercial real estate	5	28,963		25,851
Commercial and industrial	35	988		988
Other commercial	5	2,503		2,472
Consumer:
Residential mortgages	222	41,830		42,510
Home equity loans and lines of credit	86	7,991		7,991
Retail installment contracts and auto loans - originated	346	6,698		6,655
Retail installment contracts and auto loans - purchased	65,415	838,856		831,288
Personal unsecured loans	10,542	11,618		11,457
Other consumer	7	536		537
Total	76,686	$	1,010,000	$	998,405

(1) Pre-modification outstanding recorded investment amount is the month-end balance prior to the month the modification occurred.

(2) Post-modification outstanding recorded investment amount is the month-end balance for the month that the modification occurred.

(3) The post-modification outstanding recorded investment amounts for residential mortgages exclude interest reserves.

40

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES (As Restated) (continued)

TDRs Which Have Subsequently Defaulted

A TDR is generally considered to have subsequently defaulted if, after modification, the loan becomes 90 days past due. For retail installment contracts, a TDR is considered to have subsequently defaulted after modification at the earlier of the date of repossession or 120 days past due. The following table details TDRs that became TDRs during the past twelve-month period and have subsequently defaulted during the three-month and nine-month periods ended September 30, 2015 and September 30, 2014, respectively.

	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2015			2014			2015			2014
	Number of Contracts	Recorded Investment(1)		Number of Contracts	Recorded Investment(1)		Number of Contracts	Recorded Investment(1)		Number of Contracts	Recorded Investment(1)
	(in thousands)
Commercial
Commercial and industrial	10	$	357	—	$	—	32	$	1,043	—	$	—
Consumer:
Residential mortgages	2	486		1	298		15	2,307		22	2,993
Home equity loans and lines of credit	3	728		1	65		14	1,665		3	377
Retail installment contracts and auto loans	15,416	241,952		1,528	19,737		37,252	568,756		2,018	25,105
Unsecured loans	871	1,011		820	861		3,422	3,681		1,089	1,139
Other consumer	—	—		—	—		2	244		1	27
Total	16,302	$	244,534	2,350	$	20,961	40,737	$	577,696	3,133	$	29,641

(1) The recorded investment represents the period-end balance at September 30, 2015 and 2014. Does not include Chapter 7 bankruptcy TDRs.

NOTE 6. LEASED VEHICLES, NET (As Restated)

The Company has operating leases that are included in the Company's Condensed Consolidated Balance Sheets as Leased vehicles, net. The leased vehicle portfolio consists primarily of leases originated under a ten-year private label financing agreement signed by SCUSA with the Chrysler Group LLC (the "Chrysler Group") to be a preferred lender (the "Chrysler Agreement").

Leased vehicles, net consisted of the following as of September 30, 2015 and December 31, 2014:

	September 30, 2015			December 31, 2014
	(in thousands)
Leased vehicles	$	10,645,278		$	8,255,912
Origination fees and other costs	30,740			20,628
Manufacturer subvention payments	(1,046,555		)	(834,669		)
	9,629,463			7,441,871
Less: accumulated depreciation	(1,557,268		)	(817,901		)
Total Leased Vehicles, net	$	8,072,195		$	6,623,970

41

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6. LEASED VEHICLES, NET (As Restated) (continued)

For the nine-month period ended September 30, 2015, the Company, executed bulk sales of leases originated under the Chrysler Capital program ("Chrysler Capital"), the trade name used in providing services under the ten-year private label financing agreement SCUSA signed with the Chrysler Group, with depreciated net capitalized costs of $1.3 billion, respectively, and a net book value of $1.2 billion, to a third party. There were no bulk sales of leases during the three-month period ended September 30, 2015. The bulk sales agreements included certain provisions under which SCUSA agreed to share in residual losses for lease terminations with losses over a specific percentage threshold. SCUSA retained servicing on the leases sold. Due to the accelerated depreciation permitted for tax purposes, these sales generated large taxable gains that SCUSA has deferred through a qualified like-kind exchange program. In order to qualify for this deferral, the proceeds from the sales (along with the proceeds from recent lease terminations for which SCUSA also intends to defer the taxable gain) are held in a qualified exchange account, which is classified as restricted cash, until reinvested in new lease originations. Any taxable gains that do not qualify for deferral will be recognized upon expiration of the reinvestment period.

The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of September 30, 2015 (in thousands):

	As Restated
Remainder of 2015	$	363,333
2016	1,319,342
2017	800,873
2018	183,908
2019	840
Thereafter	—
Total	$	2,668,296

NOTE 7. VARIABLE INTEREST ENTITIES (As Restated)

The Company transfers retail installment contracts and leases into newly-formed Trusts that then issue one or more classes of notes payable backed by collateral. The Company’s continuing involvement with the Trusts is in the form of servicing assets held by the Trusts and, generally, through holding residual interests in the Trusts. These transactions are structured without recourse. The Trusts are considered VIEs under GAAP and, when the Company holds the residual interest, are consolidated because the Company has: (a) power over the significant activities of the entity as servicer of its financial assets and (b) residual interest and, in some cases of debt securities held by the Company, an obligation to absorb losses or the right to receive benefits from the VIE which are potentially significant to the VIE. When the Company does not retain any debt or equity interests in its securitizations or subsequently sells such interests it records these transactions as sales of the associated retail installment contracts.

Revolving credit facilities generally also utilize Trusts that are considered VIEs. The collateral, borrowings under credit facilities and securitization notes payable of the Company's consolidated VIEs remain on the Company's Condensed Consolidated Balance Sheets. The Company recognizes finance charges and fee income on the retail installment contracts and leased vehicles and interest expense on the debt, and records a provision for loan losses to cover probable inherent losses on the contracts. All of the Trusts are separate legal entities and the collateral and other assets held by these subsidiaries are owned by them and not available to other creditors.

42

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7. VARIABLE INTEREST ENTITIES (As Restated) (continued)

SCUSA also uses a titling trust to originate and hold its leased vehicles and the associated leases, in order 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 lease vehicles. This titling trust is considered a VIE.

On-balance sheet variable interest entities

The following table summarizes the assets and liabilities related to the above mentioned VIEs that are included in the Company's Condensed Consolidated Financial Statements as of the date indicated:

	September 30, 2015		December 31, 2014
	(in thousands)
Assets
Restricted cash	$	1,756,312	$	1,626,257
Loans(1)	23,354,692		20,557,168
Leased vehicles, net	6,062,106		4,848,593
Various other assets	587,590		555,108
Total Assets	$	31,760,700	$	27,587,126
Liabilities
Notes payable	$	30,461,521	$	27,892,669
Various other liabilities	83,815		55,795
Total Liabilities	30,545,336		27,948,464

(1)Includes $1.6 billion of RICs held for sale at September 30, 2015.

The Company retains servicing responsibility for receivables transferred to the Trusts and receives a monthly servicing fee on the outstanding principal balance. Supplemental fees, such as late charges, for servicing the receivables are reflected in miscellaneous income. As of September 30, 2015 and December 31, 2014, the Company was servicing $26.9 billion and $23.2 billion, respectively, of retail installment contracts that have been transferred to consolidated Trusts. The remainder of the Company’s retail installment contracts remains unpledged.

Below is a summary of the cash flows received from the Trusts for the period indicated:

	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,		Period from January 28, 2014 to September 30,
	2015		2014		2015		2014
	(in thousands)
Receivables securitized	$	4,761,341	$	3,166,785	$	14,828,478	$	10,499,489
Net proceeds from new securitizations	3,840,369		2,592,845		11,816,224		8,814,810
Cash received for servicing fees	182,960		164,325		518,563		417,838
Cash received upon release from reserved and restricted cash accounts	—		—		—		—
Net distributions from Trusts	486,377		468,207		1,558,772		1,315,164
Total cash received from securitization trusts	$	4,509,706	$	3,225,377	$	13,893,559	$	10,547,812

43

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7. VARIABLE INTEREST ENTITIES (As Restated) (continued)

Off-balance sheet variable interest entities

The Company has completed sales to VIEs that met sale accounting treatment in accordance with the applicable guidance. Due to the nature, purpose, and activity of these transactions, the Company determined for consolidation purposes that it either does not hold potentially significant variable interests or is not the primary beneficiary as a result of the Company's limited further involvement with the financial assets. For such transactions, the transferred financial assets are removed from the Company's Condensed Consolidated Balance Sheets. In certain situations, the Company remains the servicer of the financial assets and receives servicing fees that represent adequate compensation. The Company also recognizes a gain or loss in the amount of the difference between the cash proceeds and carrying value of the assets sold.

During the three-month and nine-month periods ended September 30, 2015, the Company sold zero and $768.6 million of gross RICs in an off-balance sheet securitization. For the three-month period ended September 30, 2014, and the period from January 28, 2014 to September 30, 2014, the company sold $1.0 billion and $1.8 billion of gross RICs in off-balance sheet securitizations, respectively, for a gain of approximately $39.1 million and $71.6 million, respectively.

As of September 30, 2015 and December 31, 2014, the Company was servicing $2.2 billion and $2.2 billion, respectively, of gross RICs that have been sold in the off-balance sheet Chrysler Capital securitizations. As of September 30, 2014, the Company was servicing $2.4 billion of gross RICs that have been sold in these off-balance sheet Chrysler Capital securitizations. 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 Trusts for the periods indicated is as follows:

	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,		Period from January 28, 2014 to September 30,
	2015		2014		2015		2014
	(in thousands)
Receivables securitized	$	—	$	1,028,278	$	768,561	$	1,802,461
Net proceeds from new securitizations	$	—	$	1,078,202	$	785,983	$	1,894,052
Cash received for servicing fees	5,955		3,925		17,578		10,897
Total cash received from securitization trusts	$	5,955	$	1,082,127	$	803,561	$	1,904,949

During the three months ended September 30, 2015, the Company settled a transaction to sell its residual interests in certain Trusts and certain retained bonds in those Trusts to an unrelated third party. The Company received cash proceeds of $661.7 million for the three-month period ended September 30, 2015 related to the sale of these residual interests and retained bonds. The Company retained an investment in the notes issued by one of these SDART trusts with a carrying value of $5.6 million, which also approximated fair value on the date of settlement.

Each of these Trusts was previously determined to be a VIE. Prior to the sale of these residual interests, the associated Trusts were consolidated by the Company because the Company held a variable interest in each VIE and had determined that it was the primary beneficiary of the VIE. Although the Company will continue to service the loans in the associated Trusts and, therefore, will have the power to direct the activities that most significantly impact the economic performance of the Trusts, the Company concluded that it was no longer the primary beneficiary of the Trusts upon the sale of its residual interests. As a result, the Company deconsolidated the assets and liabilities of the corresponding Trusts upon their sale.

Upon settlement of these transactions in the third quarter of 2015, the Company de-recognized $1.9 billion in assets and $1.2 billion in notes payable and other liabilities of the trust. During the three-month period ended September 30, 2015, the Company received cash of $5.9 million for servicing fees from the related trusts that were de-consolidated.

44

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8. GOODWILL AND OTHER INTANGIBLES (As Restated)

Goodwill

The following table presents activity in the Company's goodwill by its reportable segments for the nine-month period ended September 30, 2015:

	Retail Banking			Auto Finance & Business Banking(2)		Real Estate and Commercial Banking			Global Corporate Banking(1)		SCUSA		Total
	(in thousands)
Goodwill at December 31, 2014	$	1,815,729		$	71,522	$	1,406,048		$	131,130	$	5,527,055	$	8,951,484
Disposals during the period	—			—		—			—				—
Additions during the period	—			—		—			—		—		—
Re-allocations during the period	(265,553		)	374,546		(108,993		)	—		—		—
Goodwill at September 30, 2015	$	1,550,176		$	446,068	$	1,297,055		$	131,130	$	5,527,055	$	8,951,484

(1) The Global Corporate Banking ("GCB") was formerly designated as the Global Corporate Banking & Market & Large Corporate Banking segment and was renamed during the third quarter of 2015.

(2) The Auto Finance & Business Banking was formerly designated as the Auto Finance and Alliances segment and was renamed during the third quarter of 2015.

The Company evaluates goodwill for impairment at least annually, or more frequently as required by events and circumstances. For the purposes of testing goodwill for impairment, goodwill is assigned to reporting units, which are operating segments or one level below an operating segment, as of the acquisition date. The fair value of the Company's reporting unit is determined by using discounted cash flow ("DCF") and market comparability methodologies.

The goodwill for the SCUSA reporting unit, as restated at December 31, 2014, reflects an increase of $59.5 million from the restatement as a result of the increased value of the SCUSA business at acquisition.

In connection with these and other organizational changes discussed in Note 17, the Company engaged a valuation consultant to assist with the re-allocation of goodwill across its reporting units based on the fair value of the lines of business affected by the re-organization. The Company’s accounting policy provides that changes in segment reporting are point in time reporting events, which would only require (where practicable) a retrospective change in the segments’ financial information. Accordingly, this change does not impact the disclosure of the Company's goodwill by reportable segment within its consolidated financial statements for periods prior to the segment changes.

45

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8. GOODWILL AND OTHER INTANGIBLES (As Restated) (continued)

Other Intangible Assets

The following table details amounts related to the Company's finite-lived and indefinite-lived intangible assets for the dates indicated.

	September 30, 2015					December 31, 2014
	Net Carrying Amount		Accumulated Amortization			Net Carrying Amount		Accumulated Amortization
	(in thousands)
Intangibles subject to amortization:
Dealer networks	$	514,643	$	(65,357	)	$	544,054	$	(35,946	)
Chrysler relationship	113,750		(25,000		)	125,000		(13,750		)
Core deposit intangibles	1,830		(294,012		)	7,779		(288,063		)
Other intangibles	6,234		(23,675		)	8,655		(21,253		)
Total intangibles subject to amortization	636,457		(408,044		)	685,488		(359,012		)
Intangibles not subject to amortization:
Trade name	21,500		—			21,500		—
Total Intangibles	$	657,957	$	(408,044	)	$	706,988	$	(359,012	)

Amortization expense on intangible assets for the three-month and nine-month periods ended September 30, 2015 was $15.9 million and $49.0 million, respectively, compared to $17.7 million and $50.7 million for the corresponding periods in 2014.

During the fourth quarter of 2014, the Company's intangible impairment analysis concluded that the estimated fair value of the indefinite-lived trade name was lower than its carrying value. As a result, the Company recorded an impairment charge of $28.5 million.

The estimated aggregate amortization expense related to intangibles for each of the five succeeding calendar years ending December 31 is:

Year	Calendar Year Amount		Recorded To Date		Remaining Amount To Record
	(in thousands)
2015	$	64,432	$	49,031	$	15,401
2016	57,162		—		57,162
2017	55,055		—		55,055
2018	54,702		—		54,702
2019	54,501		—		54,501
Thereafter	399,636		—		399,636

46

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9. OTHER ASSETS (As Restated)

The following is a detail of items that comprise other assets at September 30, 2015 and December 31, 2014:

	September 30, 2015		December 31, 2014
	(in thousands)
Income tax receivables	$	604,929	$	938,222
Derivative assets at fair value	415,409		366,061
Other repossessed assets	154,434		136,305
MSRs, at fair value	143,535		145,047
Prepaid expenses	151,017		159,198
OREO	40,692		65,051
Miscellaneous assets and receivables	434,772		1,059,696
Total other assets	$	1,944,788	$	2,869,580

Refer to Note 11 to the Condensed Consolidated Financial Statements for further details about derivative assets.

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

Miscellaneous assets and receivables includes, but is not limited to, subvention receivables in connection with the Chrysler Agreement, investment and capital market receivables, and unapplied payments.

Mortgage Servicing Rights

The Company maintains an MSR asset for sold residential real estate loans serviced for others. At both September 30, 2015 and December 31, 2014, the balance of these loans serviced for others was $15.9 billion. The Company accounts for residential MSRs using the FVO. Changes in fair value are recorded through the Condensed Consolidated Statements of Operations. The fair value of the MSRs at September 30, 2015 and December 31, 2014 was $143.5 million and $145.0 million, respectively. See further discussion on the valuation of the MSRs in Note 16. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase mortgage-backed securities ("MBS"). See further discussion on these derivative activities in Note 11 to these Condensed Consolidated Financial Statements.

For the three-month and nine-month periods endedSeptember 30, 2015, the Company recorded net changes in the fair value of MSRs totaling $(13.5) million and 0.7 million, respectively, compared to $(2.7) million and $(14.1) million for the corresponding periods of 2014. The MSR asset fair value decrease during the third quarter of 2015 was primarily the result of decreased interest rates.

The following table presents a summary of year to date activity for the Company's residential MSRs that are included in the Condensed Consolidated Balance Sheet.

	Nine-Month Period Ended
	September 30, 2015			September 30, 2014
	(in thousands)
Fair value at beginning of period	$	145,047		$	141,787
Mortgage servicing assets recognized	17,124			20,081
Principal reductions	(19,385		)	(15,999		)
Change in fair value due to valuation assumptions	749			(14,078		)
Fair value at end of period	$	143,535		$	131,791

Multi-family

Historically, the Company originated and sold multi-family loans in the secondary market to FNMA while retaining servicing. The Company has not sold multi-family loans to FNMA since 2009. At September 30, 2015 and December 31, 2014, the Company serviced $589.7 million and $2.6 billion, respectively, of loans for FNMA.

47

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9. OTHER ASSETS (As Restated) (continued)

Fee income and gain/loss on sale of mortgage loans

Included in Mortgage banking income, net on the Condensed Consolidated Statement of Operations was mortgage servicing fee income of $11.1 million and $33.6 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $10.5 million and $31.7 million for the corresponding periods ended September 30, 2014. The Company had gains on sales of mortgage loans of $5.2 million and $28.7 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to gains of $90.9 million and $104.7 million for the corresponding periods ended September 30, 2014.

NOTE 10. BORROWINGS

Total borrowings and other debt obligations at September 30, 2015 were $48.4 billion, compared to $39.7 billion at December 31, 2014. The Company's debt agreements impose certain limitations on dividends and other payments and 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. The Company did not repurchase any outstanding borrowings during the nine-month period ended September 30, 2015. During the nine-month period ended September 30, 2014, the Company repurchased $0.6 million of outstanding borrowings in the open market.

On January 12, 2015, the Bank completed the offer and sale of $750.0 million in aggregate principal amount of its 2.00% Senior Notes due 2018 and $250.0 million in aggregate principal amount of its Senior Floating Rate Notes due 2018. On April 17, 2015, the Company completed the public offer and sale of $1.0 billion in aggregate principal amount of 2.65% Senior Notes due 2020. On July 17, 2015, the Company completed the public offer and sale of $1.1 billion aggregate principal amount of 4.50% Senior Notes due 2025.

The following table presents information regarding the Holding Company's borrowings and other debt obligations at the dates indicated:

	September 30, 2015				December 31, 2014
	Balance		Effective Rate		Balance		Effective Rate
	(dollars in thousands)
3.00% senior notes, due September 2015	$	—	—	%	$	598,788	3.28	%
4.625% senior notes, due April 2016	475,467		4.85	%	474,718		4.85	%
3.45% senior notes, due August 2018	497,604		3.62	%	497,025		3.62	%
2.65% senior notes, due April 2020	992,211		2.83	%	—		—	%
4.50% senior notes, due July 2025	1,093,824		4.57	%	—		—	%
Junior subordinated debentures - Capital Trust VI, due June 2036	69,768		7.91	%	69,751		7.91	%
Common securities - Capital Trust VI	10,000		7.91	%	10,000		7.91	%
Junior subordinated debentures - Capital Trust IX, due July 2036	149,397		2.09	%	149,375		2.04	%
Common securities - Capital Trust IX	4,640		2.09	%	4,640		2.04	%
Total holding company borrowings and other debt obligations	$	3,292,911	3.91	%	$	1,804,297	3.89	%

48

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10. BORROWINGS (continued)

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

	September 30, 2015				December 31, 2014
	Balance		Effective Rate		Balance		Effective Rate
	(dollars in thousands)
2.00% senior notes, due January 2018	$	745,485	2.27	%	$	—	—	%
Senior notes, due January 2018(1)	249,187		1.31	%	—		—	%
8.750% subordinated debentures, due May 2018	498,008		8.92	%	497,530		8.92	%
FHLB advances, maturing through August 2018	13,335,000		1.36	%	9,455,000		2.06	%
Subordinated term loan, due February 2019	130,678		6.15	%	139,180		6.00	%
REIT (2) preferred, due May 2020	154,550		13.54	%	153,417		13.64	%
Subordinated term loan, due August 2022	30,867		7.89	%	31,428		7.77	%
Total Bank borrowings and other debt obligations	$	15,143,775	1.83	%	$	10,276,555	2.64	%

(1) These notes will bear interest at a rate equal to the three-month London Interbank Offered Rate ("LIBOR") plus 93 basis points per annum.

(2) Real estate investment trust ("REIT")

Revolving Credit Facilities

The following tables present information regarding SCUSA's credit facilities as of September 30, 2015 and December 31, 2014:

	September 30, 2015
	Balance		Effective Rate		Assets Pledged		Restricted Cash Pledged
	(dollars in thousands)
Warehouse line, maturing on various dates(1)	$	698,715	1.26	%	$	1,001,601	$	39,046
Warehouse line, maturing on various dates(2)	1,087,977		1.36	%	1,565,626		55,126
Warehouse line, due October 2015(3)	199,680		2.10	%	261,042		9,433
Warehouse line, due June 2016	397,021		1.18	%	544,546		—
Warehouse line, due November 2016(4)	175,000		1.76	%	—		—
Warehouse line, due November 2016(4)	250,000		1.76	%	—		2,501
Warehouse line, due March 2017	510,899		0.94	%	752,083		22,528
Warehouse line, due July 2017(5)	874,320		1.18	%	1,006,388		34,531
Warehouse line, due July 2017(6)	1,608,643		1.17	%	2,481,681		30,818
Repurchase facility, due December 2015(7)	851,929		1.87	%	1,966		37,844
Line of credit with related party, due December 2016(8)	500,000		2.51	%	—		—
Line of credit with related party, due December 2016(8)	1,750,000		2.48	%	—		—
Line of credit with related party, due December 2018(8)	975,000		2.89	%	—		—
Total SCUSA revolving credit facilities	$	9,879,184	1.76	%	$	7,614,933	$	231,827

(1) Half of the outstanding balance on this facility matures in March 2016 and half matures in March 2017.

(2) In December 2016, $500.0 million of the total revolving commitment under this warehouse line will expire, at which time any utilized balance attributable to that portion of the commitment will become an amortizing obligation; the remainder of the commitment of $2.0 billion matures in June 2017.

(3) This line is held exclusively for personal term loans. On October 26, 2015, the maturity date for this warehouse line commitment was extended to November 9, 2015.

(4) These lines are collateralized by residuals retained by SCUSA.

(5) This line is held exclusively for financing Chrysler loans.

(6) This line is held exclusively for financing Chrysler leases.

(7) The repurchase facility is collateralized by securitization notes payable retained by SCUSA. No portion of this facility is unsecured. This facility has rolling 30-day and 90 -day maturities.

(8) These lines are also collateralized by securitization notes payable and residuals retained by SCUSA. As of September 30, 2015, $2.5 billion of the aggregate outstanding balances on these credit facilities was unsecured.

49

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10. BORROWINGS (continued)

	December 31, 2014
	Balance		Effective Rate		Assets Pledged		Restricted Cash Pledged
	(dollars in thousands)
Warehouse line, maturing on various dates(1)	$	397,452	1.26	%	$	589,529	$	20,661
Warehouse line, due March 2015(2)	250,594		0.98	%	—		—
Warehouse line, due June 2015	243,736		1.17	%	344,822		—
Warehouse line, due September 2015(3)	199,980		1.96	%	351,755		13,169
Warehouse line, due December 2015	468,565		0.93	%	641,709		16,467
Warehouse line, due June 2016(4)	2,201,511		0.98	%	3,249,263		65,414
Warehouse line, due June 2016	1,051,777		1.06	%	1,481,135		28,316
Warehouse line, due October 2016(3)	240,487		2.02	%	299,195		17,143
Warehouse line, due November 2016(5)	175,000		1.71	%	—		—
Warehouse line, due November 2016(5)	250,000		1.71	%	—		2,500
Repurchase facility, maturing on various dates(6)	923,225		1.63	%	—		34,184
Line of credit with related party, due December 2016(7)	500,000		2.46	%	1,340		—
Line of credit with related party, due December 2016(7)	1,750,000		2.33	%	—		—
Line of credit with related party, due December 2018(7)	1,140,000		2.85	%	9,701		—
Total SCUSA revolving credit facilities	$	9,792,327	1.68	%	$	6,968,449	$	197,854

(1) Half of the outstanding balance on this facility had maturity dates in March 2015 and half matures in March 2016.

(2) This line is collateralized by securitization notes payable retained by SCUSA.

(3) These lines are held exclusively for personal consumer term loans.

(4) This line is held exclusively for Chrysler Capital retail loan and lease financing.

(5) These lines are collateralized by residuals retained by SCUSA.

(6) The repurchase facility is collateralized by securitization notes payable retained by SCUSA. No portion of this facility is unsecured. This facility has rolling 30-day and 90-day maturities.

(7) These lines are also collateralized by securitization notes payable and residuals retained by SCUSA. As of December 31, 2014, $2.2 billion of the aggregate outstanding balances on these credit facilities was unsecured.

Secured Structured Financings

The following tables present information regarding SCUSA's secured structured financings as of September 30, 2015 and December 31, 2014:

	September 30, 2015
	Balance		Initial Note Amounts Issued		Initial Weighted Average Interest Rate Range	Collateral		Restricted Cash
	(dollars in thousands)
SCUSA public securitizations, maturing on various dates(1)	$	13,377,986	$	23,863,842	0.89% - 2.29%	$	16,852,670	$	1,194,363
SCUSA privately issued amortizing notes, maturing on various dates(1)	6,677,464		10,174,679		0.88% - 1.62%	9,831,162		368,134
Total SCUSA secured structured financings	$	20,055,450	$	34,038,521	0.88% - 2.29%	$	26,683,832	$	1,562,497

50

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10. BORROWINGS (continued)

	December 31, 2014
	Balance		Initial Note Amounts Issued		Initial Weighted Average Interest Rate Range	Collateral		Restricted Cash
	(dollars in thousands)
SCUSA public securitizations, maturing on various dates(1)	$	11,523,729	$	26,682,930	0.89% - 2.80%	$	14,345,242	$	1,184,047
SCUSA privately issued amortizing notes, maturing on various dates(1)	6,282,474		8,499,111		1.05% - 1.85%	9,114,997		281,038
Total SCUSA secured structured financings	$	17,806,203	$	35,182,041	0.89% - 2.80%	$	23,460,239	$	1,465,085

(1) SCUSA has entered into various securitization transactions involving its retail automotive installment loans and leases. These transactions are accounted for as secured financings and therefore both the securitized retail installment contracts and the related securitization debt issued by SPEs, remain on the Condensed Consolidated Balance Sheet. The maturity of this debt is based on the timing of repayments from the securitized assets.

Most of the 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 of 1933, as amended (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 retail installment contracts and loans or leases.

NOTE 11. DERIVATIVES (As Restated)

General

The Company uses derivative financial instruments primarily to help manage exposure to interest rate, foreign exchange, equity and credit risk, as well as to reduce the effects that changes 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.

See Note 16 for discussion of the valuation methodology for derivative instruments.

Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract. Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged and is not recorded on the balance sheet. The notional amount is the basis to which the underlying is applied to determine required payments under the derivative contract. The underlying is a referenced interest rate (commonly Overnight Indexed Swap ("OIS") or LIBOR), security price, credit spread or other index. Derivative balances are presented on a gross basis before taking into consideration the effects of legally enforceable master netting agreements.

Through the Company’s capital markets and mortgage banking activities, it is 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.

To qualify for hedge accounting, the Company was required to designate SCUSA’s derivatives as accounting hedges on or after the Change in Control date. The Company designated certain of SCUSA’s derivatives as accounting hedges effective April 1, 2014.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11. DERIVATIVES (As Restated) (continued)

Credit Risk Contingent Features

The Company has entered into certain derivative contracts that require the posting of collateral to counterparties when these 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") master agreements if the Company's ratings fall below investment grade. As of September 30, 2015, derivatives in this category had a fair value of $32.5 million. The credit ratings of the Bank and SHUSA are currently considered investment grade. The Bank estimates a further 1- or 2- notch downgrade by either Standard & Poor's or Moody's would require the Bank to post up to an additional $3.5 million or $5.5 million of collateral, respectively, to comply with existing derivative agreements.

As of September 30, 2015 and December 31, 2014, 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 $145.2 million and $133.2 million, respectively. The Company had $120.6 million and $127.6 million in cash and securities collateral posted to cover those positions as of September 30, 2015 and December 31, 2014, respectively.

Fair Value Hedges

The Company enters into cross-currency swaps to hedge its foreign currency exchange risk on certain Euro-denominated investments. The Company also entered into interest rate swaps to hedge the interest rate risk on certain fixed rate investments. These derivatives are designated as fair value hedges at inception. 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 three-month and nine-month periods endedSeptember 30, 2015 or September 30, 2014. The last of the hedges is scheduled to expire in June 2020.

Cash Flow Hedges

Management uses derivative instruments, which are designated as hedges, to mitigate the impact of interest rate movements on the fair value of certain liabilities, assets 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. 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.

The last of the hedges is scheduled to expire in December 2030. 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 three-month and nine-month periods endedSeptember 30, 2015 or September 30, 2014. As of September 30, 2015, the Company expects approximately $1.4 million of gross losses recorded in accumulated other comprehensive income to be reclassified to earnings during the subsequent twelve months as the future cash flows occur.

52

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11. DERIVATIVES (As Restated) (continued)

Derivatives Designated in Hedge Relationships – Notional and Fair Values

Derivatives designated as accounting hedges at September 30, 2015 and December 31, 2014 included:

	Notional Amount		Asset		Liability		Weighted Average Receive Rate		Weighted Average Pay Rate		Weighted Average Life (Years)
	(dollars in thousands)
September 30, 2015
Fair value hedges:
Cross-currency swaps	$	16,757	$	3,555	$	309	4.76	%	4.75	%	0.36
Interest rate swaps	318,000		153		6,136		1.00	%	2.29	%	3.75
Cash flow hedges:
Pay fixed — receive floating interest rate swaps	10,751,056		—		71,178		0.20	%	1.09	%	3.12
Total	$	11,085,813	$	3,708	$	77,623	0.23	%	1.13	%	3.13
December 31, 2014
Fair Value hedges:
Cross-currency swaps	$	18,230	$	2,711	$	980	4.76	%	4.75	%	1.11
Interest rate swaps	257,000		232		779		0.90	%	2.38	%	4.33
Cash flow hedges:
Pay fixed — receive floating interest rate swaps	10,086,103		7,619		20,552		0.17	%	1.11	%	3.02
Total	$	10,361,333	$	10,562	$	22,311	0.19	%	1.14	%	3.05

See Note 13 for detail of the amounts included in accumulated other comprehensive income related to derivatives activity.

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. 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 also carried at fair value on the balance sheet, resulting in generally symmetrical accounting treatment for both the hedging instrument and the hedged item.

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 Bank originates fixed-rate residential mortgages. It sells a portion of this production to the FHLMC, 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.

The Company typically retains the servicing rights related to residential mortgage loans that are sold. 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.

53

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11. DERIVATIVES (As Restated) (continued)

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.

In March 2014, SCUSA entered into a financing arrangement with a third party under which SCUSA pledged certain bonds retained in its own securitizations in exchange for approximately $251 million in cash. In conjunction with this financing arrangement, SCUSA entered into a total return swap related to the bonds as an effective avenue to monetize SCUSA’s retained bonds as a source of financing. This arrangement matured and was terminated in May 2015.

Other derivative instruments primarily include forward contracts related to certain investment securities sales, an OIS, 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.

54

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11. DERIVATIVES (As Restated) (continued)

Derivatives Not Designated in Hedge Relationships – Notional and Fair Values

Other derivative activities at September 30, 2015 and December 31, 2014 included:

	Notional				Asset derivatives Fair value				Liability derivatives Fair value
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
	(in thousands)
Mortgage banking derivatives:
Forward commitments to sell loans	$	482,207	$	328,757	$	—	$	—	$	4,200	$	2,424
Interest rate lock commitments	248,375		163,013		5,480		3,063		—		—
Mortgage servicing	435,000		469,000		3,684		7,432		2,399		7,448
Total mortgage banking risk management	1,165,582		960,770		9,164		10,495		6,599		9,872
Customer related derivatives:
Swaps receive fixed	8,624,004		7,927,522		300,848		213,415		1,194		4,343
Swaps pay fixed	8,749,748		7,944,247		3,306		13,361		267,923		186,732
Other	2,983,761		1,670,696		44,899		62,464		43,931		61,880
Total customer related derivatives	20,357,513		17,542,465		349,053		289,240		313,048		252,955
Other derivative activities:
Foreign exchange contracts	2,136,160		1,152,125		29,413		20,033		28,743		17,390
Interest rate swap agreements	2,833,000		3,231,000		—		535		12,743		12,743
Interest rate cap agreements	9,211,000		7,541,385		24,451		49,762		—		—
Options for interest rate cap agreements	9,211,000		7,541,385		—		—		24,462		49,806
Total return settlement	1,404,726		1,404,726		—		—		53,322		48,893
Other	822,534		646,321		8,635		6,543		11,931		9,914
Total	$	47,141,515	$	40,020,177	$	420,716	$	376,608	$	450,848	$	401,573

SCUSA is the holder of a warrant that gives it the right, if certain vesting conditions are satisfied, to purchase additional shares in a company in which it has a cost method investment. This warrant was issued in 2012 and is carried at its estimated fair value of zero at September 30, 2015.

