Santander Holdings USA, Inc. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑						Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020


☐						Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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)

Registrant’s telephone number including area code (617) 346-7200

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class

Trading Symbols

Name of each exchange on which registered

Not Applicable

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

Indicate by check mark whether the registrant has submitted electronically 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 such files). Yes ☑. No ☐.

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

Large accelerated filer ☐

Accelerated filer ☐

Emerging growth company ☐

Non-accelerated Filer ☑

Smaller reporting company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

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

Number of shares of common stock outstanding at October 31, 2020: 530,391,043 shares

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INDEX



			Page

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019			5

Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2020 and 2019			6

Condensed Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended September 30, 2020 and 2019			7

Condensed Consolidated Statements of Stockholder's Equity for the three-month and nine-month periods ended September 30, 2020 and 2019			8

Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2020 and 2019			10

Notes to Condensed Consolidated Financial Statements			12

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			77

Item 3. Quantitative and Qualitative Disclosures About Market Risk			120

Item 4. Controls and Procedures			120

PART II. OTHER INFORMATION			121

Item 1. Legal Proceedings			121

Item 1A. Risk Factors			121

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			123

Item 3. Defaults upon Senior Securities			123

Item 4. Mine Safety Disclosures			123

Item 5. Other Information			123

Item 6. Exhibits			124

SIGNATURES			126


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

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

This Quarterly Report on Form 10-Q of SHUSA 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," "goal," "seek" 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, many of which are beyond the Company's control. Among the factors that could cause SHUSA’s financial performance to differ materially from that suggested by forward-looking statements are:

•the adverse impact of COVID-19 on our business, financial condition, liquidity and results of operations;

•the effects of regulation, actions and/or policies of the Federal Reserve, the FDIC, the OCC and the CFPB, and other changes in monetary and fiscal policies and regulations, including policies that affect market interest rates and money supply, actions related to COVID-19, as well as the impact of changes in and interpretations of GAAP, including adoption of the FASB's CECL credit reserving framework, the failure to adhere to which could subject SHUSA and/or its subsidiaries to formal or informal regulatory compliance and enforcement actions and result in fines, penalties, restitution and other costs and expenses, changes in our business practice, and reputational harm;

•SHUSA’s ability to manage credit risk that may increase to the extent our loans are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral;

•the extent of recessionary conditions in the U.S. related to COVID-19 and the strength of the U.S. economy in general and regional and local economies in which SHUSA conducts operations in particular, which may affect, among other things, the level of non-performing assets, charge-offs, and credit loss expense;

•acts of God, including pandemics and other significant public health emergencies, and other natural or man-made disasters and SHUSA’s ability to deal with disruptions caused by such acts, emergencies and disasters;

•inflation, interest rate, market and monetary fluctuations, including effects from the pending discontinuation of LIBOR as an interest rate benchmark, may, among other things, reduce net interest margins and impact funding sources, revenue and expenses, the value of assets and obligations, and the ability to originate and distribute financial products in the primary and secondary markets;

•the pursuit of protectionist trade or other related policies, including tariffs by the U.S., its global trading partners, and/or other countries, and/or trade disputes generally;

•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, including economic instability and recessionary conditions in Europe and the eventual exit of the United Kingdom from the European Union;

•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 grow revenue, manage expenses, attract and retain highly-skilled people and raise capital necessary to achieve its business goals and comply with regulatory requirements;

•SHUSA’s ability to effectively manage its capital and liquidity, including approval of its capital plans by its regulators and its subsidiaries' ability to continue to pay dividends to it;

•changes in credit ratings assigned to SHUSA or its subsidiaries that could increase the cost of funding or limit our access to capital markets;

•the ability to manage risks inherent in our businesses, including through effective use of systems and controls, insurance, derivatives and capital management;

•SHUSA’s ability to timely develop competitive new products and services in a changing environment that are responsive to the needs of SHUSA's customers and are profitable to SHUSA, the success of our marketing efforts to customers, and the potential for new products and services to impose additional unexpected costs, losses, or other liabilities not anticipated at their initiation, and expose SHUSA to increased operational risk;

•competitors of SHUSA may have greater financial resources or lower costs, or be subject to different regulatory requirements than SHUSA, may innovate more effectively, or may develop products and technology that enable those competitors to compete more successfully than SHUSA and cause SHUSA to lose business or market share;

•SC's agreement with FCA may not result in currently anticipated levels of growth and is subject to performance conditions that could result in termination of the agreement;

•consumers and small businesses may decide not to use banks for their financial transactions, which could impact our net income;

•changes in customer spending, investment or savings behavior;

•loss of customer deposits that could increase our funding costs;

•the ability of SHUSA and its third-party vendors to convert, maintain and upgrade, as necessary, SHUSA’s data processing and other IT infrastructure on a timely and acceptable basis, within projected cost estimates and without significant disruption to our business;

•SHUSA's ability to control operational risks, data security breach risks and outsourcing risks, and the possibility of errors in quantitative models and software SHUSA uses in its business, including as a result of cyberattacks, technological failure, human error, fraud or malice by internal or external parties, and the possibility that SHUSA's controls will prove insufficient, fail or be circumvented;

•changes to tax laws and regulations and the outcome of ongoing tax audits by federal, state and local income tax authorities that may require SHUSA to pay additional taxes or recover fewer overpayments compared to what has been accrued or paid as of period-end;

•the costs and effects of regulatory or judicial actions or proceedings, including possible business restrictions resulting from such actions or proceedings;

•adverse publicity, and negative public opinion, whether specific to SHUSA or regarding other industry participants or industry-wide factors, or other reputational harm;

•acts of terrorism or domestic or foreign military conflicts; and

•the other factors that are described in Part I, Item IA - Risk Factors of our 2019 Annual Report on Form 10-K,

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

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SHUSA provides the following list of abbreviations and acronyms as a tool for the readers that are used in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Condensed Consolidated Financial Statements and the Notes to Condensed Consolidated Financial Statements.


ABS: Asset-backed securities						COVID-19: a novel strain of coronavirus, declared a pandemic by the World Health Organization in March 2020
ACL: Allowance for credit losses						CPRs: Constant prepayment rate
AFS: Available-for-sale						CRA: Community Reinvestment Act
ALLL: Allowance for loan and lease losses						CRA Final Rule: the final rule relating to the CRA issued by the OCCC on July 20, 2020
AOCI: Accumulated other comprehensive income						CRA NPR: The NPR related to the CRA issued by the OCC and FDIC on December 12, 2019
ASC: Accounting Standards Codification						CRE: Commercial Real Estate
ASU: Accounting Standards Update						CRE & VF: Commercial Real Estate and Vehicle Finance
ATM: Automated teller machine						DCF: Discounted cash flow
Bank: Santander Bank, National Association						DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act
BEA: Bureau of Economic Analysis						DOJ: Department of Justice
BHC: Bank holding company						DPD: Days past due
BHCA: Bank Holding Company Act of 1956, as amended						DRIVE: Drive Auto Receivables Trust, a securitization platform
BOLI: Bank-owned life insurance						DTI: Debt-to-income
BSI: Banco Santander International						EAD: Exposure at default
BSPR: Banco Santander Puerto Rico						Economic Growth Act: The Economic Growth, Regulatory Relief, and Consumer Protection Act
C&I: Commercial & industrial						EIP: Economic Impact Payments
CARES Act: Coronavirus Aid, Relief, and Economic Security Act						EIR: Effective interest rate
CBB: Consumer and Business Banking						EPS: Enhanced Prudential Standards
CBP: Citizens Bank of Pennsylvania						ETR: Effective tax rate
CCAR: Comprehensive Capital Analysis and Review						Evaluation Date: September 30, 2020
CD: Certificate of deposit						Exchange Act: Securities Exchange Act of 1934, as amended
CECL: Current expected credit losses						FASB: Financial Accounting Standards Board
CECL Standard: Amendments based on ASU 2016-13, ASU 2019-04, and ASU 2019-11, Financial Instruments - Credit Losses						FBO: Foreign banking organization
CEF: Closed-end fund						FCA: Fiat Chrysler Automobiles US LLC
CEO: Chief Executive Officer						FDIC: Federal Deposit Insurance Corporation
CET1: Common equity Tier 1						Federal Reserve: Board of Governors of the Federal Reserve System
CEVF: Commercial equipment vehicle financing						FHLB: Federal Home Loan Bank
CFPB: Consumer Financial Protection Bureau						FHLMC: Federal Home Loan Mortgage Corporation
CFO: Chief Financial Officer						FICO®: Fair Isaac Corporation credit scoring model
Chase: JPMorgan Chase & Co and certain of its subsidiaries, including EMC Mortgage LLC						Final Rule: Rule implementing certain of the EPS mandated by Section 165 of the DFA
Chrysler Agreement: Ten-year private label financing agreement with Fiat Chrysler Automobiles US LLC, formerly Chrysler Group LLC, signed by SC						FINRA: Financial Industrial Regulatory Authority
Chrysler Capital: Trade name used in providing services under the Chrysler Agreement						FNMA: Federal National Mortgage Association
CIB: Corporate and Investment Banking						FRB: Federal Reserve Bank
CID: Civil investigative demand						FVO: Fair value option
CLTV: Combined loan-to-value						GAAP: Accounting principles generally accepted in the United States of America
CMO: Collateralized mortgage obligation						GBP: British pound sterling
CODM: Chief Operating Decision Maker						GDP: Gross domestic product
Company: Santander Holdings USA, Inc.						GNMA: Government National Mortgage Association
Covered Fund: a hedge fund or private equity fund						GSIB: Global systemically important bank

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HFI: Held for investment						REIT: Real estate investment trust
HPI: Housing Price Index						RIC: Retail installment contract
HTM: Held to maturity						ROU: Right-of-use
IDI: Insured depository institution						RV: Recreational vehicle
IHC: U.S. intermediate holding company						RWA: Risk-weighted asset
Interim Policy: Policy issued by the Federal Reserve in the third quarter of 2020 and extended to the fourth quarter prohibiting share repurchases and limiting dividends by CCAR institutions						S&P: Standard & Poor's
IPO: Initial public offering						SAF: Santander Auto Finance
IRS: Internal Revenue Service						SAM: Santander Asset Management, LLC
ISDA: International Swaps and Derivatives Association, Inc.						Santander: Banco Santander, S.A.
IT: Information technology						Santander BanCorp: Santander BanCorp and its subsidiaries
LCR: Liquidity coverage ratio						Santander UK: Santander UK plc
LGD: Loss given default						SBA: Small Business Administration
LHFI: Loans held for investment						SBNA: Santander Bank, National Association
LHFS: Loans held for sale						SBC: Santander BanCorp
LIBOR: London Interbank Offered Rate						SC: Santander Consumer USA Holdings Inc. and its subsidiaries
LIHTC: Low income housing tax credit						SCB: Stress capital buffer
LTD: Long-term debt						SC Common Stock: Common shares of SC
LTV: Loan-to-value						SCART: Santander Consumer Auto Receivables Trust
MBS: Mortgage-backed securities						SCF: Statement of cash flows
MD&A: Management's Discussion and Analysis of Financial Condition and Results of Operations						SCRA: Servicemembers' Civil Relief Act
Mississippi AG: Attorney General of the State of Mississippi						SDART: Santander Drive Auto Receivables Trust
Moody's: Moody's Investor Service, Inc.						SDGT: Specially Designated Global Terrorist
MSPA: Master Securities Purchase Agreement						SEC: Securities and Exchange Commission
MSR: Mortgage servicing right						Securities Act: Securities Act of 1933, as amended
MVE: Market value of equity						SFS: Santander Financial Services, Inc.
NCI: Non-controlling interest						SHUSA: Santander Holdings USA, Inc.
NMDs: Non-maturity deposits						SIS: Santander Investment Securities Inc.
NMTC: New market tax credits						SPAIN: Santander Private Auto Issuing Note
NPL: Non-performing loan						SPE: Special purpose entity
NPR: Notice of proposed rule-making						SRT: Santander Retail Auto Lease Trust
NSFR: Net stable funding ratio						SSLLC: Santander Securities LLC
NYSE: New York Stock Exchange						Subvention: Reimbursement of the finance provider by a manufacturer for the difference between a market loan or lease rate and the below-market rate given to a customer.
OCC: Office of the Comptroller of the Currency						TALF: Term asset-backed securities loan facility
OCI: Other comprehensive income						TDR: Troubled debt restructuring
OIS: Overnight indexed swap						TLAC: Total loss-absorbing capacity
OREO: Other real estate owned						TLAC Rule: The Federal Reserve's total loss-absorbing capacity rule
OTTI: Other-than-temporary impairment						Trusts: Securitization trusts
Parent Company: The parent holding company of SBNA and other consolidated subsidiaries						U.K. United Kingdom
PCD: Purchased credit deteriorated, assets the Company deems at acquisition to have more than insignificant deterioration in credit quality since origination						UPB: Unpaid principal balance
PD: Probability of default						VIE: Variable interest entity
PPP: Paycheck Protection Program						VOE: Voting rights entity
						YTD: Year-to-date

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PART I. FINANCIAL INFORMATION

ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (In thousands)


	September 30, 2020		December 31, 2019

ASSETS
Cash and cash equivalents	$	8,871,504	$	7,644,372
Investment securities:
AFS at fair value	11,078,972		14,339,758

HTM (fair value of $5,668,891 and $3,957,227 as of September 30, 2020 and December 31, 2019, respectively)	5,488,576		3,938,797
Other investments (includes trading securities of $42,464 and $1,097 as of September 30, 2020 and December 31, 2019, respectively)	1,657,706		995,680
LHFI(1) (5)	92,777,106		92,705,440
ALLL (5)	(7,399,598)		(3,646,189)
Net LHFI	85,377,508		89,059,251
LHFS (2)	1,147,578		1,420,223
Premises and equipment, net (3)	780,104		798,122
Operating lease assets, net (5)(6)	16,217,953		16,495,739


Goodwill	2,596,161		4,444,389
Intangible assets, net	371,998		416,204
BOLI	1,899,070		1,860,846
Restricted cash (5)	5,827,423		3,881,880

Other assets (4) (5)	4,425,042		4,204,216
TOTAL ASSETS	$	145,739,595	$	149,499,477
LIABILITIES
Accounts payables and Accrued expenses	$	5,653,777	$	4,476,072
Deposits and other customer accounts	69,245,980		67,326,706
Borrowings and other debt obligations (5)	48,135,215		50,654,406
Advance payments by borrowers for taxes and insurance	164,391		153,420
Deferred tax liabilities, net	69,183		1,521,034
Other liabilities (5)	1,666,078		969,009
TOTAL LIABILITIES	124,934,624		125,100,647
Commitments and contingencies (Note 16)
STOCKHOLDER'S EQUITY

Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both September 30, 2020 and December 31, 2019)	17,876,818		17,954,441
Accumulated other comprehensive income/(loss), net of taxes	197,673		(88,207)
Retained earnings	1,457,860		4,155,226
TOTAL SHUSA STOCKHOLDER'S EQUITY	19,532,351		22,021,460
NCI	1,272,620		2,377,370
TOTAL STOCKHOLDER'S EQUITY	20,804,971		24,398,830
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	145,739,595	$	149,499,477

(1) LHFI includes $61.4 million and $102.0 million of loans recorded at fair value at September 30, 2020 and December 31, 2019, respectively.

(2) Includes $240.2 million and $289.0 million of loans recorded at the FVO at September 30, 2020 and December 31, 2019, respectively.

(3) Net of accumulated depreciation of $1.6 billion and $1.5 billion at September 30, 2020 and December 31, 2019, respectively.

(4) Includes MSRs of $81.8 million and $130.9 million at September 30, 2020 and December 31, 2019, respectively, for which the Company has elected the FVO. See Note 12 to these Condensed Consolidated Financial Statements for additional information.

(5) The Company has interests in certain Trusts that are considered VIEs for accounting purposes. At September 30, 2020 and December 31, 2019, LHFI included $22.7 billion and $26.5 billion, Operating leases assets, net included $16.2 billion and $16.5 billion, restricted cash included $1.8 billion and $1.6 billion, other assets included $870.2 million and $625.4 million, Borrowings and other debt obligations included $31.3 billion and $34.2 billion, and Other liabilities included $118.0 million and $188.1 million of assets or liabilities that were included within VIEs, respectively. See Note 7 to these Condensed Consolidated Financial Statements for additional information.

(6) Net of accumulated depreciation of $4.7 billion and $4.2 billion at September 30, 2020 and December 31, 2019, respectively.