55

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11. DERIVATIVES (As Restated) (continued)

Gains (Losses) on All Derivatives

The following Condensed Consolidated Statement of Operations line items were impacted by the Company’s derivative activities for the three-month and nine-month periods endedSeptember 30, 2015 and 2014, respectively:

		Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
Derivative Activity(1)	Accounts	2015		2014		2015			2014
		(in thousands)
Fair value hedges:
Cross-currency swaps	Miscellaneous income	immaterial		immaterial		$	110		$	774
Interest rate swaps	Miscellaneous income	(3,985	)	1,731		(5,437		)	978
Cash flow hedges:
Pay fixed-receive variable interest rate swaps	Net interest income	(1,775	)	(13,469	)	(9,957		)	(40,936		)
Other derivative activities:
Forward commitments to sell loans	Mortgage banking income	(10,711	)	2,490		(1,776		)	(2,762		)
Interest rate lock commitments	Mortgage banking income	3,595		(2,027	)	2,417			1,518
Mortgage servicing	Mortgage banking income	11,736		1,032		1,302			(4,100		)
Customer related derivatives	Miscellaneous income	(1,251	)	3,280		(179		)	6,941
Foreign exchange	Miscellaneous income	(109	)	1,794		(1,973		)	1,302
SCUSA derivatives	Miscellaneous income	(3,746	)	9,130		711			27,269
	Net interest income	21,093		(971	)	58,453			(4,951		)
	Other administrative expenses	3,836		(1,290	)	(10,197		)	(4,447		)
Other	Miscellaneous income	(1,649	)	580		(2,107		)	(729		)

⁽¹⁾ - Gains are disclosed as positive numbers while losses are shown as a negative number regardless of the line item being affected.

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 ISDA 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.

56

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11. DERIVATIVES (As Restated) (continued)

Information about financial assets and liabilities that are eligible for offset on the Condensed Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014, 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, 2015
Fair value hedges	$	3,708	$	—	$	3,708	$	—	$	—	$	3,708
Cash flow hedges	—		—		—		—		—		—
Other derivative activities(1)	415,236		9,015		406,221		8,027		45,306		352,888
Total derivatives subject to a master netting arrangement or similar arrangement	418,944		9,015		409,929		8,027		45,306		356,596
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	5,480		—		5,480		—		—		5,480
Total Derivative Assets	$	424,424	$	9,015	$	415,409	$	8,027	$	45,306	$	362,076
Total Financial Assets	$	424,424	$	9,015	$	415,409	$	8,027	$	45,306	$	362,076
December 31, 2014
Fair value hedges	$	2,943	$	—	$	2,943	$	—	$	—	$	2,943
Cash flow hedges	7,619		—		7,619		—		—		7,619
Other derivative activities(1)	373,545		21,109		352,436		10,020		5,940		336,476
Total derivatives subject to a master netting arrangement or similar arrangement	384,107		21,109		362,998		10,020		5,940		347,038
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	3,063		—		3,063		—		—		3,063
Total Derivative Assets	$	387,170	$	21,109	$	366,061	$	10,020	$	5,940	$	350,101
Total Financial Assets	$	387,170	$	21,109	$	366,061	$	10,020	$	5,940	$	350,101

(1) Includes customer-related and other derivatives.

(2) Includes mortgage banking derivatives.

57

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11. DERIVATIVES (As Restated) (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		Financial Instruments		Cash Collateral Pledged		Net Amount
	(in thousands)
September 30, 2015
Fair value hedges	$	6,445	$	—	$	6,445	$	114	$	12,703	$	(6,372	)
Cash flow hedges	71,178				71,178		—		79,437		(8,259		)
Other derivative activities(1)	397,158		102,934		294,224		8,016		218,906		67,302
Total derivatives subject to a master netting arrangement or similar arrangement	474,781		102,934		371,847		8,130		311,046		52,671
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	53,690		—		53,690		—		—		53,690
Total Derivative Liabilities	$	528,471	$	102,934	$	425,537	$	8,130	$	311,046	$	106,361
Total Financial Liabilities	$	528,471	$	102,934	$	425,537	$	8,130	$	311,046	$	106,361
December 31, 2014
Fair value hedges	$	1,759	$	—	$	1,759	$	65	$	5,589	$	(3,895	)
Cash flow hedges	20,552		—		20,552		7,341		16,797		(3,586		)
Other derivative activities(1)	350,863		21,109		329,754		49,318		198,103		82,333
Total derivatives subject to a master netting arrangement or similar arrangement	373,174		21,109		352,065		56,724		220,489		74,852
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	50,710		—		50,710		—		1,736		48,974
Total Derivative Liabilities	$	423,884	$	21,109	$	402,775	$	56,724	$	222,225	$	123,826
Total Financial Liabilities	$	423,884	$	21,109	$	402,775	$	56,724	$	222,225	$	123,826

(1) Includes customer-related and other derivatives

(2) Includes mortgage banking derivatives

NOTE 12. INCOME TAXES (As Restated)

Income tax provisions of $201.4 million and $363.4 million were recorded for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $208.3 million and $1.5 billion for the corresponding periods in 2014. This resulted in effective tax rates of 61.5% and 40.6% for the three-month and nine-month periods ended September 30, 2015, respectively, compared to 37.0% and 36.1% for the corresponding periods in 2014. The higher tax rate for the three-month and nine month periods ended September 30, 2015 was primarily due to a discrete tax expense recognized during the three-month period ended September 30, 2015 to increase the reserve for income taxes related to a dispute with the United States on two financing transactions.

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.

58

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 12. INCOME TAXES (As Restated) (continued)

The Company has a lawsuit pending against the United States 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 it is entitled to a refund all or any portion of the amounts paid. The Company has recorded a receivable in the Other assets line of the Condensed Consolidated Balance Sheets for the amount of these payments, less a tax reserve of $230.1 million, as of September 30, 2015.

On October 17, 2013, the Court issued a written opinion in favor of the Company relating to a motion for partial summary judgment on a significant issue in the case. The Company subsequently filed a motion for summary judgment requesting the Court to resolve the case in its entirety and enter a final judgment in the borrower's favor and awarding the Company a refund of all amounts paid to the IRS. In response, the IRS filed a motion opposing the Company's motion, and filed a cross-motion for summary judgment requesting that the Court enter a final judgment in the IRS's favor. The Company anticipates the Court will make a determination as to whether further proceedings are required at the District Court level to resolve any remaining legal or factual issues, which could affect the Company's entitlement to some or all of the refund. The Company expects the IRS to appeal any decision in favor of the Company, and the Company may appeal any decision in the IRS's favor.

In 2013, two different federal courts decided cases involving similar financing structures entered into by the Bank of New York Mellon Corp. ("BNY Mellon") and BB&T Corp. ("BB&T") in favor of the IRS. BNY Mellon and BB&T each appealed. On May 14, 2015, the Court of Appeals for the Federal Circuit decided BB&T's appeal by affirming the trial court's decision to disallow BB&T's foreign tax credits and to allow penalties, but reversed the trial court and allowed BB&T's entitlement to interest deductions. On September 9, 2015, the Court of Appeals for the Second Circuit upheld the trial court's decision in BNY Mellon's case, allowing BNY Mellon to claim interest deductions, but disallowing BNY Mellon's claimed foreign tax credits. On September 29, 2015, BB&T filed a petition requesting the U.S. Supreme Court to hear its appeal of the Federal Circuit Court’s decision. BNY Mellon filed a petition requesting the U.S. Supreme Court hear its appeal of the Second Circuit’s decision on November 3, 2015. 

While the Company remains confident in the legal merits of its position, the Company increased its reserve position as of September 30, 2015 by $104.2 million, and believes its 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 $230.1 million to an increase of $201.9 million.

The IRS concluded the exam of the Company’s 2006 and 2007 tax returns in 2011. In addition to the adjustments for items related to the financing transactions discussed above, the IRS proposed to recharacterize ordinary losses related to the sale of certain assets as capital losses. The Company paid the tax assessment resulting from this recharacterization, and contested the adjustment through the administrative appeals process. IRS administrative appeals determined that the Company properly characterized the loss as an ordinary loss. The Company has received a refund of all taxes paid associated with this issue (for which a benefit had already been recognized), and the Company is not subject to any further exposure.

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.

59

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 endedSeptember 30, 2015 and 2014, respectively.

	Total Other Comprehensive Income/(Loss)									Total Accumulated Other Comprehensive (Loss)/Income
	Three-Month Period Ended September 30, 2015									June 30, 2015						September 30, 2015
	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	$	(45,805	)	$	16,975		$	(28,830	)
Reclassification adjustment for net gains/(losses) on cash flow hedge derivative financial instruments (1)	1,774			(657		)	1,117
Net unrealized (losses)/gains on cash flow hedge derivative financial instruments	(44,031		)	16,318			(27,713		)	$	(22,161	)	$	(27,713	)	$	(49,874	)
Change in unrealized gains/(losses) on investment securities available-for-sale	135,217			(52,711		)	82,506
Reclassification adjustment for net losses/(gains) included in net income on non-OTTI securities (2)	1,993			(777		)	1,216
Net unrealized gains/(losses) on investment securities available-for-sale	137,210			(53,488		)	83,722			(74,758		)	83,722			8,964
Pension and post-retirement actuarial gain/(loss) (3)	1,018			(398		)	620			(28,583		)	620			(27,963		)
As of September 30, 2015	$	94,197		$	(37,568	)	$	56,629		$	(125,502	)	$	56,629		$	(68,873	)

(1) Net 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 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.

60

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	Total Other Comprehensive Income/(Loss)									Total Accumulated Other Comprehensive (Loss)/Income
	For the Nine-Month Period Ended September 30, 2015									December 31, 2014						September 30, 2015
	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	$	(67,051	)	$	25,226		$	(41,825	)
Reclassification adjustment for net gains/(losses) on cash flow hedge derivative financial instruments (1)	9,957			(3,746		)	6,211
Net unrealized (losses)/gains on cash flow hedge derivative financial instruments	(57,094		)	21,480			(35,614		)	$	(14,260	)	$	(35,614	)	$	(49,874	)
Change in unrealized gains/(losses) on investment securities available-for-sale	119,553			(47,692		)	71,861
Reclassification adjustment for net (gains)/losses included in net income on non-OTTI securities (2)	(18,363		)	7,325			(11,038		)
Reclassification adjustment for net losses/(gains) included in net income/(expense) on OTTI securities (3)	1,092			(436		)	656
Reclassification adjustment for net (gains)/losses included in net income	(17,271		)	6,889			(10,382		)
Net unrealized gains/(losses) on investment securities available-for-sale	102,282			(40,803		)	61,479			(52,515		)	61,479			8,964
Pension and post-retirement actuarial gain/(loss) (3)	3,054			(1,382		)	1,672			(29,635		)	1,672			(27,963		)
As of September 30, 2015	$	48,242		$	(20,705	)	$	27,537		$	(96,410	)	$	27,537		$	(68,873	)

(1) Net 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 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	Total Other Comprehensive (Loss)/Income									Total Accumulated Other Comprehensive Loss
	Three-Month Period Ended September 30, 2014									June 30, 2014						September 30, 2014
	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	$	13,667		$	(5,018	)	$	8,649
Reclassification adjustment for net gains/(losses) on cash flow hedge derivative financial instruments (1)	13,797			(5,065		)	8,732
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments	27,464			(10,083		)	17,381			$	(32,782	)	$	17,381		$	(15,401	)
Change in unrealized (losses).gains on investment securities available-for-sale	(28,911		)	11,294			(17,617		)
Reclassification adjustment for net (gains)/losses included in net income on non-OTTI securities(2)	(131		)	51			(80		)
Net unrealized (losses)/gains on investment securities available-for-sale	(29,042		)	11,345			(17,697		)	(70,404		)	(17,697		)	(88,101		)
Pension and post-retirement actuarial gain/(loss)(3)	447			(175		)	272			(14,718		)	272			(14,446		)
As of September 30, 2014	$	(1,131	)	$	1,087		$	(44	)	$	(117,904	)	$	(44	)	$	(117,948	)

(1) Net 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 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2014									December 31, 2013					September 30, 2014
	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	$	(3,453	)	$	1,259		$	(2,194	)
Reclassification adjustment for net gains/(losses) on cash flow hedge derivative financial instruments (1)	41,264			(15,048		)	26,216
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments	37,811			(13,789		)	24,022			$	(39,423	)	$	24,022	$	(15,401	)
Change in unrealized gains/(losses) on investment securities available-for-sale	2,623,062			(1,028,228		)	1,594,834
Reclassification adjustment for net gains included in net (gains)/losses on non-OTTI securities(2)	(2,440,019		)	956,476			(1,483,543		)
Net unrealized gains/(losses) on investment securities available-for-sale	183,043			(71,752		)	111,291			(199,392		)	111,291		(88,101		)
Pension and post-retirement actuarial gain/(loss)(3)	1,341			(234		)	1,107			(15,553		)	1,107		(14,446		)
As of September 30, 2014	$	222,195		$	(85,775	)	$	136,420		$	(254,368	)	$	136,420	$	(117,948	)

(1) Net 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 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.

NOTE 14. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (As Restated)

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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

The following table details the amount of commitments at the dates indicated:

Other Commitments	September 30, 2015		December 31, 2014
	(in thousands)
Commitments to extend credit	$	30,570,879	$	28,792,062
Unsecured revolving lines of credit	—		5
Letters of credit	1,890,547		1,789,666
Recourse and credit enhancement exposure on sold loans	71,845		174,902
Commitments to sell loans	60,921		82,791
Total commitments	$	32,594,192	$	30,839,426

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.

The following table details the amount of commitments to extend credit expiring per period as of the dates indicated:

	September 30, 2015		December 31, 2014
	(in thousands)
One year or less	$	5,563,216	$	5,968,468
Over 1 year to 3 years	5,626,208		5,322,291
Over 3 years to 5 years	12,254,421		10,810,213
Over 5 years (1)	7,127,034		6,691,090
Total	$	30,570,879	$	28,792,062

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

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 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 is 14.8 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 draw by the beneficiary that complies with the terms of the letters 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, 2015 was $1.9 billion. The fees related to letters of credit are deferred and amortized over the lives of the commitments and were immaterial to the Company’s financial statements at September 30, 2015. 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, 2015 and December 31, 2014, the liability related to these letters of credit was $34.7 million and $73.9 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, 2015 and December 31, 2014 were lines of credit outstanding of $102.9 million and $58.8 million, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

The following table details the amount of letters of credit expiring per period as of the dates indicated:

	September 30, 2015		December 31, 2014
	(in thousands)
One year or less	$	1,312,652	$	1,250,124
Over 1 year to 3 years	246,126		285,108
Over 3 years to 5 years	310,476		248,209
Over 5 years	21,293		6,225
Total	$	1,890,547	$	1,789,666

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 multi-family sales program with FNMA, the Company retained a portion of the associated credit risk. The unpaid principal balance outstanding of loans sold in these programs was $589.7 million as of September 30, 2015 and $2.6 billion as of December 31, 2014. As a result of its agreement with FNMA, the Company retained a 100% first loss position on each multi-family loan sold to FNMA until the earlier to occur of (i) the aggregate approved losses on multi-family loans sold to FNMA reaching the maximum loss exposure for the portfolio as a whole of $34.4 million as of September 30, 2015 and $152.8 million as of December 31, 2014, or (ii) all of the loans sold to FNMA under this program are being 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.

The Company has established a liability which represents the fair value of the retained credit exposure and the amount the Company estimates it would have to pay a third party to assume the retained recourse obligation. The estimated liability is calculated as the present 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, 2015 and December 31, 2014, the Company had $8.1 million and $40.7 million, respectively, of reserves classified in accrued expenses and payables on the Condensed Consolidated Balance Sheets related to the fair value of the retained credit exposure for loans sold to 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 of the underlying mortgaged properties. Approval from FNMA is required for all transactions related to the liquidation of properties underlying the mortgages.

Additionally, during the period from 1999 to 2002, residential mortgage loans were sold with recourse and credit enhancement features to FNMA and FHLMC. The remaining unpaid principal balance of these loans was $54.5 million and $55.8 million at September 30, 2015 and December 31, 2014, respectively, and the remaining maximum amount of credit exposure on these loans was $20.1 million and $22.1 million for the same periods. The Company has posted collateral in the amount of $0.9 million at September 30, 2015 and December 31, 2014 to be utilized for any losses incurred related to these loans.

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.

Representation and Warranty Liability

In the ordinary course of business, the Company sells residential loans on a non-recourse basis to certain government-sponsored entities ("GSEs") and private investors. In connection with these sales, the Company has entered into agreements containing various representations and warranties about, among other things, the ownership of the loans, the validity of the liens securing the loans, the loans' compliance with any applicable loan criteria established by the GSEs and the private investors, including underwriting standards and the ongoing existence of mortgage insurance, the absence of delinquent taxes or liens against the property securing the loans and the loans' compliance with applicable federal, state, and local laws. Breaches of these representations and warranties may require the Company to repurchase the mortgage loan, or if the loan has been foreclosed, the underlying collateral, or otherwise make whole or provide other remedies to the GSEs and the private investors. The repurchase liability is recorded within Accrued expenses and payables on the Condensed Consolidated Balance Sheet, and the related income statement activity is recorded in Mortgage banking income, net on the Condensed Consolidated Statement of Operations.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Management believes the Company's repurchase reserve appropriately reflects the estimated probable losses on repurchase claims for all loans sold and outstanding as of September 30, 2015. In making these estimates, the Company considers the losses it expects to incur over the lives of the loans sold. The table below represents the activity in the representation and warranty reserve for the dates indicated.

	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2015			2014			2015			2014
	(in thousands)
Beginning Balance	$	23,008		$	40,862		$	24,266		$	54,836
Changes in Estimate	655			10,894			935			3,315
Claims	(429		)	(794		)	(1,967		)	(7,189		)
Ending Balance	$	23,234		$	50,962		$	23,234		$	50,962

SC Commitments

SC is obligated to make purchase price hold-back payments to a third party originator of loans that it purchases on a periodic basis, when losses are lower than originally expected. SC also is obligated to make total return settlement payments to this third-party originator in 2016 and 2017 if returns on the purchased pools are greater than originally expected.

Under terms of agreements with a peer-to-peer personal lending platform company, SC was committed as of September 30, 2015 to purchase at least the lesser of $30.0 million per month or 50% of the lending platform company’s near-prime originations thereafter through July 2017. This commitment can be reduced or canceled with 90 days notice. On October 9, 2015, SC sent a notice of termination to the lending platform company.

SC 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 these credit lines do not have a specified maturity, but rather can be terminated at any time in the event of adverse credit changes or lack of use, SC has not recorded an allowance for unfunded commitments. As of September 30, 2015 and December 31, 2014, SC was obligated to purchase $15.7 million and $7.7 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 three months ended September 30, 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 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"), 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, comprised of a volume bonus fee and a loss betterment bonus fee. The loss betterment bonus fee will be calculated annually and is based on the amount by which losses on loans originated under the agreement are lower than an established percentage threshold.

In connection with the sale of retail installment contracts 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, 2015, SC had no repurchase requests outstanding. In the opinion of SC management, the potential exposure of other recourse obligations related to SC’s retail installment contract sales agreements will not have a material adverse effect on SC’s consolidated financial position, results of operations, or cash flows.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14. 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.

Under terms of the agreement with Chrysler, SC must make revenue sharing payments to Chrysler and also must make gain-sharing payments when residual gains on leased vehicles exceed a specified threshold.

SC has a flow agreement with Bank of America under which SC is committed to sell up to a specified amount of eligible loans to the Bank of America each month through May 2018. Prior to October 1, 2015, the amount of this monthly commitment was $300 million. On October 1, 2015, SC and Bank of America amended the flow agreement to increase the maximum commitment to sell to $350 million of eligible loans each month, and to change the required written notice period from either party, in the event of termination of the agreement, from 120 days to 90 days. 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.

SC has sold loans to Citizens Bank of Pennsylvania ("CBP") under terms of a flow agreement and predecessor sale agreements. 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. On June 25, 2015, SC executed an amendment to the servicing agreement with CBP which increased the servicing fee SC receives. SC and CBP also amended the flow agreement which reduced, effective from and after August 1, 2015, CBP's committed purchases of Chrysler Capital prime loans from a maximum of $600 million and a minimum of $250 million per quarter to a maximum of $200 million and a minimum of $50 million per quarter, as may be adjusted according to the agreement.

In connection with the bulk sale of Chrysler Capital leases, SC is obligated to make quarterly payments to the purchaser sharing residual losses for lease terminations with losses over a specific percentage threshold. The estimated guarantee liability was $3.9 million as of September 30, 2015.

On March 31, 2015, SC executed 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 million in proceeds. SC and the third party executed an amendment to the forward flow asset sale agreement on June 29, 2015 which increased the committed sales of charged-off loan receivables in bankruptcy status to $275 million, and another amendment on September 29, 2015 requiring sales to occur quarterly. Prior to the most recent amendment there was no requirement on the timing of sales. As of September 30, 2015, the remaining commitment was $203.4 million.

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 putative securities class action lawsuit was filed in the United States District Court, Southern District of New York (the "Steck Lawsuit") On October 6, 2014, another putative securities class action lawsuit was filed in the District Court of Dallas County, Texas and was subsequently removed to the United States District Court, Northern District of Texas. Both lawsuits were filed against SC, certain current and former directors and executive officers of SC and certain institutions that served as underwriters in the IPO. Each lawsuit was brought by a purported stockholder of SC seeking to represent a class consisting of all those who purchased or otherwise acquired securities pursuant and/or traceable to SC's Registration Statement and Prospectus issued in connection with the IPO. Each complaint alleges that the Registration Statement and Prospectus contained misleading statements concerning SC’s auto lending business and underwriting practices. Each lawsuit asserts claims under Section 11 and Section 15 of the Securities Act and seeks damages and other relief. In February 2015, the putative class action lawsuit pending in the United States District Court, Northern District of Texas, was voluntarily dismissed without prejudice. In June 2015, the Steck Lawsuit venue was transferred from the Southern District of New York to the Northern District of Texas.

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 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Further, SC is party to or are otherwise involved periodically in reviews, investigations, proceedings (both formal and informal), and information-gathering requests, by government and self-regulatory agencies, including the Federal Reserve, the CFPB, the Department of Justice (the "DOJ"), the SEC, the Federal Trade Commission and various state regulatory agencies. Currently, such proceedings include a civil subpoena from the DOJ under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 requesting the production of documents and communications that, among other things, relate to the underwriting and securitization of nonprime auto loans since 2007. Additionally, on October 28, 2014, SC received a preservation letter and request for documents from the SEC requesting the preservation and production of documents and communications that, among other things, relate to the underwriting and securitization of auto loans since January 1, 2011. SC also has received civil subpoenas from various state attorneys general requesting similar documents and communications. SC is complying with these requests for information and document preservation.

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 SC that certain of its repossession and collection activities during the period of time between January 2008 and February 2013 violated the Servicemembers Civil Relief Act. The consent requires SC to pay a civil fine in the amount of 55 thousand, as well as at least $9.4 million to affected service members consisting of ten thousand dollars plus compensation for any lost equity (with interest) for each repossession by SC and five thousand dollars for each instance where SC sought to collect repossession-related fees on accounts where a repossession was conducted by a prior account holder, as well as requires SC to undertake 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 Equal Credit Opportunity Act ("ECOA") regarding (i) statistical disparities in markups charged by automobile dealers to protected groups on loans originated by those dealers and purchased by SC and (ii) the treatment of certain types of income in SC's underwriting process. On September 25, 2015, SC the DOJ notified SC that it has initiated, based on the referral from the CFPB, an investigation under the ECOA of SC's pricing of automobile loans.

SHUSA does not believe that there are any 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 SC.

On July 2, 2015, SC announced the departure of Thomas G. Dundon from his roles as Chairman of the Board and Chief Executive Officer of SC, effective as of the close of business on July 2, 2015. In connection with Mr. Dundon's, and subject to the terms and conditions of his Employment Agreement, including Mr. Dundon's execution of a release of claims against SC, Mr. Dundon became entitled to receive certain payments and benefits under his Employment Agreement. The Separation Agreement also provided for the modification of terms of certain 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, 2015, SC has not made any payments to Mr. Dundon arising from or pursuant to the terms of the Separation Agreement. If all applicable conditions are satisfied, including receipt of certain required regulatory approvals, 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 the condensed consolidated statement of income and comprehensive income in the period in which approval is obtained.

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 which include items such as indemnifications provided in the ordinary course of business and intercompany guarantees.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Litigation

In the ordinary course of business, the Company and its subsidiaries are routinely parties to pending and threatened legal actions and proceedings, including class action claims. These actions and proceedings are generally based on alleged violations of consumer protection, securities, environmental, banking, employment and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company and its subsidiaries. In the ordinary course of business, the Company and its subsidiaries are also subject to regulatory examinations, inspections, information-gathering requests, inquiries and investigations, including by the Federal Reserve, the OCC, the CFPB, the FDIC, the DOJ, the SEC, states attorney's general and other governmental and regulatory authorities.

In view of the inherent difficulty of predicting the outcome of such litigation and regulatory matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict 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. The Company does not presently anticipate that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material effect on its financial position.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation, enforcement, 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 loss contingency that is probable and estimable, during which quarter an accrued liability is established with respect to such loss contingency. The Company continues to monitor the matter for further developments that could affect the amount of the accrued liability previously established. For certain of the Company's legal matters, the Company is able to estimate a range of reasonably possible losses. For other matters for which some loss is probable or reasonably possible, such an estimate is not possible. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance coverage, management believes that the established legal reserves at September 30, 2015 are adequate and the liabilities arising from legal proceedings will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Company.

The regulatory matters for which it is reasonably possible that the Company will incur a significant loss are described below. The Company may include in some of the descriptions of individual disclosed matters certain quantitative information related to the plaintiff's claim against the Company as alleged in the plaintiff's pleadings or other public filings or otherwise based on publicly available information. While information of this type may provide insight into the potential magnitude of a matter, it does not necessarily represent the Company's estimate of reasonably possible loss or its judgment as to any currently appropriate accrual. Refer to Note 12 to these Condensed Consolidated Financial Statements for disclosure regarding the lawsuit filed by the Company against the IRS/United States.

Other Regulatory and Governmental Matters

Foreclosure Matters

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, FNMA or FHLMC. The Bank is cooperating with the investigation; however, there can be no assurance that claims or litigation will not arise from this matter.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

On April 13, 2011, the Bank and other parties signed a consent order with the Office of Thrift Supervision ("OTS") resolving certain of the Bank's and other parties' foreclosure activities (the "OTS Order") by the Bank's previous primary federal banking regulator, the OTS, as part of an interagency horizontal review of foreclosure practices at 14 mortgage servicers. Upon its conversion to a national bank on January 26, 2012, the Bank entered into a stipulation consenting to the issuance of a consent order by the OCC, which contains the same terms as the OTS Order (the "Order").

On January 7, 2013, the Bank and nine other mortgage servicing companies subject to enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing reached an agreement in principle with the OCC and the Federal Reserve to make cash payments and provide other assistance to borrowers. On February 28, 2013, the agreements were finalized with all ten mortgage servicing companies, including the Bank. Other assistance includes reductions of principal on first and second lien mortgage loans, payments to assist with short sales, deficiency balance waivers on past foreclosures and short sales, and forbearance assistance for unemployed homeowners. As of January 24, 2013, twelve other mortgage servicing companies subject to enforcement action for deficient practices in mortgage loan servicing and foreclosure processes also reached an agreement with the OCC or the Federal Reserve, as applicable.

As a result of this agreement, the participating servicers, including the Bank, ceased their independent foreclosure reviews, which involved case-by-case reviews, and replaced them with a broader framework allowing eligible borrowers to receive compensation in a more timely manner. This arrangement has not eliminated all of the Company's risks associated with foreclosures, since it does not protect the Bank from potential individual borrower claims, class actions lawsuits, actions by state attorneys general, or actions by the DOJ or other regulators. In addition, all of the other terms of the Order are still in effect.

Under the agreement, the Bank has paid $6.2 million into a remediation fund, the majority of which has been distributed to borrowers, and will engage in foreclosure avoidance activities, such as loan modifications and short sales over the next two years in an aggregate principal amount of $9.9 million. In return, the OCC waived any civil money penalties that could have been assessed against the Bank. During 2013, the Company submitted for credit from the OCC mortgage loans in the amount of $74.1 million, which represents the principal balance of mortgage loans for which the Bank completed foreclosure avoidance activities with its borrowers.

The Bank represents 0.17% of the total $9.3 billion settlement among the banks and is the smallest participant in the agreement. The total $16.1 million related to the remediation fund and mortgage modifications was fully reserved.

On June 16, 2015, the Bank entered into a consent order amending the Order and the 2013 amendment to the Order (the “2015 Amendment”). The 2015 Amendment states that the Bank has not fully complied with the terms of the OTS Order and that nine actionable items under the OTS Order, as amended, remain. The 2015 Amendment imposes certain supervisory restrictions on the Bank’s mortgage origination and servicing business. These restrictions require the Bank to obtain prior supervisory non-objection from the OCC before engaging in certain new or broader mortgage origination and servicing activities or appointing new senior mortgage servicing officers, although the Bank may generally operate its current mortgage origination and servicing business in the ordinary course. The Bank continues its efforts to close the nine

actionable items identified in the 2015 Amendment.

The 2015 Amendment confirmed that the Bank has fulfilled its obligations under the OTS Order to pay $6.2 million into the remediation fund referenced above and to engage in foreclosure avoidance activities in an aggregate principal amount of at least $9.9 million.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Identity Theft Protection Product Matter

The Bank has been in discussions to address concerns that some customers may have paid for but did not receive certain benefits of an identity theft protection product from the Bank's third-party vendor. To date, the Bank has made $37.6 million in total remediation payments to customers. On April 17, 2015, the OCC announced that it had reached an agreement with the Bank that resolved issues related to the sale and servicing of the identity theft protection product (the "Consent Order"). Pursuant to the Consent Order, the Bank has paid a civil monetary penalty of $6.0 million and agreed to remediate customers who paid for but may not have received certain benefits of the identify theft protection product. As indicated above, as of December 31, 2014, all customers were refunded amounts paid for product enrollment. The Bank is in the process of further remediating customers, in the approximate amount of $4.7 million, customers whose checking accounts may have been charged an overdraft fee or credit card accounts an over limit fee and/or finance charge as a result of the identity theft protection product fees. In reaching this Consent Order, the Bank has cooperated fully with the OCC and is working to finalize its response to comply fully with the terms of the Consent Order.

Marketing of Overdraft Coverage

On April 1, 2014, the Bank received a civil investigative demand (“CID”) from the CFPB requesting information and documents in connection with the Bank’s marketing to consumers of overdraft coverage for automatic teller machine and/or onetime debit card transactions. The Bank received a second CFPB CID related to the same overdraft coverage program on February 10, 2015. Pursuant to the terms of the CIDs, the information obtained by the CFPB will be used to determine whether the Bank is in compliance with laws administered by the CFPB. The Bank is cooperating with the investigation; however, there can be no assurance that claims or litigation will not arise from this matter.

The Company's practice is to cooperate fully with regulatory and governmental investigations, audits and other inquiries, including those described above.

NOTE 15. RELATED PARTY TRANSACTIONS

The Company has various debt agreements with Santander. For a listing of these debt agreements, see Note 12 to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2014. 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. A list and description of these agreements can be found in Note 22 to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

NOTE 16. FAIR VALUE (As Restated)

General

As of September 30, 2015, $22.3 billion of the Company’s total assets consisted of financial instruments measured at fair value on a recurring basis, including financial instruments for which the Company elected the FVO. Approximately $10.5 million of these financial instruments were measured using quoted market prices for identical instruments or Level 1 inputs. Approximately $20.1 billion of these financial instruments were measured using valuation methodologies involving market-based and market-derived information, or Level 2 inputs. Approximately $2.1 billion of these financial instruments were measured using model-based techniques, or Level 3 inputs, and represented approximately 9.6% of total assets measured at fair value and approximately 1.6% of total consolidated assets.

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(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (continued)

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 price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. GAAP establishes a fair value reporting hierarchy to maximize the use of observable inputs when measuring fair value and defines the three levels of inputs as noted below:

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

•Level 2 - Assets and liabilities valued based on observable market data for similar instruments. Fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for assets or liabilities, either directly or indirectly.

•Level 3 - Assets or liabilities for which significant valuation assumptions are not readily observable in the market, 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. 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, DCF methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Assets and liabilities measured at fair value, by their nature; result in a higher degree of financial statement volatility. When available, the Company attempts to use quoted market prices or matrix 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 determined 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 on 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.

The Bank's Market Risk Department is responsible for determining and approving the fair values 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. Transfers in and out of Levels 1, 2 and 3 are considered to be effective as of the end of the quarter in which they occur.

There were no transfers between Levels 1, 2 and 3 during the three-month and nine-month periods ended September 30, 2015 for any assets or liabilities valued at fair value on a recurring basis. There were no transfers between Levels 1, 2 and 3 during the three-month period ended September 30, 2014. During the nine-month period ended September 30, 2014, the Company transferred certain of its ABS from Level 2 to Level 3 due to limited price transparency in connection with their limited trading activity.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (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, 2015 and December 31, 2014.