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited (In thousands)


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
	2020		2019		2020		2019

INTEREST INCOME:
Loans	$	1,916,091	$	2,050,667	$	5,773,102	$	6,085,153
Interest-earning deposits	7,049		46,944		47,471		138,861
Investment securities:
AFS	38,084		64,777		159,738		210,344
HTM	24,530		16,319		71,305		49,429
Other investments	5,578		6,400		17,482		18,451
TOTAL INTEREST INCOME	1,991,332		2,185,107		6,069,098		6,502,238
INTEREST EXPENSE:
Deposits and other customer accounts	52,325		152,953		250,060		428,386
Borrowings and other debt obligations	317,615		413,044		1,072,878		1,230,134
TOTAL INTEREST EXPENSE	369,940		565,997		1,322,938		1,658,520
NET INTEREST INCOME	1,621,392		1,619,110		4,746,160		4,843,718
Credit loss expense	405,825		603,635		2,568,808		1,684,478
NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE	1,215,567		1,015,475		2,177,352		3,159,240

NON-INTEREST INCOME:
Consumer and commercial fees	123,834		133,049		356,907		412,566




Lease income	742,946		735,783		2,269,613		2,116,503
Miscellaneous income, net(1) (2)	308,222		130,033		330,165		327,849
TOTAL FEES AND OTHER INCOME	1,175,002		998,865		2,956,685		2,856,918


Net gain(loss) on sale of investment securities	(148)		2,267		31,646		2,646

TOTAL NON-INTEREST INCOME	1,174,854		1,001,132		2,988,331		2,859,564
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES:
Compensation and benefits	461,992		485,920		1,391,786		1,432,730
Occupancy and equipment expenses	152,998		156,603		464,784		441,643
Technology, outside service, and marketing expense	124,211		178,053		386,192		482,183


Loan expense	67,139		98,639		219,483		308,139
Lease expense	612,639		523,900		1,844,270		1,516,984
Impairment of goodwill	—		—		1,848,228		—
Other expenses	150,249		190,129		427,978		536,366
TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES	1,569,228		1,633,244		6,582,721		4,718,045







INCOME / (LOSS) BEFORE INCOME TAX (BENEFIT)/PROVISION	821,193		383,363		(1,417,038)		1,300,759
Income tax (benefit)/provision	(53,343)		112,927		(272,856)		384,467
NET INCOME / (LOSS) INCLUDING NCI	874,536		270,436		(1,144,182)		916,292
LESS: NET INCOME ATTRIBUTABLE TO NCI	101,701		66,831		82,087		250,086
NET INCOME / (LOSS) ATTRIBUTABLE TO SHUSA	$	772,835	$	203,605	$	(1,226,269)	$	666,206

(1) Netted down by impact of $56.6 million, and $387.9 million for the three-month and nine-month periods ended September 30, 2020, respectively, compared to $67.0 million and $239.1 million for the corresponding periods in 2019 of lower of cost or market adjustments on a portion of the Company's LHFS portfolio.

(2) Includes equity investment income/(expense), net.

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
Unaudited (In thousands)


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
	2020		2019		2020		2019

NET INCOME / (LOSS) INCLUDING NCI	$	874,536	$	270,436	$	(1,144,182)	$	916,292
OCI, NET OF TAX
Net unrealized changes in cash flow hedge derivative financial instruments, net of tax (1)	(38,702)		8,217		116,951		16,354
Net unrealized (losses) / gains on AFS investment securities, net of tax	(41,551)		34,601		149,569		239,395
Pension and post-retirement actuarial gains, net of tax	18,240		542		19,360		12,744
TOTAL OTHER COMPREHENSIVE (LOSS) / GAIN, NET OF TAX	(62,013)		43,360		285,880		268,493
COMPREHENSIVE INCOME / (LOSS)	812,523		313,796		(858,302)		1,184,785
NET INCOME ATTRIBUTABLE TO NCI	101,701		66,831		82,087		250,086
COMPREHENSIVE INCOME / (LOSS) ATTRIBUTABLE TO SHUSA	$	710,822	$	246,965	$	(940,389)	$	934,699

(1) Excludes $1.4 million and $(8.7) million of Other comprehensive income/(loss) attributable to NCI for the three-month and nine-month periods ended September 30, 2020, respectively, compared to $(3.2) million and $(19.7) million for the corresponding periods in 2019, respectively.

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

Unaudited (In thousands)



	Common Shares Outstanding	Common Stock and Paid-in Capital		Accumulated Other Comprehensive Income / (Loss)		Retained Earnings		Noncontrolling Interest		Total Stockholder's Equity
Balance, July 1, 2020	530,391	17,890,181		259,686		685,025		1,391,885		20,226,777

Comprehensive income attributable to SHUSA	—	—		(62,013)		772,835		—		710,822
Other comprehensive (OCI) income attributable to NCI	—	—		—		—		1,416		1,416
Net income attributable to NCI	—	—		—		—		101,701		101,701
Impact of SC stock option activity	—	—		—		—		1,247		1,247






Dividends paid to NCI	—	—		—		—		(13,333)		(13,333)
Stock repurchase attributable to NCI	—	(13,363)		—		—		(210,296)		(223,659)




Balance, September 30, 2020	530,391	$	17,876,818	$	197,673	$	1,457,860	$	1,272,620	$	20,804,971

	Common Shares Outstanding	Common Stock and Paid-in Capital		Accumulated Other Comprehensive (Loss)/Income		Retained Earnings		Noncontrolling Interest		Total Stockholder's Equity
Balance, July 1, 2019	530,391	17,945,636		(96,519)		4,114,658		2,541,044		24,504,819

Comprehensive income attributable to SHUSA	—	—		43,360		203,605		—		246,965
OCI attributable to NCI	—	—		—		—		(3,195)		(3,195)
Net income attributable to NCI	—	—		—		—		66,831		66,831
Impact of SC stock option activity	—	—		—		—		3,949		3,949
Contribution from shareholder and related tax impact (Note 17)	—	13,026		—		—		—		13,026



Dividends paid to NCI	—	—		—		—		(22,099)		(22,099)
Stock repurchase attributable to NCI	—	(4,566)		—		—		(136,453)		(141,019)


Balance, September 30, 2019	530,391	$	17,954,096	$	(53,159)	$	4,318,263	$	2,450,077	$	24,669,277

Table of Contents

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

Unaudited (In thousands)



	Common Shares Outstanding	Common Stock and Paid-in Capital		Accumulated Other Comprehensive (Loss)/Income		Retained Earnings		Noncontrolling Interest		Total Stockholder's Equity






























Balance, January 1, 2020	530,391	17,954,441		(88,207)		4,155,226		2,377,370		24,398,830
Cumulative-effect adjustment upon adoption of CECL Standard (Note 1)	—	—		—		(1,346,097)		(439,367)		(1,785,464)
Comprehensive income/(loss) attributable to SHUSA	—	—		285,880		(1,226,269)		—		(940,389)
Other comprehensive loss attributable to NCI	—	—		—		—		(8,690)		(8,690)
Net income attributable to NCI	—	—		—		—		82,087		82,087
Impact of SC stock option activity	—	—		—		—		4,642		4,642







Dividends declared and paid on common stock	—	—		—		(125,000)		—		(125,000)
Dividends paid to NCI	—	—		—		—		(50,546)		(50,546)
Stock repurchase attributable to NCI	—	(77,623)		—		—		(692,876)		(770,499)


Balance, September 30, 2020	530,391	$	17,876,818	$	197,673	$	1,457,860	$	1,272,620	$	20,804,971

	Common Shares Outstanding	Common Stock and Paid-in Capital		Accumulated Other Comprehensive (Loss)/Income		Retained Earnings		Noncontrolling Interest		Total Stockholder's Equity
Balance, January 1, 2019	530,391	17,859,304		(321,652)		3,783,405		2,526,175		23,847,232
Cumulative-effect adjustment upon adoption of ASU 2016-02	—	—		—		18,652		—		18,652
Comprehensive income attributable to SHUSA	—	—		268,493		666,206		—		934,699
Other comprehensive loss attributable to NCI	—	—		—		—		(19,718)		(19,718)
Net income attributable to NCI	—	—		—		—		250,086		250,086
Impact of SC stock option activity	—	—		—		—		9,555		9,555
Contribution from shareholder and related tax impact (Note 17)	—	88,927		—		—		—		88,927


Dividends declared and paid on common stock	—	—		—		(150,000)		—		(150,000)
Dividends paid to NCI	—	—		—		—		(64,493)		(64,493)
Stock repurchase attributable to NCI	—	5,865		—		—		(251,528)		(245,663)


Balance, September 30, 2019	530,391	$	17,954,096	$	(53,159)	$	4,318,263	$	2,450,077	$	24,669,277

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)


	Nine-Month Period Ended September 30,
	2020		2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income including NCI	$	(1,144,182)	$	916,292
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of goodwill	1,848,228		—

Credit loss expense	2,568,808		1,684,478
Deferred tax (benefit)/expense	(396,533)		275,303
Depreciation, amortization and accretion	2,120,365		1,749,531
Net loss on sale of loans	269,411		244,274
Net gain on sale of investment securities	(31,646)		(2,646)



Loss on debt extinguishment	1,026		1,133
Net gain on real estate owned, premises and equipment, and other	(60,626)		(24,411)
Stock-based compensation	33		308
Equity loss on equity method investments	11,352		478
Originations of LHFS, net of repayments	(2,473,452)		(1,138,406)
Purchases of LHFS	—		(387)
Proceeds from sales of LHFS	1,420,412		1,060,708


Net change in:
Revolving personal loans	(59,096)		(144,411)
Other assets, BOLI and trading securities	350,696		(552,053)
Other liabilities	469,276		566,705

NET CASH PROVIDED BY OPERATING ACTIVITIES	4,894,072		4,636,896

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS investment securities	2,665,593		1,044,645
Proceeds from prepayments and maturities of AFS investment securities	6,703,624		3,270,469
Purchases of AFS investment securities	(5,587,453)		(5,999,028)
Proceeds from prepayments and maturities of HTM investment securities	743,380		256,152
Purchases of HTM investment securities	(2,187,454)		(965,966)
Proceeds from sales of other investments	315,091		237,537
Proceeds from maturities of other investments	85		13,673
Purchases of other investments	(900,193)		(329,598)

Proceeds from sales of LHFI	3,540,036		1,446,205

Distributions from equity method investments	5,132		3,506
Contributions to equity method and other investments	(102,762)		(176,114)
Proceeds from settlements of BOLI policies	5,542		26,318
Purchases of LHFI	(77,136)		(818,024)
Net change in loans other than purchases and sales	(3,762,585)		(7,104,936)
Purchases and originations of operating leases	(4,891,504)		(6,778,636)
Proceeds from the sale and termination of operating leases	3,103,187		2,733,172
Manufacturer incentives	358,197		633,991
Proceeds from sales of real estate owned and premises and equipment	44,476		51,944
Purchases of premises and equipment	(137,059)		(135,060)
Net cash paid for branch disposition	—		(329,328)


Upfront fee paid to FCA	—		(60,000)
NET CASH USED IN INVESTING ACTIVITIES	(161,803)		(12,979,078)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits and other customer accounts (1)	1,919,274		5,199,415
Net change in short-term borrowings	455,578		448,736
Net proceeds from long-term borrowings	34,327,398		34,591,061
Repayments of long-term borrowings	(32,891,548)		(32,239,459)
Proceeds from FHLB advances (with terms greater than 3 months)	2,500,000		3,875,000
Repayments of FHLB advances (with terms greater than 3 months)	(6,935,882)		(2,500,000)
Net change in advance payments by borrowers for taxes and insurance	10,971		14,370

Dividends paid on common stock	(125,000)		(150,000)
Dividends paid to NCI	(50,546)		(64,493)
Stock repurchase attributable to NCI	(770,499)		(245,663)
Proceeds from the issuance of common stock	660		4,441
Capital contribution from shareholder	—		88,927

NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES	(1,559,594)		9,022,335

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	3,172,675		680,153
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	11,526,252		10,722,304
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (2)	$	14,698,927	$	11,402,457





NON-CASH TRANSACTIONS
Loans transferred to/(from) other real estate owned	(47,033)		16,205
Loans transferred from/(to) LHFI (from)/to LHFS, net	2,770,335		2,657,598
Unsettled purchases of investment securities	508,635		256,685










Adoption of lease accounting standard:
ROU assets	—		664,057
Accrued expenses and payables	—		705,650

(1) The net change in deposits for the nine-month period ended September 30, 2020 includes the sale of $4.2 billion of SBC deposits. Refer to Note 1 for further information on the sale of SBC.

(2) The nine-month periods ended September 30, 2020 and 2019 include cash and cash equivalents balances of $8.9 billion and $7.7 billion, respectively, and restricted cash balances of $5.8 billion and $3.7 billion, respectively.

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

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

SHUSA is the parent holding company of SBNA, a national banking association; SC, a consumer finance company; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; BSI, a financial services company headquartered in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; and SIS, a registered broker-dealer headquartered in New York providing services in investment banking, institutional sales, and trading and offering research reports of Latin American and European equity and fixed income securities; as well as several other subsidiaries. SSLLC, SIS, and another SHUSA subsidiary, SAM, are registered investment advisers with the SEC. SHUSA is headquartered in Boston and the Bank's home office is in Wilmington, Delaware. SHUSA is a wholly-owned subsidiary of Santander. The Parent Company's two largest subsidiaries by asset size and revenue are the Bank and SC. On September 1, 2020 the Company sold its investment in Santander BanCorp, a financial holding company headquartered in Puerto Rico that offered a full range of financial services through its wholly-owned banking subsidiary, BSPR. Refer to the caption "Sale of SBC" below for more information.

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

SC is a specialized consumer finance company focused on vehicle finance and third-party servicing and delivering service to dealers and customers across the full credit spectrum. SC's primary business is the indirect origination and servicing of RICs and leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. Additionally, SC sells consumer RICs through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer RICs. SAF is SC’s primary vehicle financing brand, and is available as a finance option for automotive dealers across the United States.

Since May 2013, under its agreement with FCA, SC has operated as FCA's preferred provider for consumer loans, leases, and dealer loans and provides services to FCA customers and dealers under the Chrysler Capital brand. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. In 2019, SC entered into an amendment to the Chrysler Agreement which modified that agreement to, among other things, adjust certain performance metrics, exclusivity commitments and payment provisions.

As of September 30, 2020, SC was owned approximately 80.2% by SHUSA and 19.8% by other shareholders. SC Common Stock is listed on the NYSE under the trading symbol "SC."

IHC

The EPS mandated by Section 165 of the DFA Final Rule were enacted by the Federal Reserve to strengthen regulatory oversight of FBOs. Under the Final Rule, FBOs with over $50 billion of U.S. non-branch assets, including Santander, were required to consolidate U.S. subsidiary activities under an IHC. Due to its U.S. non-branch total consolidated asset size, Santander is subject to the Final Rule. As a result of this rule, Santander transferred substantially all of its equity interests in U.S. bank and non-bank subsidiaries previously outside the Company to the Company, which became an IHC effective July 1, 2016. These subsidiaries included BSI, SIS and SSLLC, as well as several other subsidiaries. On July 1, 2017, an additional Santander subsidiary, SFS, a finance company located in Puerto Rico, was transferred to the Company. Additionally, effective July 2, 2018, Santander transferred SAM to the IHC.

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

Sale of SBC

On October 21, 2019, the Company entered into an agreement to sell the stock of Santander BanCorp ("SBC") (the holding company that owns BSPR). On September 1, 2020, the Company completed the sale of SBC to FirstBank Puerto Rico for approximately $1.28 billion. The sale of SBC resulted in the recognition of a gain in the third quarter of 2020 totaling $62 million, reported in Miscellaneous income, net and a tax impact of $12 million, for a total net gain of $50 million. In addition, the Company reclassified to income approximately $23.6 million ($14.8 million after tax) of other comprehensive income related to its investment in SBC which is also recorded in Miscellaneous income, net. The final sales price and gain on sale are subject to adjustments based on the buyer’s review of the transferred assets and liabilities, in accordance with the agreement. In the second quarter of 2020, the Company recorded $39 million tax expense to establish a deferred tax liability for the book over tax basis in its investment in SBC. Transaction expenses related to the sale of SBC totaled approximately $10.0 million through September 30, 2020.

At August 31, 2020 and December 31, 2019, the Consolidated Balance Sheets of the Company included total assets of $5.5 billion and $6.0 billion, respectively, total liabilities of $4.3 billion and $4.8 billion, respectively, and total equity of $1.2 billion at both dates attributable to SBC.

The Condensed Consolidated Statements of Operations of the Company for the three and nine-months ended September 30, 2020 included $14.3 million and $33.1 million, respectively, of net income attributable to SBC and $26.4 million and $66.6 million, respectively, of net income attributable to SBC for the comparative periods in 2019.

As part of the stipulations of the transaction, SBC transferred all of its non-performing assets to the Company's wholly-owned subsidiary, SFS. This resulted in three separate transactions executed in December 2019, August 2020, and October 2020 for a total of $160.0 million in loans and $30.0 million of real estate owned which are included in the Condensed Consolidated Balance Sheet of the Company at September 30, 2020.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its consolidated subsidiaries, including certain Trusts that are considered VIEs. The Company also consolidates VIEs for which it is deemed to be the primary beneficiary and VOEs in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Additionally, where applicable, the Company's accounting policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Accordingly, they do not include all of the information and footnotes required for GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal and recurring adjustments necessary for a fair statement of the financial position, results of operations, and cash flows for the periods indicated, and contain adequate disclosure for the fair statement of this interim financial information. Results of operations for the periods presented herein are not necessarily indicative of results of operations for the entire year. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Certain prior-year amounts have been reclassified to conform to the current year presentation. These reclassifications did not have a material impact on the Company's consolidated financial condition or results of operations.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates, and those differences may be material. The most significant estimates include the ACL, accretion of discounts and subvention on RICs, fair value measurements, expected end-of-term lease residual values, values of repossessed assets, goodwill, and income taxes. These estimates, although based on actual historical trends and modeling, may potentially show significant variances over time.

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

Recently Adopted Accounting Standards

Since January 1, 2020, the Company adopted the following FASB ASUs:

•Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidance significantly changed how entities measure credit losses for most financial assets and certain other instruments measured at amortized cost. The amendment introduced a new credit reserving framework known as CECL, which replaced the incurred loss impairment framework with one that reflects expected credit losses over the expected life of financial assets and commitments, and requires consideration of a broader range of reasonable and supportable information, including estimation of future expected changes in macroeconomic conditions. Additionally, the standard changes the accounting framework for purchased credit-deteriorated HTM debt securities and loans, and dictates measurement of AFS debt securities using an allowance instead of reducing the carrying amount as it was under the OTTI framework. The Company adopted the new guidance on January 1, 2020 on a modified retrospective basis which resulted in an increase in the ACL of approximately $2.5 billion, a decrease in stockholder's equity of approximately $1.8 billion and a decrease in deferred tax liabilities, net of approximately $0.7 billion at January 1, 2020. The increase was based on forecasts of expected future economic conditions and was primarily driven by the fact that the allowance covers expected credit losses over the full expected life of the loan portfolios.

•In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides temporary optional expedients to reduce the costs and complexity associated with the high volume of contractual modifications expected in the transition away from LIBOR as the benchmark rate in contracts and hedges. These optional expedients allow entities to negate many of the accounting impacts of modifying contracts and hedging relationships necessitated by reference rate reform, allowing them to generally maintain the accounting as if a change had not occurred. The Company adopted this standard during the three-month period ended March 31, 2020, electing the practical expedients relative to the Company’s contracts and hedging relationships modified as a result of reference rate reform through December 31, 2022. These practical expedients did not have a material impact on the Company’s business, financial position, results of operations, or disclosures.

•In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general tax accounting principles and simplifying other specific tax scenarios. The Company adopted this standard as of January 1, 2020 reflecting the change prospectively. It did not have a material impact to the Company’s business, financial position, results of operations, or disclosures.

The adoption of the following ASUs did not have a material impact on the Company's financial position or results of operations:

•ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

•ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities

As required by the adoption of the CECL standard, the following additional accounting policy disclosures are required to update the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2019:

Significant Accounting Policies

Investment Securities and Other Investments

Investments in debt securities are classified as either AFS, HTM, trading, or other investments. Investments in equity securities are generally recorded at fair value with changes recorded in earnings. Management determines the appropriate classification at the time of purchase.

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

Debt securities that the Company has the positive intent and ability to hold until maturity are classified as HTM securities. HTM securities are reported at cost and adjusted for payments, chargeoffs, amortization of premium and accretion of discount. Impairment of HTM securities is recorded using a valuation reserve which represents management’s best estimate of expected credit losses during the lives of the securities. Securities for which management has an expectation that nonpayment of the amortized costs basis is zero do not have a reserve. The Company has a zero loss expectation when the securities are issued or guaranteed by certain U.S. government entities and those entities have a long history of no defaults and the highest credit ratings issued by rating agencies. Transfers of debt securities into the HTM category from the AFS category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in OCI and in the carrying value of HTM securities. Such amounts are amortized over the remaining lives of the securities. Any allowance recorded for credit losses while the security was classified as AFS is reversed through provision expense. Thereafter, the allowance is recorded through the provision using the HTM valuation reserve.

Debt securities expected to be held for an indefinite period of time are classified as AFS and recorded on the balance sheet at fair value. If the fair value of an AFS debt security declines below its amortized cost basis and the Company does not have the intention or requirement to sell the security before it recovers its amortized cost basis, declines due to credit factors will be recorded in earnings through an allowance on AFS securities, and declines due to non-credit factors will be recorded in AOCI, net of taxes. Subsequent to recognition of a credit loss, improvements to the expectation of collectability will be reversed through the allowance. If the Company has the intention or requirement to sell the security, the Company will record its fair value changes in earnings as a direct write down to the security. Increases in fair value above amortized cost basis are recorded in AOCI, net of taxes.

The Company conducts a comprehensive security-level impairment assessment quarterly on all AFS securities with a fair value that is less than their amortized cost basis to determine whether the loss is due to credit factors. The quarterly assessment takes into consideration whether (i) the Company has the intent to sell or (ii) it is more likely than not that it will be required to sell the security before the expected recovery of its amortized cost. The Company also considers whether or not it would expect to receive all of the contractual cash flows from the investment based on its assessment of the security structure, recent security collateral performance metrics, external credit ratings, failure of the issuer to make scheduled interest or principal payments, judgment and expectations of future performance, and relevant independent industry research, analysis and forecasts. The Company also considers the severity of the impairment in its assessment. Similar to HTM securities, securities for which management expects risk of nonpayment of the amortized cost basis is zero do not have a reserve. The Company has a zero loss expectation when the securities are issued or guaranteed by certain U.S. government entities and those entities have a long history of no defaults and the highest credit ratings issued by rating agencies. In the event of a credit loss, the credit component of the impairment is recognized within non-interest income as a separate line item and by the recording of a valuation reserve. The non-credit component is recorded within AOCI.

The Company does not measure an ACL for accrued interest, and instead writes off uncollectible accrued interest balances in a timely manner. The Company places securities on nonaccrual and reverses any uncollectible accrued interest when the full and timely collection of interest or principal becomes uncertain, but no later than at 90 days past due.

See Note 2 to these Condensed Consolidated Financial Statements for details on the Company's investments.

LHFI

Purchased LHFI

Loans that at acquisition the Company deems to have more than insignificant deterioration in credit quality since origination (i.e., PCD loans) require the recognition of an ACL at purchase. The ACL is added to the purchase price at the date of acquisition to determine the initial amortized cost basis of the PCD loan. The ACL is calculated using the same methodology as originated loans, as described below. Alternatively, the Company can elect the FVO at the time of purchase for any financial asset. Under the FVO, loans are recorded at fair value with changes in value recognized immediately in income. There is no ACL for loans under a FVO.

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

Allowance for Credit Losses

General

The ALLL and reserve for off-balance sheet commitments (together, the ACL) are maintained at levels that represent management’s best estimate of expected credit losses in the Company’s HFI loan portfolios, which excludes those loans accounted for under the FVO. The allowance for expected credit losses is measured based on a lifetime expected loss model, which means that it is not necessary for a loss event to occur before a credit loss is recognized. Management’s estimate of expected credit losses is based on an evaluation of relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of the reported amounts. Management's evaluation takes into consideration the risks in the loan portfolio, past loan and lease loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic forecasts 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. Provisions for credit losses are charged to provision expense in amounts sufficient to maintain the ACL at levels considered adequate to cover expected credit losses in the Company’s HFI loan portfolios.

The ALLL is a valuation account that is deducted from, or added to, the amortized cost basis to present the net amount expected to be collected on the Company’s HFI loan portfolios. The reserve for off-balance sheet commitments represents the ECL for unfunded lending commitments and financial guarantees, and is presented within Other liabilities on the Company's Condensed Consolidated Balance Sheets. The reserve for off-balance sheet commitments, together with the ALLL, is generally referred to collectively throughout this Form 10-Q as the ACL, despite the presentation differences.

The Company measures expected losses of all components of the amortized cost basis of its loans. For all loans except TDRs and credit cards, the Company has elected to exclude accrued interest receivable balances from the measurement of expected credit losses because it applies a nonaccrual policy that results in the timely write off of uncollectible interest.

Off-balance sheet commitments which are not unconditionally cancellable by the Company are subject to credit risk. Additions to the reserve for off-balance sheet commitments are made by charges to the credit loss expense. The Company does not calculate a liability for expected credit losses for off-balance sheet credit exposures which are unconditionally cancellable by the lender, because these instruments do not expose the Company to credit risk. At SHUSA, this generally applies to credit cards and commercial demand lines of credit.

Methodology

The Company uses several methodologies for the measurement of ACL. The Company generally uses a DCF approach for determining ALLL for TDRs and other individually assessed loans, and loss rate or roll-rate models for other loans. The methodologies utilized by the Company to estimate expected credit losses may vary by product type.

Expected credit losses are estimated on a collective basis when similar risk characteristics exist. Expected credit losses are estimated on an individual basis only if the individual asset or exposure does not share similar risk attributes with other financial assets or exposures, including when an asset is treated as a collateral dependent asset. The estimate of expected credit losses reflects information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of reported amounts. This information includes internal information, external information, or a combination of both. The Company uses historical loss experience as a starting point for estimating expected credit losses.

The ACL estimate includes significant assumptions including the reasonable and supportable economic forecast period, which considers the availability of forward-looking scenarios and their respective time horizons, as well as the reversion method to historical losses. The economic scenarios used by the Company are available up to the contractual maturities of the assets, and therefore the Company can project losses through the respective contractual maturities, using an input reversion approach. This method results in a single, quantitatively consistent credit model across the entire projection period as the macroeconomic effects in the historical data are controlled for the estimate of the long-run loss level.

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

The Company uses multiple scenarios in its CECL estimation process. The selection of scenarios is reviewed quarterly and governed by the ACL Committee. Additionally, the results from the CECL models are reviewed and adjusted, if necessary, based on management’s judgment, as discussed in the section captioned "Qualitative Reserves" below.

CECL Models

The Company uses a statistical methodology based on an ECL approach that focuses on forecasting the ECL components (i.e., PD, payoff, LGD and EAD) on a loan level basis to estimate the expected future lifetime losses.

•In calculating the PD and payoff, the Company developed model forecasts which consider variables such as delinquency status, loan tenor and credit quality as measured by internal risk ratings assigned to individual loans and credit facilities.

•The LGD component forecasts the extent of losses given that a default has occurred and considers variables such as collateral, LTV and credit quality.

•The EAD component captures the effects of expected partial prepayments and underpayments that are expected to occur during the forecast period and considers variables such as LTV, collateral and credit quality.

The above ECL components are used to compute an ACL based on the weighted average of the results of four macroeconomic scenarios. The weighting of these scenarios is governed and approved quarterly by management through established committee governance. These ECL components are inputs to both the Company’s DCF approach for TDRs and individually assessed loans, and the non-DCF approach for other loans.

When using a non-DCF method to measure the ACL, the Company measures ECL over the asset’s contractual term, adjusted for (a) expected prepayments, (b) expected extensions associated with assets for which management has a reasonable expectation at the reporting date that it will execute a TDR with the borrower, and (c) expected extensions or renewal options (excluding those that are accounted for as derivatives) included in the original or modified contract at the reporting date that are not unconditionally cancellable by the Company.

In addition to the ALLL, management estimates expected losses related to off-balance sheet commitments using the same models and procedures used to estimate expected loan losses. Off-balance sheet commitments for commercial customers are analyzed and segregated by risk according to the Company's internal risk rating scale. These risk classifications, in conjunction with a forecast of expected usage of committed amounts and an analysis of historical loss experience, reasonable and supportable forecasts of economic conditions, performance trends within specific portfolio segments, and any other pertinent information result in the estimation of the reserve for off-balance sheet commitments.

DCF Approaches

A DCF method measures expected credit losses by forecasting expected future principal and interest cash flows and discounting them using the financial asset’s EIR. The ACL reflects the difference between the amortized cost basis and the present value of the expected cash flows. When using a DCF method to measure the ACL, the period of exposure is determined as a function of the Company’s expectations of the timing of principal and interest payments. The Company considers estimated prepayments in the future principal and interest cash flows when utilizing a DCF method. The Company generally uses a DCF approach for TDRs and impaired commercial loans. The Company reports the entire change in present value in credit loss expense.

Collateral-Dependent Assets

A loan is considered a collateral-dependent financial asset when:

•The Company determines foreclosure is probable, or

•The borrower is experiencing financial difficulty and the Company expects repayment to be provided substantially through the operation or sale of the collateral.

For all collateral-dependent loans, the Company measures the allowance for expected credit losses as the difference between the asset’s amortized cost basis and the fair value of the underlying collateral as of the reporting date, adjusted for expected costs to sell. If repayment or satisfaction of the loan is dependent only on the operation, rather than the sale of the collateral, the measure of credit losses does not incorporate estimated costs to sell.

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

A collateral dependent loan is written down (i.e., charged-off) to the fair value of the collateral adjusted for costs to sell (if repayment from sale is expected.) Any subsequent increase or decrease in the collateral’s fair value less cost to sell is recognized as an adjustment to the related loan’s ACL. Negative ACLs are limited to the amount previously charged-off.

Collateral Maintenance Provisions

For certain loans with collateral maintenance provisions which are secured by highly liquid collateral, the Company expects nonpayment of the amortized cost basis to be zero when such provisions require the borrower to continually replenish collateral in the event the fair value of the collateral changes. For these loans, the Company records no ACL.

Negative Allowance

Negative allowance is defined as the amount of future recovery expected for accounts that have already been charged-off. The Company performs an analysis of the actual historical recovery values to determine the pattern of recovery and expected rate of recovery over a given historic period, and uses the results of this analysis to determine a negative allowance. Negative allowance reduces the ACL.

Qualitative Reserves

Quantitative models have certain limitations with respect to estimating expected losses in times of rapidly changing macro-economic forecasts. The ACL estimate includes qualitative adjustments to adjust for limitations in modeled results with respect to forecasted economic conditions that are well outside of historic economic conditions used to develop the models and to give consideration to significant government relief programs, stimulus, and internal credit accommodations. Management believes the qualitative component of the ACL, which incorporates management’s expert judgment related to expected future credit losses, will continue to represent a significant portion of the ACL for the foreseeable future.

Regardless of the extent of the Company's analysis of customer performance, portfolio evaluations, trends or risk management processes established, a level of imprecision will always exist due to the judgmental nature of loan portfolio and/or individual loan evaluations. The Company maintains a qualitative reserve to the ACL to recognize the existence of these exposures. Imprecisions include loss factors inherent in the loan portfolio that may not have been discreetly contemplated in the modelled approach to the allowance, as well as potential variability in estimates.

The qualitative adjustment is also established in consideration of several factors such as the interpretation of economic trends, changes in the nature and volume of our loan portfolios, trends in delinquency and collateral values, and concentration risk. This analysis is conducted at least quarterly, and the Company revises the allowance factors whenever necessary in order to address improving or deteriorating credit quality trends or specific risks associated with a loan pool classification.

Governance

A comprehensive analysis of the ACL is performed by the Company on a quarterly basis. Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated considering factors such as historical loss experience, trends in delinquency and NPLs, changes in risk composition and underwriting standards, experience and ability of staff and regional and national economic conditions, trends and forecasts. Risk factors are continuously reviewed and revised by management when conditions warrant.

The Company's reserves are principally based on various models subject to the Company's model risk management framework. New models are approved by the Company's Model Risk Management Committee, and inputs are reviewed periodically by the Company's Internal Audit function. Models, inputs and documentation are further reviewed and validated at least annually, and the Company completes a detailed variance analysis of historical model projections against actual observed results on a quarterly basis. Required actions resulting from the Company's analysis, if necessary, are governed by its ACL Committee.

In addition, a review of allowance levels based on nationally published statistics is conducted on at least an annual basis. Reserve levels are collectively reviewed for adequacy and approved quarterly by Board-level committees.

The ACL is subject to review by banking regulators. The Company's primary bank regulators conduct examinations of the ACL and make assessments regarding its adequacy and the methodology employed in its determination.

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

Changes in the assumptions used in these estimates could have a direct material impact on credit loss expense in the Condensed Consolidated Statements of Operations and in the allowance for loan losses. The loan portfolio represents the largest asset on the Condensed Consolidated Balance Sheets. The Company’s models incorporate a variety of assumptions based on historical experience, current conditions and forecasts. Management also applies its judgement in evaluating the appropriateness of the allowance. Material changes to the ACL might be necessary if prevailing conditions differ materially from the assumptions and estimates utilized in calculating the ACL.

TDRs

TDR Impact to ACL

The Company’s policies for estimating the ACL also apply to TDRs as follows:

•The Company reflects the impact of the concession in the ALLL for TDRs. Interest rate concessions and significant term deferrals can only be captured within the ALLL by using a DCF method. Therefore, in circumstances in which the Company offers such extensions in its TDR modification, it uses a DCF method to calculate the ALLL.

•The Company recognizes the impact of a TDR modification to the ALLL when the Company has a reasonable expectation that the TDR modification will be executed.

Recently Issued Accounting Standards Not Yet Adopted

There are no recently issued GAAP accounting developments that we expect will have a material impact on the Company's business, financial position, results of operations, or disclosures upon adoption.

Subsequent Events

The Company evaluated events from the date of these Condensed Consolidated Financial Statements on September 30, 2020 through the issuance 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 three-month and nine-month periods ended September 30, 2020 except as noted in Notes 15 and 17.