	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, 2015
	(in thousands)
Financial assets:
US Treasury securities	$	—	$	3,209,863	$	—	$	3,209,863
Corporate debt	—		1,563,099		—		1,563,099
Asset-backed securities	—		321,924		1,622,727		1,944,651
Equity securities	10,528		—		—		10,528
State and municipal securities	—		761,322		—		761,322
Mortgage backed securities	—		13,561,721		—		13,561,721
Total investment securities available-for-sale	10,528		19,417,929		1,622,727		21,051,184
Retail installment contracts held for investment	—		—		374,158		374,158
Loans held-for-sale	—		280,764		—		280,764
Mortgage servicing rights	—		—		143,535		143,535
Derivatives:
Fair value	—		3,708		—		3,708
Mortgage banking interest rate lock commitments	—		—		5,480		5,480
Customer related	—		349,053		—		349,053
Foreign exchange	—		29,413		—		29,413
Mortgage servicing	—		3,684		—		3,684
Interest rate cap agreements	—		24,451		—		24,451
Other	—		8,620		15		8,635
Total financial assets	$	10,528	$	20,117,622	$	2,145,915	$	22,274,065
Financial liabilities:
Derivatives:
Fair value	$	—	$	6,445	$	—	$	6,445
Cash flow	—		71,178		—		71,178
Mortgage banking forward sell commitments	—		4,200		—		4,200
Customer related	—		313,048		—		313,048
Total return swap	—		—		282		282
Foreign exchange	—		28,743		—		28,743
Mortgage servicing	—		2,399		—		2,399
Interest rate swaps	—		12,743		—		12,743
Option for interest rate cap	—		24,462		—		24,462
Total return settlement	—		—		53,322		53,322
Other	—		11,513		136		11,649
Total financial liabilities	$	—	$	474,731	$	53,740	$	528,471

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(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (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, 2014
	(in thousands)
Financial assets:
US Treasury securities	$	—	$	1,695,767	$	—	$	1,695,767
Corporate debt	—		2,182,401		—		2,182,401
Asset-backed securities	—		1,452,760		1,267,643		2,720,403
Equity securities	10,343		—		—		10,343
State and municipal securities	—		1,823,462		—		1,823,462
Mortgage backed securities	—		7,475,702		—		7,475,702
Total investment securities available-for-sale	10,343		14,630,092		1,267,643		15,908,078
Trading securities	—		833,936		—		833,936
Retail installment contracts held for investment	—		—		845,911		845,911
Loans held-for-sale	—		213,666		—		213,666
Mortgage servicing rights	—		—		145,047		145,047
Derivatives:
Fair value	—		2,943		—		2,943
Cash flow	—		7,619		—		7,619
Mortgage banking interest rate lock commitments	—		—		3,063		3,063
Customer related	—		289,240		—		289,240
Foreign exchange	—		20,033		—		20,033
Mortgage servicing	—		7,432		—		7,432
Interest rate swap agreements	—		535		—		535
Interest rate cap agreements	—		49,762		—		49,762
Other	—		6,536		7		6,543
Total financial assets	$	10,343	$	16,061,794	$	2,261,671	$	18,333,808
Financial liabilities:
Derivatives:
Fair value	$	—	$	1,759	$	—	$	1,759
Cash flow	—		20,552		—		20,552
Mortgage banking forward sell commitments	—		2,424		—		2,424
Customer related	—		252,955		—		252,955
Total return swap	—		1,736		282		2,018
Foreign exchange	—		17,390		—		17,390
Mortgage servicing	—		7,448		—		7,448
Interest rate swaps	—		12,743		—		12,743
Option for interest rate cap	—		49,806		—		49,806
Total return settlement	—		—		48,893		48,893
Other	—		7,823		73		7,896
Total financial liabilities	$	—	$	374,636	$	49,248	$	423,884

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (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:

	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, 2015
Impaired loans held for investment	$	—	$	89,338	$	360	$	89,698
Foreclosed assets	—		21,908		—		21,908
Vehicle inventory	—		182,069		—		182,069
December 31, 2014
Impaired loans held for investment	$	—	$	101,218	$	67,699	$	168,917
Foreclosed assets	—		45,599		—		45,599
Vehicle inventory	—		136,136		—		136,136
Indefinite lived intangibles	—		—		21,500		21,500

Valuation Processes and Techniques

Impaired loans held for investment represents the recorded investment of impaired commercial loans for which the Company periodically records nonrecurring adjustments of collateral-dependent loans measured for impairment when establishing the allowance for loan losses. Such amounts are generally 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, which 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 considered Level 3 inputs. The inputs in the internal calculations 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 total carrying value of these loans was $54.3 million and $100.2 million at September 30, 2015 and December 31, 2014, respectively.

Foreclosed assets represent the recorded investment in assets taken 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 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 levels of used car prices.

The estimated fair value of intangible assets is valued using unobservable inputs and is classified as Level 3. Fair value is calculated using a DCF model. See further discussion on intangible assets in Note 8.

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(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (continued)

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:

	Statement of Operations Location	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
		2015			2014			2015			2014
		(in thousands)
Impaired loans held for investment	Provision for credit losses	$	(2,888	)	$	(12,826	)	$	(1,445	)	$	(17,652	)
Foreclosed assets	Other administrative expense	(474		)	(167		)	(1,501		)	(519		)
		$	(3,362	)	$	(12,993	)	$	(2,946	)	$	(18,171	)

Level 3 Rollforward for Recurring Assets and Liabilities

The tables below present the changes in all Level 3 balances for the three-month and nine-month periods ended September 30, 2015 and 2014, respectively.

Three-Month Period Ended September 30, 2015
	Investments Available-for-Sale			Retail Installment Contracts Held for Investment			MSRs			Derivatives			Total
	(in thousands)
Balance, June 30, 2015	$	1,539,483		$	494,651		$	157,147		$	(57,592	)	$	2,133,689
(Losses) in other comprehensive income	(5,307		)	—			—			—			(5,307		)
Gains/(losses) in earnings	—			39,296			(13,472		)	7,340			33,164
Additions/Issuances	311,540			—			5,795			—			317,335
Settlements(1)	(222,989		)	(159,789		)	(5,935		)	2,007			(386,706		)
Balance, September 30, 2015	$	1,622,727		$	374,158		$	143,535		$	(48,245	)	$	2,092,175
Changes in unrealized gains (losses) included in earnings related to balances still held at September 30, 2015	$	—		$	39,296		$	(13,472	)	$	3,745		$	29,569
Nine-Month Period Ended September 30, 2015
	Investments Available-for-Sale			Retail Installment Contracts Held for Investment			MSRs			Derivatives			Total
	(in thousands)
Balance, December 31, 2014	$	1,267,643		$	845,911		$	145,047		$	(46,178	)	$	2,212,423
(Losses) in other comprehensive income	(8,961		)	—			—			—			(8,961		)
Gains/(losses) in earnings	—			219,837			749			(8,130		)	212,456
Additions/Issuances	910,135			—			17,124			—			927,259
Settlements(1)	(546,090		)	(691,590		)	(19,385		)	6,063			(1,251,002		)
Balance, September 30, 2015	$	1,622,727		$	374,158		$	143,535		$	(48,245	)	$	2,092,175
Changes in unrealized gains (losses) included in earnings related to balances still held at September 30, 2015	$	—		$	219,837		$	749		$	(10,547	)	$	210,039

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

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(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (continued)

Three-Month Period Ended September 30, 2014
	Investments Available-for-Sale			Retail Installment Contracts Held for Investment			MSRs			Derivatives			Total
	(in thousands)
Balance, June 30, 2014	$	1,243,872		$	1,273,072		$	124,118		$	(43,534	)	$	2,597,528
(Losses) in other comprehensive income	(849		)	—			—			—			(849		)
Gains/(losses) in earnings	—			116,177			(2,726		)	(3,408		)	110,043
Additions/Issuances	69,543			—			16,078			—			85,621
Settlements(1)	(138,107		)	(362,737		)	(5,679		)	2,453			(504,070		)
Balance, September 30, 2014	$	1,174,459		$	1,026,512		$	131,791		$	(44,489	)	$	2,288,273
Changes in unrealized gains (losses) included in earnings related to balances still held at September 30, 2014	$	—		$	116,177		$	(2,726	)	$	(1,381	)	$	112,070
Nine-Month Period Ended September 30, 2014
	Investments Available-for-Sale			Retail Installment Contracts Held for Investment			MSRs			Derivatives			Total
	(in thousands)
Balance, December 31, 2013	$	52,940		$	—		$	141,787		$	(50,221	)	$	144,506
Gains in other comprehensive income	1,021			—			—			—			1,021
Gains/(losses) in earnings	—			475,607			(14,078		)	(3,235		)	458,294
Additions/Issuances	171,869			1,870,383			20,081			—			2,062,333
Settlements(1)	(222,831		)	(1,319,478		)	(15,999		)	8,967			(1,549,341		)
Transfers into level 3	1,171,460			—			—			—			1,171,460
Balance, September 30, 2014	$	1,174,459		$	1,026,512		$	131,791		$	(44,489	)	$	2,288,273
Changes in unrealized gains (losses) included in earnings related to balances still held at September 30, 2014	$	—		$	475,607		$	(14,078	)	$	(4,753	)	$	456,776

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

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(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (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 Available-for-Sale and Trading Securities

Securities accounted for at fair value include both available-for-sale 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 the 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 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 value. Actively traded quoted market prices for investment securities available-for-sale, such as U.S. Treasury 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 in pricing securities that incorporate relevant 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.

ABS is comprised primarily of collateralized loan obligations ("CLOs") and other ABS. 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 inputs. CLOs are initially valued by the provider using DCF models which consider inputs such as default correlation, credit spread, prepayment speed, conditional default rate and loss severity. The price produced by the model is then compared to recent trades for similar transactions. If there are differences between the model price and the market price, adjustments are made to the model so the final price approximates the market price. These CLO investments are, therefore, considered 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.

The Company's equity securities are priced using net asset value per share, which is validated with a sufficient level of observable activity. Since the price is observable and unadjusted, these investments are considered Level 1.

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

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(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (continued)

Retail Installment Contracts Held for Investment

For certain retail installment contracts held for investment within loans held for investment, the Company has elected the FVO. The fair values of the retail installment contracts 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 rate 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, and recovery rates based on the average severity utilizing reported severity rates and loss severity utilizing available market data from a comparable securitized pool. Accordingly, retail installment contracts held for investment are classified as Level 3.

Loans Held-for-Sale

The fair values of LHFS are estimated using published forward agency prices to agency buyers such as the FNMA and the 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 and to take into consideration the specific characteristics of certain loans that are priced based on the pricing of similar loans. These adjustments represent unobservable inputs to the valuation, but are not considered 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. See further discussion below in the FVO for Financial Assets and Financial Liabilities section below.

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 inputs. Gains and losses on MSRs are recognized on the Condensed Consolidated Statements of Operations through Mortgage banking income. See further discussion on MSRs in Note 9.

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 $5.3 million and $10.1 million, respectively, at September 30, 2015.

• A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $5.0 million and $9.5 million, respectively, at September 30, 2015.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (continued)

Significant increases/(decreases) in any of those inputs in isolation would result in significantly higher/(lower) 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 SHUSA 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 respective 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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (continued)

Level 3 Inputs - Significant Recurring Assets and Liabilities

The following table presents quantitative information about the significant unobservable inputs within significant Level 3 recurring assets and liabilities.

	Fair Value at September 30, 2015		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
	(in thousands)
Financial Assets:
Asset-backed securities
Financing bonds	$	1,571,741	Discounted Cash Flow	Discount Rate (1)	0.79% - 2.01% (1.10%)
Sale-leaseback securities	$	50,986	Consensus Pricing (2)	Offered quotes (3)	130.15	%
Retail installment contracts held for investment	$	374,158	Discounted Cash Flow	ABS (4)	0.40	%
				Prepayment rate (CPR) (5)	11.00	%
				Discount Rate (6)	5.95% - 12.00% (10.63%)
				Recovery Rate (7)	25.00% - 43.00% (31.67%)
Mortgage servicing rights	$	143,535	Discounted Cash Flow	Prepayment rate (CPR) (8)	0.01% - 36.43% (10.38%)
				Discount Rate (9)	9.90	%
Mortgage banking interest rate lock commitments	$	5,480	Discounted Cash Flow	Pull through percentage (10)	77.46	%
				MSR value (11)	0.71% - 1.07% (1.02%)
Financial Liabilities:
Total return settlement	$	53,322	Discounted Cash Flow	Discount Rate (5)	8.72	%

(1) Based on the applicable term and discount index.

(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-lease back securities, the Company owns one security.

(4) Based on the historical default rate and adjustments to reflect voluntary prepayments.

(5) Based on the analysis of available data from a comparable market securitization of similar assets.

(6) Based on the cost of funding of debt issuance and recent historical equity yields.

(7) Based on the average severity utilizing reported severity rates and loss severity utilizing available market data from a comparable securitized pool.

(8) Average CPR projected from collateral stratified by loan type, note rate and maturity.

(9) Based on the nature of the input, a range or weighted average does not exist.

(10) Historical weighted average based on principal balance calculated as the percentage of loans originated for sale divided by total commitments less outstanding commitments. 

(11) MSR value is the estimated value of the servicing right embedded in the underlying loan, expressed in basis points of outstanding unpaid principal balance.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (continued)

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:

	September 30, 2015
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and amounts due from depository institutions	$	4,619,782	$	4,619,782	$	4,619,782	$	—	$	—
Available-for-sale investment securities	21,051,184		21,051,184		10,528		19,417,929		1,622,727
Loans held for investment, net	75,816,054		75,683,065		—		89,338		75,593,727
Loans held-for-sale	2,990,708		3,041,325		—		3,041,325		—
Restricted cash	2,431,103		2,431,103		2,431,103		—		—
Mortgage servicing rights	143,535		143,535		—		—		143,535
Derivatives	424,424		424,424		—		418,929		5,495
Financial liabilities:
Deposits	55,543,255		55,565,093		47,377,317		8,187,776		—
Borrowings and other debt obligations	48,371,320		49,378,230		—		39,499,046		9,879,184
Derivatives	528,471		528,471		—		474,731		53,740

	December 31, 2014
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and amounts due from depository institutions	$	2,201,783	$	2,201,783	$	2,201,783	$	—	$	—
Available-for-sale investment securities	15,908,078		15,908,078		10,343		14,630,092		1,267,643
Trading securities	833,936		833,936		—		833,936		—
Loans held for investment, net	74,293,865		74,265,569		—		101,218		74,164,351
Loans held-for-sale	260,252		260,251		—		260,251		—
Restricted cash	2,024,838		2,024,838		2,024,838		—		—
Mortgage servicing rights	145,047		145,047		—		—		145,047
Derivatives	387,170		387,170		—		384,100		3,070
Financial liabilities:
Deposits	52,474,007		52,507,347		45,162,698		7,344,649		—
Borrowings and other debt obligations	39,679,382		40,147,937		—		30,355,610		9,792,327
Derivatives	423,884		423,884		—		374,636		49,248

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (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 it 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.

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 Sheet:

Cash and amounts due from depository institutions

Cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits in other banks, federal funds sold, and securities purchased under agreements to resell. 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, 2015 and December 31, 2014, the Company had $2.4 billion and $2.0 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.

Debentures of FHLB

Other investments include debentures of the FHLB. The related fair value measurements have generally been classified as Level 2, as carrying value approximates fair value. The debentures of the FHLB matured in September 2014.

Loans held for investment, net

The fair values of loans are estimated based on groupings of similar loans, including but not limited to stratifications 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 "Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis" above.

Deposits

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, interest-bearing demand deposit accounts, savings accounts and certain money market accounts is equal to the amount payable on demand and does not take into account the significant value of the cost advantage and stability of the Company’s long-term relationships with depositors. The fair value of fixed-maturity certificates of deposit ("CDs") is estimated by discounting cash flows using currently offered rates for deposits of similar remaining maturities. The related fair value measurements 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (continued)

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, 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 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 the fair value of these financial instruments.

Fair Value Option ("FVO") for Financial Assets and Financial Liabilities

LHFS

The Company's LHFS portfolio primarily consists of residential mortgages and retail installment contracts. Retail installment contracts that are held-for-sale are accounted for at the lower of cost or market while the Company adopted the FVO on residential mortgage loans classified as held-for-sale, which 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.

Retail installment contracts held for investment

To reduce accounting and operational complexity, the Company elected the FVO for certain of its retail installment contracts held for investment in connection with the Change in Control. These loans consisted of all of SCUSA’s retail installment contracts accounted for by SCUSA under ASC 310-30, as well as all of SCUSA’s retail installment contracts that were more than 60 days past due at the date of the Change in Control, which collectively had an aggregate outstanding unpaid principal balance of $2.6 billion with a fair value of $1.9 billion at the date of the Change in Control.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 16. FAIR VALUE (As Restated) (continued)

The following table summarizes the difference between the fair value and the principal balance of LHFS and retail installment contracts measured at fair value as of September 30, 2015.

	Fair Value		Aggregate Unpaid Principal Balance		Difference
	(in thousands)
Loans held-for-sale	$	280,764	$	273,846	$	6,918
Nonaccrual loans	—		—		—
Retail installment contracts held for investment	$	374,158	$	496,200	$	(122,042	)
Nonaccrual loans	46,310		72,279		(25,969		)

Interest income on the Company’s LHFS and retail installment contracts held for investment is recognized when earned based on their respective contractual rates in Interest income on loans 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 retail installment contracts held for investment. 

Residential MSRs

The Company elected to account for its existing portfolio of residential MSRs at fair value. This election created greater flexibility with regard to any ongoing decisions relating to risk management of the asset by mitigating the effects of changes to the residential MSRs' fair value through the use of risk management instruments.

The Company's residential MSRs had an aggregate fair value of $143.5 million at September 30, 2015. Changes in fair value totaling a gain of $0.7 million were recorded in net mortgage banking income in the Condensed Consolidated Statement of Operations during the nine-month period ended September 30, 2015.

NOTE 17. BUSINESS SEGMENT INFORMATION (As Restated)

Business Segment Products and Services

The Company’s reportable segments are focused principally around the customers the Bank and SC serve. During the first quarter of 2016, certain management and business line changes became effective as the Company reorganized its management reporting in order to improve its structure and focus to better align management teams and resources with the business goals of the Company and provide enhanced customer service to its clients. Accordingly, the following changes were made within the Company's reportable segments to provide greater focus on each of its core businesses:

• The small business banking, commercial business banking, and auto leasing lines of business formerly included in the Auto Finance and Business Banking reportable segment, were combined with the Consumer and Business Banking reportable segment.

• The Real Estate and Commercial reportable segment was split into the Commercial Real Estate reportable segment and the Commercial Banking reportable segment.

• The CEVF and dealer floor plan lines of business, formerly included in the Auto Finance & Business Banking reportable segment, were moved to the Commercial Banking business unit.

• The internal FTP guidelines and methodologies were revised to align with Santander corporate criteria for internal management reporting. These FTP changes impact all reporting segments, excluding SC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 17. BUSINESS SEGMENT INFORMATION (As Restated) (continued)

The Company has identified the following reportable segments:

• The Consumer and Business Banking segment (formerly known as the Retail Banking segment) primarily comprises the Bank's branch locations, residential mortgage business and business banking customers. The branch locations offer a wide range of products and services to both consumers and business banking customers, which attract deposits by offering a variety of deposit instruments including demand and interest-bearing demand deposit accounts, money market and savings accounts, CDs and retirement savings products. The branch locations also offer consumer loans such as credit cards, and home equity loans and lines of credit, and business loans such as commercial lines of credit and business credit cards. In addition, investment services provide annuities, mutual funds, managed monies, and insurance products and acts as an investment brokerage agent to the customers of the Consumer and Business Banking segment.

• The Commercial Banking segment currently provides commercial lines, loans, and deposits to medium and large business banking customers as well as financing and deposits for government entities, commercial loans to dealers and financing for commercial vehicles and municipal equipment. 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.

• The Commercial Real Estate segment offers commercial real estate loans and multifamily loans to customers.

• The Global Corporate Banking ("GCB") segment was formerly designated as the Global Corporate Banking & Market & Large Corporate Banking segment, and was renamed during the third quarter of 2015.. This segment was formerly designated as the Global Corporate Banking & Market & Large Corporate Banking segment and was renamed during the third quarter of 2015. This segment serves the needs of global commercial and institutional customers by leveraging the international footprint of the Santander group to provide financing and banking services to corporations with over $500 million in annual revenues. GCB's offerings and strategy are based on Santander's local and global capabilities in wholesale banking.

• SCUSA is a specialized consumer finance company focused on vehicle finance and third-party servicing. SCUSA’s primary business is the indirect origination of retail installment contracts, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. In conjunction with a ten-year private label financing agreement with the Chrysler Group that became effective May 1, 2013, SCUSA offers a full spectrum of auto financing products and services to Chrysler customers and dealers under the Chrysler Capital brand. These products and services include consumer retail installment contracts and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. SCUSA also originates vehicle loans through a web-based direct lending program, purchases vehicle retail installment contracts from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders. Additionally, SCUSA has several relationships through which it provides personal loans, private label credit cards and other consumer finance products. During 2015, SCUSA announced its intention to exit the personal lending business.

SCUSA has entered into a number of intercompany agreements with the Bank as described above as part of the Auto Finance & Business Banking segment. All intercompany revenue and fees between the Bank and SCUSA are eliminated in the consolidated results of the Company.

The Other category includes earnings from the investment portfolio, interest from the non-strategic assets portfolio, interest expense on the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.

For segment reporting purposes, SCUSA continues to be managed as a separate business unit. The Company’s segment results, excluding SCUSA, are derived from the Company’s business unit profitability reporting system by specifically attributing managed balance sheet assets, deposits and other liabilities and their related interest income or expense to each of the segments. Funds transfer pricing methodologies are utilized to allocate a cost for funds used or a credit for funds provided to business line deposits, loans and selected other assets using a matched funding concept. The 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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 17. BUSINESS SEGMENT INFORMATION (As Restated) (continued)

Other income and expenses are managed directly by each business line, 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.

Certain segments previously deemed quantitatively significant no longer met the threshold and have been combined with the Other category as of September 30, 2015. Prior period results have been recast to conform to the new composition of the reportable segments.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 17. BUSINESS SEGMENT INFORMATION (As Restated) (continued)

Results of Segments

The following tables present certain information regarding the Company’s segments.

For the Three-Month Period Ended	SHUSA excluding SCUSA														SCUSA(4)
September 30, 2015	Consumer & Business Banking			Commercial Banking			Commercial Real Estate		Global Corporate Banking			Other(2)			SCUSA(3)		SCUSA Purchase Price Adjustments			Eliminations			Total
	(in thousands)
Net interest income	$	214,208		$	70,445		$	67,302	$	54,381		$	(20,594	)	$	1,176,411	$	71,620		$	116		$	1,633,889
Total non-interest income	167,696			12,431			23,158		19,047			22,852			382,700		101,102			(9,991		)	718,995
Gain on change in control	—			—			—		—			—			—		—			—			—
Provision/(release) for credit losses	7,094			(6,329		)	9,898		(10,931		)	(18,357		)	723,921		231,869			—			937,165
Total expenses	442,843			44,993			17,427		26,410			93,197			462,214		15,034			(13,975		)	1,088,143
(Loss)/Income before income taxes	(68,033		)	44,212			63,135		57,949			(72,582		)	372,976		(74,181		)	4,100			327,576
Intersegment revenue/(expense)(1)	238			1,203			368		(2,241		)	432			—		—			—			—
Total assets	21,944,625			15,796,714			15,012,129		12,200,062			30,703,998			35,329,343		—			—			130,986,871

For the Nine-Month Period Ended	SHUSA excluding SCUSA													SCUSA(4)
September 30, 2015	Consumer & Business Banking			Commercial Banking		Commercial Real Estate		Global Corporate Banking			Other(2)			SCUSA(3)		SCUSA Purchase Price Adjustments			Eliminations			Total
	(in thousands)
Net interest income	$	627,152		$	202,833	$	202,126	$	157,555		$	(18,189	)	$	3,469,970	$	342,018		$	260		$	4,983,725
Total non-interest income	523,337			35,704		39,324		60,437			67,397			1,137,296		184,390			(38,304		)	2,009,581
Gain on change in control	—			—		—		—			—			—		—			—			—
Provision/(release) for credit losses	33,779			1,370		22,694		(5,173		)	12,706			1,935,147		955,532			—			2,956,055
Total expenses	1,306,508			135,966		54,392		79,310			203,182			1,360,708		43,438			(40,849		)	3,142,655
(Loss)/Income before income taxes	(189,798		)	101,201		164,364		143,855			(166,680		)	1,311,411		(472,562		)	2,805			894,596
Intersegment revenue/(expense)(1)	891			2,961		1,467		(5,886		)	567			—		—			—			—
Total assets	21,944,625			15,796,714		15,012,129		12,200,062			30,703,998			35,329,343		—			—			130,986,871

(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 is not considered a segment and includes earnings from non-strategic assets, the investment portfolio, interest expense on the Bank’s and Holding Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.

(3) Management of SHUSA manages SCUSA by analyzing the pre-Change in Control results of SCUSA as disclosed in this column.

(4) Purchase Price Adjustments represents the impact that SCUSA purchase marks had on the results of SCUSA included within the consolidated operations of SHUSA, while eliminations eliminate intercompany transactions.

88

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 17. BUSINESS SEGMENT INFORMATION (As Restated) (continued)

For the Three- Month Period Ended	SHUSA excluding SCUSA														SCUSA(4)
September 30, 2014	Consumer & Business Banking			Commercial Banking		Commercial Real Estate			Global Corporate Banking			Other(2)			SCUSA(3)		SCUSA Purchase Price Adjustments		Eliminations			Total
	(in thousands)
Net interest income	$	206,182		$	62,548	$	65,060		$	46,536		$	21,507		$	1,054,292	$	159,849	$	29		$	1,616,003
Total non-interest income	205,135			11,496		6,791			21,072			38,777			289,209		47,486		(16,220		)	603,746
Provision/(release) for credit losses	36,083			34,032		(84,235		)	7,990			6,130			722,159		24,504		—			746,663
Total expenses	405,533			38,671		23,770			26,142			71,486			343,617		15,153		(14,784		)	909,588
Income/(loss) before income taxes	(30,299		)	1,341		132,316			33,476			(17,332		)	277,725		167,678		(1,407		)	563,498
Intersegment revenue/(expense)(1)	257			1,493		62			(1,653		)	(159		)	—		—		—			—
Total assets	21,882,105			14,288,909		14,161,237			9,807,122			22,964,250			30,817,353		—		—			113,920,976

For the Nine- Month Period Ended	SHUSA excluding SCUSA															SCUSA(4)
September 30, 2014	Consumer & Business Banking			Commercial Banking			Commercial Real Estate			Global Corporate Banking			Other(2)			SCUSA(3)		SCUSA Purchase Price Adjustments		Eliminations			Total
	(in thousands)
Net interest income	$	615,362		$	177,879		$	187,445		$	131,695		$	69,304		$	3,117,685	$	381,554	$	(332,746	)	$	4,348,178
Total non-interest income	423,750			35,563			28,013			56,512			95,861			741,125		293,909		(88,886		)	1,585,847
Gain on Change in Control	—			—			—			—			—			—		2,417,563		—			2,417,563
Provision/(release) for credit losses	54,711			(3,240		)	(95,339		)	6,228			(2,360		)	1,829,307		59,633		(215,051		)	1,633,889
Total expenses	1,131,708			111,574			62,740			72,620			183,024			1,134,571		120,601		(256,464		)	2,560,374
Income/(loss) before income taxes	(147,307		)	105,108			248,057			109,359			(15,499		)	894,932		2,912,792		49,883			4,157,325
Intersegment revenue/(expense)(1)	851			3,643			839			(5,451		)	118			—		—		—			—
Total assets	21,882,105			14,288,909			14,161,237			9,807,122			22,964,250			30,817,353		—		—			113,920,976

(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 is not considered a segment and includes earnings from non-strategic assets, the investment portfolio, interest expense on the Bank’s and Holding Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.

(3) Management of SHUSA manages SCUSA by analyzing the pre-Change in Control results of SCUSA as disclosed in this column.

(4) Purchase Price Adjustments represent the impact that SCUSA purchase marks had on the results of SCUSA included within the consolidated operations of SHUSA, while eliminations adjust for the one month that SHUSA accounted for SCUSA as an equity method investment and eliminate intercompany transactions.

REVIEW OF FINANCIAL MEASURES

The Chief Operating Decision Maker ("CODM"), as described by ASC 280, Segment Reporting, manages SCUSA on a historical basis by reviewing the results of SCUSA on a pre-Change in Control basis. The Results of Segments table discloses SCUSA's operating information on the same basis that it is reviewed by SHUSA's CODM to reconcile to SCUSA's GAAP results, purchase price adjustments and accounting for SCUSA as an equity method investment.

89

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS

Subsequent to the issuance of the Company's September 30, 2015 Consolidated Financial Statements, the Company identified errors in its historical financial statements, including for the three and nine months ended September 30, 2015 and 2014. Accordingly, the Company has restated the unaudited interim condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014 to reflect the error corrections. The most significant errors originate from SC, a significant subsidiary of the Company.

Correction of Errors

1. Errors previously disclosed in the Company Annual Report on Form 10-K for the year ended December 31, 2015 Form filed on April 14, 2016 (the "Original 10-K"):

• The Company determined that its historical methodology for estimating the credit loss allowance for RICs held for investment was in error as it did not estimate impairment on TDRs separately from a general credit loss allowance on loans not classified as TDRs, and incorrectly applying a loss emergence period to the entire portfolio rather than only to loans not classified as TDRs. In addition, the Company determined that it had incorrectly identified the population of loans that should be classified and disclosed as TDRs and, separately, had incorrectly estimated the impairment on these loans, as of each of these balance sheet dates. The Company has corrected its allowance methodology accordingly, and has determined, based on the corrected methodology, the ACL reported on the condensed consolidated balance sheets was overstated by $110.9 million and $358.2 million at September 30, 2015 and December 31, 2014, respectively.

• The Company determined that subvention payments related to leased vehicles were incorrectly classified within the Consolidated Statements of Operations as an addition to Leased vehicle income rather than a reduction of Leased vehicle expense. There was no impact to net income as a result of this change.

The impact of the corrections of the above errors on the financial statements for the three and nine months ended September 30, 2015 and 2014 was disclosed in Part II, Item 9B, of the Annual Report on Form 10-K for the year ended December 31, 2015.

2. Errors identified subsequent to the filing of the Original Filing:

• The Company previously used the loans' original contractual interest rate as the discount rate applied to the expected cash flows to determine TDR impairment. ASC 310-40-35-12 requires that expected future cash flows be discounted using the original effective interest rate.

The Company has corrected the discount rate used in the determination of TDR impairment and has determined that the allowance was understated, and the net carrying balance of retail installment contracts held for investment accordingly overstated, by $53.8 million and $1.0 million as of September 30, 2015 and December 31, 2014, respectively, related to this methodology error. This error also impacted the provision for credit losses in the consolidated statements of income and comprehensive income, as noted in the tables below, and related disclosures.

• The Company has determined that its application of the retrospective effective interest method for accreting discounts, subvention payments from manufacturers, and other origination costs (collectively "discount") on retail installment contracts held for investment was in error, as (i) these cost basis adjustments were accreted over the average life of a loan rather than the aggregate life of a loan pool, (ii) defaults were inappropriately considered in the estimate of future principal prepayments, (iii) the portfolio was not adequately segmented to consider different prepayment performance based on credit quality and term, (iv) remaining unaccreted balances at charge-off were being recorded as interest income rather than as reductions of the net charge-off, and (v) the unaccreted discount component of TDR carrying value was misstated, resulting in inaccurate TDR impairment.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

(i) The Company previously had accreted discounts over the average life of the loan portfolio. However, Examples 3 and 4 in the implementation guidance to ASC 310-20, Receivables - Nonrefundable Fees and Other Costs, provide guidance on the projection of cash flows for a pool of loans and the treatment of actual and anticipated prepayments for determining the effective interest rate under the retrospective method. The guidance demonstrates an application that aligns with the aggregate life of the loan pool rather than the average life concept. Under the average life method previously applied by the Company, anticipated prepayments shortened the life of the portfolio and maintained the portfolio monthly cash flow constant, i.e., incorrectly accelerated the accretion of discount. Accordingly, management has determined that the use of the average life was in error.

(ii) The Company previously had considered all types of liquidations, both voluntary prepayments and charge offs, as prepayments for purposes of determining a prepayment assumption. However, the application of a prepayment assumption as described in ASC 310-20-35-26 does not allow for future expected defaults to be considered in the assumption. Accordingly, management has determined that the inclusion of future expected defaults in the prepayment assumption was in error.

(iii) The Company previously had aggregated all loans in the RIC portfolio held for investment portfolio into one pool for the purpose of estimating prepayments and determining the effective interest rate under the retrospective method. ASC 310-20-35-30 provides some characteristics to be considered when aggregating a large number of similar loans for this purpose. Management has determined that there is differentiation in prepayment behavior within its loan portfolio based on characteristics including credit quality, maturity, and period of origination. Accordingly, management has determined that the absence of segmentation into pools of homogeneous loans was in error.

(iv) The Company previously had recorded charge offs based on unpaid principal balance ("UPB"). The accretion of discount of charged-off loans was previously reported as interest income. However, ASC 310-10, Receivables, refers to the recorded investment in a loan as the appropriate accounting basis. ASC 310-10-35-24 specifies that the recorded investment includes adjustments such as unamortized premium or discount. Accordingly, management has determined that the unaccreted discounts remaining at the charge off should be included in the net charge off amount recorded.

(v) As a result of the incorrect accretion methodology, as well as the exclusion of unaccreted discount, the recorded investment in TDRs was misstated, resulting in a misstatement of TDR impairment.

The Company has corrected its accretion methodology and has determined that the various aspects had the following impacts as of each balance sheet date:

	September 30, 2015		December 31, 2014
	(in thousands)
Overstatement of loans held for investment	$	79,177	$	28,647
Overstatement of allowance (TDR impairment)	6,326		817

This error also had the following impacts on the Condensed Consolidated Statements of Operations and Comprehensive Income:

	Three Months Ended						Nine Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
	(in thousands)
Overstatement of Interest income - Loans	$	(49,372	)	$	(9,253	)	$	(115,790	)	$	(38,604	)
Overstatement of Provision for credit losses	45,432			13,667			77,464			15,947
Understatement of Miscellaneous income	2,283			(2,364		)	7,753			2,358
	$	(1,657	)	$	2,050		$	(30,573	)	$	(20,299	)

91

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

• The Company previously omitted the consideration of net discounts when estimating the allowance for credit losses for the non-TDR portfolio of retail installment contracts held for investment under ASC 450-20. Accordingly, management has determined that the omission of consideration of net discounts in the allowance was in error.