NOTE 2. INVESTMENT SECURITIES

Summary of Investments in Debt Securities - AFS and HTM

The following tables present the amortized cost, gross unrealized gains and losses and approximate fair values of investments in debt securities AFS at the dates indicated:


	September 30, 2020								December 31, 2019
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value
U.S. Treasury securities	$	212,609	$	3,045	$	—	$	215,654	$	4,086,733	$	4,497	$	(292)	$	4,090,938
Corporate debt securities	172,845		78		(15)		172,908		139,696		39		(22)		139,713
ABS	111,577		854		(1,290)		111,141		138,839		1,034		(1,473)		138,400
State and municipal securities	3		—		—		3		9		—		—		9
MBS:
GNMA - Residential	3,322,848		84,241		(194)		3,406,895		4,868,512		12,895		(16,066)		4,865,341
GNMA - Commercial	1,413,584		26,142		(193)		1,439,533		773,889		6,954		(1,785)		779,058
FHLMC and FNMA - Residential	5,587,145		78,402		(5,670)		5,659,877		4,270,426		14,296		(30,325)		4,254,397
FHLMC and FNMA - Commercial	66,699		6,264		(2)		72,961		69,242		2,665		(5)		71,902
Total investments in debt securities AFS	$	10,887,310	$	199,026	$	(7,364)	$	11,078,972	$	14,347,346	$	42,380	$	(49,968)	$	14,339,758

The following tables present the amortized cost, gross unrealized gains and losses and approximate fair values of investments in debt securities HTM at the dates indicated:


	September 30, 2020								December 31, 2019
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value



ABS	$	50,381	$	561	$	—	$	50,942	$	—	$	—	$	—	$	—

MBS:
GNMA - Residential	2,156,473		50,005		(801)		2,205,677		1,948,025		11,354		(7,670)		1,951,709
GNMA - Commercial	3,281,722		130,690		(140)		3,412,272		1,990,772		20,115		(5,369)		2,005,518


Total investments in debt securities HTM	$	5,488,576	$	181,256	$	(941)	$	5,668,891	$	3,938,797	$	31,469	$	(13,039)	$	3,957,227

As of September 30, 2020 and December 31, 2019, the Company had investment securities with an estimated carrying value of $3.4 billion and $7.5 billion, respectively, pledged as collateral, which were comprised of the following: $306.4 million and $2.7 billion, respectively, were pledged as collateral for the Company's borrowing capacity with the FRB; $2.3 billion and $3.5 billion, respectively, were pledged to secure public fund deposits; $334.9 million and $148.5 million, respectively, were pledged to various independent parties to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; zero and $699.1 million, respectively, were pledged to deposits with clearing organizations; and $425.8 million and $461.9 million, respectively, were pledged to secure the Company's customer overnight sweep product.

At September 30, 2020 and December 31, 2019, the Company had $36.4 million and $46.0 million, respectively, of accrued interest related to investment securities which is included in the Other assets line of the Company's Condensed Consolidated Balance Sheets. No accrued interest related to investment securities was written off during the periods ended September 30, 2020 or December 31, 2019.

There were no transfers of securities between AFS and HTM during the periods ended September 30, 2020 or December 31, 2019.

NOTE 2. INVESTMENT SECURITIES (continued)

Contractual Maturity of Investments in Debt Securities

Contractual maturities of the Company’s investments in debt securities AFS at September 30, 2020 were as follows:



(in thousands)	Amortized Cost		Fair Value
Due within one year	$	349,080	$	349,831
Due after 1 year but within 5 years	115,239		119,460
Due after 5 years but within 10 years	353,072		368,100
Due after 10 years	10,069,919		10,241,581
Total	$	10,887,310	$	11,078,972

Contractual maturities of the Company’s investments in debt securities HTM at September 30, 2020 were as follows:



(in thousands)	Amortized Cost		Fair Value
Due within one year	$	2,483	$	3,416
Due after 1 year but within 5 years	34,178		34,320
Due after 5 years but within 10 years	12,787		13,206
Due after 10 years	5,439,128		5,617,949
Total	$	5,488,576	$	5,668,891

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 Investments in Debt Securities AFS and HTM

The following table presents the aggregate amount of unrealized losses as of September 30, 2020 and December 31, 2019 on debt securities in the Company’s AFS investment portfolios classified according to the amount of time those securities have been in a continuous loss position:


	September 30, 2020								December 31, 2019
	Less than 12 months				12 months or longer				Less than 12 months				12 months or longer
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	200,096	$	(167)	$	499,883	$	(125)
Corporate debt securities	131,377		(15)		—		—		110,802		(22)		—		—
ABS	4,013		(17)		46,649		(1,273)		27,662		(44)		47,616		(1,429)

MBS:
GNMA - Residential	51,846		(178)		10,756		(16)		2,053,763		(6,895)		997,024		(9,171)
GNMA - Commercial	52,123		(193)		—		—		217,291		(1,756)		14,300		(29)
FHLMC and FNMA - Residential	1,416,139		(5,456)		24,369		(214)		660,078		(4,110)		1,344,057		(26,215)
FHLMC and FNMA - Commercial	—		—		422		(2)		—		—		430		(5)
Total investments in debt securities AFS	$	1,655,498	$	(5,859)	$	82,196	$	(1,505)	$	3,269,692	$	(12,994)	$	2,903,310	$	(36,974)

The following table presents the aggregate amount of unrealized losses as of September 30, 2020 and December 31, 2019 on debt securities in the Company’s HTM investment portfolios classified according to the amount of time those securities have been in a continuous loss position:


	September 30, 2020								December 31, 2019
	Less than 12 months				12 months or longer				Less than 12 months				12 months or longer
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses




MBS:
GNMA - Residential	$	168,035	$	(801)	$	—	$	—	$	559,058	$	(2,004)	$	657,733	$	(5,666)
GNMA - Commercial	67,237		(140)		—		—		731,445		(5,369)		—		—


Total investments in debt securities HTM	$	235,272	$	(941)	$	—	$	—	$	1,290,503	$	(7,373)	$	657,733	$	(5,666)

NOTE 2. INVESTMENT SECURITIES (continued)

Allowance for credit-related losses on AFS securities

The Company did not record an allowance for credit-related losses on AFS securities against its investments in debt securities at September 30, 2020 or December 31, 2019.

Management has concluded that the unrealized losses on its investments in debt securities for which it has not recorded an allowance (which were comprised of 466 individual securities at September 30, 2020) are not credit-related 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 for the Company's debt securities may be at maturity.

Gains (Losses) and Proceeds on Sales of Investments in Debt Securities

Proceeds from sales of investments in debt securities and the realized gross gains and losses from those sales were as follows:


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
(in thousands)	2020		2019		2020		2019
Proceeds from the sales of AFS securities	$	1,112,033	$	416,981	$	2,665,593	$	1,044,645

Gross realized gains	$	573	$	2,667	$	33,400	$	6,007
Gross realized losses	(721)		(400)		(1,754)		(3,361)
Net realized gains/(losses) (1)	$	(148)	$	2,267	$	31,646	$	2,646

(1) Includes net realized gain/(losses) on trading securities of $(0.1) million and $(1.0) million for the three-month and nine-month periods ended September 30, 2020, respectively, and $(0.3) million and $(0.6) million for the three-month and nine-month periods ended September 30, 2019, respectively.

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

Other Investments

Other investments consisted of the following as of:


(in thousands)	September 30, 2020		December 31, 2019
FHLB of Pittsburgh and FRB stock	$	550,164	$	716,615
LIHTC investments	300,588		265,271
Equity securities not held for trading (1)	14,490		12,697
Interest-bearing deposits with an affiliate bank	750,000		—
Trading securities	42,464		1,097
Total	$	1,657,706	$	995,680

(1) Includes $1.4 million and zero of equity certificates related to an off-balance sheet securitization as of September 30, 2020 and December 31, 2019, respectively.

Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the FRB. These stocks do not have readily determinable fair values because their ownership is restricted and there is no market for their sale. The stocks can be sold back only at their par value of $100 per share, and FHLB stock can be sold back only to the FHLB or to another member institution. Accordingly, these stocks are carried at cost. During the three-month and nine-month periods ended September 30, 2020, the Company purchased $29.9 million and $148.5 million of FHLB stock at par, respectively, and redeemed $135.9 million and $311.9 million of FHLB stock at par, respectively. There was no gain or loss associated with these redemptions. During the three-month and nine-month periods ended September 30, 2019, the Company did not purchase FRB stock.

The Company's LIHTC investments are accounted for using the proportional amortization method. Equity securities are measured at fair value as of September 30, 2020, with changes in fair value recognized in net income, and consist primarily of CRA mutual fund investments.

Interest-bearing deposits include deposits maturing in more than 90 days with Santander.

NOTE 2. INVESTMENT SECURITIES (continued)

With the exception of equity and trading securities, which are measured at fair value, the Company evaluates these other investments for impairment based on the ultimate recoverability of the carrying value, rather than by recognizing temporary declines in value. The Company held an immaterial amount of equity securities without readily determinable fair values at the reporting date.

NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Overall

The Company's LHFI are generally reported at their outstanding principal balances net of any cumulative charge-offs, unamortized deferred fees and costs and unamortized premiums or discounts. Certain LHFI are accounted for at fair value under the FVO. Certain loans are pledged as collateral for borrowings, securitizations, or SPEs. These loans totaled $52.8 billion at September 30, 2020 and $53.9 billion at December 31, 2019.

Loans that the Company intends to sell are classified as LHFS. The LHFS portfolio balance at September 30, 2020 was $1.1 billion, compared to $1.4 billion at December 31, 2019. During the third quarter of 2020, the Company returned $1.6 billion of RICs classified as LHFS to LHFI. For a discussion on the valuation of LHFS at fair value, see Note 12 to these Condensed Consolidated Financial Statements. Loans under SC’s personal lending platform have been classified as LHFS and adjustments to lower of cost or market are recorded through Miscellaneous income, net on the Condensed Consolidated Statements of Operations. As of September 30, 2020, the carrying value of the personal unsecured held for sale portfolio was $763.3 million. LHFS in the residential mortgage portfolio that were originated with the intent to sell were $240.2 million as of September 30, 2020 and are reported at either estimated fair value (if the FVO is elected) or the lower of cost or fair value.

Interest on loans is credited to income as it is earned. Loan origination fees and certain direct loan origination costs are deferred and recognized as adjustments to interest income in the Condensed Consolidated Statements of Operations over the contractual life of the loan utilizing the interest method. Loan origination costs and fees and premiums and discounts on RICs are deferred and recognized in interest income over their estimated lives using estimated prepayment speeds, which are updated on a monthly basis. At September 30, 2020 and December 31, 2019, accrued interest receivable on the Company's loans was $613.8 million and $497.7 million, respectively.

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

Loan and Lease Portfolio Composition

The following presents the composition of gross loans and leases HFI by portfolio and by rate type:


	September 30, 2020				December 31, 2019

(dollars in thousands)	Amount		Percent		Amount		Percent
Commercial LHFI:
CRE loans	$	7,466,898	8.0	%	$	8,468,023	9.1	%
C&I loans	16,289,708		17.6	%	16,534,694		17.8	%
Multifamily loans	8,677,483		9.4	%	8,641,204		9.3	%
Other commercial(2)	7,217,276		7.8	%	7,390,795		8.2	%
Total commercial LHFI	39,651,365		42.8	%	41,034,716		44.4	%
Consumer loans secured by real estate:
Residential mortgages	7,132,279		7.7	%	8,835,702		9.5	%
Home equity loans and lines of credit	4,288,526		4.6	%	4,770,344		5.1	%
Total consumer loans secured by real estate	11,420,805		12.3	%	13,606,046		14.6	%
Consumer loans not secured by real estate:
RICs and auto loans	40,615,831		43.7	%	36,456,747		39.3	%


Personal unsecured loans	845,860		0.9	%	1,291,547		1.4	%
Other consumer(3)	243,245		0.3	%	316,384		0.3	%
Total consumer loans	53,125,741		57.2	%	51,670,724		55.6	%
Total LHFI(1)	$	92,777,106	100.0	%	$	92,705,440	100.0	%
Total LHFI:
Fixed rate	$	64,631,198	69.7	%	$	61,775,942	66.6	%
Variable rate	28,145,908		30.3	%	30,929,498		33.4	%
Total LHFI(1)	$	92,777,106	100.0	%	$	92,705,440	100.0	%

(1)Total LHFI 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 increase in the loan balances of $3.1 billion and $3.2 billion as of September 30, 2020 and December 31, 2019, respectively.

(2)Other commercial includes CEVF leveraged leases and loans.

(3)Other consumer primarily includes 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. The Company utilizes similar categorization compared to the financial statement categorization of loans to model and calculate the ACL and track the credit quality, delinquency and impairment status of the underlying loan populations. In disaggregating its financing receivables portfolio, the Company’s methodology begins with the commercial and consumer segments.

The commercial segmentation reflects line of business distinctions. The CRE line of business includes C&I owner-occupied real estate and specialized lending for investment real estate. The Company's allowance methodology further classifies loans in this line of business into construction and non-construction loans; however, the methodology for development and determination of the allowance is generally consistent between the two portfolios. C&I includes non-real estate-related commercial loans. "Multifamily" represents loans for multifamily residential housing units. “Other commercial” includes loans to global customer relationships in Latin America which are not defined as commercial or consumer for regulatory purposes. The remainder of the portfolio primarily represents the CEVF portfolio.

The Company's portfolio classes are substantially the same as its financial statement categorization of loans for 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. "RICs and auto loans" includes the Company's direct automobile loan portfolios, but excludes RV and marine RICs. "Personal unsecured loans" includes personal revolving loans and credit cards. “Other consumer” includes an acquired portfolio of marine RICs and RV contracts as well as indirect auto loans.

During the nine-month periods ended September 30, 2020 and 2019, SC originated $11.1 billion and $9.5 billion, respectively, in Chrysler Capital loans (including through the SBNA originations program), which represented 61% and 56%, respectively, of the UPB of SC's total RIC originations (including the SBNA originations program).

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

ACL Rollforward by Portfolio Segment

The ACL is comprised of the ALLL and the reserve for unfunded lending commitments. The activity in the ACL by portfolio segment for the three-month and nine-month periods ended September 30, 2020 and 2019 was as follows:


	Three-Month Period Ended September 30, 2020
(in thousands)	Commercial		Consumer		Unallocated		Total
ALLL, beginning of period (1)	$	759,599	$	6,353,139	$	—	$	7,112,738

Credit loss expense on loans	14,797		365,799				380,596


Charge-offs	(28,962)		(577,179)				(606,141)
Recoveries	7,843		504,562				512,405
Charge-offs, net of recoveries	(21,119)		(72,617)		—		(93,736)
ALLL, end of period	$	753,277	$	6,646,321	$	—	$	7,399,598

Reserve for unfunded lending commitments, beginning of period (1)	$	95,022	$	27,721			$	122,743

Credit loss expense on unfunded lending commitments	24,752		477				25,229

Reserve for unfunded lending commitments, end of period	119,774		28,198		—		147,972
Total ACL, end of period	$	873,051	$	6,674,519	$	—	$	7,547,570

	Nine-Month Period Ended September 30, 2020
(in thousands)	Commercial		Consumer		Unallocated		Total
ALLL, beginning of period	$	399,829	$	3,199,612	$	46,748	$	3,646,189
Day 1: Adjustment to allowance for adoption of ASU 2016-13 (1)	198,919		2,383,711		(46,748)		2,535,882
Credit loss expense on loans (1)	254,262		2,268,811				2,523,073


Charge-offs	(125,871)		(2,721,664)				(2,847,535)
Recoveries	26,138		1,515,851				1,541,989
Charge-offs, net of recoveries	(99,733)		(1,205,813)		—		(1,305,546)
ALLL, end of period	$	753,277	$	6,646,321	$	—	$	7,399,598

Reserve for unfunded lending commitments, beginning of period	$	85,934	$	5,892			$	91,826
Day 1: Adjustment to allowance for adoption of ASU 2016-13	10,081		330				10,411
Credit loss expense on unfunded lending commitments (1)	23,759		21,976				45,735

Reserve for unfunded lending commitments, end of period	119,774		28,198		—		147,972
Total ACL, end of period	$	873,051	$	6,674,519	$	—	$	7,547,570

(1) Includes a correction for the classification of ACL balances and certain activity between Commercial and Consumer from January 1, 2020 through June 30, 2020. This resulted in a cumulative $322 million reclassification required at June 30, 2020 increasing the Consumer and decreasing the Commercial ACL.

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


	Three-Month Period Ended September 30, 2019
(in thousands)	Commercial		Consumer		Unallocated		Total
ALLL, beginning of period	$	447,078	$	3,290,007	$	46,748	$	3,783,833
Credit loss expense on loans(1)	14,251		583,640		—		597,891
Charge-offs	(57,276)		(1,367,404)		—		(1,424,680)
Recoveries	18,393		760,423		—		778,816
Charge-offs, net of recoveries	(38,883)		(606,981)		—		(645,864)
ALLL, end of period	$	422,446	$	3,266,666	$	46,748	$	3,735,860

Reserve for unfunded lending commitments, beginning of period	$	83,346	$	6,060	$	—	$	89,406
(Recovery of) / credit loss expense on unfunded lending commitments	5,907		(163)		—		5,744

Reserve for unfunded lending commitments, end of period	89,253		5,897		—		95,150
Total ACL, end of period	$	511,699	$	3,272,563	$	46,748	$	3,831,010

	Nine-Month Period Ended September 30, 2019
(in thousands)	Commercial		Consumer		Unallocated		Total
ALLL, beginning of period	$	441,086	$	3,409,021	$	47,023	$	3,897,130
Credit loss expense on loans(1)	59,895		1,624,933		—		1,684,828
Charge-offs	(117,591)		(4,020,570)		(275)		(4,138,436)
Recoveries	39,056		2,253,282		—		2,292,338
Charge-offs, net of recoveries	(78,535)		(1,767,288)		(275)		(1,846,098)
ALLL, end of period	$	422,446	$	3,266,666	$	46,748	$	3,735,860

Reserve for unfunded lending commitments, beginning of period	$	89,472	$	6,028	$	—	$	95,500
Release of unfunded lending commitments	(219)		(131)		—		(350)

Reserve for unfunded lending commitments, end of period	89,253		5,897		—		95,150
Total ACL, end of period	$	511,699	$	3,272,563	$	46,748	$	3,831,010

(1) Credit loss expense includes $0 and $20.4 million related to retail installment contracts transferred to held for sale during the three and nine months ended September 30, 2019.