The Company has corrected its allowance methodology to take net unaccreted discounts into consideration, and has determined that the allowance was overstated, and the net carrying balance of retail installment contracts held for investment accordingly understated, by $81.7 million and $49.2 million as of September 30, 2015 and December 31, 2014, respectively, related to this methodology error. This error also impacted the provision for credit losses in the consolidated statements of income and comprehensive income, as noted in the tables below, and related disclosures.

• During the year ended December 31, 2015, the Company had recognized $12.3 million in severance related expenses, $9.9 million in stock compensation expense and a liability of $115.1 million in contemplation of the amounts and benefits payable to the former CEO of SC pursuant to a Separation Agreement among Mr. Dundon, SC, DDFS LLC, SHUSA and Santander. However, the Company has subsequently determined that the previous accounting for the expenses and liabilities contemplated in the Separation Agreement was in error as such expenses and liabilities should not have been recorded until all applicable conditions have been satisfied, including that all regulatory approvals have been obtained. Accordingly, the accompanying restated consolidated financial statements as of and for the year ended December 31, 2015 do not include any expense or liability associated with the Separation Agreement. Further, in the absence of satisfaction of applicable conditions, Mr. Dundon's remaining unexercised vested options are considered to have expired subsequent to his termination without cause; accordingly, the restated financial statements reflect the removal of the deferred tax asset associated with the previously recorded compensation expense related to Mr. Dundon's vested but unexercised options.

• The Company had originally recorded a gain on the Change in Control of SC of $2.43 billion during the year-ended December 31, 2014 and goodwill in the amount $5.47 billion at January 28, 2014. As a result of the corrections at SC that impacted the carrying value of assets and liabilities acquired by SHUSA at the Change in Control, SHUSA recognized a gain on the Change in Control of $2.42 billion during the nine month period ended September 30, 2014 and goodwill in the amount of $5.53 billion.

• The Company recorded a $50.0 million indefinite-lived intangible at the Change in Control of SC. During the quarter ended December 31, 2015, as part of the Step 2 goodwill impairment analysis, the Company performed a valuation of the intangible assets allocated to the SC reporting unit as of December 31, 2015. The Company's impairment analysis concluded that the estimated fair value of the indefinite-lived trade name was lower than its carrying value. As such, the Company originally recorded an $11.7 million impairment charge during the fourth quarter of 2015 and an additional impairment charge of $20.3 million during in the first quarter of 2016. The trade name, as restated, reflects the correction of an error to reflect an impairment charge to the trade name attributed to the fourth quarter of 2014 in the amount of $28.5 million. The impairments in 2014 were recorded within amortization expense of intangible assets.

• The Company originally recorded an $97.5 million impairment of capitalized software during the second quarter of 2014 for software that was no longer in use or determined to be improperly capitalized. The Company concluded that $33.3 million and $3.3 million of the impairment charge should have been recorded in the quarters ended December 31, 2013 and March 31, 2014, respectively, when the software was originally capitalized.

In addition to the restatement of the Company's Condensed Consolidated Financial Statements, certain information within the following notes to the consolidated financial statements has been restated to reflect the corrections of errors discussed above as well as other, less significant errors and/or to add disclosure language as appropriate.

• Note 3 Business Combinations

• Note 5 Loans and Allowance for Credit Losses

• Note 6 Leased Vehicles

• Note 7 Variable Interest Entities

92

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

• Note 8 Goodwill and Other Intangibles

• Note 9 Other Assets

• Note 11 Derivatives

• Note 12 Income Taxes

• Note 14 Commitments, Contingencies, and Guarantees

• Note 16 Fair Value

• Note 17 Business Segment Information

The following table summarizes the impact of the corrections on the Company's Condensed Consolidated Balance Sheet as of September 30, 2015:

	As Originally Reported(1)			Corrections			As Reported(2)			Corrections			As Restated
	(in thousands)
Cash and cash equivalents	$	4,669,373		$	—		$	4,669,373		$	(49,591	)	$	4,619,782
Loans held-for-investment	78,709,721			(46,329		)	78,663,392			(80,194		)	78,583,198
Allowance for loan and lease losses	(2,912,346		)	110,943			(2,801,403		)	34,259			(2,767,144		)
Net loans held-for-investment	75,797,375			64,614			75,861,989			(45,935		)	75,816,054
Leased vehicles, net	8,084,712			—			8,084,712			(12,517		)	8,072,195
Goodwill	8,892,011			—			8,892,011			59,473			8,951,484
Intangible assets, net	686,457			—			686,457			(28,500		)	657,957
Other assets	1,811,214			—			1,811,214			133,574			1,944,788
Total assets	130,865,753			64,614			130,930,367			56,504			130,986,871
Accrued expenses and payables	1,691,565			—			1,691,565			(166,233		)	1,525,332
Advance payments by borrowers for taxes and insurance	210,285			—			210,285			(1,764		)	208,521
Deferred tax liabilities, net	1,217,066			19,106			1,236,172			43,547			1,279,719
Other liabilities	595,527			—			595,527			117,985			713,512
Total liabilities	107,629,018			19,106			107,648,124			(6,465		)	107,641,659
Common stock and paid-in capital	14,717,564			—			14,717,564			11,942			14,729,506
Retained earnings	4,111,611			27,878			4,139,489			5,242			4,144,731
Total SHUSA stockholder's equity	18,955,747			27,878			18,983,625			17,184			19,000,809
Noncontrolling interest	4,280,988			17,630			4,298,618			45,785			4,344,403
Total stockholder's equity	23,236,735			45,508			23,282,243			62,969			23,345,212
Total liabilities and stockholder's equity	$	130,865,753		$	64,614		$	130,930,367		$	56,504		$	130,986,871

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the nine-month period ended September 30, 2015 filed on November 13, 2015.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

93

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table summarizes the impact of the corrections on the Company's Condensed Consolidated Balance Sheet as of December 31, 2014.

	As Originally Reported(1)			Corrections			As Reported(2)			Corrections			As Restated
	(in thousands)
Cash and cash equivalents	$	2,234,725		$	—		$	2,234,725		$	(32,942	)	$	2,201,783
Loans held-for-investment	76,032,562			(8,448		)	76,024,114			(28,647		)	75,995,467
Allowance for loan and lease losses	(2,108,817		)	358,174			(1,750,643		)	49,041			(1,701,602		)
Net loans held-for-investment	73,923,745			349,726			74,273,471			20,394			74,293,865
Leased vehicles, net	6,638,115			—			6,638,115			(14,145		)	6,623,970
Goodwill	8,892,011			—			8,892,011			59,473			8,951,484
Intangible assets, net	735,488			—			735,488			(28,500		)	706,988
Other assets	2,860,121			(30,271		)	2,829,850			39,730			2,869,580
Total assets	118,457,415			319,455			118,776,870			44,010			118,820,880
Accrued expenses and payables	1,902,278			—			1,902,278			(11,043		)	1,891,235
Borrowings and other debt obligations(3)	39,709,653			(30,271		)	39,679,382			—			39,679,382
Advance payments by borrowers for taxes and insurance	167,670			—			167,670			(1,526		)	166,144
Deferred tax liabilities, net	1,025,948			141,133			1,167,081			(7,110		)	1,159,971
Other liabilities	673,764			—			673,764			48,921			722,685
Total liabilities	95,953,320			110,862			96,064,182			29,242			96,093,424
Stockholder's equity
Retained earnings	3,714,642			122,480			3,837,122			9,295			3,846,417
Total SHUSA stockholder's equity	18,543,286			122,480			18,665,766			9,295			18,675,061
Noncontrolling interest	3,960,809			86,113			4,046,922			5,473			4,052,395
Total stockholder's equity	22,504,095			208,593			22,712,688			14,768			22,727,456
Total liabilities and stockholder's equity	$	118,457,415		$	319,455		$	118,776,870		$	44,010		$	118,820,880

(1) Originally reported amounts included in the Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 18, 2015.

(2) Reported amounts included in the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

(3) The changes to borrowings and other debt obligations illustrate the impact of the Company's adoption of ASU 2015-03 which required retrospective adoption and are not the result of a correction of an error.

94

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table summarizes the impact of the corrections on the Company's Condensed Consolidated Statement of Operations for the nine-month period ended September 30, 2015:

	As Originally Reported(1)		Corrections			As Reported(2)		Corrections			As Restated
	(in thousands)
Interest on loans	$	5,690,548	$	—		$	5,690,548	$	(115,790	)	$	5,574,758
Total interest income	5,975,520		—			5,975,520		(115,790		)	5,859,730
Net interest income	5,099,515		—			5,099,515		(115,790		)	4,983,725
Provision for credit losses	2,728,118		285,112			3,013,230		(57,175		)	2,956,055
Net interest income after provision for credit losses	2,371,397		(285,112		)	2,086,285		(58,615		)	2,027,670
Consumer fees	324,119		—			324,119		7,959			332,078
Lease income	1,328,401		(316,636		)	1,011,765		5,946			1,017,711
Miscellaneous income	376,630		—			376,630		7,754			384,384
Total fees and other income	2,287,287		(316,636		)	1,970,651		21,659			1,992,310
Total non-interest income	2,304,558		(316,636		)	1,987,922		21,659			2,009,581
Compensation and benefits	1,012,887		—			1,012,887		(22,221		)	990,666
Occupancy and equipment expenses	397,769		—			397,769		(122		)	397,647
Loan expense	296,135		—			296,135		(21,613		)	274,522
Lease expense	1,068,137		(316,636		)	751,501		4,444			755,945
Other administrative expenses	257,850		—			257,850		697			258,547
Total general and administrative expenses	3,405,969		(316,636		)	3,089,333		(38,815		)	3,050,518
Income/(loss) before income taxes	1,177,849		(285,112		)	892,737		1,859			894,596
Income tax provision/(benefit)	474,708		(122,027		)	352,681		10,671			363,352
Net income/(loss) including noncontrolling interest	703,141		(163,085		)	540,056		(8,812		)	531,244
Less: net income/(loss) attributable to noncontrolling interest	295,222		(68,483		)	226,739		(4,759		)	221,980
Net income/(loss) attributable to SHUSA	$	407,919	$	(94,602	)	$	313,317	$	(4,053	)	$	309,264

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the nine-month period ended September 30, 2015 filed on November 13, 2015.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

95

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table summarizes the impact of the corrections on the Company's Condensed Consolidated Statement of Operations for the three-month period ended September 30, 2015:

	As Originally Reported(1)		Corrections			As Reported(2)		Corrections			As Restated
	(in thousands)
Interest on loans	$	1,884,226	$	—		$	1,884,226	$	(49,373	)	$	1,834,853
Total interest income	1,982,824		—			1,982,824		(49,373		)	1,933,451
Net interest income	1,683,262		—			1,683,262		(49,373		)	1,633,889
Provision for credit losses	854,180		124,424			978,604		(41,439		)	937,165
Net interest income after provision for credit losses	829,082		(124,424		)	704,658		(7,934		)	696,724
Consumer fees	119,902		—			119,902		2,627			122,529
Lease income	486,510		(124,918		)	361,592		3,042			364,634
Miscellaneous income	138,071		—			138,071		2,283			140,354
Total fees and other income	837,954		(124,918		)	713,036		7,952			720,988
Total non-interest income	835,961		(124,918		)	711,043		7,952			718,995
Compensation and benefits	365,071		—			365,071		(21,016		)	344,055
Occupancy and equipment expenses	128,990		—			128,990		(122		)	128,868
Loan expense	89,944		—			89,944		(4,226		)	85,718
Lease expense	384,276		(124,918		)	259,358		2,310			261,668
Other administrative expenses	93,190		—			93,190		(5,040		)	88,150
Total general and administrative expenses	1,211,424		(124,918		)	1,086,506		(28,094		)	1,058,412
Income/(loss) before income taxes	423,888		(124,424		)	299,464		28,112			327,576
Income tax provision/(benefit)	241,764		(51,174		)	190,590		10,779			201,369
Net income/(loss) including noncontrolling interest	182,124		(73,250		)	108,874		17,333			126,207
Less: net income/(loss) attributable to noncontrolling interest	100,237		(31,346		)	68,891		6,492			75,383
Net income/(loss) attributable to SHUSA	$	81,887	$	(41,904	)	$	39,983	$	10,841		$	50,824

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the three-month period ended September 30, 2015 filed on November 13, 2015.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table summarizes the impact of the corrections on the Company's Condensed Consolidated Statement of Operations for the nine-month period ended September 30, 2014:

	As Originally Reported (1)		Corrections			As Reported (2)		Corrections			As Restated
	(in thousands)
Loans	$	4,948,106	$	—		$	4,948,106	$	(38,603	)	$	4,909,503
Available-for-sale	183,158		—			183,158		(834		)	182,324
Total interest income	5,164,025		—			5,164,025		(39,437		)	5,124,588
Net interest income	4,387,615		—			4,387,615		(39,437		)	4,348,178
Provision for credit losses	2,034,721		(343,620		)	1,691,101		(57,212		)	1,633,889
Net interest income after provision for credit losses	2,352,894		343,620			2,696,514		17,775			2,714,289
Consumer fees	273,128		—			273,128		2,924			276,052
Equity method investments income/(loss), net	7,607		—			7,607		476			8,083
Lease income	651,458		(126,444		)	525,014		(8,296		)	516,718
Miscellaneous income	469,295		—			469,295		2,354			471,649
Total fees and other income	1,703,353		(126,444		)	1,576,909		(2,542		)	1,574,367
Gain on Change in Control	2,428,539		—			2,428,539		(10,976		)	2,417,563
Net gain/(loss) recognized in earnings	2,440,019		—			2,440,019		(10,976		)	2,429,043
Total non-interest income	4,143,372		(126,444		)	4,016,928		(13,518		)	4,003,410
Compensation and benefits	894,051		—			894,051		(1,371		)	892,680
Lease expense	508,038		(126,444		)	381,594		3,966			385,560
Other administrative expenses	240,764		—			240,764		(17,138		)	223,626
Total general and administrative expenses	2,530,262		(126,444		)	2,403,818		(14,543		)	2,389,275
Impairment of capitalized software	97,546		—			97,546		(33,000		)	64,546
Total other expenses	204,099		—			204,099		(33,000		)	171,099
Income/(loss) before income taxes	3,761,905		343,620			4,105,525		51,800			4,157,325
Income tax provision/(benefit)	1,285,855		138,833			1,424,688		77,687			1,502,375
Net income/(loss) including noncontrolling interest	2,476,050		204,787			2,680,837		(25,887		)	2,654,950
Less: net income/(loss) attributable to noncontrolling interest	298,633		84,542			383,175		291			383,466
Net income/(loss) attributable to SHUSA	$	2,177,417	$	120,245		$	2,297,662	$	(26,178	)	$	2,271,484

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the nine-month period ended September 30, 2014 filed on November 17, 2014.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table summarizes the impact of the corrections on the Company's Condensed Consolidated Statement of Operations for the three-month period ended September 30, 2014:

	As Originally Reported (1)			Corrections			As Reported (2)			Corrections			As Restated
	(in thousands)
Loans	$	1,822,275		$	—		$	1,822,275		$	(9,252	)	$	1,813,023
Available-for-sale	61,290			—			61,290			(221		)	61,069
Total interest income	1,895,020			—			1,895,020			(9,473		)	1,885,547
Net interest income	1,625,476			—			1,625,476			(9,473		)	1,616,003
Provision for credit losses	1,013,357			(208,119		)	805,238			(58,575		)	746,663
Net interest income after provision for credit losses	612,119			208,119			820,238			49,102			869,340
Consumer fees	93,451			—			93,451			(268		)	93,183
Equity method investments (loss)/income, net	(4,619		)	—			(4,619		)	222			(4,397		)
Lease income	269,966			(38,183		)	231,783			515			232,298
Miscellaneous income	129,433			—			129,433			(2,366		)	127,067
Total fees and other income	643,695			(38,184		)	605,511			(1,896		)	603,615
Total non-interest income	643,826			(38,184		)	605,642			(1,896		)	603,746
Compensation and benefits	290,665			—			290,665			(544		)	290,121
Loan expense	80,392			—			80,392			576			80,968
Lease expense	208,879			(38,183		)	170,696			8,117			178,813
Other administrative expenses	111,576			—			111,576			(21,120		)	90,456
Total general and administrative expenses	919,743			(38,183		)	881,560			(12,971		)	868,589
Deposit insurance premiums and other costs	14,967			—			14,967			(9		)	14,958
Total other expenses	41,008			—			41,008			(9		)	40,999
Income/(loss) before income taxes	295,194			208,118			503,312			60,186			563,498
Income tax provision/(benefit)	36,102			84,192			120,294			88,009			208,303
Net income/(loss) including noncontrolling interest	259,092			123,926			383,018			(27,823		)	355,195
Less: net income/(loss) attributable to noncontrolling interest	54,420			51,166			105,586			5,733			111,319
Net income/(loss) attributable to SHUSA	$	204,672		$	72,760		$	277,432		$	(33,556	)	$	243,876

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the three-month period September 30, 2014 filed on November 17, 2014.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table reflects a summary of the impact of the corrections on the Company's Condensed Consolidated Statement of Comprehensive Income for the nine-month period ended September 30, 2015:

	As Originally Reported (1)		Corrections			As Reported (2)		Corrections			As Restated
	(in thousands)
Net income including noncontrolling interest	$	703,141	$	(163,085	)	$	540,056	$	(8,812	)	$	531,244
Comprehensive income	730,678		(163,085		)	567,593		(8,812		)	558,781
Comprehensive income attributable to noncontrolling interest	295,222		(68,483		)	226,739		(4,759		)	221,980
Comprehensive income attributable to SHUSA	$	435,456	$	(94,602	)	$	340,854	$	(4,053	)	$	336,801

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the nine-month period ended September 30, 2015 filed on November 13, 2015.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

The following table reflects a summary of the impact of the corrections on the Company's Condensed Consolidated Statement of Comprehensive Income for the nine-month period ended September 30, 2014:

	As Originally Reported (1)		Corrections		As Reported (2)		Corrections			As Restated
	(in thousands)
Net income including noncontrolling interest	$	2,476,050	$	204,787	$	2,680,837	$	(25,887	)	$	2,654,950
Comprehensive income	2,612,470		204,787		2,817,257		(25,887		)	2,791,370
Comprehensive income attributable to noncontrolling interest	298,633		84,542		383,175		291			383,466
Comprehensive income attributable to SHUSA	$	2,313,837	$	120,245	$	2,434,082	$	(26,178	)	$	2,407,904

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the nine-month period September 30, 2014 filed on November 17, 2014.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table reflects a summary of the impact of the corrections on the Company's Condensed Consolidated Statement of Comprehensive Income for the three-month period ended September 30, 2015:

	As Originally Reported (1)		Corrections			As Reported (2)		Corrections		As Restated
	(in thousands)
Net income including noncontrolling interest	$	182,124	$	(73,250	)	$	108,874	$	17,333	$	126,207
Comprehensive income	238,753		(73,250		)	165,503		17,333		182,836
Comprehensive income attributable to noncontrolling interest	100,237		(31,346		)	68,891		6,492		75,383
Comprehensive income attributable to SHUSA	$	138,516	$	(41,904	)	$	96,612	$	10,841	$	107,453

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the three-month period ended September 30, 2015 filed on November 13, 2015.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

The following table reflects a summary of the impact of the corrections on the Company's Condensed Consolidated Statement of Comprehensive Income for the three-month period ended September 30, 2014:

	As Originally Reported (1)		Corrections		As Reported (2)		Corrections			As Restated
	(in thousands)
Net income including noncontrolling interest	$	259,092	$	123,926	$	383,018	$	(27,823	)	$	355,195
Comprehensive income	259,048		123,926		382,974		(27,823		)	355,151
Comprehensive income attributable to noncontrolling interest	54,420		51,166		105,586		5,733			111,319
Comprehensive income attributable to SHUSA	$	204,628	$	72,760	$	277,388	$	(33,556	)	$	243,832

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the three-month period September 30, 2014 filed on November 17, 2014.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table reflects a summary of the impact of the corrections on the Company's Condensed Consolidated Statement of Stockholder's Equity for the nine-month period ended September 30, 2015:

	Common Stock and Paid-in Capital
	As Originally Reported (1)			Corrections		As Reported (2)			Corrections		As Restated
	(in thousands)
Impact of SCUSA Stock Option Activity	$	(13,946	)	$	—	$	(13,946	)	$	11,942	$	(2,004	)
Balance, End of period	$	14,717,564		$	—	$	14,717,564		$	11,942	$	14,729,506

	Retained Earnings
	As Originally Reported (1)		Corrections			As Reported (2)		Corrections			As Restated
	(in thousands)
Balance, Beginning of period	$	3,714,642	$	122,480		$	3,837,122	$	9,295		$	3,846,417
Comprehensive income attributable to SHUSA	407,919		(94,602		)	313,317		(4,053		)	309,264
Balance, End of period	$	4,111,611	$	27,878		$	4,139,489	$	5,242		$	4,144,731

	Non-Controlling Interest
	As Originally Reported (1)		Corrections			As Reported (2)		Corrections			As Restated
	(in thousands)
Balance, Beginning of period	$	3,960,809	$	86,113		$	4,046,922	$	5,473		$	4,052,395
Comprehensive income attributable to NCI	295,222		$	(68,483	)	226,739		$	(4,759	)	221,980
Impact of SCUSA Stock Option Activity	24,957		$	—		24,957		$	45,071		70,028
Balance, End of period	$	4,280,988	$	17,630		$	4,298,618	$	45,785		$	4,344,403

	Total Stockholder's Equity
	As Originally Reported (1)		Corrections			As Reported (2)		Corrections			As Restated
	(in thousands)
Balance, Beginning of period	$	22,504,095	$	208,593		$	22,712,688	$	14,768		$	22,727,456
Comprehensive income attributable to SHUSA	435,456		(94,602		)	340,854		(4,053		)	336,801
Comprehensive income attributable to NCI	295,222		(68,483		)	226,739		(4,759		)	221,980
Impact of SCUSA Stock Option Activity	11,011		—			11,011		57,013			68,024
Balance, End of period	$	23,236,735	$	45,508		$	23,282,243	$	62,969		$	23,345,212

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the nine-month period ended September 30, 2015 filed on November 13, 2015.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table reflects a summary of the impact of the corrections on the Company's Condensed Consolidated Statement of Stockholder's Equity for the nine-month period ended September 30, 2014:

	Retained Earnings
	As Originally Reported (1)		Corrections		As Reported (2)		Corrections			As Restated
	(in thousands)
Balance, Beginning of period	$	1,394,090	$	—	$	1,394,090	$	32,115		$	1,426,205
Comprehensive income attributable to SHUSA	2,177,417		120,245		2,297,662		(26,178		)	2,271,484
Balance, End of period	$	3,560,557	$	120,245	$	3,680,802	$	5,937		$	3,686,739

	Non-Controlling Interest
	As Originally Reported (1)		Corrections			As Reported (2)		Corrections			As Restated
	(in thousands)
Comprehensive income attributable to NCI	$	—	$	383,175		$	383,175	$	291		$	383,466
SCUSA Change in Control	3,872,370		(402,935		)	3,469,435		14,010			3,483,445
Dividends paid to NCI	—		—			—		(20,667		)	(20,667		)
Impact of SCUSA Stock Option Activity	—		104,301			104,301		6,657			110,958
Balance, End of period	$	3,872,370	$	84,541		$	3,956,911	$	291		$	3,957,202

	Total Stockholder's Equity
	As Originally Reported (1)		Corrections			As Reported (2)		Corrections			As Restated
	(in thousands)
Balance, Beginning of period	$	13,544,983	$	—		$	13,544,983	$	32,115		$	13,577,098
Comprehensive income attributable to SHUSA	2,313,837		120,245			2,434,082		(26,178		)	2,407,904
Comprehensive income attributable to NCI	—		383,175			383,175		291			383,466
SC Change in Control	3,872,370		(402,935		)	3,469,435		14,010			3,483,445
Impact of SCUSA Stock Option Activity	—		104,301			104,301		6,657			110,958
Dividends paid to NCI	—		—			—		(20,667		)	(20,667		)
Balance, End of period	$	22,240,033	$	204,786		$	22,444,819	$	6,228		$	22,451,047

(1) Originally reported amounts included in the Quarterly Report on Form 10-Q for the three-month period ended September 30, 2014 filed on November 17, 2014.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table summarizes the impact of the corrections on the Company's Condensed Consolidated Statement of Cash Flows for the nine-month period ended September 30, 2015:

	As Originally Reported (1)			Corrections			As Reported (2)			Corrections			As Restated
	(in thousands)
Net income including noncontrolling interest	$	703,141		$	(163,085	)	$	540,056		$	(8,812	)	$	531,244
Provision for credit losses	2,728,118			285,112			3,013,230			(57,175		)	2,956,055
Deferred tax expense	224,417			(122,027		)	102,390			(46,669		)	55,721
Depreciation, amortization and accretion	116,205			—			116,205			133,168			249,373
Net gain on sale of loans	(102,909		)	—			(102,909		)	(24,517		)	(127,426		)
Stock-based compensation	23,156			—			23,156			(3,626		)	19,530
Net change in other assets and bank-owned life insurance	355,987			—			355,987			(85,556		)	270,431
Net change in other liabilities	180,929			—			180,929			72,338			253,267
Net cash provided by operating activities	3,728,327			—			3,728,327			(20,849		)	3,707,478
Proceeds from the sale of leased vehicles	1,750,928			—			1,750,928			7,603			1,758,531
Manufacturer incentives	993,991			—			993,991			(2,665		)	991,326
Net cash used in investing activities	(14,389,842		)	—			(14,389,842		)	4,938			(14,384,904		)
Net change in advance payments by borrowers for taxes and insurance	42,615			—			42,615			(238		)	42,377
Proceeds from the issuance of common stock	87,713			—			87,713			(500		)	87,213
Net cash provided by financing activities	13,096,163			—			13,096,163			(738		)	13,095,425
Net increase in cash and cash equivalents	2,434,648			—			2,434,648			(16,649		)	2,417,999
Cash and cash equivalents, beginning of period	2,234,725			—			2,234,725			(32,942		)	2,201,783
Cash and cash equivalents, end of period	$	4,669,373		$	—		$	4,669,373		$	(49,591	)	$	4,619,782

(1) Originally reported amounts as included in the Quarterly Report on Form 10-Q for the nine-month period ended September 30, 2015 filed on November 13, 2015.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18. RESTATEMENTS (continued)

The following table summarizes the impact of the corrections on the Company's Condensed Consolidated Statement of Cash Flows for the nine-month period ended September 30, 2014:

	As Originally Reported (1)			Corrections			As Reported (2)			Corrections			As Restated
	(in thousands)
Net income including noncontrolling interest	$	2,476,050		$	204,787		$	2,680,837		$	(25,887	)	$	2,654,950
Gain on SCUSA Change in Control	(2,291,003		)	—			(2,291,003		)	10,976			(2,280,027		)
Impairment of capitalized software	—			—			—			64,546			64,546
Provision for credit losses	2,034,721			(343,620		)	1,691,101			(57,212		)	1,633,889
Deferred tax expense	890,534			138,833			1,029,367			147,375			1,176,742
Depreciation, amortization and accretion	(291,638		)	—			(291,638		)	111,710			(179,928		)
Net gain on sale of loans	(190,338		)	—			(190,338		)	54,827			(135,511		)
Equity earnings on equity method investments	(7,607		)	—			(7,607		)	(476		)	(8,083		)
Proceeds from sales of loans held-for-sale	3,996,244			—			3,996,244			(54,877		)	3,941,367
Net change in other assets and bank-owned life insurance	238,384			—			238,384			20,331			258,715
Net change in other liabilities	379,165			—			379,165			(231,145		)	148,020
Net cash provided by operating activities	3,332,291			—			3,332,291			40,218			3,372,509
Purchases of leased vehicles	(4,579,833		)	—			(4,579,833		)	(262,577		)	(4,842,410		)
Proceeds from the sale of leased vehicles	410,529			—			410,529			(585		)	409,944
Manufacturer incentives	564,376			—			564,376			203,928			768,304
Net cash used in investing activities	(10,628,505		)	—			(10,628,505		)	(59,234		)	(10,687,739		)
Net change in short-term borrowings	66,680			—			66,680			15,359			82,039
Net proceeds from long-term borrowings	29,068,188			—			29,068,188			(7,345		)	29,060,843
Repayments of FHLB advances (with maturities greater than 90 days)	(913,635		)	—			(913,635		)	(8,311		)	(921,946		)
Net cash provided by financing activities	5,120,496			—			5,120,496			(298		)	5,120,198
Net decrease in cash and cash equivalents	(2,175,718		)	—			(2,175,718		)	(19,314		)	(2,195,032		)
Cash and cash equivalents, end of period	$	2,051,229		$	—		$	2,051,229		$	(19,314	)	$	2,031,915

(1) Originally reported amounts as included in the Quarterly Report on Form 10-Q for the nine-month period ended September 30, 2015 filed on November 13, 2015.

(2) Reported amounts included in Part II, Item 9B of the Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 14, 2016.

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

EXECUTIVE SUMMARY

Santander Holdings USA, Inc. ("SHUSA" or the "Company") is the parent company of Santander Bank, National Association, (the "Bank" or "SBNA"), a national banking association, and owns approximately 59% of Santander Consumer USA Holdings Inc. (together with its subsidiaries, "SCUSA"), a consumer finance company focused on vehicle finance. SHUSA is headquartered in Boston, Massachusetts and the Bank's main office is in Wilmington, Delaware. SCUSA is headquartered in Dallas, Texas. SHUSA is a wholly-owned subsidiary of Banco Santander, S.A. ("Santander").

The Bank, previously named Sovereign Bank, National Association, changed its name to Santander Bank, National Association on October 17, 2013. The Bank's principal markets are in 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 volumes, and accordingly 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.

SCUSA's primary business is the indirect origination of retail installment contracts, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. SCUSA also offers a full spectrum of auto financing products and services to Chrysler customers and dealers under the Chrysler Capital brand, the trade name used in providing services ("Chrysler Capital") under the ten-year private label financing agreement SCUSA signed with the Chrysler Group LLC. These products and services include consumer retail installment contracts and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. SCUSA also originates vehicle loans through a web-based direct lending program, purchases vehicle retail installment contracts from other lenders, and services automobile and recreational and marine vehicle portfolios for other lenders. Additionally, SCUSA has several relationships through which it provides unsecured consumer loans, private-label credit cards and other consumer finance products.

On January 22, 2014, SCUSA's registration statement for an initial public offering ("IPO") of shares of its common stock (the “SCUSA Common Stock”), was declared effective by the Securities and Exchange Commission (the "SEC"). Prior to the IPO, the Company owned approximately 65% of SCUSA Common Stock.

On January 28, 2014, the IPO closed, and certain stockholders of SCUSA, including the Company and Sponsor Auto Finance Holdings Series LP ("Sponsor Holdings"), sold 85,242,042 shares of SCUSA Common Stock. Immediately following the IPO, the Company owned approximately 61% of the shares of SCUSA Common Stock. In connection with these sales, certain board representation, governance and other rights granted to Dundon DFS, LLC ("DDFS") and Sponsor Holdings were terminated as a result of the reduction in DDFS and Sponsor Holdings’ collective ownership of shares of SCUSA Common Stock below certain ownership thresholds, causing the first quarter 2014 change in control and consolidation of SCUSA (the "Change in Control").

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

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

On July 2, 2015, the Company announced that it had entered into an agreement with Thomas Dundon, the former Chief Executive Officer of SCUSA, DDFS, and Santander related to Mr. Dundon’s departure from SCUSA (the “Separation Agreement”). Pursuant to the Separation Agreement, the Company was deemed to have delivered an irrevocable notice to exercise its option to acquire all of the shares of SCUSA 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 SCUSA Common Stock held by DDFS (the “DDFS shares”) represented approximately 9.8% of SCUSA 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. Santander is expected to assume the Company’s obligation to purchase the DDFS shares and contribute those shares to SHUSA. 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 LIBOR rate on the third business day preceding the consummation of the Call Transaction plus 100 basis points with respect to the DDFS shares that were ultimately sold in the Call Transaction.

ECONOMIC AND BUSINESS ENVIRONMENT

Overview

During the third quarter of 2015, unemployment improved while market results declined, marking a mixed quarter for the U.S. economy.

The unemployment rate at September 30, 2015 improved to 5.1% from 5.3% at June 30, 2015 and 5.9% one year ago. According to the U.S Bureau of Labor Statistics, the job growth is primarily attributable to the professional and business services, retail trade, and health care sectors.

Markets continued the overall decline that began in the second quarter, sparked by the Greek debt crisis and continued by short-term market trading disruptions in China and the U.S. The total year-to-date returns for the following indices, based on closing prices, at September 30, 2015 were:

	September 30, 2015
Dow Jones Industrial Average	(8.6)%
S&P 500	(6.7)%
NASDAQ Composite	(2.4)%

At its September 2015 meeting, the Federal Open Market Committee (the “FOMC”) announced its plans to maintain the federal funds rate target at 0-.25% and the targeted inflation rate at 2%. While the federal funds rate has remained on target, the inflation rate remains just under 2.0%. As of its September statement, the FOMC had not confirmed timing for its initial increase in the target ranges for the federal funds rate.

The 10-year Treasury bond rate at September 30, 2015 was 2.06%, down from 2.17 % at December 31, 2014 and 2.51% one year prior. Over the past year, the 10-year Treasury bond rate decreased 45 basis points.

At the time of filing this Form 10-Q, third quarter 2015 mortgage origination activity results were not available. Actual origination data through the second quarter of 2015 indicated both purchase and refinance activity that exceeded the first half of 2014. Projections indicate that 2015 will remain ahead of 2014 in mortgage origination activity. Actual commercial and multifamily loan originations through the second quarter of 2015 also exceeded origination activity for the prior year.

Changing market conditions are considered a significant risk factor to the Company. The continued low interest rate environment presents 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 uncertainty could have an overall impact on the Company's results of operations and financial condition. Such conditions could also impact the Company's credit risk, and the associated provision for credit losses and legal expense could increase.