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

The Company estimates lifetime expected losses based on prospective information as well as account-level models based on historical data. Unemployment, HPI, and used vehicle index growth rates, along with loan level characteristics, are the key inputs used in the models for prediction of the likelihood that the borrower will default in the forecasted period (the PD). The used vehicle index is also used to estimate the loss in the event of default. The historic volume of loan deferrals provided to customers impacted by COVID-19 has driven positive trends in delinquencies and severity (charge-offs) in the quarter however, the inclusion of key loan characteristics as inputs to the models (including number of extensions) and management’s evaluation of qualitative factors ensure the allowance is appropriate.

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

The Company has determined the reasonable and supportable period to be three years, at which time the economic forecasts generally tend to revert to historical averages. The Company utilizes qualitative factors to capture any additional risks that may not be captured in either the economic forecasts or in the historical data, including consideration of the portfolio metrics and collateral value. The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustment for macroeconomic uncertainty and may consider adjustments to macroeconomic inputs based on market volatility.

The baseline scenario was based on the latest consensus forecasts available, which show an improvement in key variables in this quarter, including a decrease in unemployment rates (which are a key driver to losses). The scenarios are periodically updated over a reasonable and supportable time horizon, with weightings assigned by management and approved through established committee governance.

The Company's allowance for loan losses increased $286.9 million and $3.8 billion for the three and nine-months ended September 30, 2020. For the three months ended September 30, 2020, the increase was primarily due to portfolio growth. For the nine months ended September 30, 2020, the primary drivers were an approximately a $2.5 billion increase at CECL adoption on January 1, 2020, driven mainly by the addition of lifetime expected credit losses for non-TDR loans and additional reserves specific to COVID-19 risk.

Non-accrual loans by Class of Financing Receivable

The amortized cost basis of financial instruments that are either non-accrual with related expected credit loss or nonaccrual without related expected credit loss disaggregated by class of financing receivables and other non-performing assets is as follows:


	Non-accrual loans as of (1):				Non-accrual loans with no allowance		Interest Income recognized on nonaccrual loans
(in thousands)	September 30, 2020		December 31, 2019		September 30, 2020		September 30, 2020

Non-accrual loans:
Commercial:
CRE	$	95,621	$	83,117	$	65,104	$	—
C&I	102,274		153,428		40,723		—
Multifamily	51,349		5,112		49,236		—
Other commercial	16,984		31,987		7,634		—
Total commercial loans	266,228		273,644		162,697		—
Consumer:
Residential mortgages	164,001		134,957		66,223		—
Home equity loans and lines of credit	94,872		107,289		33,718		—
RICs and auto loans	967,101		1,643,459		187,774		84,403
Personal unsecured loans	—		2,212		—		—
Other consumer	7,135		11,491		77		—
Total consumer loans	1,233,109		1,899,408		287,792		84,403
Total non-accrual loans	1,499,337		2,173,052		450,489		84,403

OREO	43,015		66,828		—		—
Repossessed vehicles	249,572		212,966		—		—
Foreclosed and other repossessed assets	3,206		4,218		—		—
Total OREO and other repossessed assets	295,793		284,012		—		—
Total non-performing assets	$	1,795,130	$	2,457,064	$	450,489	$	84,403

(1) The December 31, 2019 table includes balances based on recorded investment. Differences between amortized cost and UPB were not material

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

Age Analysis of Past Due Loans

The Company generally considers an account delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date. When an account is deferred, the loan is returned to accrual status during the deferral period and accrued interest related to the loan is evaluated for collectability.

The age of amortized cost in past due loans and accruing loans 90 days or greater past due disaggregated by class of financing receivables is summarized as follows:


	As of:
		September 30, 2020
(in thousands)		30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Financing Receivables		Amortized Cost > 90 Days and Accruing
Commercial:
CRE		$	27,468	$	67,396	$	94,864	$	7,372,034	$	7,466,898	$	—
C&I(1)		54,832		63,054		117,886		16,315,919		16,433,805		—
Multifamily		37,822		9,720		47,542		8,629,941		8,677,483		—
Other commercial		142,627		6,175		148,802		7,068,474		7,217,276		47
Consumer:
Residential mortgages(2)		78,452		111,976		190,428		7,182,040		7,372,468		—
Home equity loans and lines of credit		37,688		66,439		104,127		4,184,399		4,288,526		—
RICs and auto loans		2,481,517		217,776		2,699,293		37,916,538		40,615,831		—
Personal unsecured loans(3)		51,253		49,491		100,744		1,508,408		1,609,152		45,070
Other consumer		9,163		6,965		16,128		227,117		243,245		—
Total		$	2,920,822	$	598,992	$	3,519,814	$	90,404,870	$	93,924,684	$	45,117

(1) C&I loans includes $144.1 million of LHFS at September 30, 2020.

(2) Residential mortgages includes $240.2 million of LHFS at September 30, 2020.

(3) Personal unsecured loans includes $763.3 million of LHFS at September 30, 2020.


	As of
		December 31, 2019
(in thousands)		30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Financing Receivables		Recorded Investment > 90 Days and Accruing
Commercial:
CRE		$	51,472	$	65,290	$	116,762	$	8,351,261	$	8,468,023	$	—
C&I (1)		55,957		84,640		140,597		16,510,391		16,650,988		—
Multifamily		10,456		3,704		14,160		8,627,044		8,641,204		—
Other commercial		61,973		6,352		68,325		7,322,469		7,390,794		—
Consumer:
Residential mortgages(2)		154,978		128,578		283,556		8,848,971		9,132,527		—
Home equity loans and lines of credit		45,417		75,972		121,389		4,648,955		4,770,344		—
RICs and auto loans		4,364,110		404,723		4,768,833		31,687,914		36,456,747		—
Personal unsecured loans(3)		85,277		102,572		187,849		2,110,803		2,298,652		93,102
Other consumer		11,375		7,479		18,854		297,530		316,384		—
Total		$	4,841,015	$	879,310	$	5,720,325	$	88,405,338	$	94,125,663	$	93,102

(1)C&I loans included $116.3 million of LHFS at December 31, 2019.

(2) Residential mortgages included $296.8 million of LHFS at December 31, 2019.

(3) Personal unsecured loans included $1.0 billion of LHFS at December 31, 2019.

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

Commercial Lending Asset Quality Indicators

The Company's Risk Department performs a credit analysis and classifies certain loans over an internal threshold based on the commercial lending classifications described below:

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

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

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

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

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

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

Each commercial loan is evaluated to determine its risk rating at least annually. The indicators represent the rating for loans as of the date presented based on the most recent assessment performed. Amortized cost basis of loans in the commercial portfolio segment by credit quality indicator, class of financing receivable, and year of origination are summarized as follows:


September 30, 2020	Commercial Loan Portfolio (1)
(dollars in thousands)	Amortized Cost by Origination Year
Regulatory Rating:	2020(3)		2019		2018		2017		2016		Prior		Total
Commercial real estate
Pass	$	545,334	$	1,226,314	$	1,737,872	$	1,076,788	$	673,677	$	1,653,587	$	6,913,572
Special mention	8,717		16,899		28,096		82,613		37,658		70,262		244,245
Substandard	—		5,590		22,099		24,624		39,678		213,415		305,406
Doubtful	—		—		—		—		—		—		—
N/A(2)	—		—		—		—		—		3,675		3,675
Total Commercial real estate	$	554,051	$	1,248,803	$	1,788,067	$	1,184,025	$	751,013	$	1,940,939	$	7,466,898
C&I
Pass	$	4,109,046	$	3,564,841	$	2,647,502	$	889,298	$	552,009	$	2,473,820	$	14,236,516
Special mention	12,443		85,908		217,125		72,128		54,147		281,875		723,626
Substandard	51,731		22,196		167,650		40,017		93,690		250,180		625,464
Doubtful	691		—		1		2,694		405		14,506		18,297
N/A(2)	312,075		332,414		87,430		18,579		21,372		58,032		829,902
Total C&I	$	4,485,986	$	4,005,359	$	3,119,708	$	1,022,716	$	721,623	$	3,078,413	$	16,433,805
Multifamily
Pass	$	738,446	$	2,006,547	$	1,560,057	$	1,363,283	$	627,914	$	1,714,053	$	8,010,300
Special mention	—		71,335		267,026		73,904		38,034		79,726		530,025
Substandard	—		7,736		8,282		57,279		14,273		49,588		137,158
Doubtful	—		—		—		—		—		—		—
N/A	—		—		—		—		—		—		—
Total Multifamily	$	738,446	$	2,085,618	$	1,835,365	$	1,494,466	$	680,221	$	1,843,367	$	8,677,483
Remaining commercial
Pass	$	2,894,096	$	1,568,505	$	826,882	$	508,052	$	283,720	$	1,042,742	$	7,123,997
Special mention	155		12,119		9,339		14,808		12,260		14,638		63,319
Substandard	1,851		1,288		4,129		4,015		6,710		11,218		29,211
Doubtful	441		—		115		29		109		55		749
N/A	—		—		—		—		—		—		—
Total Remaining commercial	$	2,896,543	$	1,581,912	$	840,465	$	526,904	$	302,799	$	1,068,653	$	7,217,276
Total Commercial loans
Pass	$	8,286,922	$	8,366,207	$	6,772,313	$	3,837,421	$	2,137,320	$	6,884,202	$	36,284,385
Special mention	21,315		186,261		521,586		243,453		142,099		446,501		1,561,215
Substandard	53,582		36,810		202,160		125,935		154,351		524,401		1,097,239
Doubtful	1,132		—		116		2,723		514		14,561		19,046
N/A(2)	312,075		332,414		87,430		18,579		21,372		61,707		833,577
Total commercial loans	$	8,675,026	$	8,921,692	$	7,583,605	$	4,228,111	$	2,455,656	$	7,931,372	$	39,795,462

(1)Includes $144.1 million of LHFS at September 30, 2020.

(2)Consists of loans that have not been assigned a regulatory rating.

(3)Loans originated during the nine months ended September 30, 2020.

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


December 31, 2019	CRE		C&I		Multifamily		Remaining commercial		Total(1)
At Recorded Investment	(in thousands)
Regulatory Rating:
Pass	$	7,513,567	$	14,816,669	$	8,356,377	$	7,072,083	$	37,758,696
Special Mention	508,133		743,462		260,764		260,051		1,772,410
Substandard	379,199		321,842		24,063		44,919		770,023
Doubtful	24,378		47,010		—		13,741		85,129
N/A(2)	42,746		722,005		—		—		764,751
Total commercial loans	$	8,468,023	$	16,650,988	$	8,641,204	$	7,390,794	$	41,151,009

(1)Includes $116.3 million of LHFS at December 31, 2019.

(2)Consists of loans that have not been assigned a regulatory rating.

Consumer Lending Asset Quality Indicators-Credit Score

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


As of September 30, 2020	RICs and auto loans
(dollars in thousands)	Amortized Cost by Origination Year(3)
Credit Score Range	2020(2)		2019		2018		2017		2016		Prior		Total		Percent
No FICO(1)	$	1,360,292	$	1,284,613	$	598,203	$	579,827	$	297,688	$	207,835	$	4,328,458	10.7	%
<600	4,631,650		4,739,858		2,906,269		1,252,008		779,962		768,907		15,078,654		37.1	%
600-639	2,075,117		2,091,482		1,106,392		374,714		264,567		217,786		6,130,058		15.1	%
>=640	7,415,445		5,371,261		1,547,323		300,693		238,139		205,800		15,078,661		37.1	%
Total	$	15,482,504	$	13,487,214	$	6,158,187	$	2,507,242	$	1,580,356	$	1,400,328	$	40,615,831	100.0	%

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

(2) Loans originated during the nine-months ended September 30, 2020.

(3) Excludes LHFS.


December 31, 2019	RICs and auto loans
Credit Score Range	Recorded Investment (in thousands)		Percent
No FICO(1)	$	3,178,459	8.7	%
<600	15,013,670		41.2	%
600-639	5,957,970		16.3	%
>=640	12,306,648		33.8	%
Total	$	36,456,747	100.0	%

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

Consumer Lending Asset Quality Indicators-FICO and LTV Ratio

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

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

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

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


As of September 30, 2020	Residential Mortgages(1)(3)
(dollars in thousands)	Amortized Cost by Origination Year
FICO Score	2020(4)		2019		2018		2017		2016		Prior		Grand Total
N/A(2)
LTV <= 70%	$	—	$	—	$	524	$	504	$	—	$	18,003	$	19,031
70.01-80%	—		—		—		—		—		3,295		3,295
80.01-90%	284		—		—		—		—		1,464		1,748
90.01-100%	—		—		—		—		—		1,125		1,125
100.01-110%	—		—		—		—		—		503		503
LTV>110%	—		—		—		—		—		—		—
LTV - N/A(2)	4,541		7,922		4,427		5,705		5,343		13,244		41,182


<600
LTV <= 70%	$	841	$	1,926	$	9,287	$	15,837	$	11,973	$	117,734	$	157,598
70.01-80%	193		4,638		3,979		8,071		3,835		8,785		29,501
80.01-90%	387		5,107		10,063		3,066		—		1,410		20,033
90.01-100%	208		5,139		—		—		214		1,433		6,994
100.01-110%	—		—		—		—		—		409		409
LTV>110%	—		—		—		—		—		1,519		1,519
LTV - N/A(2)	—		—		—		—		—		61		61


600-639
LTV <= 70%	$	1,711	$	7,169	$	3,241	$	13,519	$	10,223	$	88,732	$	124,595
70.01-80%	2,187		4,598		7,915		2,908		2,925		5,745		26,278
80.01-90%	359		7,138		8,559		4,483		250		2,197		22,986
90.01-100%	881		4,803		—		—		—		543		6,227
100.01-110%	—		—		—		—		—		270		270
LTV>110%	—		—		—		—		—		209		209
LTV - N/A(2)	—		—		—		—		—		—		—


640-679
LTV <= 70%	$	6,326	$	21,034	$	15,591	$	32,598	$	33,176	$	155,822	$	264,547
70.01-80%	9,099		19,763		6,848		10,437		3,123		9,610		58,880
80.01-90%	939		13,665		13,350		2,480		166		2,339		32,939
90.01-100%	8,089		12,223		—		—		—		1,399		21,711
100.01-110%	—		—		—		—		—		1,258		1,258
LTV>110%	—		—		—		—		—		437		437
LTV - N/A(2)	—		—		—		—		—		35		35


680-719
LTV <= 70%	$	30,965	$	54,844	$	43,110	$	68,327	$	57,554	$	226,746	$	481,546
70.01-80%	23,253		49,104		25,728		11,035		8,221		11,845		129,186
80.01-90%	6,011		25,312		27,960		4,101		137		4,254		67,775
90.01-100%	22,291		22,128		—		—		—		1,925		46,344
100.01-110%	—		—		—		—		—		415		415
LTV>110%	—		—		—		—		—		1,108		1,108
LTV - N/A(2)	—		—		—		—		—		23		23


720-759
LTV <= 70%	$	71,352	$	88,466	$	79,677	$	158,519	$	143,006	$	341,158	$	882,178
70.01-80%	75,766		81,867		39,273		23,567		11,551		14,171		246,195
80.01-90%	10,718		45,780		43,572		10,491		273		3,040		113,874
90.01-100%	34,469		38,027		—		13		—		624		73,133
100.01-110%	—		—		—		—		—		916		916
LTV>110%	—		—		—		—		—		1,559		1,559
LTV - N/A(2)	—		—		—		—		—		286		286


>=760
LTV <= 70%	$	253,357	$	360,805	$	231,800	$	533,353	$	610,305	$	1,209,079	$	3,198,699
70.01-80%	163,010		307,248		121,271		62,713		26,816		17,158		698,216
80.01-90%	30,274		127,372		71,400		16,662		309		5,646		251,663
90.01-100%	30,011		57,327		—		—		76		3,990		91,404
100.01-110%	—		—		—		574		—		1,485		2,059
LTV>110%	—		—		—		—		92		1,949		2,041
LTV - N/A(2)	—		—		—		—		—		288		288
Total - All FICO Bands
LTV <= 70%	$	364,552	$	534,244	$	383,230	$	822,657	$	866,237	$	2,157,274	$	5,128,194
70.01-80%	273,508		467,218		205,014		118,731		56,471		70,609		1,191,551
80.01-90%	48,972		224,374		174,904		41,283		1,135		20,350		511,018
90.01-100%	95,949		139,647		—		13		290		11,039		246,938
100.01-110%	—		—		—		574		—		5,256		5,830
LTV>110%	—		—		—		—		92		6,781		6,873
LTV - N/A(2)	4,541		7,922		4,427		5,705		5,343		13,937		41,875
Grand Total	$	787,522	$	1,373,405	$	767,575	$	988,963	$	929,568	$	2,285,246	$	7,132,279

(1) Excludes LHFS.

(2) Balances in the "N/A" range for LTV or FICO score primarily represent loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.

(3) The ALLL model considers LTV for financing receivables in first lien position and CLTV for financing receivables in second lien position for the Company.

(4) Loans originated during the nine-months ended September 30, 2020.