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

European Exposure

Concerns about the European Union’s sovereign debt and the future of the euro have caused uncertainty for financial markets globally. Other than borrowing agreements and related party transactions with Santander, as further described in the Financial Condition section of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") and Notes to the Condensed Consolidated Financial Statements, the Company's exposure to European countries includes the following:

	September 30, 2015
Country	Covered Bonds		Financial Institution Bonds		Non-Financial Institutions Bonds		Total
	(in thousands)
France	$	—	$	6,000	$	4,961	$	10,961
Germany	—		—		138,239		138,239
Great Britain	—		80,114		277,842		357,956
Italy	—		—		56,957		56,957
Netherlands	—		45,963		—		45,963
Norway	—		—		7,996		7,996
Portugal	—		—		40,833		40,833
Spain	93,481		11,000		44,261		148,742
Sweden	—		51,947		—		51,947
Switzerland	—		4,998		—		4,998
	$	93,481	$	200,022	$	571,089	$	864,592

The market value of the Company's European exposure at September 30, 2015 was $872.5 million.

	December 31, 2014
Country	Covered Bonds		Financial Institution Bonds		Non-Financial Institutions Bonds		Total
	(in thousands)
France	$	—	$	143,475	$	4,953	$	148,428
Germany	—		—		139,233		139,233
Great Britain	—		119,048		295,436		414,484
Italy	—		48,765		57,803		106,568
Netherlands	—		49,886		—		49,886
Norway	—		—		7,994		7,994
Portugal	—		—		41,081		41,081
Spain	93,938		78,098		61,355		233,391
Sweden	—		77,847		—		77,847
Switzerland	—		14,970		—		14,970
	$	93,938	$	532,089	$	607,855	$	1,233,882

The market value of the Company's European exposure at December 31, 2014 was $1.3 billion.

These investments are included within corporate debt securities discussed in Note 4 to the Condensed Consolidated Financial Statements. The Company's total exposure to European entities decreased $369.3 million, or 29.9%, from December 31, 2014 to September 30, 2015.

As of September 30, 2015, the Company had approximately $327.9 million of loans that were denominated in a currency other than the U.S. dollar.

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

Overall, gross exposure to the foregoing countries was approximately 0.9% of the Company's total assets as of September 30, 2015, and no more than 1% was to any given country or third party. The Company currently does not have credit protection on any of these exposures, nor does it provide lending services in Europe. The Company transacts with various European banks as counterparties to interest rate swaps and foreign currency transactions for its hedging and customer-related activities; however, these derivatives transactions are generally subject to master netting and collateral support agreements, which significantly limit the Company’s exposure to loss.

Management conducts periodic stress tests of the Company's significant country risk exposures, analyzing the direct and indirect impacts on the risk of loss from various macroeconomic and capital markets scenarios. The Company does not have significant exposure to foreign country risks because its foreign portfolio is relatively small. However, the Company has identified exposure to increased loss from U.S. borrowers associated with the potential indirect impact of a European downturn on the U.S. economy. The Company mitigates these potential impacts through its normal risk management processes, which includes active monitoring and, if necessary, the application of loss mitigation strategies.

Credit Rating Actions

The following table presents Moody's and Standard & Poor's ("S&P") credit ratings for the Bank, SHUSA, Santander and the Kingdom of Spain as of September 30, 2015:

	BANK		SHUSA		SANTANDER		SPAIN
	Moody's	S&P	Moody's	S&P	Moody's	S&P	Moody's	S&P
LT Senior Debt	Baa2	BBB+	Baa2	BBB+	A3	BBB+	Baa2	BBB
ST Deposits	P-1	A-2	n/a	A-2	P-2	A-2	n/a	A-2
Outlook	Stable	Stable	Negative	Stable	Positive	Stable	Positive	Stable

Subsequent to the quarter end, on October 2, 2015, S&P upgraded the long-term senior debt rating of the Kingdom of Spain's from BBB to BBB+. In addition, on October 6, 2015, S&P upgraded the long-term senior debt rating of Santander from BBB+ to A-. S&P also upgraded SHUSA's long-term debt rating from BBB to BBB+, and the Bank's long-term debt rating from BBB to

BBB+.

SHUSA funds its operations independently of the other entities owned by Santander, and believes its business is not necessarily closely related 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 could impact SHUSA's or its subsidiaries' credit ratings, and any other change in the condition of Santander could affect SHUSA.

On March 16, 2015 Moody's published its new bank rating methodology and subsequently announced multiple rating actions following the publication of its new methodology. The rating actions affect 1,021 of 1,934 rated banking entities, which include operating banks, holding companies, subsidiaries, special purpose issuance conduits, branches and other entities for which Moody's has assigned ratings to at least one debt class. Moody's noted that the deposit ratings of most U.S. banking entities are on review for upgrade and their bank-level senior unsecured debt and issuer ratings are on review for downgrade. These rating actions reflect the Loss Given Failure component of Moody's new methodology. On May 15, 2015, Moody's upgraded the Bank's short-term deposit rating by 1 notch (from P-2 to P1) and downgraded its senior unsecured debt rating by 1 notch from Baa1 to Baa2. SHUSA's ratings were not placed under review by Moody's.

On June 17, 2015 Moody's upgraded Santander's long-term senior debt rating from Baa1 to A3 and changed Santander's outlook from Stable to Positive.

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

The Bank estimates that a one or two notch downgrade by either S&P or Moody's would require the Bank to post up to an additional $3.5 million or $5.5 million, respectively, to comply with existing derivative agreements.

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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 the Bank are subject to regulation under various U.S. federal laws, including the Bank Holding Company ("BHC") Act, the Federal Reserve Act, the National Bank Act, the Federal Deposit Insurance Act (the "FDIA"), the Dodd-Frank Act (the "DFA"), the Truth-in-Lending Act (which governs disclosures of credit terms to consumer borrowers), the Truth-in-Savings Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act (which governs the provision of consumer information to credit reporting agencies and the use of consumer information), the Fair Debt Collection Practices Act (which governs the manner in which consumer debts may be collected by collection agencies), the Home Mortgage Disclosure Act (which requires financial institutions to provide certain information about home mortgage and refinanced loans), the Service-member Civil Relief Act , the Unfair and Deceptive Practices Act, the Real Estate Settlement Procedures Act, and the Electronic Funds Transfer Act (which governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of ATMs and other electronic banking services), as well as other federal and state laws.

As SC is a subsidiary of the Company, it is also subject to regulatory oversight from the Board of Governors of the Federal Reserve System ("Federal Reserve") for BHC regulatory supervision purposes, as well as the Consumer Financial Protection Bureau (the "CFPB").

Dodd-Frank Wall Street Reform and Consumer Protection Act ("DFA")

On July 21, 2010, the DFA, which instituted major changes to the banking and financial institutions regulatory regimes in light of the performance of and government intervention in the financial services sector during the financial crisis was enacted and The DFA includes a number of provisions designed to promote enhanced supervision and regulation of financial companies and financial markets. The DFA introduced a substantial number of reforms that reshape the structure of the regulation of the financial services industry. Although the full impact of this legislation on the Company and the industry will not be known until these regulations are completed and fully implemented, which could take several years, the enhanced regulation has involved and will continue to involve higher compliance costs and have negatively affected the Company's revenue and earnings.

More specifically, the DFA imposes heightened prudential requirements on BHCs with at least $50.0 billion in total consolidated assets (often referred to as “systemically important financial institutions” or "SIFIs"), which includes the Company, and requires the Federal Reserve to establish prudential standards for such BHCs that are more stringent than those applicable to other BHCs, including standards for risk-based requirements and leverage limits; heightened capital and liquidity standards, including eliminating trust preferred securities as Tier 1 regulatory capital; enhanced risk management requirements; and credit exposure reporting and concentration limits. These changes have impacted and are expected to continue impacting the profitability and growth of the Company.

The DFA mandates an enhanced supervisory framework, which means that the Company is subject to annual stress tests by the Federal Reserve, and the Company and the Bank are required to conduct semi-annual and annual stress tests, respectively, reporting results to the Federal Reserve and the Office of the Comptroller of the Currency (the “OCC"). The Federal Reserve also has discretionary authority to establish additional prudential standards, on its own or at the Financial Stability Oversight Council's recommendation, regarding contingent capital, enhanced public disclosures, short-term debt limits, and otherwise as it deems appropriate.

Under the Durbin Amendment to the DFA, in June 2011 the Federal Reserve issued the final rule implementing debit card interchange fee and routing regulation. The final rule establishes standards for assessing whether debit card interchange fees received by debit card issuers, including the Bank, are “reasonable and proportional” to the costs incurred by issuers for electronic debit transactions, and prohibits network exclusivity arrangements on debit cards to ensure merchants have choices in how debit card transactions are routed.

The DFA established the Consumer Financial Protection Bureau (the “CFPB"), which has broad powers to set the requirements for the terms and conditions of consumer financial products. This has resulted in and is expected to continue to result in increased compliance costs and reduced revenue.

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

In March 2013, the CFPB issued a bulletin recommending that indirect vehicle lenders, including SCUSA, take steps to monitor and impose controls over vehicle dealer "mark-up" policies whereby dealers impose higher interest rates on certain consumers, with the mark-up shared between the dealer and the lender. In accordance with SC's policy, dealers are allowed to mark-up interest rates by a maximum of 2.00%, but in October 2013 SC reduced the maximum compensation (participation from 2.00% (industry practice) to 1.75%). The Company believes this restriction removes the dealers' incentive to mark-up rates beyond 1.75%. The Company plans to continue to evaluate this policy for effectiveness and may make further changes to strengthen oversight of dealers and mark-up rates.

On July 31, 2015, the CFPB notified SC that it had referred to the Department of Justice (the "DOJ") certain alleged violations by SC of the ECOA regarding (i) statistical disparities in mark-ups charged by automobile dealers to protected groups on loans originated by those dealers and purchased by SC and (ii) the treatment of certain types of income in SC's underwriting process.

On September 25, 2015, the DOJ notified SC that it had initiated, based on the referral from the CFPB, an investigation under the ECOA of SC's pricing of automobile loans.

The Company routinely executes interest rate swaps for the management of its asset/liability mix, and also executes such swaps with its borrower clients. Under the DFA, the Bank is required to post collateral with certain of its counterparties and clearing exchanges. While clearing these financial instruments offers some benefits and additional transparency in valuation, the systems requirements for clearing execution add operational complexities to the business and accordingly increase operational risk exposure.

Provisions of the DFA relating to the applicability of state consumer protection laws to national banks, including the Bank, became effective in July 2011. Questions may arise as to whether certain state consumer financial laws that were previously preempted by federal law are no longer preempted as a result of these new provisions. Depending on how such questions are resolved, the Bank may experience an increase in state-level regulation of its retail banking business and additional compliance obligations, revenue impacts and costs. SC is already subject to such state-level regulation.

The DFA and certain other legislation and regulations impose various restrictions on compensation of certain executive officers. The Company's ability to attract and/or retain talented personnel may be adversely affected by these restrictions.

Other requirements of the DFA include increases in the amount of deposit insurance assessments the Bank must pay; changes to the nature and levels of fees charged to consumers, which are negatively affecting the Bank's income; banning banking organizations from engaging in proprietary trading and restricting their sponsorship of, or investing in, hedge funds and private equity funds, subject to limited exceptions; and increasing regulation of the derivatives markets through measures that broaden the derivative instruments subject to regulation and requiring clearing and exchange trading as well as imposing additional capital and margin requirements for derivatives market participants, which will increase the cost of conducting this business.

Volcker Rule

The DFA added new section 13 to the BHC Act which is commonly referred to 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 hedge fund or a private equity fund (together, a “Covered Fund”): (i) acquiring or retaining any equity, partnership or other ownership interest in the fund; (ii) controlling the 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 fund. These prohibitions are subject to certain exemptions for permitted activities.

Because the term “banking entity” includes an insured depository institution, a depository institution holding company and any affiliate of any of the foregoing, the Volcker Rule has sweeping worldwide application and covers entities such as Santander, the Company, SC, the Bank and numerous other Santander subsidiaries in the United States and abroad.

When the agencies responsible for administering the Volcker Rule approved the final regulations implementing the rule, the Federal Reserve extended the deadline for compliance with the rule until July 21, 2015. The Federal Reserve subsequently extended the deadline by which banking entities were to conform investments in and relationships with Covered Funds and foreign funds that may be subject to the Volcker Rule and that were in place prior to December 31, 2013 (“Legacy Covered Funds”) until July 21, 2016. Furthermore, the Federal Reserve expressed its intention to grant a final one-year extension until July 21, 2017 to conform ownership interests in and relationships with Legacy Covered Funds. The extension did not apply to non-Legacy Covered Funds or to proprietary trading activities which were required to conform to the Volcker Rule by July 21, 2015.

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

In implementing the Volcker Rule, an examination was made of all activities and investments worldwide to determine which banking entities were involved in proprietary trading and/or Covered Fund activity. Based on this review, all proprietary trading that was not permitted under the Volcker Rule was terminated and all Covered Fund activity was addressed under the rule’s requirements. As a result, the Company and its banking entity subsidiaries satisfied all requirements of the Volcker Rule for non-Legacy Covered Funds by the July 21, 2015 deadline. In addition, many Legacy Covered Funds have already been conformed to the requirements of the Volcker Rule or will either be conformed to the Volcker Rule’s requirements or divested before any deadline for conformance.

Certain policies and procedures, training programs, record keeping, internal controls and other compliance requirements that are necessary to comply with the Volcker Rule were implemented before July 21, 2015. As required by the Volcker Rule, the compliance infrastructure has been tailored to each banking entity based on the size of theentity and its level oftrading activities. The compliance program includes, among other things, processes for prior approval of new activities and investments that are permitted under the rule, testing and auditing for compliance and a process for attesting annually that the compliance program is reasonably designed to achieve compliance with the Volcker Rule.

Federal Deposit Insurance Corporation Improvement Act

The Federal Deposit Insurance Corporation Improvement Act established five capital tiers: well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. A depository institution’s capital tier depends on its capital levels in relation to various capital measures, which include leverage and risk-based capital measures and certain other factors. Depository institutions that are not classified as well-capitalized or adequately-capitalized are subject to various restrictions regarding capital distributions, payment of management fees, acceptance of brokered deposits and other operating activities.

Basel III

New and evolving capital standards, both as a result of the DFA and the implementation in the U.S. of Basel III, will have a significant effect on banks and BHCs, including SHUSA and the Bank. In July 2013, the Federal Reserve, the Federal Deposit Insurance Corporation (the “FDIC") and the OCC released final U.S. Basel III regulatory capital rules implementing the global regulatory capital reforms of Basel III. The final rules established a comprehensive capital framework that includes both the advanced approaches for the largest internationally active U.S. banks, formerly known as Basel II, and a standardized approach that applies to all banking organizations with over $500 million in assets. Subject to various transition periods, the rule became effective for the largest banks on January 1, 2014, and for all other banks on January 1, 2015.

The new rules narrow the definition of regulatory capital and establish higher minimum risk-based capital ratios that, when fully phased in, will require banking organizations, including SHUSA and the Bank, to maintain a minimum common equity tier 1 ("CET1") capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total ratio of 8.0% and a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average consolidated assets for the quarter. These requirements for SHUSA and the Bank went into effect on January 1, 2015.

A capital conservation buffer of 2.5% above each of these levels (to be phased in over three years starting in 2016, beginning at 0.625% and increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019) will be required for banking institutions and BHCs to avoid restrictions on their ability to make capital distributions, including paying dividends.

The final framework rules included new deductions from and adjustments to CET1. These include, 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 CET1 to the extent any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Implementation of the deductions and other adjustments to CET1 for SHUSA and the Bank began on January 1, 2015 and will be phased in over three years.

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

As of September 30, 2015, the Bank's and SHUSA's CET1 ratio under Basel III, on a fully phased-in basis under the standardized approach, were 13.43% and 11.12%, respectively. Under the transitions provided under Basel III, the Bank's and SHUSA's CET1 ratio under the standardized approach, were 13.86% and 12.10%, respectively. The calculation of the CET1 ratio under 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 in order to implement the new regulations. If the regulators would interpret the rules differently, there could be an impact to the results of the calculation which may have a negative impact to the calculation of CET1. As mentioned above, the minimum required CET1 ratio is comprised of the 4.5% minimum and the 2.5% conservation buffer. On that basis, the Company believes that, as of September 30, 2015, 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.

See the Bank Regulatory Capital section of this MD&A for the Company's 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.

The Basel III liquidity framework will require banks and BHCs to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, will be required by regulation going forward. One test, referred to as the liquidity coverage ratio ("LCR"), is designed to ensure that a banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to its expected net cash outflow for a 30-day time horizon. The other, referred to 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 October 24, 2013, the Federal Reserve, the FDIC, and the OCC issued a proposal to implement the Basel III LCR for certain internationally active banks and nonbank financial companies and a modified version of the LCR for certain depository institution holding companies that are not internationally active. On September 3, 2014, the agencies approved the final LCR rule. The agencies stressed that LCR is a key component in their effort to strengthen the liquidity soundness of the U.S. financial sector and is used to complement the broader liquidity regulatory framework and supervisory process such as Enhanced Prudential Standards ("EPS") and Comprehensive Capital Analysis and Review ("CCAR"). The agencies have mandated a phased implementation approach where the most globally important covered companies (more than $700 billion in assets) and large regionals ($250 billion to $700 billion in assets) were required to report their LCR calculation beginning January 1, 2015. Smaller covered companies (more than $50 billion in assets) such as SHUSA are required to report their LCR calculation monthly beginning January 1, 2016. Based on management's interpretation of the final rule, that will be effective on January 1, 2016, SHUSA LCR was in excess of the regulatory minimum of 90% which will increase to 100% on January 1, 2017.

On October 31, 2014, the Basel Committee on Banking Supervision issued the final standard for the NSFR. The NSFR requires banks to maintain a stable funding profile in relation to their on- and off-balance sheet activities, thus reducing the likelihood that disruptions to a bank's regular sources of funding will erode its liquidity position in a way that could increase the risk of its failure and potentially lead to broader systemic stress. NSFR will become a minimum standard by January 1, 2018.

The U.S. notice of proposed rule-making on NSFR is expected to be published in 2015.

Stress Tests and Capital Adequacy

Pursuant to the DFA, as part of the Federal Reserve's annual CCAR, certain banks and BHCs, including the Company and the Bank, are required to perform stress tests and submit capital plans to the Federal Reserve and the OCC on an annual basis, and receive a notice of non-objection to those capital plans from the Federal Reserve and the OCC before taking capital actions, such as paying dividends, implementing common equity repurchase programs, or redeeming or repurchasing capital instruments. As a consolidated subsidiary of SHUSA, SCUSA is included in the Company's stress tests and capital plans. On March 26, 2014, the Federal Reserve announced that, based on qualitative concerns, it objected to the Company’s 2014 capital plan. The Federal Reserve did not object to SHUSA’s payment of dividends on its outstanding class of preferred stock.

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

On May 1, 2014, the Board of Directors of SC declared the May SC dividend. The Federal Reserve informed SHUSA on May 22, 2014 that it did not object to SC's payment of the May SC dividend, provided that Santander contribute at least $20.9 million of capital to SHUSA prior to such payment, so that SHUSA's consolidated capital position would be unaffected by the May SC dividend. The Federal Reserve also informed SHUSA that, until the Federal Reserve issues a non-objection to SHUSA's capital plan, any future SC dividend will require prior receipt of a written non-objection from the Federal Reserve. On May 28, 2014, SHUSA issued 84,000 shares of its common stock, no par value per share, to Santander in exchange for cash in the amount of $21.0 million.

On September 15, 2014, the Company entered into a written agreement with the Federal Reserve Bank (the "FRB") of Boston and the Federal Reserve. Under the terms of the written agreement, the Company must serve as a source of strength to the Bank; strengthen Board oversight of planned capital distributions by the Company and its subsidiaries; and not declare or pay, and not permit any non-bank subsidiary that is not wholly-owned by the Company to declare or pay, any dividends, and not make, or permit any such subsidiary to make, any capital distribution, in each case without the prior written approval of the FRB of Boston.

On March 11, 2015, the Federal Reserve announced that SHUSA received an objection from the FRB of Boston to the 2015 capital plan SHUSA submitted on January 5, 2015. The FRB of Boston objected to SHUSA’s capital plan on qualitative grounds due to significant deficiencies in SHUSA’s capital planning process. Subject to the restrictions outlined above with respect to the written agreement, the FRB did not object to SHUSA’s payment of dividends on its outstanding class of preferred stock. The FRB of Boston did object to the requested payment of dividends on SC Common Stock.

On July 2, 2015, the Company entered into a written agreement with the FRB of Boston. Under the terms of that 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.

Total Loss Absorbing Capacity

On October 30, 2015 the Federal Reserve released a notice of proposed rule-making (NPR) on total loss absorbing capacity ("TLAC"), long-term debt ("LTD"), and clean holding company requirements for systemically important U.S. BHCs and intermediate holding companies ("IHCs") of systemically important foreign banking organizations ("FBOs"). SHUSA, as the IHC for Santander in the U.S., will be subject to these requirements.

TLAC represents the amount of equity and debt a company must hold to facilitate its orderly liquidation. Under the Federal Reserve’s proposal, SHUSA would be required to hold loss absorbing equity and unsecured debt of 18.5% of risk-weighted assets ("RWAs") by January 1, 2019 and then 20.5% of RWAs by January 1, 2022. These amounts represent the TLAC requirement (16% by January 1, 2019 and then 18% by January 1, 2022) plus a TLAC buffer of 2.5%. The Federal Reserve's proposal also establishes a requirement for the LTD component of the TLAC. The LTD requirement for SHUSA would be 7% of RWAs by January 1, 2019.

The comment period on the FRB's TLAC proposal ends on February 1, 2016.

Enhanced Prudential Standards for Liquidity

On February 18, 2014, the Federal Reserve approved the final rule implementing certain of the EPS mandated by Section 165 of the DFA (the "Final Rule"). The Final Rule applies the EPS to (i) U.S. BHCs with $50 billion (and in some cases $10 billion) or more in total consolidated assets and (ii) foreign banking organizations ("FBOs") with a U.S. banking presence , through branches, agencies or depository institutions exceeding $50 billion in consolidated U.S. non-branch assets. The Final Rule implements, as new requirements for U.S. BHCs, Section 165’s risk management requirements (including requirements, duties and qualifications for a risk management committee and chief risk officer), liquidity stress testing and buffer requirements. U.S. BHCs with total consolidated assets of $50 billion or more on June 30, 2014 are subject to the liquidity requirements as of January 1, 2015.

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

Foreign Banking Organizations

On February 18, 2014, the Federal Reserve issued the Final Rule to strengthen regulatory oversight of FBOs. Under the Final Rule, FBOs with global assets of $50 billion or more and of U.S. non-branch assets of $10 billion or more, including Santander, must consolidate U.S. subsidiary activities under a U.S. intermediate holding company ("IHC"). In addition, the Final Rule requires U.S. BHCs and FBOs with at least $50 billion in total U.S. consolidated non-branch assets to be subject to EPS, heightened capital, liquidity, risk management, and stress testing requirements. Due to both its global and U.S. non-branch total consolidated asset size, Santander is subject to both of the above provisions of the Final Rule. As a result of this rule, Santander is required to transfer its U.S. bank and non-bank subsidiaries currently outside of the Company to the Company, which would become an IHC, or establish a top-tier IHC structure that would include all of its U.S. bank and non-bank subsidiaries. As required under the Final Rule, the Company submitted its IHC implementation plan to the Federal Reserve on December 31, 2014. A phased-in approach is being used for the standards and requirements at both the FBO and the IHC. As a U.S. BHC with more than $50 billion in total consolidated assets, the Company was subject to EPS as of January 1, 2015. The IHC must be formed, with all but 10% of the non-BHC assets included, by July 1, 2016. Other standards of the Final Rule will be phased in through January 1, 2018.

Bank Regulations

As a national bank, the Bank is subject to the OCC's regulations under the National Bank Act. The various laws and regulations administered by the OCC for national banks affect corporate practices and impose certain restrictions on activities and investments to ensure that the Bank operates in a safe and sound manner. These laws and regulations also require the Bank to disclose substantial business and financial information to the OCC and the public.

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as amended (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 affiliates of Santander U.K. plc ("Santander U.K.") within the Santander group.

During the period covered by this quarterly report:

• Santander UK plc ("Santander UK") holds frozen savings and one current accounts for two customers resident in the U.K. who are currently designated by the U.S. for terrorism. The accounts held by each customer were blocked after the customer's designation and have remained blocked and dormant throughout the nine-month period ended September 30, 2015. Revenue generated by Santander UK on these accounts in the third quarter of 2015 is negligible.

• An Iranian national, resident in the U.K., who is currently designated by the U.S. under the Iranian Financial Sanctions Regulations and the Weapons of Mass Destruction Proliferators ("NPWMD") designation, holds a mortgage with Santander U.K. that was issued prior to any such designation. No further draw-down has been made (or would be allowed) under this mortgage, although Santander U.K. continues to receive repayment installments. In the nine months ended September 30, 2015, total revenue in connection with this mortgage was approximately £2,928, while net profits were negligible relative to the overall profits of Santander U.K. Santander U.K. does not intend to enter into any new relationships with this customer, and any disbursements will only be made in accordance with applicable sanctions. The same Iranian national also holds two investment accounts with Santander Asset Management UK Limited. The accounts have remained frozen during the nine months ended September 30, 2015. The investment returns are being automatically reinvested, and no disbursements have been made to the customer. Total revenue for the Santander group in connection with the investment accounts was approximately £161 while net profits in the nine months ended September 30, 2015 were negligible relative to the overall profits of Santander.

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

• In addition, during the third quarter of 2015 two additional Santander UK customers were designated. A UK national designated by the U.S under the Specially Designated Global Terrorist (SDGT) sanctions program, who is on the U.S Specially Designated National (SDN) list. This customer holds a bank account which generated revenue of £183 during the third quarter of 2015. A stop was placed on the account. Net profits in the third quarter of 2015 were negligible relative to the overall profits of Santander. A second UK national also designated by the U.S under the SDGT sanctions program and on the U.S. SDGT list, held a bank account. No transactions were made in the third quarter of 2015 and the account is blocked and in arrears.

In addition, the Santander group has certain legacy export credits and performance guarantees with Bank Mellat, which are included in the U.S. Department of the Treasury’s Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Persons List. Santander entered into two bilateral credit facilities in February 2000 in an aggregate principal amount of €25.9 million. Both credit facilities matured in 2012. In addition, in 2005 Santander participated in a syndicated credit facility for Bank Mellat of €15.5 million, which matured on July 6, 2015. As of September 30, 2015, Santander was owed €0.9 million under this credit facility and 95% covered by official export credit agencies.

Santander has not been receiving payments from Bank Mellat under any of these credit facilities in recent years. Santander has been and expects to continue to be repaid any amounts due by official export credit agencies, which insure between 95% and 99% of the outstanding amounts under these credit facilities. No funds have been extended by Santander under these facilities since they were granted.

The Santander group also has certain legacy performance guarantees for the benefit of Bank Sepah and Bank Mellat (stand-by 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. However, should any of the contractors default in their obligations under the public bids, the Santander group would not be able to pay any amounts due to Bank Sepah or Bank Mellat because any such payments would be frozen pursuant to Council Regulation (EU) No. 961/2010.

In the aggregate, all of the transactions described above resulted in approximately €12,000 in gross revenues and approximately €44,000 of net loss to the Santander group in the nine months ended September 30, 2015, all of which resulted from the performance of export credit agencies rather than any Iranian entity. The Santander group 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. The Santander group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount - which payment would be frozen as explained above (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). Accordingly, the Santander group intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

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

RESULTS OF OPERATIONS

The following discussion reviews the Company's financial performance and position from a consolidated perspective. Key statement of operations line items and trends are discussed in the section "Results of Operations". Key consolidated balance sheet trends are discussed in the "Financial Condition" section.

As discussed further in Note 18 of the Notes to the unaudited condensed consolidated financial statements contained in this Form 10-Q/A, we are restating herein our unaudited condensed consolidated financial statements for the three-month and nine-month periods ended September 30, 2015 and 2014. The following discussion has been updated to reflect the effects of the restatement.

RESULTS OF OPERATIONS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014

	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2015			2014			2015			2014
	As Restated
	(in thousands)
Net interest income	$	1,633,889		$	1,616,003		$	4,983,725		$	4,348,178
Provision for credit losses	(937,165		)	(746,663		)	(2,956,055		)	(1,633,889		)
Total non-interest income	718,995			603,746			2,009,581			4,003,410
General and administrative expenses	(1,058,412		)	(868,589		)	(3,050,518		)	(2,389,275		)
Other expenses	(29,731		)	(40,999		)	(92,137		)	(171,099		)
Income before income taxes	327,576			563,498			894,596			4,157,325
Income tax provision	(201,369		)	(208,303		)	(363,352		)	(1,502,375		)
Net income(1)	$	126,207		$	355,195		$	531,244		$	2,654,950

⁽¹⁾ Includes non-controlling interest

The Company reported pre-tax income of $327.6 million and $0.9 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to pretax income of $563.5 million and $4.2 billion for the three-month and nine-month periods ended September 30, 2014. Factors contributing to these changes were as follows:

• Net interest income increased $17.9 million and $635.5 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. These increases were primarily due to the increased interest income as a result of the growing retail installment contract and auto loan portfolio.

• The provision for credit losses increased $190.5 million and increased $1.3 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. This increase was primarily due to the continued growth in the retail installment contract ("RIC"), auto loan portfolio and the related provisioning for these portfolios. .

• Total non-interest income increased $115.2 million and decreased $2.0 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The decrease for the nine-month period was primarily due to the one-time net gain recognized in the first quarter of 2014 related to the Change in Control. The increase for the three-month period was primarily due to higher lease income in the current period.

• Total general and administrative expenses increased $189.8 million and $661.2 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The increases were primarily due to lease expense, as well as compensation and benefits.

• Other expenses decreased $11.3 million and $79.0 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding period in 2014. The decrease in the nine-month period was primarily due to a one-time impairment charge on long-lived assets in 2014, while the decrease in the three-month period was primarily due to a one-time loss on debt extinguishment in the third quarter of 2014.

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

• The income tax provision decreased $6.9 million and decreased $1.1 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The increase for the three-month period ended September 30, 2015 was primarily related to an increase in the reserve for uncertain tax positions in 2015. Refer to Note 12 to the Condensed Consolidated Financial Statements for additional information. The decrease for the nine-month period ended September 30, 2015 was due to the income tax provision on the gain on Change in Control that occurred in 2014.

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

CONDENSED CONSOLIDATED AVERAGE BALANCE SHEET / TAX EQUIVALENT NET INTEREST MARGIN ANALYSIS
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014
	2015 (1)							2014
	Average Balance			Interest Income		Yield/ Rate		Average Balance			Interest Income		Yield/ Rate
	As Restated
	(in thousands)
EARNING ASSETS
INVESTMENTS AND INTEREST EARNING DEPOSITS	$	24,060,298		$	98,598	1.69	%	$	14,875,205		$	72,524	2.19	%
LOANS(2):
Commercial loans	30,076,697			238,056		3.21	%	26,576,159			213,771		3.27	%
Multi-family	9,207,838			89,198		3.88	%	9,055,704			99,088		4.39	%
Consumer loans:
Residential mortgages	6,700,834			66,186		3.95	%	9,518,535			95,577		4.02	%
Home equity loans and lines of credit	6,151,964			54,658		3.55	%	6,194,698			55,918		3.61	%
Total consumer loans secured by real estate	12,852,798			120,844		3.76	%	15,713,233			151,495		3.86	%
Retail installment contracts and auto loans	25,402,493			1,191,972		18.77	%	22,085,958			1,137,996		20.61	%
Personal unsecured	3,135,513			169,227		21.59	%	2,029,004			178,288		35.15	%
Other consumer(3)	1,118,594			25,556		9.14	%	1,417,670			32,385		9.14	%
Total consumer	42,509,398			1,507,599		14.19	%	41,245,865			1,500,164		14.55	%
Total loans	81,793,933			1,834,853		8.99	%	76,877,728			1,813,023		9.45	%
Allowance for loan losses (4)	(2,940,783		)	—		—	%	(1,448,594		)	—		—	%
NET LOANS	78,853,150			1,834,853		9.33	%	75,429,134			1,813,023		9.67	%
Intercompany Investments	14,640			222		6.07	%	14,640			221		6.04	%
TOTAL EARNING ASSETS	102,928,088			1,933,673		7.54	%	90,318,979			1,885,768		8.52	%
Other assets(5)	26,299,505							22,479,419
TOTAL ASSETS	$	129,227,593						$	112,798,398
INTEREST BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest bearing demand deposits	$	11,523,046		$	14,347	0.50	%	$	11,293,317		$	10,782	0.38	%
Savings	3,969,472			1,191		0.12	%	4,015,718			1,328		0.13	%
Money market	23,366,596			32,807		0.56	%	20,230,827			23,952		0.47	%
Certificates of deposit	7,904,938			17,260		0.87	%	6,856,663			17,890		1.04	%
TOTAL INTEREST BEARING DEPOSITS	46,764,052			65,605		0.56	%	42,396,525			53,952		0.51	%
BORROWED FUNDS:
FHLB advances	11,703,043			45,788		1.56	%	8,192,461			66,443		3.24	%
Federal funds and repurchase agreements	2,228			1		0.18	%	—			—		—%
Other borrowings	35,637,711			188,168		2.11	%	29,280,601			149,149		2.04	%
TOTAL BORROWED FUNDS (6)	47,342,982			233,957		1.98	%	37,473,062			215,592		2.30	%
TOTAL INTEREST BEARING FUNDING LIABILITIES	94,107,034			299,562		1.27	%	79,869,587			269,544		1.35	%
Noninterest bearing demand deposits	8,267,126							8,004,591
Other liabilities(7)	3,513,885							2,680,958
TOTAL LIABILITIES	105,888,045							90,555,136
STOCKHOLDER’S EQUITY	23,339,548							22,243,262
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	129,227,593						$	112,798,398
TAXABLE EQUIVALENT NET INTEREST INCOME				$	1,633,889						$	1,616,003
NET INTEREST SPREAD (8)						6.27	%						7.17	%
NET INTEREST MARGIN (9)						6.38	%						7.32	%

(1) Average balances are based on daily averages when available. When daily averages are unavailable, mid-month averages are substituted.

(2) 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").

(3) Other consumer primarily includes recreational vehicle ("RV") and marine loans.

(4) Refer to Note 5 to the Condensed Consolidated Financial Statements for further discussion.

(5) Other assets primarily includes goodwill and intangibles, premise and equipment, net deferred tax assets, equity method investments, BOLI, accrued interest receivable, derivative assets, miscellaneous receivables, prepaid expenses and MSRs. Refer to Note 9 to the Condensed Consolidated Financial Statements for further discussion.

(6) Refer to Note 10 to the Condensed Consolidated Financial Statements for further discussion.

(7) Other liabilities primarily includes accounts payable and accrued expenses, derivative liabilities, net deferred tax liabilities and the unfunded lending commitments liability.

(8) Represents the difference between the yield on total earning assets and the cost of total funding liabilities.

(9) Represents annualized, taxable equivalent net interest income divided by average interest-earning assets.

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

CONDENSED CONSOLIDATED AVERAGE BALANCE SHEET / TAX EQUIVALENT NET INTEREST MARGIN ANALYSIS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014
	2015 (1)							2014
	Average Balance			Interest Income		Yield/ Rate		Average Balance			Interest Income		Yield/ Rate
	(As Restated)
	(in thousands)
EARNING ASSETS
INVESTMENTS AND INTEREST EARNING DEPOSITS	$	21,041,105		$	284,972	1.90	%	$	14,721,931		$	215,085	2.19	%
LOANS(2):
Commercial loans	29,469,567			687,054		3.16	%	25,482,983			625,197		3.32	%
Multi-family	8,740,276			269,276		4.11	%	9,110,795			285,106		4.18	%
Consumer loans:
Residential mortgages	6,832,880			202,632		3.95	%	9,582,020			288,161		4.01	%
Home equity loans and lines of credit	6,172,702			163,721		3.54	%	6,218,685			166,548		3.57	%
Total consumer loans secured by real estate	13,005,582			366,353		3.76	%	15,800,705			454,709		3.84	%
Retail installment contracts and auto loans	24,408,537			3,656,705		19.98	%	19,059,779			3,000,584		20.99	%
Personal unsecured	2,877,176			514,300		23.83	%	1,636,746			450,790		36.72	%
Other consumer(3)	1,196,014			81,070		9.04	%	1,473,942			93,117		8.42	%
Total consumer	41,487,309			4,618,428		14.84	%	37,971,172			3,999,200		14.04	%
Total loans	79,697,152			5,574,758		9.34	%	72,564,950			4,909,503		9.04	%
Allowance for loan losses (4)	(2,433,779		)	—		—	%	(1,208,256		)	—		—	%
NET LOANS	77,263,373			5,574,758		9.64	%	71,356,694			4,909,503		9.19	%
Intercompany investments	14,640			664		6.06	%	19,897			834		5.59	%
TOTAL EARNING ASSETS	98,319,118			5,860,394		7.98	%	86,098,522			5,125,422		8.00	%
Other assets(5)	25,781,372							20,188,129
TOTAL ASSETS	$	124,100,490						$	106,286,651
INTEREST BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest bearing demand deposits	$	11,547,452		$	40,599	0.47	%	$	10,965,718		$	25,924	0.32	%
Savings	3,960,464			3,621		0.12	%	4,023,385			4,001		0.13	%
Money market	22,666,266			94,850		0.56	%	19,460,569			62,324		0.43	%
Certificates of deposit	8,140,845			55,121		0.90	%	7,363,777			59,459		1.08	%
TOTAL INTEREST BEARING DEPOSITS	46,315,027			194,191		0.56	%	41,813,449			151,708		0.48	%
BORROWED FUNDS:
FHLB advances	9,158,535			133,324		1.94	%	7,705,533			204,845		3.54	%
Federal funds and repurchase agreements	15,586			18		0.15	%	641			—		—%
Other borrowings	33,903,329			548,472		2.16	%	25,757,396			419,857		2.17	%
TOTAL BORROWED FUNDS (6)	43,077,450			681,814		2.11	%	33,463,570			624,702		2.49	%
TOTAL INTEREST BEARING FUNDING LIABILITIES	89,392,477			876,005		1.31	%	75,277,019			776,410		1.38	%
Noninterest bearing demand deposits	8,073,662							7,933,910
Other liabilities(7)	3,477,605							2,294,833
TOTAL LIABILITIES	100,943,744							85,505,762
STOCKHOLDER’S EQUITY	23,156,746							20,780,889
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	124,100,490						$	106,286,651
TAXABLE EQUIVALENT NET INTEREST INCOME				$	5,010,293						$	4,360,721
NET INTEREST SPREAD (8)						6.67	%						6.62	%
NET INTEREST MARGIN (9)						6.80	%						6.75	%

(1) Average balances are based on daily averages when available. When daily averages are unavailable, mid-month averages are substituted.

(2) 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 LHFS.

(3) Other consumer primarily includes RV and marine loans.

(4) Refer to Note 5 to the Condensed Consolidated Financial Statements for further discussion.

(5) Other assets primarily includes goodwill and intangibles, premise and equipment, net deferred tax assets, equity method investments, BOLI, accrued interest receivable, derivative assets, miscellaneous receivables, prepaid expenses and MSRs. Refer to Note 9 to the Condensed Consolidated Financial Statements for further discussion.

(6) Refer to Note 10 to the Condensed Consolidated Financial Statements for further discussion.

(7) Other liabilities primarily includes accounts payable and accrued expenses, derivative liabilities, net deferred tax liabilities and the unfunded lending commitments liability.

(8) Represents the difference between the yield on total earning assets and the cost of total funding liabilities.

(9) Represents annualized, taxable equivalent net interest income divided by average interest-earning assets.

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

NET INTEREST INCOME

	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
	2015		2014		2015		2014
	As Restated
	(in thousands)
INTEREST INCOME:
Interest-earning deposits	$	2,518	$	2,250	$	5,337	$	5,811
Investments available-for-sale	85,293		61,069		239,755		182,324
Other investments	10,787		9,205		39,880		26,950
Total interest income on investment securities and interest-earning deposits	98,598		72,524		284,972		215,085
Interest on loans	1,834,853		1,813,023		5,574,758		4,909,503
Total Interest Income	1,933,451		1,885,547		5,859,730		5,124,588
INTEREST EXPENSE:
Deposits and customer accounts	65,605		53,952		194,191		151,708
Borrowings and other debt obligations	233,957		215,592		681,814		624,702
Total Interest Expense	299,562		269,544		876,005		776,410
NET INTEREST INCOME	$	1,633,889	$	1,616,003	$	4,983,725	$	4,348,178

Net interest income increased $17.9 million and $635.5 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. This was primarily due to interest income earned on continued growth in the retail installment contract and auto loans portfolio, offset by an increase in interest expense on debt obligations due to one additional month of interest expense on SCUSA's debt obligations in 2015 compared to 2014.

Interest Income on Investment Securities and Interest-Earning Deposits

Interest income on investment securities and interest-earning deposits increased $26.1 million and $69.9 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The average balances of investment securities and interest-earning deposits for the three-month and nine-month periods ended September 30, 2015 were $24.1 billion and $21.0 billion with an average yield of 1.69% and 1.90%, respectively, compared to average balances of $14.9 billion and $14.7 billion with an average yield of 2.19% and 2.19% for the corresponding period in 2014. Overall, the increase in interest income on investment securities was primarily attributable to increased interest from CMOs of $22.5 million and $38.1 million for the three-month and nine-month periods ended September 30, 2015.

Interest Income on Loans

Interest income on loans increased $21.8 million and $665.3 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The increase in interest income on loans was primarily due to the growth in originations of the retail installment contract and auto loan and unsecured loan portfolios. Interest income on the retail installment contract and auto loans portfolio increased $54.0 million and $656.1 million, respectively, for the three-month and nine-month periods ended September 30, 2015 compared to the corresponding periods in 2014. This was offset by decreases in interest on mortgage loans of $29.4 million and $85.5 million for the three-month and nine-month periods ended September 30, 2015, respectively.

The average balance of total loans was $81.8 billion and $79.7 billion with an average yield of 8.99% and 9.34% for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $76.9 billion and $72.6 billion with an average yield of 9.45% and 9.04% for the corresponding periods in 2014. The increase in the average balance of total loans of $4.9 billion and $7.1 billion was primarily due to the growth of the retail installment contract and auto loan portfolio. The average balance of retail installment contracts and auto loans, which comprised a majority of the increase, was $25.4 billion and $24.4 billion with an average yield of 18.77% and 19.98% for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $22.1 billion and $19.1 billion with an average yield of 20.61% and 20.99% for the corresponding periods in 2014.

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

Interest Expense on Deposits and Related Customer Accounts

Interest expense on deposits and related customer accounts increased $11.7 million and $42.5 million for the three-month and nine-month periods ended September 30, 2015 compared to the corresponding periods in 2014. The average balance of total interest-bearing deposits was $46.8 billion and $46.3 billion with an average cost of 0.56% for both the three-month and nine-month periods ended September 30, 2015, respectively, compared to an average balance of $42.4 billion and $41.8 billion with an average cost of 0.51% and 0.48% for the corresponding periods in 2014. The increase in interest expense on deposits and customer-related accounts during the nine-month period ended September 30, 2015 was primarily due to the increase in the volume of deposit accounts, along with a slight increase in average interest rates.

Interest Expense on Borrowed Funds

Interest expense on borrowed funds increased $18.4 million and $57.1 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The increase in interest expense on borrowed funds was due to a $9.9 billion and $9.6 billion increase in total average borrowings for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. These increases were primarily due to $3.1 billion of new debt issued by SBNA and the Company and net $2.3 billion of SCUSA securitization activity. The average balance of total borrowings was $47.3 billion and $43.1 billion with an average cost of 1.98% and 2.11% for the three-month and nine-month periods ended September 30, 2015, respectively, compared to an average balance of $37.5 billion and $33.5 billion with an average cost of 2.30% and 2.49% for the corresponding periods in 2014.

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 for credit losses for the three-month and nine-month periods ended September 30, 2015 was $937.2 million and $3.0 billion, respectively, compared to $0.7 billion and $1.6 billion for the corresponding periods in 2014. The activity for the three-month and nine-month periods ended September 30, 2015 is primarily related to retail installment contract and auto loan activity.

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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,
	2015			2014			2015			2014
	(in thousands)
Allowance for loan losses, beginning of period	$	2,834,653		$	1,297,655		$	1,701,602		$	834,337
Charge-offs:
Commercial	(45,467		)	(28,686		)	(96,652		)	(81,163		)
Consumer	(1,480,645		)	(973,284		)	(3,302,922		)	(1,729,911		)
Total charge-offs	(1,526,112		)	(1,001,970		)	(3,399,574		)	(1,811,074		)
Recoveries:
Commercial	25,091			8,844			39,264			18,552
Consumer	496,347			408,754			1,501,914			739,242
Total recoveries	521,438			417,598			1,541,178			757,794
Charge-offs, net of recoveries	(1,004,674		)	(584,372		)	(1,858,396		)	(1,053,280		)
Provision for loan losses (1)	937,165			766,663			2,951,055			1,698,889
Other(2):
Consumer	—			(61,220		)	(27,117		)	(61,220		)
Allowance for loan losses, end of period	$	2,767,144		$	1,418,726		$	2,767,144		$	1,418,726
Reserve for unfunded lending commitments, beginning of period	$	137,641		$	170,274		$	132,641		$	220,000
Provision for unfunded lending commitments (1)	—			(20,000		)	5,000			(65,000		)
Loss on unfunded lending commitments	—			(633		)	—			(5,359		)
Reserve for unfunded lending commitments, end of period	137,641			149,641			137,641			149,641
Total allowance for credit losses, end of period	$	2,904,785		$	1,568,367		$	2,904,785		$	1,568,367

(1) The provision for credit losses in the Condensed Consolidated Statement of Operations is the sum of the total provision for loan losses and provision for unfunded lending commitments.

(2) For 2015, the "Other" amount represents the impact on the allowance for loan and lease losses in connection with SCUSA classifying approximately $1.0 billion of retail installment contracts ("RICs") as held-for-sale during the first quarter of 2015. For 2014, the "Other" amount represents the impact on the allowance for loan and lease losses in connection with the sale of approximately $484 million of troubled debt restructurings and non-performing loans classified as held-for-sale during the quarter ended September 30, 2014.

The Company's net charge-offs increased for the three-month and nine-month periods ended September 30, 2015, compared to the corresponding periods in 2014. The ratio of net loan charge-offs to average total loans was 1.2% and 2.3% for the three-month and nine-month periods ended September 30, 2015, respectively, compared to 0.8% and 1.5% for the corresponding periods in 2014.

Commercial loan net charge-offs as a percentage of average commercial loans, including multi-family loans, was less than 0.1% and 0.2% for the three-month and nine-month periods ended September 30, 2015 and 0.1% and 0.2% for the three-month and nine-month periods ended September 30, 2014. Consumer loan net charge-offs as a percentage of average consumer loans increased to 2.3% and 4.3% for the three-month and nine-month periods ended September 30, 2015, respectively, compared to 1.4% and 2.6% for the corresponding periods in the prior year.

The change in consumer net charge-offs for the three-month period ended September 30, 2015 was due to an increase in net charge-offs for the RIC and auto loans portfolio partially offset by a decrease in the residential mortgage and home equity portfolios net charge-offs. The change in consumer net charge-offs for the nine-month period was due to net charge-offs for the RIC and auto loans portfolio growing by approximately 111.5%, offset by residential mortgage and home equity portfolio charge-offs decreasing by approximately 11.0%.

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

NON-INTEREST INCOME

	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2015			2014			2015			2014
	As Restated
	(in thousands)
Consumer fees	$	122,529		$	93,183		$	332,078		$	276,052
Commercial fees	44,940			44,515			133,766			130,044
Mortgage banking income, net	31,317			97,576			85,484			127,285
Equity method investments income/(loss), net	1,624			(4,397		)	(5,543		)	8,083
Bank-owned life insurance	15,590			13,373			44,430			44,536
Lease income	364,634			232,298			1,017,711			516,718
Miscellaneous income	140,354			127,067			384,384			471,649
Net (loss)/gain recognized in earnings	(1,993		)	131			17,271			2,429,043
Total non-interest income	$	718,995		$	603,746		$	2,009,581		$	4,003,410

Total non-interest income increased $115.2 million and decreased $2.0 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The increase for the three-month period ended September 30, 2015 was primarily due to an increase in lease income. The decrease for the nine-month period ended September 30, 2015 was primarily due to the one-time gain recognized in 2014 related to the Change in Control.

Consumer Fees

Consumer fees increased $29.3 million and $56.0 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The increases were primarily due to the $30.6 million and $69.6 million increases in servicing fees attributable to the Company's growing RIC and auto loan portfolio. This growth was offset by a decrease in insurance service and consumer deposit fees.

Commercial Fees

Commercial fees increased $0.4 million and $3.7 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. These increases were primarily due to an increase in commercial loan fees of $4.0 million for the nine-months period ended September 30, 2015.

Mortgage Banking Revenue

	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2015			2014			2015			2014
	(in thousands)
Mortgage and multi-family servicing fees	$	11,127		$	10,451		$	33,640		$	31,721
Net gains on sales of residential mortgage loans and related securities	5,167			90,868			28,731			104,720
Net gains on sales of multi-family mortgage loans	18,623			4,600			28,961			20,208
Net gains on hedging activities	15,806			61			12,787			713
Net (losses)/gains from changes in MSR fair value	(13,472		)	(2,725		)	749			(14,078		)
MSR principal reductions	(5,934		)	(5,679		)	(19,384		)	(15,999		)
Total mortgage banking income, net	$	31,317		$	97,576		$	85,484		$	127,285

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 MBS. Lastly, gains or losses on mortgage banking derivative and hedging transactions are also included in Mortgage banking income.

Mortgage banking revenue decreased $66.3 million and $41.8 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. These changes were primarily due to decreases in the gain on sales of residential mortgage loans, partially, offset by an increase in hedging activities.

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

Since mid-2013, mortgage interest rates have remained stable, resulting in relative stability in mortgage banking fee fluctuations from rate changes.

The following table details certain residential mortgage rates for the Bank as of the dates indicated:

	30-Year Fixed		15-Year Fixed
September 30, 2013	4.38	%	3.38	%
December 31, 2013	4.63	%	3.50	%
March 31, 2014	4.38	%	3.50	%
June 30, 2014	4.13	%	3.38	%
September 30, 2014	4.25	%	3.50	%
December 31, 2014	3.99	%	3.25	%
March 31, 2015	3.88	%	3.13	%
June 30, 2015	4.13	%	3.38	%
September 30, 2015	3.99	%	3.13	%

Other factors, such as portfolio sales, servicing, and re-purchases, have continued to affect mortgage banking revenue.

Mortgage and multifamily servicing fees increased $0.7 million and $1.9 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding period in 2014. At September 30, 2015 and September 30, 2014, the Company serviced mortgage and multifamily real estate loans for the benefit of others totaling $897.0 million and $3.2 billion, respectively.

Net gains on sales of residential mortgage loans and related securities decreased $85.7 million and $76.0 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding period in 2014. For the three-month and nine-month periods ended September 30, 2015, the Company sold $655.8 million and $1.6 billion of loans for gains of $5.2 million and $28.7 million, respectively, compared to $385.3 million and $805.2 million of loans sold for gains of $90.9 million and $104.7 million for the three-month and nine-month periods ended September 30, 2014.

The Company periodically sells qualifying mortgage loans to the Federal Home Loan Mortgage Corporation ("FHLMC"), Government National Mortgage Association and 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 MBS, servicing rights, and representation and warranty reserves is recognized as gain or loss on sale.

Net gains on sales of multi-family mortgage loans increased $14.0 million and $8.8 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The increase was primarily due to an $18.6 million release in the FNMA recourse reserve for the three-month period ended September 30, 2015. The release of FNMA recourse reserves was attributable to the $1.4 billion purchases of multi-family mortgages in the third quarter of 2015 from FNMA.

The Company previously sold multi-family loans in the secondary market to FNMA while retaining servicing. In September 2009, the Bank elected to stop selling multi-family loans to FNMA and, since that time, has retained all production for the multi-family loan portfolio. Under the terms of the multi-family 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 multi-family loan sold to FNMA under the program until the earlier to occur of (i) the aggregate approved losses on the multi-family 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, 2015 and December 31, 2014, the Company serviced $589.7 million and $2.6 billion, respectively, of loans for FNMA. These loans had a credit loss exposure of $34.4 million and $152.8 million as of September 30, 2015 and December 31, 2014, respectively, and 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.

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

The Company has established a liability related to the fair value of the retained credit exposure for multi-family 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, 2015 and December 31, 2014, the Company had a liability of $8.1 million and $40.7 million, respectively, related to the fair value of the retained credit exposure for loans sold to FNMA under this program.

Net gains/(losses) on hedging activities increased $15.7 million and $12.1 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The gains were primarily due to the increase in the mortgage loan pipeline and the Company's hedging strategy in the current mortgage rate environment.

Net gains/(losses) from changes in MSR fair value resulted in loss of $13.5 million and a gain of $0.7 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to a loss of $2.7 million and $14.1 million for the corresponding periods in 2014. The carrying value of the related MSRs at September 30, 2015 and December 31, 2014 were $143.5 million and $145.0 million, respectively. The MSR asset fair value increase for the nine-month period September 30, 2015 was the result of increases in interest rates.

MSR principal reductions were $5.9 million and $19.4 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $5.7 million and $16.0 million in the corresponding periods in 2014. These changes were due to continued increases in prepayments and mortgage refinancing as a result of the anticipation of rising interest rates in the near future.

Equity Method Investments

Equity Method Investments increased $6.0 million and decreased $13.6 million for the three-month and nine-month periods ended September 30, 2015, respectively. The decrease for the nine-month period ended September 30, 2015 was primarily due to the Change in Control, which resulted in accounting for SCUSA as a consolidated subsidiary beginning January 28, 2014. The three-month period ended increase was due to amortization expense on housing loans that occurred in the third quarter of 2014.

Bank-Owned Life Insurance

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 $2.2 million and decreased $0.1 million, for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014.

Lease income

Lease income increased $132.3 million and $501.0 million, on an average leased vehicle portfolio balance of $9.0 billion and $7.2 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. These increases were the result of the Company's efforts to grow the lease portfolio.

Net gain recognized in earnings

Net gains recognized in earnings decreased $2.1 million and $2.4 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The decrease for the nine-month period ended September 30, 2015 was primarily due to the one-time gain the Company recognized in connection with the Change in Control during the first quarter of 2014. For additional information on the Change in Control, see Note 3 to the Condensed Consolidated Financial Statements.

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

The net loss realized for the three-month period ended September 30, 2015 was primarily comprised of the sale of corporate debt securities with a book value of $63.7 million for a gain of $0.4 million, offset by the sale of ABS with a book value of $419.6 million for a loss of $1.4 million. The net gain for the nine-month period ended September 30, 2015 was primarily comprised of the sale of state and municipal securities with a book value of $421.5 million for a gain of $12.1 million, the sale of corporate debt securities with a book value of $517.6 million for a gain of $7.0 million, offset by the sale of ABS with a book value of $683.9 million for a loss of $0.2 million and OTTI of $1.1 million. The net gain realized for the three-month period ended September 30, 2014 was primarily due to the sale of corporate debt securities with a book value of $88.4 million for a gain of $0.1 million. The net gain realized for the nine-month period ended September 30, 2014 was primarily comprised of the sale of state and municipal securities with a book value of $89 million for a gain of $5.2 million, the sale of corporate debt securities with a book value of $434.8 million for a gain of $4.7 million, and the sale of MBS with a book value of $21.6 million for a gain of $1.3 million.

Miscellaneous Income

Miscellaneous income increased $13.3 million and decreased $87.3 million for the three-month and nine-month periods ended September 30, 2015, compared to the corresponding periods in 2014. The decrease for the nine-month period was primarily due to changes in fair value associated with the portfolio of loans that the Company accounts for at the fair value option ("FVO").

GENERAL AND ADMINISTRATIVE EXPENSES

	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
	2015		2014		2015		2014
	As Restated
	(in thousands)
Compensation and benefits	$	344,055	$	290,121	$	990,666	$	892,680
Occupancy and equipment expenses	128,868		117,697		397,647		350,788
Technology expense	43,534		40,806		130,690		124,874
Outside services	80,688		57,870		184,588		136,979
Marketing expense	25,731		11,858		57,913		37,077
Loan expense	85,718		80,968		274,522		237,691
Lease expense	261,668		178,813		755,945		385,560
Other administrative expenses	88,150		90,456		258,547		223,626
Total general and administrative expenses	$	1,058,412	$	868,589	$	3,050,518	$	2,389,275

Total general and administrative expenses increased $189.8 million and $661.2 million for the three-month and nine-month periods ended September 30, 2015, respectively, from the corresponding periods in 2014. During the second quarter of 2015, the Bank closed 29 branches located throughout its footprint in order to gain operational efficiencies. These closures resulted in accelerated depreciation expense of $7.6 million of related assets and a vacancy accrual charge of $6.4 million in the form of rent expense. Additional factors contributing to these increases were as follows:

Compensation and benefits expense increased $53.9 million and $98.0 million for the three-month and nine-month periods ended September 30, 2015, respectively, from the corresponding periods in 2014. This primary driver of these increases was the Company's continued investment in personnel through increased salary, benefits, and headcount. During the third quarter of 2015, the Company initiated a process to improve its operating efficiency specifically focused on organizational simplification.

Occupancy and equipment expenses increased $11.2 million and $46.9 million for the three-month and nine-month periods ended September 30, 2015, respectively, from the corresponding periods in 2014. These were primarily due to increases in depreciation expense for the three-month and nine-month periods ended September 30, 2015 of $6.5 million and $27.5 million, respectively, which accounted for 58.0% and 58.7% of the increase.

Outside services increased $22.8 million and $47.6 million for the three-month and nine-month periods ended September 30, 2015, respectively, from the corresponding periods in 2014. These increases were primarily due to the increase in consulting service fees that relate to finance-related initiatives, including preparation for meeting the requirements of the IHC implementation rules. Consulting fees increased $23.5 million and $54.0 million, respectively, for the three-month and nine-month periods ended September 30, 2015 from the corresponding periods in 2014. The increase was offset by a decrease in processing services.

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

Loan expense increased $4.8 million and $36.8 million for the three-month and nine-month periods ended September 30, 2015, respectively, from the corresponding periods in 2014. These increases were primarily due to increases of $9.9 million and $52.3 million in collection expenses associated with the growing retail installment contract and auto loan portfolio. The increase for the three-month period was offset by a decrease in loan origination expenses.

Lease expense increased $82.9 million and $370.4 million for the three-month and nine-month periods ended September 30, 2015, respectively, from the corresponding periods in 2014. These increases were primarily due to the continued growth of the Company's leased vehicle portfolio.

Other administrative expenses decreased $2.3 million and increased $34.9 million for the three-month and nine-month periods ended September 30, 2015, respectively, from the corresponding periods in 2014. The majority of the nine-month period ended increase was due to $25.9 million increase in legal fees recognized throughout the year.

OTHER EXPENSES

	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
	2015		2014		2015		2014
	As Restated
	(in thousands)
Amortization of intangibles	$	15,887	$	17,730	$	49,031	$	50,670
Deposit insurance premiums and other expenses	13,809		14,958		42,987		43,937
Loss on debt extinguishment	—		8,311		—		11,946
Impairment of long-lived assets	—		—		—		64,546
Investment expense on affordable housing projects	35		—		119		—
Total other expenses	$	29,731	$	40,999	$	92,137	$	171,099

Total other expenses decreased $11.3 million and $79.0 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The primary factors contributing to the decreases were:

Amortization of intangibles decreased $1.8 million and $1.6 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The decrease was primarily due to a decrease in amortization of core deposit intangibles.

Deposit insurance premiums expenses decreased $1.1 million and $1.0 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. These variances were caused by a change in FDIC insurance premium rates and assessments for the Bank.

There were no losses on debt extinguishment during the three-month and nine-month periods ended September 30, 2015 compared to $8.3 million and $11.9 million of losses in the three-month and nine-month periods ended September 30, 2014.

There were no impairment charges recorded on long-lived assets during 2015. In the second quarter of 2014, an impairment of long-lived assets charge of $64.5 million was recorded due to the restructuring of the Company's capitalized software.

The Company incurred an investment expense on affordable housing projects of $0.04 million and $0.1 million for the three-month and nine-month periods ended September 30, 2015. This expense was directly related to low income housing tax credit investments.

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

INCOME TAX PROVISION

Income tax provisions of $201.4 million and $363.4 million were recorded for the three-month and nine-month periods endedSeptember 30, 2015, respectively, compared to $208.3 million and $1.5 billion for the corresponding periods in 2014. This resulted in effective tax rates of 61.5% and 40.6% for the three-month and nine-month periods endedSeptember 30, 2015, respectively, compared to 37.0% and 36.1% for the corresponding periods in 2014. The higher tax rate for the three-month and nine-month periods ended September 30, 2015 was primarily due to a discrete tax expense recognized during the three-month period ended September 30, 2015 to increase the reserve for income taxes under dispute with the United States on two financing transactions.

The Company's effective tax rate 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.

LINE OF BUSINESS RESULTS

General

Since the Original Filing of the September 30, 2015 Form 10-Q, certain management and business line changes became effective as the Company reorganized its management reporting in order to improve its structure and focus to better align management teams and resources with the business goals of the Company and provide enhanced customer service to its clients. Accordingly, the following changes were made within the Company's reportable segments to provide greater focus on each of its core businesses:

• The small business banking, commercial business banking, and auto leasing lines of business formerly included in the Auto Finance and Business Banking reportable segment, were combined with the Consumer and Business Banking reportable segment.

• The Real Estate and Commercial reportable segment was split into the Commercial Real Estate reportable segment and the Commercial Banking reportable segment.

• The CEVF and dealer floor plan lines of business, formerly included in the Auto Finance & Business Banking reportable segment, were moved to the Commercial Banking business unit.

• The internal FTP guidelines and methodologies were revised to align with Santander corporate criteria for internal management reporting. These FTP changes impact all reporting segments, excluding SC.

All prior period results have been recast to conform to the new composition of these reportable segments.

The Company's segments at September 30, 2015 consisted of Consumer and Business Banking, Commercial Banking, Commercial Real Estate, Global Corporate Banking and SCUSA. For additional information with respect to the Company's reporting segments, see Note 17 to the Condensed Consolidated Financial Statements.

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

Results Summary

Consumer and Business Banking

Net interest income increased $8.0 million and $11.8 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The average balance of the Consumer and Business Banking segment's gross loans was $17.3 billion and $17.5 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $20.3 billion and $20.4 billion for the corresponding periods in 2014, driven by a troubled debt restructuring ("TDR") sale during the third quarter of 2014, and the securitization of $2.1 billion of mortgage loans to MBS as part of the securitization transactions. The average balance of deposits was $39.4 billion and $39.4 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $38.5 billion and $38.4 billion for the corresponding periods in 2014, driven by growth in money market accounts. Total non-interest income decreased $37.4 million and increased $99.6 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The provision for credit losses decreased $29.0 million and $20.9 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014, driven by an improvement in credit quality in 2015. Total expenses increased $37.3 million and $174.8 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014, primarily due to increased consulting service fees, which were mostly related to the CCAR plan, as well as increased maintenance expenses.

Total assets for the nine-month period ended September 30, 2015 were $21.9 billion , compared to $21.9 billion for the corresponding period in 2014.

Commercial Banking

Net interest income increased $7.9 million and $25.0 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. Total average gross loans were $10.4 billion and $10.2 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $9.0 billion and $8.6 billion for the corresponding periods in 2014, driven by growth in the dealer lending and commercial equipment and vehicle funding ("CEVF") business lines. Total non-interest income increased $0.9 million and $0.1 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014, due primarily to growth in the indirect leasing business line, which was launched in 2014. The Commercial Banking segment ceased originations in the indirect leasing business line during the quarter ended June 30, 2015. The provision for credit losses decreased $40.4 million and increased $4.6 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. Total expenses increased $6.3 million and $24.4 million for the three-month and nine-month periods ended 2015, respectively, compared to the corresponding periods in 2014, due primarily to growth in the indirect leasing business line.

Total assets were $15.8 billion for the nine-month period ended September 30, 2015, compared to $14.3 billion for the corresponding period in 2014, driven by the growth in the indirect leasing business line. Total average deposits were $9.0 billion and $8.9 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $7.9 billion and $7.4 billion for the corresponding period in 2014.

Commercial Real Estate

Net interest income increased $2.2 million and $14.7 million during the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014.The average balance of this segment's gross loans were $14.8 billion and $14.3 billion during the three month and nine-month periods ended September 30, 2015, respectively, compared to $14.3 billion and $14.4 billion for the corresponding periods in 2014. The average balance of deposits was $764.6 million and $791.5 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $862.5 million and $833.6 million during the corresponding periods in 2014.Total non-interest income increased $16.4 million and $11.3 million during the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014 due to increased releases of recourse reserves during 2015. The provision for credit losses was $9.9 million and $22.7 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to provision releases of $84.2 million and $95.3 million for the corresponding periods in 2014. The increase in the provision was driven by loan growth in the segment. Total expenses decreased $6.3 million and $8.3 million during the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014.

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

Total assets, which includes the related ACL, were $15.0 billion for the nine-month period ended September 30, 2015, compared to $14.2 billion for the corresponding period in 2014.

Global Corporate Banking

Net interest income increased $7.8 million and $25.9 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The average balance of this segment's gross loans was $9.9 billion and $9.4 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $8.1 billion and $7.5 billion for the corresponding periods in 2014. The average balance of deposits was $2.1 billion and $1.7 billion for the three-month and nine-month periods ended September 30, 2015, respectively, compared to $1.2 billion and $1.1 billion for the corresponding periods in 2014. Total non-interest income decreased $2.0 million and increased $3.9 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. The provision for credit losses decreased $18.9 million and $11.4 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. Total expenses increased $0.3 million and $6.7 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014.

Total assets were $12.2 billion for the nine-month period ended September 30, 2015, compared to $9.8 billion for the corresponding period in 2014.

Other

Net interest income decreased $42.1 million and $87.5 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. Total non-interest income decreased $15.9 million and $28.5 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. There were provision for credit losses of $18.4 million and a release of $12.7 million for the three and nine-month period ended September 30, 2015, respectively, compared to a release of credit losses of $6.1 million and a provision release of $2.4 million and during the corresponding periods in 2014. Total expenses increased $21.7 million and $20.2 million during the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014.

Total assets were $30.7 billion for the nine-month periods ended September 30, 2015, compared to $23.0 billion for the corresponding period in 2014.

SCUSA

From December 2011 until January 28, 2014, SCUSA was accounted for as an equity method investment. In 2014, SCUSA's results of operations were consolidated with SHUSA. SCUSA is managed as a separate business unit, with its own systems and processes, and is reported as a separate segment. For more information, see Note 3 to the Condensed Consolidated Financial Statements.

Net interest income increased $122.1 million and $352.3 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods of 2014. Total non-interest income increased $93.5 million and $396.2 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. These increases in income were primarily attributable to increases in loans and leased vehicles during the year. A once off gain on change in control of $2.4 billion occurred in 2014 due to the consolidation of SCUSA. The provision for credit losses increased $1.8 million and increased $105.8 million for the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014. Total expenses increased $118.6 million and $226.1 million during the three-month and nine-month periods ended September 30, 2015, respectively, compared to the corresponding periods in 2014, also attributable to the growth in the loan and leased vehicle portfolios during the year.