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


As of September 30, 2020	Home Equity Loans and Lines of Credit(2)
(in thousands)	Amortized Cost by Origination Year
FICO Score	2020(4)		2019		2018		2017		2016		Prior		Total		Revolving
N/A(2)
LTV <= 70%	$	74	$	—	$	81	$	9	$	344	$	855	$	1,363	$	28
70.01-90%	—		229		280		154		—		48		711		11
90.01-110%	—		—		—		—		—		—		—		—
LTV>110%	—		—		—		—		—		—		—		—
LTV - N/A(2)	6,810		12,893		16,279		15,867		12,101		75,133		139,083		—

<600
LTV <= 70%	$	164	$	2,094	$	6,902	$	10,492	$	15,275	$	129,234	$	164,161	$	2,351
70.01-90%	226		1,526		5,956		6,055		1,947		14,527		30,237		451
90.01-110%	—		—		—		—		—		2,680		2,680		36
LTV>110%	—		—		—		270		—		3,258		3,528		56
LTV - N/A(2)	—		—		—		15		—		535		550		—

600-639
LTV <= 70%	$	416	$	3,806	$	9,182	$	11,033	$	12,079	$	94,856	$	131,372	$	2,069
70.01-90%	264		2,741		4,259		3,459		1,218		9,934		21,875		336
90.01-110%	—		—		—		—		—		4,209		4,209		65
LTV>110%	48		—		—		—		—		1,544		1,592		20
LTV - N/A(2)	—		—		—		—		—		33		33		—

640-679
LTV <= 70%	$	4,519	$	14,957	$	21,127	$	24,324	$	19,871	$	160,606	$	245,404	$	3,791
70.01-90%	2,033		10,418		11,945		6,855		2,620		18,855		52,726		840
90.01-110%	—		50		—		—		—		4,809		4,859		68
LTV>110%	—		—		—		—		—		2,822		2,822		42
LTV - N/A(2)	94		95		—		100		—		122		411		—

680-719
LTV <= 70%	$	19,916	$	30,186	$	46,889	$	53,038	$	49,790	$	250,405	$	450,224	$	6,949
70.01-90%	7,732		21,292		25,138		20,367		5,018		29,166		108,713		1,726
90.01-110%	157		75		—		—		—		9,634		9,866		140
LTV>110%	—		—		—		—		—		5,089		5,089		71
LTV - N/A(2)	—		51		—		63		—		127		241		—

720-759
LTV <= 70%	$	29,013	$	48,412	$	66,199	$	71,598	$	72,386	$	365,235	$	652,843	$	10,147
70.01-90%	16,451		33,790		36,063		26,427		8,072		34,489		155,292		2,441
90.01-110%	—		132		11		—		—		11,267		11,410		160
LTV>110%	144		—		—		—		—		8,322		8,466		128
LTV - N/A(2)	55		20		—		—		—		127		202		—

>=760
LTV <= 70%	$	85,582	$	144,351	$	181,212	$	182,809	$	157,716	$	945,506	$	1,697,176	$	26,284
70.01-90%	32,557		70,787		71,555		49,205		15,834		101,268		341,206		5,400
90.01-110%	315		22		—		—		—		25,371		25,708		389
LTV>110%	492		66		269		—		—		12,240		13,067		198
LTV - N/A(2)	70		752		130		69		—		386		1,407		—

Total - All FICO Bands
LTV <= 70%	$	139,684	$	243,806	$	331,592	$	353,303	$	327,461	$	1,946,697	$	3,342,543	$	51,619
LTV 70.01 - 90%	59,263		140,783		155,196		112,522		34,709		208,287		710,760		11,205
LTV 90.01 - 110%	472		279		11		—		—		57,970		58,732		858
LTV>110%	684		66		269		270		—		33,275		34,564		515
LTV - N/A(2)	7,029		13,811		16,409		16,114		12,101		76,463		141,927		—
Grand Total	$	207,132	$	398,745	$	503,477	$	482,209	$	374,271	$	2,322,692	$	4,288,526	$	64,197

(1) - (4) Refer to corresponding notes above.

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


	Residential Mortgages(1)(3)
December 31, 2019	N/A(2)		LTV<=70%		70.01-80%		80.01-90%		90.01-100%		100.01-110%		LTV>110%		Grand Total
FICO Score	(dollars in thousands)
N/A(2)	$	92,052	$	4,654	$	534	$	—	$	—	$	—	$	—	$	97,240
<600	33		180,465		48,344		36,401		27,262		1,518		2,325		296,348
600-639	31		122,675		45,189		34,690		37,358		636		1,108		241,687
640-679	1,176		263,781		89,179		78,215		87,067		946		1,089		521,453
680-719	7,557		511,018		219,766		132,076		155,857		1,583		2,508		1,030,365
720-759	14,427		960,290		413,532		195,335		191,850		1,959		3,334		1,780,727
>=760	36,621		3,324,285		938,368		353,989		203,665		3,673		7,281		4,867,882
Grand Total	$	151,897	$	5,367,168	$	1,754,912	$	830,706	$	703,059	$	10,315	$	17,645	$	8,835,702

(1) Excludes LHFS.

(2) Residential mortgages in the "N/A" range for LTV or FICO score primarily represent the balance on loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.

(3) The ALLL model considers LTV for financing receivables in first lien position for the Company and CLTV for financing receivables in second lien position for the Company.


	Home Equity Loans and Lines of Credit(2)
December 31, 2019	N/A(1)		LTV<=70%		70.01-90%		90.01-110%		LTV>110%		Grand Total
FICO Score
N/A(1)	$	176,138	$	189	$	153	$	—	$	—	$	176,480
<600	824		215,977		66,675		11,467		4,459		299,402
600-639	1,602		147,089		34,624		4,306		3,926		191,547
640-679	9,964		264,021		78,645		8,079		3,626		364,335
680-719	17,120		478,817		146,529		12,558		9,425		664,449
720-759	25,547		665,647		204,104		12,606		10,857		918,761
>=760	61,411		1,639,702		408,812		30,259		15,186		2,155,370
Grand Total	$	292,606	$	3,411,442	$	939,542	$	79,275	$	47,479	$	4,770,344

(1) Excludes LHFS.

(2) Home equity loans and lines of credit in the "N/A" range for LTV or FICO score primarily represent the balance on loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.

(3) The ALLL model considers LTV for financing receivables in first lien position for the Company and CLTV for financing receivables in second lien position for the Company.

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

TDR Loans

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


(in thousands)	September 30, 2020		December 31, 2019

Performing	$	3,710,124	$	3,646,354
Non-performing	529,073		673,777
Total (1)	$	4,239,197	$	4,320,131

(1) Excludes LHFS.

The decrease in total non-performing TDRs is primarily due to the significant increase in deferrals granted to borrowers impacted by COVID-19. The additional risk of these deferrals is captured in the ACL for the three and nine months ended September 30, 2020.

TDR Activity by Class of Financing Receivable

The Company's modifications consist primarily of term extensions. The following tables detail the activity of TDRs for the three-month and nine-month periods ended September 30, 2020 and 2019:


	Three-Month Period Ended September 30, 2020
	Number of Contracts	Pre-TDR Amortized Cost(1)		Post-TDR Amortized Cost(2)
	(dollars in thousands)
Commercial:
CRE	20	$	33,898	$	33,898
C&I	126	22,611		22,631
Multi-family	—	—		—
Other commercial	4	894		894
Consumer:
Residential mortgages(3)	161	12,422		12,419
Home equity loans and lines of credit	21	2,189		2,295
RICs and auto loans	14,530	313,816		315,368
Personal unsecured loans	2	7		—
Other consumer	356	14,514		14,492
Total	15,220	$	400,351	$	401,997

	Nine-Month Period Ended September 30, 2020
	Number of Contracts	Pre-TDR Amortized Cost(1)		Post-TDR Amortized Cost(2)
	(dollars in thousands)
Commercial:
CRE	31	$	48,872	$	48,872
C&I	515	50,576		50,694
Multi-family	5	51,466		51,466
Other commercial	9	1,011		1,011
Consumer:
Residential mortgages(3)	189	16,094		16,234
Home equity loans and lines of credit	71	6,956		7,329
RICs and auto loans	69,385	1,386,389		1,403,939
Personal unsecured loans	4	7		—
Other consumer	1,154	43,089		43,400
Total	71,363	$	1,604,460	$	1,622,945

(1) Pre-TDR modification amount is the month-end balance prior to the month in which the modification occurred.

(2) Post-TDR modification amount is the month-end balance for the month in which the modification occurred.

(3) The post-TDR modification amounts for residential mortgages exclude interest reserves.

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


	Three-Month Period Ended September 30, 2019
	Number of Contracts	Pre-TDR Recorded Investment(1)		Post-TDR Recorded Investment(2)
	(dollars in thousands)
Commercial:
CRE	12	$	15,388	$	10,061
C&I	23	651		655


Consumer:
Residential mortgages(3)	29	3,822		3,857
Home equity loans and lines of credit	30	2,676		3,313
RICs and auto loans	21,553	376,520		378,063
Personal unsecured loans	40	633		659
Other consumer	28	1,049		1,043
Total	21,715	$	400,739	$	397,651


	Nine-Month Period Ended September 30, 2019
	Number of Contracts	Pre-TDR Recorded Investment(1)		Post-TDR Recorded Investment(2)
	(dollars in thousands)
Commercial:
CRE	37	$	60,520	$	56,291
C&I	61	1,589		1,593


Consumer:
Residential mortgages(3)	74	10,497		10,767
Home equity loans and lines of credit	107	10,684		12,041
RICs and auto loans	58,724	1,001,458		1,004,336
Personal unsecured loans	161	1,938		1,972
Other consumer	39	1,406		1,397
Total	59,203	$	1,088,092	$	1,088,397

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

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

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

TDRs Which Have Subsequently Defaulted

A TDR is generally considered to have subsequently defaulted if, after modification, the loan becomes 90 DPD. For RICs, a TDR is considered to have subsequently defaulted after modification at the earlier of the date of repossession or 120 DPD. The following table details period-end amortized cost balances of 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, 2020 and 2019, respectively.


	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2020			2019			2020			2019
	Number of Contracts	Recorded Investment(1)		Number of Contracts	Recorded Investment(1)		Number of Contracts	Recorded Investment(1)		Number of Contracts	Recorded Investment(1)
	(dollars in thousands)						(dollars in thousands)
Commercial
CRE	2	$	3,011	—	$	—	34	$	8,125	2	$	223
C&I	26	905		6	5,956		42	9,165		31	6,801
Other commercial	—	—		—	—		1	45		—	—
Consumer:
Residential mortgages	3	397		23	2,804		33	5,278		102	10,432
Home equity loans and lines of credit	—	—		9	641		22	3,104		24	1,707
RICs and auto loans	4,353	82,098		5,188	83,531		10,429	182,535		18,073	298,602
Personal unsecured loans	—	—		61	565		—	—		178	1,745
Other consumer	45	1,751		—	—		91	3,558		—	—
Total	4,429	$	88,162	5,287	$	93,497	10,652	$	211,810	18,410	$	319,510

(1)Represents the period-end balance. Does not include Chapter 7 bankruptcy TDRs.

NOTE 4. OPERATING LEASE ASSETS, NET

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

Lease extensions granted by the Company are not treated as modifications. Income continues to accrue during the extension period and remaining lease payments are recorded on a straight-line basis over the modified lease term.

Operating lease assets, net consisted of the following as of September 30, 2020 and December 31, 2019:


(in thousands)	September 30, 2020		December 31, 2019

Leased vehicles	$	21,795,939	$	21,722,726
Less: accumulated depreciation	(4,694,217)		(4,159,944)
Depreciated net capitalized cost	17,101,722		17,562,782
Manufacturer subvention payments, net of accretion	(972,778)		(1,177,342)
Origination fees and other costs	66,432		76,542
Leased vehicles, net	16,195,376		16,461,982

Commercial equipment vehicles and aircraft, gross	28,899		41,154
Less: accumulated depreciation	(6,322)		(7,397)
Commercial equipment vehicles and aircraft, net	22,577		33,757

Total operating lease assets, net	$	16,217,953	$	16,495,739

The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of September 30, 2020 (in thousands):


2020	$	746,384
2021	2,306,840
2022	1,221,406
2023	430,908
2024	10,197
Thereafter	7,817
Total	$	4,723,552

During the three-month and nine-month periods ended September 30, 2020, the Company recognized $120.4 million and $170.5 million, respectively, of net gains on the sale of operating lease assets that had been returned to the Company at the end of the lease term compared to $48.5 million and $121.0 million for the corresponding periods in 2019. These amounts are recorded within Miscellaneous income, net in the Company's Condensed Consolidated Statements of Operations.

NOTE 5. GOODWILL AND OTHER INTANGIBLES

Goodwill

Goodwill is assigned to reporting units, which are operating segments or one level below an operating segment, as of the acquisition date. The following table presents activity in the Company's goodwill by its reporting units for the nine-month period ended September 30, 2020:


(in thousands)	CBB		C&I		CRE & VF		CIB		SC		Total
Goodwill at December 31, 2019	$	1,880,304	$	317,924	$	1,095,071	$	131,130	$	1,019,960	$	4,444,389



Impairment during the period	(1,557,384)		(290,844)		—		—		—		(1,848,228)
Goodwill at September 30, 2020	$	322,920	$	27,080	$	1,095,071	$	131,130	$	1,019,960	$	2,596,161

There were no changes to the Company's reportable segments during the nine-month period ended September 30, 2020. Refer to Note 17 to these Consolidated Financial Statements for additional details on the Company's reportable segments.

NOTE 5. GOODWILL AND OTHER INTANGIBLES (continued)

The Company made a change in its commercial banking reportable segments beginning January 1, 2019 and, accordingly, re-allocated goodwill previously attributed to commercial banking to the related C&I and CRE&VF reporting units based on the estimated fair value of each reporting unit at January 1, 2019. Upon re-allocation, management tested the new reporting units for impairment using the same methodology and assumptions used in the October 1, 2018 goodwill impairment test, and noted that there was no impairment.

The Company evaluates goodwill for impairment at the reporting unit level. The Company completes its annual goodwill impairment test as of October 1 each year. The Company conducted its last annual goodwill impairment tests as of October 1, 2019 using generally accepted valuation methods.

The Company continually assesses whether or not there have been events requiring a review of goodwill. During the second quarter of 2020, primarily due to the ongoing economic impacts of the COVID-19 pandemic, the Company determined that a goodwill triggering event occurred for the CBB, C&I, and CRE & VF reporting units. These second quarter triggering events are in addition to the CBB triggering event during the first quarter of 2020, whereby the estimated fair value of CBB exceeded its carrying value by less than 5%.

Based on its goodwill impairment analysis performed as of June 30, 2020, the Company concluded that a goodwill impairment charge of $1.6 billion and $290.8 million was required for the CBB and C&I reporting units, respectively. The CRE & VF reporting unit’s estimated fair value exceeded its carrying value by less than 5%. The goodwill allocated to these reporting units has become more sensitive to impairment as the valuation is highly correlated with forecasted interest rates, credit costs, and other factors. A risk of further impairment or impairment to additional reporting units exists in subsequent quarters if the reporting unit’s operating environment does not return to a more normalized status in the foreseeable future.

In prior annual goodwill impairment assessments, the Company determined that an equal weighting of the market and income approach valuation methods provided a reliable fair value estimate. In light of the significant market volatility arising from the continued impacts of the COVID-19 pandemic and the responses to the pandemic from multiple government agencies, the Company determined to give only a 25% weighting to the market approach in estimating the second quarter fair value of CBB, C&I, and CRE & VF, which is consistent with the approach used during the first quarter interim impairment assessment of CBB. The Company continued to analyze implied market multiples to support the valuation under the market approach.

There were no disposals, additions or impairments of goodwill for the three-month and nine-month periods ended September 30, 2019.

Other Intangible Assets

The following table details amounts related to the Company's intangible assets subject to amortization for the dates indicated.


	September 30, 2020				December 31, 2019
(in thousands)	Net Carrying Amount		Accumulated Amortization		Net Carrying Amount		Accumulated Amortization
Intangibles subject to amortization:
Dealer networks	$	318,571	$	(261,429)	$	347,982	$	(232,018)
Chrysler relationship	38,750		(100,000)		50,000		(88,750)
Trade name	12,600		(5,400)		13,500		(4,500)
Other intangibles	2,077		(55,097)		4,722		(52,450)
Total intangibles subject to amortization	$	371,998	$	(421,926)	$	416,204	$	(377,718)

At September 30, 2020 and December 31, 2019, the Company did not have any intangibles, other than goodwill, that were not subject to amortization.

Amortization expense on intangible assets was $14.7 million and $44.2 million, for the three-month and nine-month periods ended September 30, 2020, respectively, and $14.7 million and $44.3 million for the corresponding periods in 2019, respectively.

NOTE 5. GOODWILL AND OTHER INTANGIBLES (continued)

The estimated aggregate amortization expense related to intangibles, excluding any impairment charges, 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)
2020	$	58,661	$	44,211	$	14,450
2021	39,904		—		39,904
2022	39,901		—		39,901
2023	28,649		—		28,649
2024	24,792		—		24,792
Thereafter	224,302		—		224,302

NOTE 6. OTHER ASSETS

The following is a detail of items that comprised Other assets at September 30, 2020 and December 31, 2019:


(in thousands)	September 30, 2020		December 31, 2019
Operating lease ROU assets	$	576,691	$	656,472
Deferred tax assets	—		503,681
Accrued interest receivable	660,348		545,148
Derivative assets at fair value	1,403,599		555,880
Other repossessed assets	252,778		217,184
Equity method investments	270,990		271,656
MSRs	81,776		132,683
OREO	43,015		66,828
Income tax receivables	236,962		272,699
Prepaid expense	332,688		352,331
Miscellaneous assets and receivables	566,195		629,654
Total other assets	$	4,425,042	$	4,204,216

Operating lease ROU assets

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

For the three-month and nine-month periods ended September 30, 2020, operating lease expenses were $36.8 million and $112.6 million, respectively, compared to $35.8 million and $110.0 million for the corresponding periods in 2019. Sublease income was $0.7 million and $3.3 million, respectively, for three-month and nine-month periods ended September 30, 2020 compared to $1.1 million and $3.0 million for the corresponding periods in 2019. These are reported within Occupancy and equipment expenses in the Company’s Condensed Consolidated Statements of Operations.