Total assets were $35.3 billion for the nine-month period ended September 30, 2015, compared to $30.8 billion for the corresponding period of 2014.

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

FINANCIAL CONDITION

LOAN PORTFOLIO

The Company's loan portfolio⁽¹⁾ consisted of the following at the dates provided:

	September 30, 2015				December 31, 2014				September 30, 2014
	Amount		Percent		Amount		Percent		Amount		Percent
	As Restated
	(in thousands)
Commercial loans:
Commercial real estate loans	$	8,495,182	10.4	%	$	8,739,233	11.5	%	$	8,685,950	11.6	%
Commercial and industrial loans and other commercial	21,729,764		26.6	%	19,196,154		25.2	%	18,056,048		24.1	%
Multi-family	9,600,527		11.8	%	8,705,890		11.4	%	8,941,466		12.0	%
Total Commercial Loans	39,825,473		48.8	%	36,641,277		48.1	%	35,683,464		47.7	%
Consumer loans secured by real estate:
Residential mortgages	6,688,928		8.2	%	6,969,309		9.1	%	7,525,710		10.1	%
Home equity loans and lines of credit	6,159,536		7.6	%	6,211,298		8.2	%	6,219,873		8.3	%
Total consumer loans secured by real estate	12,848,464		15.8	%	13,180,607		17.3	%	13,745,583		18.4	%
Consumer loans not secured by real estate:
Retail installment contracts and auto loans	25,288,219		31.0	%	22,430,453		29.4	%	21,836,436		29.2	%
Personal unsecured loans	2,528,739		3.1	%	2,696,820		3.5	%	2,131,371		2.9	%
Other consumer	1,083,011		1.3	%	1,306,562		1.7	%	1,380,228		1.8	%
Total Consumer Loans	41,748,433		51.2	%	39,614,442		51.9	%	39,093,618		52.3	%
Total Loans	$	81,573,906	100.0	%	$	76,255,719	100.0	%	$	74,777,082	100.0	%
Total Loans with:
Fixed	$	48,927,447	60.0	%	$	45,345,715	59.5	%	$	45,915,248	61.4	%
Variable	32,646,459		40.0	%	30,910,004		40.5	%	28,861,834		38.6	%
Total Loans	$	81,573,906	100.0	%	$	76,255,719	100.0	%	$	74,777,082	100.0	%

(1) Includes LHFS

Commercial loans (excluding multi-family loans) increased approximately $2.3 billion, or 8.2%, from December 31, 2014 to September 30, 2015, and increased $3.5 billion, or 13.0%, from September 30, 2014 to September 30, 2015. The primary driver was organic growth exceeding repayments and runoffs in the commercial and industrial portfolio by $2.1 billion.

Multi-family loans increased $894.6 million, or 10.3%, from December 31, 2014 to September 30, 2015, and increased $659.1 million, or 7.4%, from September 30, 2014 to September 30, 2015. The increase from December 31, 2014 to September 30, 2015 was primarily attributable to the $1.4 billion purchase of FNMA loans during the third quarter of 2015, offset by loan repayments exceeding originations by $254.0 million. The increase from September 30, 2014 to September 30, 2015 was primarily attributable to the $1.4 billion purchase of FNMA loans, offset by loan repayments exceeding organic originations by $673.0 million.

Consumer loans secured by real estate decreased $332.1 million, or 2.5%, from December 31, 2014 to September 30, 2015, and decreased $897.1 million, or 6.5%, from September 30, 2014 to September 30, 2015. The primary drivers of the decrease from December 31, 2014 were loan sales of $1.2 billion and runoff of $662.0 million exceeding originations of $1.7 billion. The decrease from September 30, 2014 was primarily due to additional loan sales of $556.0 million during the fourth quarter of 2014.

The consumer loan portfolio not secured by real estate increased $2.5 billion, or 9.3%, from December 31, 2014 to September 30, 2015, and increased $3.6 billion, or 14.0%, from September 30, 2014 to September 30, 2015. The growth from December 31, 2014 and September 30, 2014 was related to the retail installment contract and auto loan portfolio growth.

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

As of September 30, 2015, 67.5% of the Company's RIC and auto loan portfolio and 32.1% of its personal unsecured loans portfolio were nonprime loans (defined by the Company as customers with a 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. While underwriting guidelines were designed to establish that the customer would be a reasonable credit risk, the nonprime loans nonetheless will 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 decrease consumer demand for used automobiles and other consumer products, weakening collateral values and increasing losses in the event of default. Because the Company's 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 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, debt-to-income ratio, loan-to-value ratio, 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.

At September 30, 2015, a typical RIC was originated with an average APR of 16.9% and was purchased from the dealer at a discount of 2.2%. All of the Company's RICs 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 allowance for loan losses to cover its estimate of inherent losses incurred as of the balance sheet date on its RICs. As of September 30, 2015, SCUSA's personal unsecured portfolio is held for sale and thus does not have a related allowance. The inclusion of SCUSA's nonprime loans within the Company's loan portfolio effective upon the Change in Control in 2014, among other things, resulted in an increase in the allowance for loan losses as a percentage of loans held for investment from 2.3% at December 31, 2014 to 3.5% at September 30, 2015.

NON-PERFORMING ASSETS

Non-performing assets decreased during the period, to $1.7 billion, or 1.3% of total assets, at September 30, 2015, compared to $1.8 billion, or 1.5% of total assets, at December 31, 2014, primarily due to a decrease in NPLs in the retail installment contract and auto loan portfolio.

Non-performing assets consist of non-performing loans and leases ("NPLs"), which represent loans and leases no longer accruing interest, 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 retail installment contract portfolio, non-performing status may begin at 60 days past due. Personal unsecured loans, including credit cards, generally continue to accrue interest until they are 180 days delinquent, at which point they are charged-off and all accrued but uncollected interest is removed from interest income. 

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, the 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.

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

Commercial

Commercial NPLs decreased $56.0 million from December 31, 2014 to September 30, 2015. At September 30, 2015, commercial NPLs accounted for 0.5% of total commercial loans, compared to 0.6% of total commercial loans at December 31, 2014. The decrease in commercial NPLs was primarily attributable to overall improvements in credit quality, including decreased delinquencies, TDRs, and net charge-offs.

Consumer Loans Secured by Real Estate

The following table shows NPLs compared to total loans outstanding for the residential mortgage and home equity portfolios as of September 30, 2015 and December 31, 2014, respectively:

	September 30, 2015						December 31, 2014
	Residential mortgages (1)			Home equity loans and lines of credit			Residential mortgages (1)			Home equity loans and lines of credit
	(dollars in thousands)
Non-performing loans	$	184,828		$	126,628		$	231,316		$	142,026
Total loans	$	6,688,928		$	6,159,536		$	6,969,309		$	6,211,298
NPLs as a percentage of total loans	2.8		%	2.1		%	3.3		%	2.3		%
NPLs in foreclosure status	44.3		%	21.7		%	38.9		%	13.7		%

(1) Includes LHFS

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; differences in risk profiles; and mortgage loans located outside the Northeast and Mid-Atlantic United States.

Resolution challenges with low foreclosure sales continue to impact both residential mortgage and consumer loans secured by real estate portfolio NPL balances, but foreclosure inventory decreased quarter-over-quarter. The foreclosure moratorium was lifted and activity resumed in the fourth quarter of 2011, but delays in Pennsylvania, New Jersey, New York, and Massachusetts limited the decline in NPL balances and contributed to a higher NPL ratio. As of September 30, 2015, foreclosures in all states except Delaware and Washington, D.C. were moving forward. Both Delaware and Washington, D.C. are delayed due to new legal complexities surrounding documentation required to initiate new foreclosure proceedings.

A new foreclosure law was enacted in Massachusetts in August 2012, and the Massachusetts Division of Banks issued its final rules on the implementation of the new foreclosure law in June 2013. These final rules require lenders to offer loan modification terms to certain borrowers prior to proceeding with foreclosure, unless the lender is able to prove that the modification would result in greater losses for the bank or that the borrower has rejected the offer. Lenders are also required to send notice to borrowers regarding their right to request a modification. Breach notices for Massachusetts foreclosures recommenced in September 2013.

The following table represents the concentration of foreclosures by state as a percentage of total foreclosures at September 30, 2015 and December 31, 2014, respectively:

	September 30, 2015	December 31, 2014
New Jersey	23.9%	29.9%
New York	20.5%	18.1%
Pennsylvania	10.6%	13.0%
Massachusetts	21.9%	11.7%
All other states	23.1%	27.3%

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

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 82.6% of the 90+ day delinquent loan balances in the residential mortgage portfolio are secured by a first lien, while only 49.9% 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.

The Alt-A segment consists of loans with limited documentation requirements and a portion of which were originated through Brokers outside the Bank's geographic footprint. At September 30, 2015 and December 31, 2014, the residential mortgage portfolio included the following Alt-A loans:

	September 30, 2015			December 31, 2014
	(in thousands)
Alt-A loans	$	560,153		$	637,327
Alt-A loans as a percentage of the residential mortgage portfolio	8.4		%	9.1		%
Alt-A loans in NPL status	$	50,170		$	67,668
Alt-A loans in NPL status as a percentage of residential mortgage NPLs	27.1		%	29.3		%

The performance of the Alt-A segment has remained poor, averaging a 9.0% NPL ratio for the year-to-date in 2015. Alt-A mortgage originations were discontinued in 2008 and have continued to run off at an average rate of 1.9% 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 27.1% at September 30, 2015. 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.

Consumer Loans Not Secured by Real Estate

RICs and amortizing term personal loans are classified as non-performing when they are greater than 60 days past due with respect to principal or interest. Except for loans accounted for using the fair value option, 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. The accrual of interest on revolving personal loans continues until the loan is charged off.

NPLs in the RIC and auto loan and consumer loans not secured by real estate portfolios decreased $343.4 million from December 31, 2014 to September 30, 2015. At September 30, 2015, non-performing consumer loans not secured by real estate accounted for 1.4% of total consumer loans not secured by real estate, compared to 2.9% of total consumer loans not secured by real estate at December 31, 2014. This decrease was attributable to a decline in the overall aging of the retail installment contracts and auto loan portfolio.

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

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

	September 30, 2015			December 31, 2014
	As Restated
	(dollars in thousands)
Non-accrual loans:
Commercial:
Commercial real estate	$	102,560		$	167,780
Commercial and industrial loans and other commercial	70,266			58,703
Multi-family	7,319			9,639
Total commercial loans	180,145			236,122
Consumer:
Residential mortgages	184,828			231,316
Consumer loans secured by real estate	126,628			142,026
RICs and auto loans - originated	538,929			227,132
RICs - purchased	412,175			755,590
Consumer not secured by real estate	43,925			32,864
Total consumer loans	1,306,485			1,392,166
Total non-accrual loans	1,486,630			1,628,288
Other real estate owned	40,692			65,051
Repossessed vehicles	154,057			126,309
Other repossessed assets	377			11,375
Total other real estate owned and other repossessed assets	195,126			202,735
Total non-performing assets	$	1,681,756		$	1,831,023
Past due 90 days or more as to interest or principal and accruing interest	$	77,528		$	93,152
Annualized net loan charge-offs to average loans (2)	3.1		%	2.1		%
Non-performing assets as a percentage of total assets	1.3		%	1.5		%
NPLs as a percentage of total loans	2.8		%	2.1		%
Non-performing assets as a percentage of total loans, real estate owned and repossessed assets	2.1		%	2.4		%
ACL as a percentage of total non-performing assets (1)	172.7		%	100.2		%
ACL as a percentage of total NPLs (1)	195.4		%	112.6		%

(1) The ACL is comprised of the allowance for loan losses and the reserve for unfunded lending commitments, and is included in Other liabilities.

(2) Annualized net loan charge-offs to average loans is calculated as annualized net loan charge-offs divided by the average loan balance for the three-month period ended September 30, 2015.

No commercial loans were 90 days or more past due and still accruing interest as of September 30, 2015. 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 $86.3 million and $71.8 million at September 30, 2015 and December 31, 2014, respectively. Potential problem consumer loans amounted to $3.3 billion and $3.4 billion at September 30, 2015 and December 31, 2014, respectively. Management has included these loans in its evaluation and reserved for them during the respective periods.

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. TDRs 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. The types of concessions granted are generally interest rate reductions, limitations on accrued interest charged, term extensions, and deferments of principal.

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

TDRs are generally placed in nonaccrual status upon modification, unless the loan was performing immediately prior to modification. For most portfolios, TDRs may return to accrual status after demonstrating at least six consecutive months of sustained payments following modification, as long as the Company believes the principal and interest of the restructured loan will be paid in full. For the retail installment contract portfolio, loans may return to accrual status when the balance is remediated to current status. To the extent the TDR 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 TDR 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, 2015		December 31, 2014
	As Restated
	(in thousands)
Performing
Commercial	$	117,607	$	186,685
Residential mortgage	99,330		83,597
Retail installment contracts and auto loan	3,125,276		1,696,719
Other consumer	85,989		74,652
Total performing	3,428,202		2,041,653
Non-performing
Commercial	63,131		74,308
Residential mortgage	59,989		70,624
Retail installment contracts and auto loan	354,551		146,918
Other consumer	44,957		51,672
Total non-performing	522,628		343,522
Total	$	3,950,830	$	2,385,175

Performing TDRs totaled $3.4 billion at September 30, 2015, an increase of $1.4 billion compared to December 31, 2014. Non-performing TDRs totaled $522.6 million at September 30, 2015, an increase of $179.1 million compared to December 31, 2014. The following table provides a summary of TDR activity:

	Three-Month Period Ended September 30, 2015						Three-Month Period Ended September 30, 2014
	Retail installment contracts and auto loan			All other loans			Retail installment contracts and auto loan			All other loans(1)
	As Restated
	(in thousands)
TDRs, beginning of period(1)	$	3,486,983		$	494,919		$	270,000		$	985,471
New TDRs	992,946			6,952			573,044			48,091
Charged-Off TDRs	(315,600		)	(1,263		)	(24,353		)	(8,444		)
Sold TDRs	(566,359		)	—			(958		)	(435,664		)
Payments on TDRs	(118,144		)	(57,821		)	(20,031		)	(77,236		)
TDRs, end of period(2)	$	3,479,826		$	442,787		$	797,702		$	512,218

(1) Excludes $17.2 million and $5.1 million of SCUSA personal unsecured loans at June 30, 2015 and 2014, respectively, which were reclassified to LHFS during the third quarter of 2015.

(2) Excludes $28.3 million and $12.2 million of SCUSA personal unsecured loans at September 30, 2015 and 2014, respectively, which were reclassified to LHFS during the third quarter of 2015.

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

	Nine-Month Period Ended September 30, 2015						Nine-Month Period Ended September 30, 2014
	Retail installment contracts and auto loan			All other loans(1)			Retail installment contracts and auto loan			All other loans(1)
	As Restated
	(in thousands)
TDRs, beginning of period(1)	$	1,840,970		$	527,064		$	—		$	1,003,643
New TDRs	3,298,055			55,922			861,699			106,218
Charged-Off TDRs	(728,901		)	(7,786		)	(32,539		)	(17,001		)
Sold TDRs	(603,088		)	—			(1,001		)	(440,673		)
Payments on TDRs	(327,209		)	(132,413		)	(30,455		)	(139,969		)
TDRs, end of period(2)	$	3,479,827		$	442,787		$	797,704		$	512,218

(1) Excludes $16.7 million and zero dollars of SCUSA personal unsecured loans at December 31, 2014 and 2013, respectively, that were reclassified to LHFS during the third quarter of 2015.

(2) Excludes $28.3 million and $12.2 million of SCUSA personal unsecured loans at September 30, 2015 and 2014, respectively, that were reclassified to LHFS during the third quarter of 2015.

Commercial

Performing commercial TDRs decreased from 71.5% of total commercial TDRs at December 31, 2014 to 65.1% of total commercial TDRs at September 30, 2015. This improvement is attributable to improving credit quality and performance among commercial borrowers, including fewer new TDRs and a rise in cured TDRs compared with the prior year.

Residential Mortgages

Performing residential mortgage TDRs increased from 54.2% of total residential mortgage TDRs at December 31, 2014 to 62.3% of total residential TDRs at September 30, 2015. This improvement is attributable to an increase in cured TDRs compared with 2014.

Retail installment contracts

RICs were a new portfolio for the Company in 2014 as a result of the Change in Control. The RIC and auto loan portfolio is primarily comprised of nonprime loans (67.5% at September 30, 2015) which leads to a higher rate of modifications and deferrals, and thus a higher volume of TDRs, than its other portfolios. Total RIC and auto loan portfolio TDRs (performing and non-performing) comprised 8.2% of the Company’s total retail installment contract and auto loan portfolio at December 31, 2014 and 13.8% at September 30, 2015.

Other Consumer Loans

Performing other consumer loan TDRs increased from 59.1% of total other consumer loan TDRs at December 31, 2014 to 65.7% of total other consumer loan TDRs at September 30, 2015. This improvement is primarily attributable to the personal unsecured lending portfolio.

In accordance with its policies and guidelines, the Company, at times, offer payment deferrals to borrowers on its retail installment contracts, under which the consumer is allowed to move up to three delinquent payments to the end of the loan. 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. Additionally, the Company generally limits the granting of deferrals on new accounts until a requisite number of payments have 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.

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

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 versus 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. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent that deferrals impact the ultimate timing of when an account is charged off, historical charge-off ratios, loss confirmation periods, and cash flow forecasts for loans classified as TDRs used in the determination of the adequacy of the allowance for loan losses 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 allowance for loan losses and related provision for loan losses. Changes in these ratios and periods are considered in determining the appropriate level of allowance for loan losses and related provision for loan losses.

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 in the form of principal or interest rate reductions or payment plans.

TDR activity in the personal loan and other consumer portfolios was negligible to overall TDR activity.

ALLOWANCE FOR CREDIT LOSSES ("ACL")

The ACL is maintained at levels that management considers adequate to provide for losses based upon an evaluation of known and inherent risks in the loan portfolio. Management's evaluation takes into consideration the risks inherent in the portfolio, past loan loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, the level of originations, credit quality metrics such as Fair Isaac Corporation (“FICO”) and combined loan-to-value (“CLTV”), internal risk ratings, economic conditions and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the ACL may be necessary if conditions differ substantially from the assumptions used in making the evaluations.

The following table presents the allocation of the allowance for loan losses and the percentage of each loan type to total loans at the dates indicated:

	September 30, 2015				December 31, 2014
	Amount		% of Loans to Total Loans		Amount		% of Loans to Total Loans
	(in thousands)
Allocated allowance:
Commercial loans	$	408,656	48.8	%	$	401,553	48.2	%
Consumer loans	2,313,154		51.2	%	1,267,025		51.8	%
Unallocated allowance	45,334		imm.		33,024		imm.
Total allowance for loan losses	2,767,144		100.0	%	1,701,602		100.0	%
Reserve for unfunded lending commitments	137,641				132,641
Total ACL	$	2,904,785			$	1,834,243

General

The ACL increased $1.1 billion from December 31, 2014 to September 30, 2015. The increase in the ACL was attributable to increased provisioning as a result of the continued growth in the Company's retail installment contract and auto loans portfolio.

Management regularly monitors 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.

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

Generally, the Company’s loans held for investment 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 analysis of the ACL on a quarterly basis. In addition, a review of allowance levels based on nationally published statistics is conducted quarterly.

The factors supporting the ACL do not diminish the fact that the entire ACL is available to absorb losses in the loan portfolio and related commitment portfolio. The Company’s principal focus is to ensure the adequacy of the total ACL.

The ACL is subject to review by banking regulators. The Company’s primary bank regulators regularly conduct examinations of the ACL and make assessments regarding its adequacy and the methodology employed in its determination.

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 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 information to the Board. The Company’s Internal Audit 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.

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 defined as all TDRs plus non-accrual loans in excess of $1 million. 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 methodology.

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

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 loss provisions taken on the remaining loan balance, if warranted, utilizing the same criteria.

The portion of the allowance for loan losses related to the commercial portfolio increased from $401.6 million at December 31, 2014 (1.1% of commercial loans) to $408.7 million at September 30, 2015 (1.0% of commercial loans). The primary factor resulting in the decrease of coverage is a result of improved portfolio risk distribution related to portfolio credit quality (lower levels of classified and non-accruing loans). In addition, there has been a decrease in probability of default rates associated with commercial loans that has resulted in a decrease in reserve balances.

Consumer

The consumer loan and small business loan portfolios are monitored for credit risk and deterioration with statistical tools considering factors such as delinquency, loan-to-value ("LTV") ratios, and 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.

For both residential mortgage and home equity loans, loss severity assumptions are incorporated in the loan 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 allowance for loan losses 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.

Residential mortgages and any portion of a home equity loan or line of credit not adequately secured by collateral are generally charged-off when deemed to be uncollectible or are delinquent 180 days or more (120 days for closed-end consumer loans not secured by real estate), whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Examples that would demonstrate repayment 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. 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. Credit cards that are 180 days delinquent are charged-off and all interest is removed from interest income.

As of September 30, 2015, the Company had $601.3 million and $5.4 billion of consumer home equity loans and lines of credit, which included $261.6 million and $2.9 billion, or 43.5% and 53.6%, in junior lien positions, respectively. Loss severity rates on these consumer home equity loans and lines of credit in junior lien positions were 57.0% and 69.4%, respectively, as of September 30, 2015.

To ensure the Company has captured losses inherent in its home equity portfolios, the Company estimates its allowance for loan losses 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.

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

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 24.9% of junior lien home equity principal balances. Of the junior lien home equity loan and line of credit balances that are current, 0.7% 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.

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 allowance for loan losses is maintained at a level sufficient to absorb inherent losses in the portfolio.

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 percentage of the Company's current home equity lines of credit that are expected to reach the end of their draw periods prior to January 1, 2019 is approximately 2.8% and not considered significant. The Company's home equity lines of credit originated prior to 2007 are generally open-ended, revolving loans with fixed-rate lock options and draw periods of up to 15 years, along with amortizing repayment periods of up to 15 years. 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 score and LTV ratio. 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 RIC and personal unsecured loans at SCUSA, the Company estimates the allowance for loan losses at a level considered adequate to cover probable credit losses inherent in the portfolio. RICs and personal unsecured loans are considered separately in assessing the required allowance for loan losses using product-specific allowance methodologies applied on 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 timing of unit losses and the loan balances at time of default.

For the personal unsecured loan portfolio at SCUSA, as of September 30, 2015, there was no allowance associated with the portfolio as the portfolio was moved to held for sale. In previous periods, including December 31, 2014, the Company employed product specific models in determining the required allowance for loan losses. For the fixed rate installment loan portfolio, a vintage modeling approach was employed in which the models predicted the timing of losses and the loan balance at the time of default. As these were unsecured loans, the total loss was the loan balance at the time of default. For revolving loans, the model stratified the portfolio based on delinquency categories and age of account. Loss rates were derived from historical experience to determine the expected portfolio losses over the next 12 months.

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 allowance for loan loss 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 allowance for loan loss 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 $2.3 billion and $1.3 billion at September 30, 2015 and December 31, 2014, respectively. The allowance as a percentage of held for investment consumer loans was 6.0% at September 30, 2015 and 3.2% at December 31, 2014. The increase in the allowance for consumer loans is primarily attributable to continued growth in the Company's RIC and auto loan portfolio.

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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 allowance for loan and lease loss positions are considered in light of these factors. The unallocated allowance for loan losses was $45.3 million at September 30, 2015 and $33.0 million at December 31, 2014.

Reserve for Unfunded Lending Commitments

In addition to the allowance for loan and lease losses, 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 Consolidated Balance Sheet. Once an unfunded lending commitment becomes funded and is carried as a loan, the corresponding reserves are transferred to the allowance for loan losses.

The reserve for unfunded lending commitments increased from $132.6 million at December 31, 2014 to $137.6 million at September 30, 2015. This increase was due to an increase in off-balance sheet lending commitments, which is a result of the overall increase in the Company's commercial lending business. As a result of these shifts, the net impact of the decrease in the reserve for unfunded lending commitments to the overall ACL is immaterial.

INVESTMENT SECURITIES

Investment securities consist primarily of U.S. Treasuries, MBS, tax-free municipal securities, corporate debt securities, asset-backed securities ("ABS") and stock in the FHLB and the FRB. MBS consist of pass-through, collateralized mortgage obligations, and adjustable rate mortgages issued by federal agencies. 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 at the date of issuance. The Company’s available-for-sale investment strategy is to purchase liquid fixed-rate and floating-rate investments to manage the Company's liquidity position and interest rate risk adequately.

Total investment securities available-for-sale increased $5.1 billion to $21.1 billion at September 30, 2015, compared to $15.9 billion at December 31, 2014. During the nine months ended September 30, 2015, the composition of the Company's investment portfolio changed by decreases in ABS, corporate, and municipal securities which were offset by increases in High Quality Liquid Assets such as U.S. Treasuries and MBS. This increase was primarily driven by activity within the MBS portfolio, offset by activity within the state and municipal portfolio. MBS increased by $6.1 billion primarily due to $7.5 billion of investment purchases, offset by sales and maturities of $0.7 billion and normal principal amortization during 2015. The state and municipal portfolio decreased by $1.1 billion primarily due to sales and maturities of $1.0 billion. For additional information with respect to the Company’s investment securities, see Note 4 in the Notes to the Condensed Consolidated Financial Statements.

There were no trading securities held at September 30, 2015, compared to $833.9 million at December 31, 2014.

Other investments, which consists of FHLB stock and FRB stock, increased from $817.0 million at December 31, 2014 to $999.2 million at September 30, 2015 primarily due to purchases of FHLB and FRB stock, partially offset by the FHLB's repurchase of its stock.

The average life of the available-for-sale investment portfolio (excluding certain ABS) at September 30, 2015 was approximately 3.99 years, compared to 4.11 years at December 31, 2014. The average effective duration of the investment portfolio (excluding certain ABS) at September 30, 2015 was approximately 2.98 years. The actual maturities of MBS available-for-sale will differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.

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

GOODWILL

Goodwill totaled $9.0 billion at both September 30, 2015 and December 31, 2014.

The following table shows goodwill by reportable segments at September 30, 2015:

	Retail Banking		Auto Finance & Business Banking		Real Estate and Commercial Banking		GCB		SCUSA		Total
(As Restated)	(in thousands)
Goodwill at September 30, 2015	$	1,550,176	$	446,068	$	1,297,055	$	131,130	$	5,527,055	$	8,951,484

At September 30, 2015, goodwill represented 6.8% and 38.3% of total assets and total stockholder's equity, respectively, compared to 7.5% of total assets and 39.4% of total stockholder's equity at December 31, 2014.

The Company completed its annual goodwill impairment test as of October 1, 2014, and the results of the 2014 impairment test validated that the fair values exceeded the carrying values for the reporting units which had goodwill at the testing date.

During the second quarter of 2015, the Company determined that the expiration of the direct lease origination agreement with SCUSA constituted a potential impairment indicator in the Auto Finance & Business Banking reporting unit. As a result, the Company conducted an interim impairment test on the Auto Finance & Business Banking reporting unit as of April 1, 2015. The Company conducted the interim impairment test in the same manner as its annual impairment test with key inputs and assumptions being updated as of the interim testing date. The results of the interim impairment test validated that the fair value exceeded the carrying value for the Auto Finance & Business Banking reporting unit by over 25%. Based on these results, the Company does not consider the goodwill assigned to the Auto Finance & Business Banking reporting unit to be impaired or at risk for impairment.

The Company is in the process of completing its annual goodwill impairment test as of October 1, 2015.

DEFERRED TAXES AND OTHER TAX ACTIVITY

The Company's net deferred tax balance was a liability of $1.3 billion at September 30, 2015 and $1.2 billion at December 31, 2014. The $119.7 million increase for the nine-month period ended September 30, 2015 was primarily due to a $123.2 million increase in the deferred tax liability related to accelerated tax depreciation on leasing transactions; a $53.8 million decrease in the deferred tax asset for net gains that have been recognized for tax purposes on loans that are required to be marked to market for tax purposes but not book purposes; a $20.6 million reduction in deferred tax assets related to a decrease in investment and market-related unrealized losses; and offset partially by $77.9 million decrease in the net deferred tax liability from the change in other than temporary differences, net operating loss carryforwards and tax credits.

The Company has a lawsuit pending against the United States 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. The Company has recorded a receivable in the other assets line of the Condensed Consolidated Balance Sheets for the amount of these payments, less a tax reserve of $230.1 million, as of September 30, 2015.

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

In 2013, two different federal courts decided cases involving similar financing structures entered into by the Bank of New York Mellon Corp. ("BNY Mellon") and BB&T Corp. ("BB&T") in favor of the IRS. BNY Mellon and BB&T each appealed. On May 14, 2015, the Court of Appeals for the Federal Circuit decided BB&T's appeal by affirming the trial court's decision to disallow BB&T's foreign tax credits and to allow penalties, but reversed the trial court and allowed BB&T's entitlement to interest deductions. On September 9, 2015, the Court of Appeals for the Second Circuit upheld the trial court's decision in BNY Mellon's case, allowing BNY Mellon to claim interest deductions, but disallowing BNY Mellon's claimed foreign tax credits. On September 29, 2015, BB&T filed a petition requesting the U.S. Supreme Court to hear its appeal of the Federal Circuit Court’s decision. BNY Mellon filed a petition requesting the U.S. Supreme Court hear its appeal of the Second Circuit’s decision on November 3, 2015. On March 7, 2016, the U.S. Supreme Court denied BB&T's and BNY Mellon's petitions.

While the Company remains confident in the legal merits of its position, the Company increased its reserve position as of September 30, 2015 by $104.2 million, and believes its 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 $230.1 million to an increase of $201.9 million.

OTHER ASSETS

Other assets at September 30, 2015 were $1.9 billion, compared to $2.9 billion at December 31, 2014. The decrease in other assets was primarily due to activity in income tax receivables and miscellaneous assets and receivables, offset by an increase in derivative assets.

Income tax receivables decreased $333.3 million, primarily due to the decrease in accrued federal tax receivables.

Miscellaneous assets and receivables decreased $624.9 million primarily due to investment trades unsettled at the end of 2014 that were received by September 30, 2015. These unsettled trades were primarily related to $579.6 million in sales of trading securities between December 31, 2014 and September 30, 2015. These decreases were offset by a $49.3 million increase in derivative assets primarily due to an increase in capital market trading.

DEPOSITS AND OTHER CUSTOMER ACCOUNTS

The Bank attracts deposits within its primary market area by offering a variety of deposit instruments, including demand and interest-bearing demand deposit accounts, money market accounts, savings accounts, customer repurchase agreements, Certificates of deposit ("CDs") and retirement savings plans. The Bank also issues wholesale deposit products such as brokered deposits and government deposits on a periodic basis, which serve as an additional source of liquidity for the Company.

The following table presents the composition of deposits and other customer accounts at the dates indicated:

	September 30, 2015				December 31, 2014
	Balance		Percent of total deposits		Balance		Percent of total deposits
	(dollars in thousands)
Interest-bearing demand deposits	$	10,817,674	19.5	%	$	10,864,395	20.7	%
Non-interest-bearing demand deposits	8,104,813		14.6	%	7,998,870		15.2	%
Savings	3,958,790		7.1	%	3,863,064		7.4	%
Customer repurchase agreements	897,720		1.6	%	988,790		1.9	%
Money market	23,598,320		42.5	%	21,447,579		40.9	%
Certificates of deposit	8,165,938		14.7	%	7,311,309		13.9	%
Total Deposits	$	55,543,255	100.0	%	$	52,474,007	100.0	%

Total deposits and other customer accounts increased $3.1 billion from December 31, 2014 to September 30, 2015. The increase in deposits was primarily due to increases in money market accounts, CDs, and noninterest-bearing accounts, offset by a decrease in interest-bearing accounts. The increase in deposits was primarily comprised of increases in CDs of $854.6 million, or 11.7%, and money market accounts of $2.2 billion, or 10.0%, due mainly to continuing better economic conditions encouraging movement from certain interest-bearing investments to CDs and money market accounts.

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

Interest-bearing deposit accounts decreased $46.7 million, or 0.4%, primarily due to the shift in deposits to money market accounts. The Company continues to focus its efforts on attracting and increasing lower-cost deposits, however, the cost of deposits increased from 0.48% for the third quarter of 2014 to 0.56% for the third quarter of 2015.

Demand deposit overdrafts that have been reclassified as loan balances were $36.5 million and $51.3 million at September 30, 2015 and December 31, 2014, respectively. Time deposits of $250,000 or more totaled $1.3 billion and $993.4 million at September 30, 2015 and December 31, 2014, respectively.

BORROWINGS AND OTHER DEBT OBLIGATIONS

The Company has term loans and lines of credit with Santander and other third-party lenders. The Bank utilizes borrowings and other debt obligations as a source of funds for its asset growth and asset/liability management. Collateralized advances are available from the FHLB if certain standards related to creditworthiness are met. The Bank also utilizes repurchase agreements, which are short-term obligations collateralized by securities. In addition, SCUSA has warehouse lines of credit and securitizes some of its retail installment contracts and operating leases, which are structured secured financings. Total borrowings and other debt obligations at September 30, 2015 were $48.4 billion, compared to $39.7 billion at December 31, 2014. Total borrowings increased $8.7 billion, primarily due to $3.1 billion of new debt issued by the Bank and the Holding Company, an increase of $3.9 billion in FHLB Advances, and net $2.3 billion of SCUSA securitization activity, offset by maturing debt of $0.6 billion. See further detail on borrowings activity in Note 10 to the Condensed Consolidated Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS

See further discussion of the Company's off-balance sheet arrangements in Note 7 and Note 14 to the Condensed Consolidated Financial Statements, and Liquidity and Capital Resources analysis.

BANK REGULATORY CAPITAL

The Company's capital priorities are to support client growth, business investment, and maintain appropriate capital in light of economic uncertainty and the Basel III framework. The Company continues to improve its capital levels and ratios through retention of quarterly earnings.