NOTE 6. OTHER ASSETS (continued)

Supplemental balance sheet information related to leases was as follows:


Maturity of Lease Liabilities at September 30, 2020	Total Operating leases
	(in thousands)
2020	$	36,423
2021	132,421
2022	121,301
2023	109,015
2024	95,345
Thereafter	207,511
Total lease liabilities	$	702,016
Less: Interest	(63,824)
Present value of lease liabilities	$	638,192


Supplemental Balance Sheet Information	September 30, 2020			December 31, 2019
Operating lease ROU assets	$	576,691		$	656,472
Other liabilities	638,192			711,666
Weighted-average remaining lease term (years)	6.6			7.1
Weighted-average discount rate	2.9		%	3.1		%


	Nine-Month Period Ended September 30,
Other Information	2020		2019
	(in thousands)
Operating cash flows from operating leases(1)	$	(105,497)	$	(98,110)
Leased assets obtained in exchange for new operating lease liabilities	$	34,921	$	813,090

(1) Activity is included within the net change in other liabilities on the Consolidated SCF.

The Company made approximately $3.0 million and $2.9 million in payments during the nine-month periods ended September 30, 2020 and 2019, respectively, to Santander for rental of certain office space. The related ROU assets and lease liabilities were approximately $9.8 million and $14.2 million at September 30, 2020 and 2019, respectively.

The remainder of Other assets is comprised of:

•Deferred tax asset, net - Refer to Note 14 of these Condensed Consolidated Financial Statements for more information on tax-related activities.

•Derivative assets at fair value - Refer to the "Offsetting of Financial Assets" table in Note 11 to these Condensed Consolidated Financial Statements for the detail of these amounts.

•Equity method investments - The Company makes certain equity investments in various limited partnerships, some of which are considered VIEs, that invest in and lend to qualified community development entities, such as renewable energy investments, through the NMTC and CRA programs. The Company acts only in a limited partner capacity in connection with these partnerships, so the Company has determined that it is not the primary beneficiary of the partnerships because it does not have the power to direct the activities of the partnerships that most significantly impact the partnerships' economic performance.

•MSRs - See further discussion on the valuation of the MSRs in Note 12.

•Income tax receivables - Refer to Note 14 of these Condensed Consolidated Financial Statements for more information on tax-related activities.

•OREO and Other repossessed assets includes property and vehicles recovered through foreclosure and repossession.

•Miscellaneous assets and receivables includes subvention receivables in connection with the agreement with Chrysler Capital, investment and capital market receivables, derivatives trading receivables, and unapplied payments.

NOTE 7. VIEs

The Company transfers RICs and vehicle leases into newly formed Trusts that then issue one or more classes of notes payable backed by the collateral. The Company’s continuing involvement with these Trusts is in the form of servicing the assets and, generally, through holding residual interests in the Trusts. The Trusts are considered VIEs under GAAP, and the Company may or may not consolidate these VIEs on its Condensed Consolidated Balance Sheets.

For further description of the Company’s securitization activities, involvement with VIEs and accounting policies regarding consolidation of VIEs, see Part II, Item 8 - Financial Statements and Supplementary Data Note 7 in the Company's 2019 Annual Report on Form 10-K.

On-balance sheet VIEs

The assets of consolidated VIEs that are included in the Company's Condensed Consolidated Financial Statements presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, and that can be used only to settle obligations of the consolidated VIEs and the liabilities of those entities for which creditors (or beneficial interest holders) do not have recourse to the Company's general credit, were as follows(1):


(in thousands)	September 30, 2020		December 31, 2019
Assets
Restricted cash	$	1,763,252	$	1,629,870

Loans HFI	22,711,254		26,532,328
Operating lease assets, net	16,195,376		16,461,982
Various other assets	870,229		625,359
Total Assets	$	41,540,111	$	45,249,539
Liabilities
Notes payable	$	31,265,215	$	34,249,851
Various other liabilities	117,997		188,093
Total Liabilities	$	31,383,212	$	34,437,944

(1) Certain amounts shown above are greater than the amounts shown in the corresponding line items in the accompanying Condensed Consolidated Balance Sheets due to intercompany eliminations between the VIEs and other entities consolidated by the Company. For example, for most of its securitizations, the Company retains one or more of the lowest tranches of bonds. Rather than showing investment in bonds as an asset and the associated debt as a liability, these amounts are eliminated in consolidation as required by GAAP.

The Company retains servicing rights 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, net.

As of September 30, 2020 and December 31, 2019, the Company was servicing $27.7 billion and $27.3 billion, respectively, of gross RICs that have been transferred to consolidated Trusts. The remainder of the Company’s RICs remains unpledged.

NOTE 7. VIEs (continued)

A summary of the cash flows received from the consolidated Trusts for the three-month and nine-month periods ended September 30, 2020 and 2019 is as follows:


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
(in thousands)	2020		2019		2020		2019
Assets securitized	$	5,282,901	$	5,498,705	$	15,845,707	$	15,340,428

Net proceeds from new securitizations (1)	$	4,662,211	$	4,475,722	$	11,470,857	$	12,232,777
Net proceeds from sale of retained bonds	1,293		2,414		57,286		119,719
Cash received for servicing fees (2)	242,245		242,801		735,533		740,760

Net distributions from Trusts (2)	1,173,276		1,018,301		2,730,657		2,689,735
Total cash received from Trusts	$	6,079,025	$	5,739,238	$	14,994,333	$	15,782,991

(1) Includes additional advances on existing securitizations.

(2) These amounts are not reflected in the accompanying Consolidated SCF because the cash flows are between the VIEs and other entities included in the consolidation.

Off-balance sheet VIEs

During the three-month and nine-month periods ended September 30, 2020, SC sold $636.3 million and $1.1 billion, respectively, of gross RICs to third-party investors in off-balance sheet securitizations for a loss of $13.7 million and $40.6 million, respectively. The losses were recorded in Investment losses, net, in the accompanying Condensed Consolidated Statements of Income. There were no sales during the three-month and nine-month periods ended September 30, 2019.

As of September 30, 2020 and December 31, 2019, the Company was servicing $2.6 billion and $2.4 billion, respectively, of gross RICs that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call. The portfolio was comprised as follows:


(in thousands)	September 30, 2020		December 31, 2019
Related party SPAIN securitizations	$	1,418,346	$	2,149,008


Third party SCART serviced securitizations	1,032,639		—
Third party Chrysler Capital securitizations	103,579		259,197


Total serviced for other portfolio	$	2,554,564	$	2,408,205

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 cash flows received from Trusts for the three-month and nine-month periods ended September 30, 2020 and 2019, respectively, were as follows:


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
(in thousands)	2020		2019		2020		2019
Receivables securitized (1)	$	636,301	$	—	$	1,148,587	$	—

Net proceeds from new securitizations	592,455		—		1,052,541		—
Cash received for servicing fees	6,598		7,859		17,856		27,467
Total cash received from Trusts	$	599,053	$	7,859	$	1,070,397	$	27,467

(1) Represents the unpaid principal balance at the time of original securitization.

NOTE 8. DEPOSITS AND OTHER CUSTOMER ACCOUNTS

Deposits and other customer accounts are summarized as follows:


	September 30, 2020				December 31, 2019
(dollars in thousands)	Balance		Percent of total deposits		Balance		Percent of total deposits
Interest-bearing demand deposits	$	10,280,571	14.8	%	$	10,301,133	15.3	%
Non-interest-bearing demand deposits	18,176,964		26.2	%	14,922,974		22.2	%
Savings	4,648,842		6.7	%	5,632,164		8.4	%
Customer repurchase accounts	366,336		0.5	%	407,477		0.6	%
Money market	31,387,665		45.5	%	26,687,677		39.6	%
CDs	4,385,602		6.3	%	9,375,281		13.9	%
Total deposits (1)	$	69,245,980	100.0	%	$	67,326,706	100.0	%

(1) Includes foreign deposits, as defined by the FRB, of $5.4 billion and $8.9 billion at September 30, 2020 and December 31, 2019, respectively.

Deposits collateralized by investment securities, loans, and other financial instruments totaled $2.3 billion and $3.5 billion at September 30, 2020 and December 31, 2019, respectively.

Demand deposit overdrafts that have been reclassified as loan balances were $149.0 million and $79.2 million at September 30, 2020 and December 31, 2019, respectively.

At September 30, 2020 and December 31, 2019, the Company had $882.7 million and $1.5 billion, respectively, of CDs greater than $250 thousand.

NOTE 9. BORROWINGS

Total borrowings and other debt obligations at September 30, 2020 were $48.1 billion, compared to $50.7 billion at December 31, 2019. The Company's debt agreements impose certain limitations on dividends 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.

Bank

The Bank had no new securities issuances in the open market during the nine-month periods ended September 30, 2020 and 2019.

During the nine-month period ended September 30, 2020, the Bank repurchased the following borrowings and other debt obligations:

•$126.4 million of its REIT preferred debt.

•$1.0 billion prepayment of FHLB advances.

During the nine-month period ended September 30, 2019, the Bank repurchased the following borrowings and other debt obligations:

•$27.9 million of its subordinated notes due August 2022.

•$21.2 million of its REIT preferred debt.

SHUSA

During the nine-month period ended September 30, 2020, the Company issued $2.1 billion of debt, consisting of:

•$500.0 million 5.83% senior fixed-rate notes due March 2023 to Santander, an affiliate.

•$447.1 million of its senior fixed-rate notes due April 2023.

•$1.0 billion 3.45% senior fixed-rate notes due June 2025.

•$125.0 million 2.0% short-term note due February 2021 to an affiliate.

NOTE 9. BORROWINGS (continued)

During the nine-month period ended September 30, 2020, the Company repurchased the following borrowings and other debt obligations:

•$1.0 billion of its 2.65% senior notes due April 2020.

•$114.5 million of senior floating rate notes due September 2020.

During the nine-month period ended September 30, 2019, the Company issued $2.5 billion of debt, consisting of:

•$1.0 billion of its 3.50% senior notes due 2024,

•$720.9 million of its senior floating rate notes due 2022.

•$750.0 million of its 2.88% senior fixed rate notes due 2024 with BSSA, an affiliate.

During the nine-month period ended September 30, 2019, the Company repurchased the following borrowings and other debt obligations:

•$178.7 million of its 2.70% senior notes, due May 2019.

•$388.7 million of its senior floating rate notes, due July 2019.

•$371.0 million of its senior floating rate notes, due September 2019.

Parent Company and other Subsidiary Borrowings and Debt Obligations

The following table presents information regarding the Parent Company and its subsidiaries' borrowings and other debt obligations at the dates indicated:


	September 30, 2020				December 31, 2019
(dollars in thousands)	Balance		Effective Rate		Balance		Effective Rate
Parent Company
2.65% senior notes due April 2020	$	—	—	%	$	999,502	2.82	%
4.45% senior notes due December 2021	604,862		4.61 %		604,172		4.61	%
3.70% senior notes due March 2022	848,998		3.74 %		849,465		3.74	%
3.40% senior notes due January 2023	996,980		3.54 %		996,043		3.54	%
3.50% senior notes due June 2024	996,462		3.60 %		995,797		3.60	%
4.50% senior notes due July 2025	1,096,930		4.56 %		1,096,508		4.56	%
4.40% senior notes due July 2027	1,049,825		4.40 %		1,049,813		4.40	%
2.88% senior notes due January 2024 (4)	750,000		2.88 %		750,000		2.88	%
5.83% senior notes due March 2023 (4)	500,000		5.83 %		—		—	%
3.24% senior notes due November 2026	911,870		3.97 %		907,844		3.97	%
3.45% senior notes, due June 2025	994,599		3.58 %		—		—	%
3.50% senior notes, due April 2023	447,022		3.52 %		—		—	%
Senior notes due September 2020 (2)	—		—	%	112,358		3.36	%
Senior notes due June 2022(1)	427,916		2.05 %		427,889		3.47	%
Senior notes due January 2023 (3)	720,893		2.29 %		720,861		3.29	%
Senior notes due July 2023 (3)	439,007		2.29 %		438,962		2.48	%
Short-term borrowing due within one year, with an affiliate	124,067		2.00 %		—		—	%
Subsidiaries
2.00% subordinated debt maturing through 2020	11		2.00	%	602		2.00	%
Short-term borrowing due within one year, maturing October 2020	8,000		0.50	%	1,831		0.38	%
Total Parent Company and subsidiaries' borrowings and other debt obligations	$	10,917,442	3.69 %		$	9,951,647	3.68	%

(1) These notes bear interest at a rate equal to the three-month LIBOR plus 100 basis points per annum.

(2) This note will bear interest at a rate equal to the three-month GBP LIBOR plus 105 basis points per annum.

(3) This note will bear interest at a rate equal to the three-month LIBOR plus 110 basis points per annum.

(4) These notes are with SHUSA's parent company, Santander.

NOTE 9. BORROWINGS (continued)

Bank Borrowings and Debt Obligations

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


	September 30, 2020				December 31, 2019
(dollars in thousands)	Balance		Effective Rate		Balance		Effective Rate
FHLB advances, maturing through May 2022	$	3,050,000	0.55 %		$	7,035,000	2.15	%
REIT preferred, callable May 2020	—		—	%	125,943		13.17	%
Total Bank borrowings and other debt obligations	$	3,050,000	0.55 %		$	7,160,943	2.34	%

The Bank had outstanding irrevocable letters of credit totaling $280.0 million from the FHLB of Pittsburgh at September 30, 2020 used to secure uninsured deposits placed with the Bank by state and local governments and their political subdivisions.

Revolving Credit Facilities

The following tables present information regarding SC's credit facilities as of September 30, 2020 and December 31, 2019, respectively:


	September 30, 2020
(dollars in thousands)	Balance		Committed Amount		Effective Rate		Assets Pledged		Restricted Cash Pledged
Warehouse line due March 2021	$	500,445	$	1,250,000	1.27	%	$	1,151,745	$	1
Warehouse line due November 2021	166,600		500,000		1.04	%	495,011		—
Warehouse line due July 2021	—		500,000		1.53	%	497,994		—
Warehouse line due October 2021	—		2,100,000		4.18	%	—		—
Warehouse line due August 2022	166,000		500,000		2.54	%	267,776		—
Warehouse line due January 2022	400,000		1,000,000		1.43	%	572,755		—
Warehouse line due July 2022	—		900,000		3.10	%	—		1,684
Warehouse line due October 2021(3)	92,800		1,500,000		2.69	%	819,518		—
Warehouse line due October 2021(1)	1,165,943		3,500,000		3.27	%	1,272,926		—
Repurchase facility due January 2021(2)	263,272		263,272		1.66	%	377,550		—
Repurchase facility due November 2020(2)	48,624		48,624		1.79	%	69,945		—
Total facilities with third parties	$	2,803,684	$	12,061,896	2.28	%	$	5,525,220	$	1,685

Promissory note with Santander due June 2022	$	2,000,000	$	2,000,000	1.40	%	$	—	$	—
Promissory note with Santander due September 2022	2,000,000		2,000,000		1.04	%	—		—
Total facilities with related parties	$	4,000,000	$	4,000,000	1.22	%	$	—	$	—

Total SC revolving credit facilities	$	6,803,684	$	16,061,896	1.66	%	$	5,525,220	$	1,685

(1) This line is held exclusively for financing of Chrysler Capital leases. In April 2020, the commitment amount was reduced by $500 million.

(2) The repurchase facilities are collateralized by securitization notes payable retained by SC. As the borrower, SC is exposed to liquidity risk due to changes in the market value of retained securities pledged. In some instances, SC places or receives cash collateral with counterparties under collateral arrangements associated with SC's repurchase agreements.

(3) During the three months ended March 31, 2020 the Chrysler Finance loan credit facility was reactivated with a $1 billion commitment. In April 2020, the commitment amount increased by $500 million.

NOTE 9. BORROWINGS (continued)


	December 31, 2019
(dollars in thousands)	Balance		Committed Amount		Effective Rate		Assets Pledged		Restricted Cash Pledged
Warehouse line due March 2021	$	516,045	$	1,250,000	3.10	%	$	734,640	$	1
Warehouse line due November 2020	471,320		500,000		2.69	%	505,502		186
Warehouse line due July 2021	500,000		500,000		3.64	%	761,690		302
Warehouse line due October 2021	896,077		2,100,000		3.44	%	1,748,325		7
Warehouse line due June 2021	471,284		500,000		3.32	%	675,426		—
Warehouse line due November 2020	970,600		1,000,000		2.57	%	1,353,305		—
Warehouse line due June 2021	53,900		600,000		7.02	%	62,601		94
Warehouse line due October 2021(1)	1,098,443		5,000,000		4.43	%	1,898,365		1,756
Repurchase facility due January 2020(2)	273,655		273,655		3.80	%	377,550		—
Repurchase facility due March 2020(2)	100,756		100,756		3.04	%	151,710		—
Repurchase facility due March 2020(2)	47,851		47,851		3.15	%	69,945		—
Total SC revolving credit facilities	$	5,399,931	$	11,872,262	3.44	%	$	8,339,059	$	2,346

(1), (2) See corresponding footnotes to the September 30, 2020 credit facilities table above.

The warehouse lines and repurchase facilities are fully collateralized by a designated portion of SC's RICs, leased vehicles, securitization notes payable and residuals retained by SC.