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, 2015 and December 31, 2014, respectively, the Bank met the well-capitalized capital ratio requirements. The Company's capital levels exceeded the ratios required for BHCs.

For a discussion of Basel III, which became effective for SHUSA and the Bank on January 1, 2015, including the standardized approach and related future changes to the minimum U.S. regulatory capital ratios, see the section captioned Regulatory Matters within this MD&A.

The Federal Deposit Insurance Corporation Improvement Act established five capital tiers: well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. A depository institution's capital tier depends on its capital levels in relation to various capital measures, which include leverage and risk-based capital measures and certain other factors. Depository institutions that are not classified as well-capitalized or adequately-capitalized are subject to various restrictions regarding capital distributions, payment of management fees, acceptance of brokered deposits and other operating activities.

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

Federal banking laws, regulations and policies also limit the Bank's ability to pay dividends and make other distributions to the Company. The Bank must obtain prior OCC approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the Bank's total distributions to the Holding Company within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years; (2) the Bank would not meet capital levels imposed by the OCC in connection with any order, or (3) the Bank is not adequately capitalized at the time. In addition, the OCC's prior approval would be required if the Bank's examination or Community Reinvestment Act ratings fall below certain levels or the Bank is notified by the OCC that it is a problem association or in troubled condition. In addition, the Bank must obtain the OCC's prior written approval to make any capital distribution until it has positive retained earnings. Under a written agreement with the FRB of Boston, the Company must not declare or pay, and must not permit any non-bank subsidiary that is not wholly-owned by the Company, including SCUSA, to declare or pay, any dividends, and the Company must not make, or permit any such subsidiary to make, any capital distribution, in each case without the prior written approval of the FRB of Boston.

Any dividend declared and paid or return of capital has the effect of reducing the Bank's capital ratios. The Bank did not declare and pay any return of capital to SHUSA during the three-month and nine-month periods ended September 30, 2015.

The following schedule summarizes the actual capital balances of the Bank and SHUSA at September 30, 2015:

	BANK
	September 30, 2015		Well-capitalized Requirement(1)		Minimum Requirement(1)
Common equity tier 1 capital ratio	13.86	%	6.50	%	4.50	%
Tier 1 capital ratio	13.86	%	8.00	%	6.00	%
Total capital ratio	15.14	%	10.00	%	8.00	%
Leverage ratio	11.69	%	5.00	%	4.00	%

(1) As defined by OCC regulations.

	SHUSA
	September 30, 2015		Well-capitalized Requirement(2)		Minimum Requirement(2)
Common equity tier 1 capital ratio	12.10	%	6.50	%	4.50	%
Tier 1 capital ratio	13.53	%	8.00	%	6.00	%
Total capital ratio	15.31	%	10.00	%	8.00	%
Leverage ratio	11.99	%	5.00	%	4.00	%

(2) As defined by FRB regulations.

LIQUIDITY AND CAPITAL RESOURCES

Overall

The Company continues to maintain strong liquidity positions. 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 Bank's Asset/Liability Committee reviews and approves the 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.

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

Further 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; 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 and Business Environment section of this MD&A.

Sources of Liquidity

Company and Bank

The Company and the Bank have 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. The Company has the following major sources of funding to meet its liquidity requirements: dividends and returns of investments from its subsidiaries, short-term investments held by non-bank affiliates, and access to the capital markets.

On September 15, 2014, the Company entered into a written agreement with the FRB of Boston. Under the terms of the written agreement, the Company must serve as a source of strength to the Bank; strengthen Board oversight of planned capital distributions by the Company and its subsidiaries; and not declare or pay, and not permit any nonbank subsidiary that is not wholly-owned by the Company to declare or pay, any dividends and not make, or permit any such subsidiary to make, any capital distribution, in each case without the prior written approval of the FRB of Boston.

On July 2, 2015, the Company entered into a written agreement with the FRB 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.

SCUSA

SCUSA requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. SCUSA funds its operations through its lending relationships with 14 third-party banks and Santander, as well as through securitizations in the ABS market and large flow agreements. SCUSA seeks to issue debt that appropriately matches the cash flows of the assets that it originates. SCUSA has over $4.4 billion of stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements.

During the nine months ended September 30, 2015, SCUSA completed on-balance sheet funding transactions totaling approximately $12.0 billion, including:

• four securitizations on its Santander Drive Auto Receivables Trust ("SDART") platform for $4.6 billion;

• a series of seven subordinate bond transactions on its SDART platform totaling $262.0 million to fund residual interests from existing securitizations;

• four securitizations on its relaunched Drive Auto Receivables Trust, deeper subprime platform, for $3.4 billion;

• top-ups of four private amortizing facilities totaling $1.6 billion; and

• four private amortizing lease facilities totaling $2.0 billion.

SCUSA also completed $7.3 billion in asset sales, including $1.3 billion in third-party lease sales and $3.2 billion in recurring monthly sales with its third-party flow partners, in addition to executing several sales of charged off assets totaling $118.0 million in proceeds.

For information regarding SCUSA's debt, see Note 10 in the Notes to the Condensed Consolidated Financial Statements.

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

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 borrow at the FHLB and the FRB’s discount window. 

Available Liquidity

As of September 30, 2015, the Bank had approximately $22.6 billion in committed liquidity from the FHLB and the FRB. Of this amount, $6.7 billion was unused and therefore provides additional borrowing capacity and liquidity for the Company. At September 30, 2015 and December 31, 2014, liquid assets (cash and cash equivalents, LHFS, and securities available-for-sale exclusive of securities pledged as collateral) totaled approximately $22.4 billion and $13.7 billion, respectively. These amounts represented 40.3% and 26.0% of total deposits at September 30, 2015 and December 31, 2014, respectively. In addition to liquid assets, the Company also has available liquidity from federal funds counterparties of $1.3 billion. Management believes that the Company has ample liquidity to fund its operations.

Cash and cash equivalents

	Nine-Month Period Ended September 30,
	2015			2014
	(in thousands)
Net cash provided by operating activities	$	3,707,478		$	3,372,509
Net cash (used in) investing activities	(14,384,904		)	(10,687,739		)
Net cash provided by financing activities	13,095,425			5,120,198

Cash provided by operating activities

Net cash provided by operating activities was $3.7 billion for the nine-month period ended September 30, 2015, which is comprised of net income of $531.2 million, $3.0 billion of provision for credit losses, $4.7 billion in proceeds from sales of LHFS, and $823.8 million in proceeds from sales of trading securities, offset by $5.6 billion of originations of LHFS, net of repayments.

Net cash provided by operating activities was $3.4 billion for the nine-month period ended September 30, 2014, which was comprised of net income of $2.7 billion and $3.9 billion in proceeds from sales of LHFS, offset by $3.6 billion of originations of LHFS, net of repayments.

Cash used in investing activities

For the nine-month period ended September 30, 2015, net cash used in investing activities was $14.4 billion, primarily due to $11.0 billion of purchases of investment securities available-for-sale, $7.4 billion in normal loan activity, and $4.7 billion in leased vehicle purchases, offset by $6.5 billion of investment sales, maturities and prepayments, $1.8 billion in proceeds from sales of loans held for investment and $1.8 billion in proceeds from sales of leased vehicles.

For the nine-month period ended September 30, 2014, net cash used in investing activities was $10.7 billion, primarily due to $3.9 billion of purchases of investment securities available-for-sale, $5.3 billion in normal loan activity and $4.8 billion in leased vehicle purchases, offset by $2.0 billion of investment sales, maturities and repayments and $1.6 billion in proceeds from sales of loans held for investment.

Cash provided by financing activities

For the nine-month period ended September 30, 2015, net cash provided by financing activities was $13.1 billion, which was primarily due to a $3.1 billion increase in deposits and an increase in net borrowing activity of $9.9 billion.

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

Net cash provided by financing activities for the nine-month period ended September 30, 2014 was $5.1 billion, which was primarily driven by an increase in proceeds from the issuance of common stock of $1.8 billion, an increase in deposits of $2.0 billion, and an increase in net borrowing activity of $1.3 billion.

See the Condensed Consolidated Statement of Cash Flows ("SCF") for further details on the Company's sources and uses of cash.

Credit Facilities

Third-Party Revolving Credit Facilities

Warehouse Lines

Warehouse lines are used to fund new originations. Each line specifies the required collateral characteristics, collateral concentrations, credit enhancement, and advance rates. Warehouse lines are generally backed by auto retail installment contracts and, in some cases, leases or personal loans. These credit lines generally have one- or two-year commitments, staggered maturities and floating interest rates. SCUSA maintains daily funding forecasts for originations, acquisitions, and other large outflows such as tax payments in order to balance the desire to minimize funding costs with its liquidity needs.

SCUSA's warehouse lines generally have net spread, delinquency, and net loss ratio limits. These limits are generally calculated based on the portfolio collateralizing the line; however, for two of the warehouse lines, delinquency and net loss ratios are calculated with respect to the serviced portfolio as a whole. Failure to meet any of these covenants could trigger increased over-collateralization 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 lender could elect to declare all amounts outstanding under the impacted agreement to be immediately due and payable, enforce its interests against collateral pledged under the agreement, restrict SCUSA's ability to obtain additional borrowings under the agreement, and/or remove SCUSA as servicer. SCUSA 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 lines could be enforced only with respect to that line.

SCUSA has a credit facility with eight banks providing an aggregate commitment of $4.2 billion for the exclusive use of providing short-term liquidity needs to support Chrysler retail financing. This facility can be used for both loan and lease financing. The facility requires reduced advance rates in the event of delinquency, credit loss, or residual loss ratios exceeding specified thresholds.

Repurchase Facility

SCUSA also obtains financing through an investment management agreement under which it pledges retained subordinated bonds on its securitizations as collateral for repurchase agreements with various borrowers at renewable terms ranging from 30 to 90 days.

Santander Credit Facilities

Santander historically has provided, and continues to provide, SCUSA's business with significant funding support in the form of committed credit facilities. Through its New York branch ("Santander NY"), Santander provides SCUSA with $4.5 billion of long-term committed revolving credit facilities.

The facilities offered through Santander NY's branch are structured as three- and five-year floating rate facilities, with current maturity dates of December 31, 2016 and 2018. Santander has the option to allow SCUSA to continue to renew the term of these facilities annually going forward, thereby maintaining the three- and five-year maturities. These facilities currently permit unsecured borrowing, but generally are collateralized by retail installment contracts as well as securitization notes payable and residuals owned by SCUSA. 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.

There was an average outstanding balance of approximately $3.7 billion and $3.6 billion under the facilities offered through Santander NY's branch during the nine-month periods ended September 30, 2015 and 2014, respectively. The maximum outstanding balance during each period was $4.4 billion and $4.3 billion, respectively.

Santander also serves as the counterparty for many of SCUSA's derivative financial instruments.

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

Secured Structured Financings

SCUSA's secured structured financings primarily consist of public, SEC-registered securitizations. SCUSA also executes private securitizations under Rule 144A of the Securities Act of 1933, as amended (the "Securities Act") and privately issues amortizing notes.

SCUSA obtains long-term funding for its receivables through securitizations in the ABS market. The ABS market provides an attractive source of funding due to its cost efficiency, a large and deep investor base, and terms that appropriately match the cash flows of the debt to the cash flows of the underlying assets. The term structure of a securitization generally locks in fixed-rate funding for the life of the underlying fixed-rate assets, and the matching amortization of the assets and liabilities provides committed funding for the collateralized loans throughout their terms. In certain cases, SCUSA may choose to issue floating rate securities based on market conditions; in such cases, SCUSA generally executes hedging arrangements outside of the securitization trusts (the "Trusts") to lock in its cost of funds. Because of prevailing market rates, SCUSA did not issue ABS in 2008 or 2009, but began issuing ABS again in 2010. SCUSA has been the largest issuer of retail auto ABS in the U.S. since 2011. SCUSA has issued a total of over $46.0 billion in retail auto ABS since 2010.

SCUSA executes each securitization transaction by selling receivables to the Trusts that issue ABS to investors. To attain specified credit ratings for each class of bonds, these transactions have credit enhancement requirements in the form of subordination, restricted cash accounts, excess cash flow, and over-collateralization, which result in more receivables being transferred to the Trusts than the amount of ABS they issue.

Excess cash flows result from the difference between the finance and interest income received from the obligors on the receivables and the interest paid to the ABS investors, net of credit losses and expenses. Initially, excess cash flows generated by the Trusts are used to pay down outstanding debt of the Trusts, increasing over-collateralization until the targeted level of assets has been reached. Once the targeted level of over-collateralization is reached and maintained, excess cash flows generated by the Trusts are released to SCUSA as distributions. SCUSA also receives monthly servicing fees as servicer for the Trusts. SCUSA's securitizations may require an increase in credit enhancement levels if cumulative net losses, as defined in the documents underlying each ABS transaction, exceed a specified percentage of the pool balance. None of SCUSA's securitizations has a cumulative net loss percentage above its limit.

SCUSA's on-balance sheet securitization transactions utilize bankruptcy-remote special purpose entities, which are also variable interest entities ("VIEs") that meet the requirements to be consolidated in the Company's financial statements. Following a securitization, the finance receivables and notes payable related to the securitized retail installment contracts remain on the Company's Condensed Consolidated Balance Sheet. The Company recognizes finance and interest income as well as fee income on the collateralized retail installment contracts and interest expense on the ABS issued. The Company also records a provision for credit losses to cover inherent credit losses on the retail installment contracts. While these Trusts are included in the Company's Condensed Consolidated Financial Statements, they are separate legal entities. The finance receivables and other assets sold to the Trusts are owned by them, are available only to satisfy the notes payable related to the securitized retail installment contracts, and are not available to SCUSA's or the Company's creditors or those of its other subsidiaries.

SCUSA has completed nine securitizations year-to-date in 2015, in addition to executing seven subordinate bond transactions to obtain additional liquidity from residual interests in existing securitizations. SCUSA currently has 34 securitizations outstanding in the market with a cumulative ABS balance of approximately $15.9 billion. Its securitizations generally have several classes of notes, with principal paid sequentially based on seniority and any excess spread distributed to the residual holder. SCUSA generally retains the lowest bond class and the residual interest in each securitization, and uses the proceeds from the securitization to repay borrowings outstanding under its credit facilities, originate and acquire new loans and leases, and for general corporate purposes. SCUSA generally exercises clean-up call options on its securitizations when the collateralization pool balance reaches 10% of its original balance.

SCUSA periodically issues amortizing notes in private placements that are structured similarly to its public securitizations and securitizations which are issued under Rule 144A of the Securities Act to banks and conduits. SCUSA's securitizations and private issuances are collateralized by vehicle retail installment contracts, loans and vehicle leases.

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

Flow Agreements

In addition to its credit facilities and secured structured financings, SCUSA has flow agreements in place with Bank of America and Citizens Bank of Pennsylvania ("CBP") for Chrysler Capital retail installment contracts, with another third party for charged off assets, and with the Bank for Chrysler Capital dealer loans.

SCUSA enters into flow agreements under which assets are sold on a periodic basis to provide funding for new originations. These assets are not on SCUSA's balance sheet, but may provide a gain or loss on sale and a stable stream of servicing fee income.

SCUSA has a flow agreement with Bank of America under which SCUSA is committed to sell up to a specified amount of eligible loans to that bank each month through May 2018. Prior to October 1, 2015, the amount of this monthly commitment was $300.0 million. On October 1, 2015, SCUSA and Bank of America amended the flow agreement to increase the maximum commitment to sell to $350.0 million of eligible loans each month, and to change the required written notice period from either party, in the event of termination of the agreement, from 120 days to 90 days. For loans sold, SCUSA retains the servicing rights 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.

SCUSA also has sold loans to CBP under terms of a flow agreement and predecessor sale agreements. SCUSA 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. On June 25, 2015, SCUSA executed an amendment to the servicing agreement with CBP, which increased the servicing fee that SCUSA receives. SCUSA and CBP also amended the flow agreement which reduced, effective from and after August 1, 2015, CBP's committed purchases of Chrysler Capital prime loans from a maximum of $600.0 million and a minimum of $250.0 million per quarter to a maximum of $200.0 million and a minimum of $50.0 million per quarter, as may be adjusted according to the agreement.

Off-Balance Sheet Financing

SCUSA periodically executes Chrysler Capital-branded securitizations under Rule 144A of the Securities Act. Because all of the notes and residual interests in these securitizations are issued to third parties, SCUSA records these transactions as true sales of the retail installment contracts securitized, and removes the sold assets from its condensed consolidated balance sheets. In April 2015, SCUSA executed its first off-balance sheet securitization of 2015, selling $769.0 million of gross retail installment contracts.

During the nine-month period ended September 30, 2015, SCUSA executed its first two bulk sales of leases to a third party. Due to accelerated depreciation permitted for tax purposes, these two sales generated large taxable gains that SCUSA has deferred through a qualified like-kind exchange program. In order to qualify for this deferral, SCUSA is required to maintain the sale proceeds in escrow until reinvested in new lease originations. Because the sale proceeds were also needed to pay down the third-party credit facilities under which it had financed the leases prior to their sale, SCUSA has increased its borrowings on its related party credit facilities until the sale proceeds are fully reinvested over the 180 days following each sale.

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.

Dividends and Stock Issuances

In February 2014, the Company issued 7.0 million shares of common stock to Santander in exchange for cash in the amount of $1.75 billion. Also in February 2014, the Company raised $750.0 million of capital by issuing 3.0 million shares of common stock to Santander in exchange for canceling debt of an equivalent amount.

In May 2014, the Company issued 84,000 shares of its common stock to Santander in exchange for cash in the amount of $21.0 million.

On May 1, 2014, SCUSA's Board of Directors declared a cash dividend of $0.15 per share, which was paid on May 30, 2014 to shareholders of record as of the close of business on May 12, 2014.

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

At September 30, 2015, the Company's liquidity to meet debt payments, debt service and debt maturities was in excess of 12 months.

There were no dividends declared or paid during the three-month and nine-month periods ended September 30, 2015. As of September 30, 2015, the Company had 530,391,043 shares of common stock outstanding.

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, to fund acquisitions, and to meet required capital needs. These obligations require the Company to make cash payments over time as detailed in 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)	$	13,916,523	$	7,157,477	$	5,875,548	$	661,591	$	221,907
Notes payable - revolving facilities	9,879		3,235		5,669		975		—
Notes payable - secured structured financings	20,092,949		438,125		5,151,265		9,256,679		5,246,880
Other debt obligations (1) (2)	6,627,044		993,454		2,728,778		1,557,821		1,346,991
Junior subordinated debentures due to capital trust entities (1) (2)	435,280		9,594		19,188		19,188		387,310
Certificates of deposit (1)	8,221,072		6,827,277		1,347,955		45,840		—
Non-qualified pension and post-retirement benefits	69,921		6,741		13,542		13,928		35,710
Operating leases(3)	752,487		118,878		208,367		154,753		270,489
Total contractual cash obligations	$	50,125,155	$	15,554,781	$	15,350,312	$	11,710,775	$	7,509,287

(1) Includes interest on both fixed and variable rate obligations. The interest associated with variable rate obligations is based on interest rates in effect at September 30, 2015. The contractual amounts to be paid on variable rate obligations are affected by changes in market interest rates. Future changes in market interest rates could materially affect the contractual amounts to be paid.

(2) Includes all carrying value adjustments, such as unamortized premiums and discounts and hedge basis adjustments.

(3) Does not include future expected sublease income.

Excluded from the above table are deposits of $47.4 billion that are due on demand by customers. Additionally, $247.7 million of tax liabilities associated with unrecognized tax benefits have been excluded due to the high degree of uncertainty regarding the timing of future cash outflows associated with those obligations.

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 11 and Note 14 to the Condensed Consolidated Financial Statements.

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 and guides new business. The Treasury group also uses various other tools to manage interest rate risk, including wholesale funding maturity targeting, investment portfolio purchase strategies, asset securitizations/sales, and financial derivatives.

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

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 London Interbank Offered Rate. 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 simulations, shocks to those net interest income simulations, and scenario and market value analyses and the subsequent results are reviewed by management. Numerous assumptions are made 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.

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 scenarios include both parallel and non-parallel rate shocks as well as other scenarios that are consistent with quantifying the four elements of risk described above. 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:

If interest rates changed in parallel by the amounts below at September 30, 2015	The following estimated percentage increase/(decrease) to net interest income would result
Down 100 basis points	(1.48	)%
Up 100 basis points	0.93	%
Up 200 basis points	1.77	%

Market Value of Equity ("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.

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, 2015 and December 31, 2014.

	The following estimated percentage increase/(decrease) to MVE would result
If interest rates changed in parallel by	September 30, 2015		December 31, 2014
Down 100 basis points	(4.23	)%	(2.28	)%
Up 100 basis points	0.43	%	(0.40	)%
Up 200 basis points	(0.39	)%	(1.74	)%

As of September 30, 2015, the Company’s MVE profile showed a decrease of 4.23% for downward parallel interest rate shocks of 100 basis points and also a decrease of 0.39% for upward parallel interest rate shocks of 200 basis points. This 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”).

In downward parallel interest rate shocks, mortgage-related products’ prepayments increase, their duration decreases and their market value appreciation therefore is limited. At the same time, with deposit rates already close to zero, the Company cannot effectively transfer interest rate declines to its NMD customers.

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

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 the NMD.

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 and 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’s capital markets and mortgage banking activities, it is subject to price risk. The Company employs various tools to measure and manage price risk in its portfolios. In addition, the SHUSA 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 environment.

The Company enters into cross-currency swaps to hedge its foreign currency exchange risk on certain Euro-denominated investments. These derivatives are designated as fair value hedges at inception.

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.

The Company typically retains the servicing rights related to residential mortgage loans that are sold. 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 9 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 will 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.

For additional information on foreign exchange contracts, derivatives and hedging activities, see Note 11 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 — Asset and Liability Management above.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision of its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q/A. Based on such evaluation, our CEO and CFO have concluded that as of September 30, 2015, we did not maintain effective 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 believes that the financial statements included 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 generally accepted accounting principles (“GAAP”).

A material weakness (as defined in Rule 12b-2 under the Exchange 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 identified the following material weaknesses:

Control Environment, Risk Assessment, Control Activities and Monitoring

The Company's financial reporting involves complex accounting matters (such as purchase accounting, goodwill, allowance and TDR matters) emanating from our majority owned subsidiary, Santander Consumer USA Holdings Inc. (“SC”), which require significant resources, time and technical expertise. We determined there was a material weakness in the design and operating effectiveness of the controls pertaining to the Company’s oversight of its SC subsidiary activities and the Company’s accounting for transactions that are significant to the Company’s internal control over financial reporting. These activities were (a) ineffective oversight to ensure accountability for the performance of internal control over financial reporting responsibilities or to ensure corrective actions were appropriately prioritized and implemented in a timely manner; and (b) inadequate resources, time and technical expertise to perform effective oversight of the application of accounting and financial reporting activities that are significant to the Company’s consolidated financial statements. We have identified the following material weaknesses emanating from SC:

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 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 of the risk and controls self-assessment process, which contributed to a lack of clarity for 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.

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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 to the review of key assumptions over prepayment curves, pool segmentation and presentation in financial statements 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.

The Company reported a material weakness in control environment relating to inadequate management oversight of accounting and financial reporting activities in implementing certain accounting practices to conform to the Company’s policies and GAAP, and insufficiently documented Company accounting policies and insufficiently detailed Company procedures to put policies into effective action, which contributed to this material weakness.

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 5 - Loans and Allowance for Credit Losses.

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 troubled debt restructurings (TDRs) separately from the general allowance on loans not classified as TDRs and the consideration of net discounts when estimating the allowance 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.

The Company reported a material weakness in control environment relating to inadequate management oversight of accounting and financial reporting activities in implementing certain accounting practices to conform to the Company’s policies and GAAP, and insufficiently documented Company accounting policies and insufficiently detailed Company procedures to put policies into effective action which contributed to this material weakness.

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 and inappropriately omitting the consideration of net discounts when estimating the allowance and recording charge-offs.

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 5 - Loans and Allowance for Credit Losses.

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.

The Company reported a material weakness in control environment relating to inadequate management oversight of accounting and financial reporting activities in implementing certain accounting practices to conform to the Company’s policies and GAAP, and insufficiently documented Company accounting policies and insufficiently detailed Company procedures to put policies into effective action, as well as ineffective execution of 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 which contributed to this material weakness.

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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 5 - Loans and Allowance for Credit Losses.

Identification, Governance 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 that aggregated to a material weakness. The following controls did not operate effectively:

• Review controls over data, inputs and assumptions in models 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.

The Company reported a material weakness in control environment relating to inadequate assessment of changes in risks by management that could significantly impact internal control over financial reporting or determination and prioritization of how those risks should be managed and ineffective execution of 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 which contributed to this material weakness.

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 5 - Loans and Allowance for Credit Losses.

Development, Approval, 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 data, inputs and assumptions in models used for estimating accretion 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 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.

The Company reported a material weakness in control environment relating to inadequate assessment of changes in risks by management that could significantly impact internal control over financial reporting or determination and prioritization of how those risks should be managed and inadequate management oversight and identification of models material to financial reporting as well as ineffective execution of 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 which contributed to this material weakness.

This material weakness relates to the following financial statement line items: loans held for investment, net, loans held for sale, net, the allowance for loan and lease losses, interest income - loans, provision for credit losses, miscellaneous income and the related disclosures within Note 5 - Loans and Allowance for Credit Losses.

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 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 prerequisite to recording the transaction and that approval had not been obtained prior to recording the transaction and therefore should not have been recorded.

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The Company reported a material weakness in control environment relating to inadequate management oversight of accounting and financial reporting activities in implementing certain accounting practices to conform to the Company’s policies and GAAP, and ineffective execution of 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 which contributed to this material weakness.

This material weakness relates to the following financial statement line items: compensation and benefits expense, other liabilities, deferred tax liabilities, net, common stock and paid-in capital and the related disclosures within Note 13 - Accumulated Other Comprehensive Income/(Loss).

Review of Financial Statement Disclosures

Management identified errors relating to financial statement disclosures. Specifically, controls over both the preparation and review of financial statement disclosures did not operate effectively to ensure complete, accurate, and proper presentation of the financial statement disclosures in accordance with GAAP.

The Company reported a material weakness in control environment relating to inadequate management oversight of accounting and financial reporting activities in implementing certain accounting practices to conform to the Company’s policies and GAAP, and ineffective execution of 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 which contributed to this material weakness.

This material weakness relates to various disclosures in the financial statements.

Impact of Purchase Accounting on TDR Loan Accounting

In the process of estimating the allowance for loan losses related to SC loans in the Company’s consolidated financial statements, SC’s discount rates were used in the TDR methodology rather than the discount rate required for the Company related to the original purchase accounting discount. Management’s review control of the methodology did not operate effectively.

This material weakness relates to the following financial statement line items: loans held for investment, net, the allowance for loan and lease losses, provision for credit losses, and the related disclosures within Note 5 - Loans and Allowance for Credit Losses.

Goodwill

In connection with the annual goodwill impairment test conducted as of October 1, 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 ASC 350-20. A review of the calculation did not identify an error which resulted in an understatement of the carrying value used in the goodwill impairment tests. While the impact of the error did not result in a different conclusion regarding the step one impairment test that was conducted, it was reasonably possible that the understated carrying value could have resulted in a different conclusion that would not have been prevented or detected.

Statement of Cash Flows and Footnotes

Management identified a material weakness in internal control over the Company's process to prepare and review the Statement of Cash Flows (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 the Condensed Consolidated SCF and financial statement disclosures in the Loans and Allowance for Credit Losses footnote, as a result of which errors were not identified in a timely manner.

During 2015, with the oversight of senior management and the Audit Committee, the Company implemented a number of new controls to remediate the SCF and footnotes material weakness described above. The Company has revised the design of the former process to prepare and review the Company’s SCF and Notes to the Consolidated Financial Statements, and designed and implemented additional controls over the preparation and data providers, to remediate the underlying control weakness that gave rise to the material weakness. The newly implemented controls include additional reviews at a detailed level at the statement preparation and data provider levels.

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The Company believes these enhancements have remediated the SCF controls design aspect of this material weakness. However, we continue to monitor the operating effectiveness of the new controls and believe these changes will strengthen internal control over financial reporting for the preparation and review of the SCF and Notes to the Consolidated Financial Statements in order to address the remaining material weakness related to the operating effectiveness of the controls.

Remediation Status of Reported Material Weaknesses

We are 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 following remediation steps are among the measures currently being implemented at the time of this filing by the Company and SC:

• The Company and SC have begun efforts to hire additional personnel with the requisite skillsets in certain areas important to financial reporting.

• The Company has established regular working group meetings, with appropriate oversight by management of both SC and the Company to strengthen accountability for performance of internal control over financial reporting responsibilities and prioritization of corrective actions.

• In conjunction with previously developing new credit loss allowance models and refining our loss forecasting methodology to be in compliance with GAAP, the Company also is enhancing its accounting documentation relating to credit loss allowance, to demonstrate how the Company’s policies and procedures align with GAAP and produce a repeatable process.

• Management is also in the process of performing a comprehensive review of current accounting practices to ensure compliance with the Company’s accounting policies and GAAP, and to ensure sufficient specificity in procedures. Additionally, management will implement a recurring review by a team of qualified individuals.

• Processes to identify, track, and report TDRs, that take into account changes to TDRs and new modification types, were enhanced and are being documented.

• A formal and comprehensive ongoing performance monitoring plan related to credit loss allowance with specific details relating to monitoring activities performed to allow for repeatable and consistent testing is being developed. This plan is intended to be consistent with the Company’s overarching model risk management policy and will provide a consistent methodology for measuring performance across all models.

• Management is ensuring that all models significant to financial reporting are subject to appropriate validation, documentation and procedures.

• Model documentation is being developed, or in some cases enhanced to address model documentation gaps, related to credit loss allowance and accretion models.

• A framework and documentation are being developed to outline model security attributes/procedures for models related to credit loss allowance and models are being placed in an environment where access is restricted to authorized personnel and an audit trail is retained.

• The Company is enhancing its Material Risk Program and Assessment documentation.

• The Company is enhancing the internal documentation requirements and procedures to be performed related to goodwill impairment testing.

• The Company has designed and implemented additional controls (including additional reviews at a detailed level) over the preparation and review of the SCF and Notes to the Consolidated Financial Statements.

• The Company is enhancing the internal documentation requirements and procedures to be performed in the implementation of new accounting models used by the Company for financial reporting purposes.

• The Company has begun efforts to enhance its oversight of subsidiaries by establishing additional procedures to identify high risk, unusual, or material transactions to ensure that there are sufficient activities performed to ensure accurate and timely financial reporting.

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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 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 are not remediated at September 30, 2015.

Changes in Internal Control over Financial Reporting

There were no changes in the Company'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 quarter ended September 30, 2015 covered by this Quarterly Report on Form 10-Q/A that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Limitations on Effectiveness of 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.

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PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

Reference should be made to Note 12 to the Condensed Consolidated Financial Statements for disclosure regarding the lawsuit filed by SHUSA against the IRS and Note 14 to the Condensed Consolidated Financial Statements for SHUSA’s litigation disclosure, 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. Other than the risk factors disclosed below, there have been no material changes from the risk factors set forth under Part I, Item IA, Risk Factors, in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

Lapses in internal controls including internal control over financial reporting could materially and adversely affect our operations, liquidity and/or reputation.

We have identified control deficiencies in our financial reporting process as of September 30, 2015 that constitute material weaknesses, which contributed to the restatement of the unaudited condensed consolidated financial statements in our previously filed Form 10-Q for the quarter ended September 30, 2015 and restatement of the audited consolidated financial statements in our previously filed Form 10-K for the year ended December 31, 2014. See Part I, Item 4 in this Form 10-Q/A. We have initiated certain measures, including the enhancement of our model framework and documentation process and increasing the number of employees on, and the expertise of, our financial reporting team, to remediate these weaknesses, and plan to implement additional appropriate measures as part of this effort. There can be no assurance that we will be able to fully remediate our existing material weaknesses. Further, there can be no assurance that we will not suffer from other material weaknesses in the future. If we fail to remediate these material weaknesses or fail to otherwise maintain effective internal controls over financial reporting in the future, such failure could result in a material misstatement of our annual or quarterly financial statements that would not be prevented or detected on a timely basis and which could cause investors and other users to lose confidence in our financial statements and limit our ability to raise capital. Additionally, failure to remediate the material weaknesses or otherwise failing to maintain effective internal controls over financial reporting may negatively impact our operating results and financial condition, impair our ability to timely file our periodic reports with the SEC, subject us to additional litigation and regulatory actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial measures.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3 — Defaults upon Senior Securities

None.

Item 4 — Mine Safety Disclosures

None.

Item 5 — Other Information

None.

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Item 6 — Exhibits

(2.1)	Transaction Agreement, dated as of October 13, 2008, between Santander Holdings USA, Inc. and Banco Santander, S.A. (Incorporated by reference to Exhibit 2.1 to SHUSA's Current Report on Form 8-K filed October 16, 2008) (Commission File Number 333-172807)
(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) (Commission File Number 333-172807)
(3.2)	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 March 27, 2009) (Commission File Number 333-172807)
(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 333-172807)
(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 333-172807)
(3.5)	Amended and Restated Bylaws of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 of Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 30, 2012) (Commission File Number 333-172807)
(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)	Underwriting Agreement dated January 22, 2014 among Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the underwriters listed therein, SCUSA, SCUSA 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, SCUSA, 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 September 15, 2014, 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 September 18, 2014 (Commission File Number 001-16581)
(10.4)	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)
(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)
(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)	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)	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)	Interactive Data File (XBRL). (Filed herewith)

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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:	December 7, 2016	/s/ Scott E. Powell
		Scott E. Powell
		President and Chief Executive Officer (Authorized Officer)
Date:	December 7, 2016	/s/ Madhukar Dayal
		Madhukar Dayal
		Chief Financial Officer and Senior Executive Vice President

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