Secured Structured Financings

The following tables present information regarding SC's secured structured financings as of September 30, 2020 and December 31, 2019, respectively:


	September 30, 2020
(dollars in thousands)	Balance		Initial Note Amounts Issued(3)		Initial Weighted Average Interest Rate Range	Collateral(2)		Restricted Cash
SC public securitizations maturing on various dates between April 2022 and May 2028(1)(4)	$	18,809,455	$	44,397,355	0.76% - 3.42%	$	24,283,300	$	1,737,179
SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027 (3)	8,554,634		11,097,563		1.28% - 3.90%	12,495,119		24,388
Total SC secured structured financings	$	27,364,089	$	55,494,918	0.76% - 3.90%	$	36,778,419	$	1,761,567

(1) Securitizations executed under Rule 144A of the Securities Act are included within this balance.

(2) Secured structured financings may be collateralized by SC's collateral overages of other issuances.

(3) Excludes securitizations which no longer have outstanding debt and excludes any incremental borrowings.

(4) As of September 30, 2020, $7.2 million in secured structured financing is held by Santander.


	December 31, 2019
(dollars in thousands)	Balance		Initial Note Amounts Issued		Initial Weighted Average Interest Rate Range	Collateral		Restricted Cash
SC public securitizations maturing on various dates between April 2021 and February 2027	$	18,807,773	$	43,982,220	1.35% - 3.42%	$	24,697,158	$	1,606,646
SC privately issued amortizing notes maturing on various dates between July 2019 and November 2026	9,334,112		10,397,563		1.05% - 3.90%	12,048,217		20,878
Total SC secured structured financings	$	28,141,885	$	54,379,783	1.05% - 3.90%	$	36,745,375	$	1,627,524

Most of SC's secured structured financings are in the form of public, SEC-registered securitizations. SC also executes private securitizations under Rule 144A of the Securities Act, and periodically issues private term amortizing notes, which are structured similarly to securitizations but are acquired by banks and conduits. SC's securitizations and private issuances are collateralized by vehicle RICs and loans or leases. As of September 30, 2020 and December 31, 2019, SC had private issuances of notes backed by vehicle leases outstanding totaling $10.0 billion and $10.2 billion, respectively.

NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)

The following table presents the components of AOCI, net of related tax, for the three-month and nine-month periods ended September 30, 2020, and 2019, respectively.


		Total Other Comprehensive Income/(Loss)									Total Accumulated Other Comprehensive (Loss)/Income
		Three-Month Period Ended September 30, 2020									June 30, 2020						September 30, 2020
(in thousands)	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity			Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments		$	(34,921)		$	(4,073)		$	(38,994)
Reclassification adjustment for net losses on cash flow hedge derivative financial instruments(1)		274			18			292
Net unrealized (losses) on cash flow hedge derivative financial instruments		(34,647)			(4,055)			(38,702)			$	135,539		$	(38,702)		$	96,837

Change in unrealized (losses) on investments in debt securities AFS		(15,446)			2,124			(13,322)
Reclassification adjustment for (gains) included in net income/(expense) on debt securities AFS (2)(4)		(32,731)			4,502			(28,229)


Net unrealized gains on investments in debt securities AFS		(48,177)			6,626			(41,551)			168,240			(41,551)			126,689


Pension and post-retirement actuarial gain(3)		18,368			(128)			18,240			(44,093)			18,240			(25,853)

As of September 30, 2020		$	(64,456)		$	2,443		$	(62,013)		$	259,686		$	(62,013)		$	197,673


	Total Other Comprehensive (Loss)/Income						Total Accumulated Other Comprehensive Loss
	Three-Month Period Ended September 30, 2019						March 31, 2019				September 30, 2019
(in thousands)	Pretax Activity		Tax Effect		Net Activity		Beginning Balance		Net Activity		Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments	$	2,509	$	1,974	$	4,483
Reclassification adjustment for net losses on cash flow hedge derivative financial instruments(1)	5,293		(1,559)		3,734
Net unrealized gains on cash flow hedge derivative financial instruments	7,802		415		8,217		$	(11,676)	$	8,217	$	(3,459)

Change in unrealized gains on investment securities	47,439		(12,642)		34,797
Reclassification adjustment for net (gains) included in net income/(expense) on non-OTTI securities (2)(4)	(267)		71		(196)


Net unrealized (losses) on investment securities AFS	47,172		(12,571)		34,601		(40,973)		34,601		(6,372)

Pension and post-retirement actuarial gain(3	728		(186)		542		(43,870)		542		(43,328)

As of September 30, 2019	$	55,702	$	(12,342)	$	43,360	$	(96,519)	$	43,360	$	(53,159)

(1) Net gains/(losses) reclassified into Interest on borrowings and other debt obligations in the Condensed Consolidated Statements of Operations for settlements of interest rate swap contracts designated as cash flow hedges.

(2) Net (gains)/losses reclassified into Net gain on sale of investment securities sales in the Condensed Consolidated Statements of Operations for the sale of debt securities AFS.

(3) Included in the computation of net periodic pension costs.

(4) As discussed in Note 1, includes unrealized gains / losses reclassified in connection with the sale of SBC.

NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS) (continued)


		Total OCI/(Loss)									Total Accumulated Other Comprehensive (Loss)/Income
		Nine-Month Period Ended September 30, 2020									December 31, 2019						September 30, 2020
(in thousands)	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity			Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments		$	180,139		$	(63,520)		$	116,619
Reclassification adjustment for net losses on cash flow hedge derivative financial instruments(1)		411			(79)			332
Net unrealized gains on cash flow hedge derivative financial instruments		180,550			(63,599)			116,951			$	(20,114)		$	116,951		$	96,837



Change in unrealized gains on investments in debt securities		257,976			(70,309)			187,667
Reclassification adjustment for net (gains) included in net income/(expense) on debt securities AFS (2)		(55,246)			17,148			(38,098)


Net unrealized gains on investments in debt securities		202,730			(53,161)			149,569			(22,880)			149,569			126,689


Pension and post-retirement actuarial gain(3)		19,874			(514)			19,360			(45,213)			19,360			(25,853)


As of September 30, 2020		$	403,154		$	(117,274)		$	285,880		$	(88,207)		$	285,880		$	197,673


	Total OCI/(Loss)						Total Accumulated Other Comprehensive (Loss)/Income
	Nine-Month Period Ended September 30, 2019						December 31, 2018				September 30, 2019
(in thousands)	Pretax Activity		Tax Effect		Net Activity		Beginning Balance		Net Activity		Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments	$	26,549	$	(10,361)	$	16,188
Reclassification adjustment for net losses on cash flow hedge derivative financial instruments(1)	235		(69)		166
Net unrealized gains on cash flow hedge derivative financial instruments	26,784		(10,430)		16,354		$	(19,813)	$	16,354	$	(3,459)



Change in unrealized gains on investment securities	323,169		(81,798)		241,371
Reclassification adjustment for net (gains) included in net income/(expense) on debt securities AFS (2)	(2,646)		670		(1,976)


Net unrealized gains on investment securities	320,523		(81,128)		239,395		(245,767)		239,395		(6,372)


Pension and post-retirement actuarial gain(3)	13,303		(559)		12,744		(56,072)		12,744		(43,328)



As of September 30, 2019	$	360,610	$	(92,117)	$	268,493	$	(321,652)	$	268,493	$	(53,159)

(1) - (3) Refer to the corresponding explanations in the table above.

NOTE 11. DERIVATIVES

General

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

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

See Note 12 to these Condensed Consolidated Financial Statements for discussion of the valuation methodology for derivative instruments.

Credit Risk Contingent Features

The Company has entered into certain derivative contracts that require the posting of collateral to counterparties when those contracts are in a net liability position. The amount of collateral to be posted is based on the amount of the net liability and thresholds generally related to the Company's long-term senior unsecured credit ratings. In a limited number of instances, counterparties also have the right to terminate their ISDA Master Agreements if the Company's ratings fall below a specified level, typically investment grade. As of September 30, 2020, derivatives in this category had a fair value of $0.3 million. The credit ratings of the Company and the Bank are currently considered investment grade. During the third quarter of 2020, no additional collateral would be required if there were a further 1- or 2- notch downgrade by either S&P or Moody's.

NOTE 11. DERIVATIVES (continued)

As of September 30, 2020 and December 31, 2019, 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 $9.3 million and $7.8 million, respectively. The Company had $21.7 million and $8.6 million in cash and securities collateral posted to cover those positions as of September 30, 2020 and December 31, 2019, respectively.

Hedge Accounting

Management uses derivative instruments designated as hedges to mitigate the impact of interest rate and foreign exchange rate movements on the fair value of certain assets and liabilities and on highly probable forecasted cash flows. These instruments primarily include interest rate swaps that have underlying interest rates based on key benchmark indices. 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.

Cash Flow Hedges

The Company has outstanding interest rate swap agreements designed to hedge a portion of the Company’s floating rate assets and liabilities (including its borrowed funds). All of these swaps have been deemed highly effective cash flow hedges. The gain or loss on the derivative instrument is reported as a component of accumulated OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same Condensed Consolidated Statements of Operations line item as the earnings effect of the hedged item.

The last of the hedges is scheduled to expire in March 2024. The Company includes all components of each derivative's gain or loss in the assessment of hedge effectiveness. As of September 30, 2020, the Company expected $31.1 million of gains recorded in accumulated other comprehensive income (loss) to be reclassified to earnings during the subsequent twelve months as the future cash flows occur.

Derivatives Designated in Hedge Relationships – Notional and Fair Values

Derivatives designated as accounting hedges at September 30, 2020 and December 31, 2019 included:


(dollars in thousands)	Notional Amount		Asset		Liability		Weighted Average Receive Rate		Weighted Average Pay Rate		Weighted Average Life (Years)
September 30, 2020



Cash flow hedges:
Pay fixed — receive variable interest rate swaps	$	2,750,000	$	—	$	79,350	0.18 %		1.49 %		1.93
Pay variable - receive fixed interest rate swaps	7,520,000		169,363		250		1.29 %		0.15 %		1.95
Interest rate floor	4,000,000		42,273		—		1.42 %		—	%	1.16
Total	$	14,270,000	$	211,636	$	79,600	1.11 %		0.37 %		1.73

December 31, 2019



Cash flow hedges:
Pay fixed — receive variable interest rate swaps	$	2,650,000	$	2,807	$	39,128	1.85	%	1.91	%	1.86
Pay variable - receive fixed interest rate swaps	7,570,000		7,462		29,209		1.43	%	1.73	%	2.39
Interest rate floor	3,800,000		18,762		—		0.19	%	—	%	1.28
Total	$	14,020,000	$	29,031	$	68,337	1.17	%	1.29	%	1.99

NOTE 11. DERIVATIVES (continued)

Other Derivative Activities

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

Customer-related derivatives

The Company offers derivatives to its customers in connection with their risk management needs and requirements. 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 and may or may not be physically settled depending on the Company’s needs. Exposure to gains and losses on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.

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

NOTE 11. DERIVATIVES (continued)

Derivatives Not Designated in Hedge Relationships – Notional and Fair Values

Other derivative activities at September 30, 2020 and December 31, 2019 included:


	Notional				Asset derivatives Fair value				Liability derivatives Fair value
(in thousands)	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Mortgage banking derivatives:
Forward commitments to sell loans	$	556,145	$	452,994	$	—	$	18	$	308	$	360
Interest rate lock commitments	328,370		167,423		16,118		3,042		—		—
Mortgage servicing	660,000		510,000		46,887		15,134		21,624		2,547
Total mortgage banking risk management	1,544,515		1,130,417		63,005		18,194		21,932		2,907

Customer-related derivatives:
Swaps receive fixed	15,737,287		11,225,376		1,053,859		375,541		287		12,330
Swaps pay fixed	16,209,340		11,975,313		4,288		23,271		1,030,761		336,361

Other	3,724,883		3,532,959		10,494		3,457		9,482		4,848
Total customer-related derivatives	35,671,510		26,733,648		1,068,641		402,269		1,040,530		353,539

Other derivative activities:

Foreign exchange contracts	3,577,947		3,724,007		44,856		33,749		47,854		34,428
Interest rate swap agreements	250,000		1,290,560		—		—		14,393		11,626
Interest rate cap agreements	11,117,779		9,379,720		5,999		62,552		—		—
Options for interest rate cap agreements	11,117,779		9,379,720		—		—		5,999		62,552

Other	320,189		1,087,986		9,462		10,536		10,077		13,025

Total	$	63,599,719	$	52,726,058	$	1,191,963	$	527,300	$	1,140,785	$	478,077

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 ended September 30, 2020 and 2019:


(in thousands)		Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
	Line Item	2020		2019		2020		2019








Derivative Activity(1)
Cash flow hedges:
Pay fixed-receive variable interest rate swaps	Interest expense on borrowings	$	(8,939)	$	8,283	$	(17,260)	$	35,065
Pay variable receive-fixed interest rate swap	Interest income on loans	34,767		(11,324)		57,691		(34,022)
Other derivative activities:
Forward commitments to sell loans	Miscellaneous income, net	3,175		5,349		85		6,183
Interest rate lock commitments	Miscellaneous income, net	(316)		(373)		13,077		1,421
Mortgage servicing	Miscellaneous income, net	62		9,886		32,175		31,187
Customer-related derivatives	Miscellaneous income, net	5,741		10,559		13,861		(5,791)

Foreign exchange	Miscellaneous income, net	755		(4,518)		13,560		25,459
Interest rate swaps, caps, and options	Miscellaneous income, net	(567)		2,479		(11,253)		10,345


Other	Miscellaneous income, net	4,502		453		583		85

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

NOTE 11. DERIVATIVES (continued)

The net amount of change recognized in OCI for cash flow hedge derivatives was a loss of $39.0 million and a gain of $116.6 million, net of tax, for the three-month and nine-month periods ended September 30, 2020, respectively, and gains of $4.5 million and $16.2 million, net of tax, for the three-month and nine-month periods ended September 30, 2019, respectively.

The net amount of changes reclassified from OCI into earnings for cash flow hedge derivatives were losses of $0.3 million and $0.3 million, net of tax, for the three-month and nine-month periods ended September 30, 2020, respectively, and losses of $3.7 million and $0.2 million, net of tax, for the three-month and nine-month periods ended September 30, 2019, respectively.

Disclosures about Offsetting Assets and Liabilities

The Company enters into legally enforceable master netting agreements which reduce risk by permitting netting of transactions with the same counterparty on the occurrence of certain events. A master netting agreement allows two counterparties the ability to net-settle amounts under all contracts, including any related collateral posted, through a single payment and in a single currency. The right to offset and certain terms regarding the collateral process, such as valuation, credit events and settlement, are contained in the applicable 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 Sheets.

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

Information about financial assets and liabilities that are eligible for offset on the Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, respectively, is presented in the following tables:


	Offsetting of Financial Assets
							Gross Amounts Not Offset in the Consolidated Balance Sheets
(in thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Collateral Received (3)		Net Amount
September 30, 2020

Cash flow hedges	$	211,636	$	—	$	211,636	$	141,067	$	70,569
Other derivative activities(1)	1,175,845		—		1,175,845		9,705		1,166,140
Total derivatives subject to a master netting arrangement or similar arrangement	1,387,481		—		1,387,481		150,772		1,236,709
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	16,118		—		16,118		—		16,118
Total Derivative Assets	$	1,403,599	$	—	$	1,403,599	$	150,772	$	1,252,827




December 31, 2019

Cash flow hedges	$	29,031	$	—	$	29,031	$	17,790	$	11,241
Other derivative activities(1)	524,258		435		523,823		51,437		472,386
Total derivatives subject to a master netting arrangement or similar arrangement	553,289		435		552,854		69,227		483,627
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	3,042		—		3,042		—		3,042
Total Derivative Assets	$	556,331	$	435	$	555,896	$	69,227	$	486,669

(1)Includes customer-related and other derivatives.

(2)Includes mortgage banking derivatives.

(3)Collateral received includes cash, cash equivalents, and other financial instruments. Cash collateral received is reported in Other liabilities, as applicable, in the Condensed Consolidated Balance Sheets. Financial instruments that are pledged to the Company are not reflected in the accompanying Condensed Consolidated Balance Sheets since the Company does not control or have the ability to re-hypothecate these instruments.

NOTE 11. DERIVATIVES (continued)


	Offsetting of Financial Liabilities
							Gross Amounts Not Offset in the Consolidated Balance Sheets
(in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Collateral Pledged (3)		Net Amount
September 30, 2020

Cash flow hedges	$	79,600	$	—	$	79,600	$	79,350	$	250
Other derivative activities(1)	1,140,477		3,861		1,136,616		659,094		477,522
Total derivatives subject to a master netting arrangement or similar arrangement	1,220,077		3,861		1,216,216		738,444		477,772
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	308		—		308		106		202
Total Derivative Liabilities	$	1,220,385	$	3,861	$	1,216,524	$	738,550	$	477,974




December 31, 2019

Cash flow hedges	$	68,337	$	—	$	68,337	$	68,337	$	—
Other derivative activities(1)	477,717		9,406		468,311		436,301		32,010
Total derivatives subject to a master netting arrangement or similar arrangement	546,054		9,406		536,648		504,638		32,010
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	360		—		360		273		87
Total Derivative Liabilities	$	546,414	$	9,406	$	537,008	$	504,911	$	32,097

(1)Includes customer-related and other derivatives.

(2)Includes mortgage banking derivatives.

(3)Cash collateral pledged and financial instruments pledged is reported in Other assets in the Condensed Consolidated Balance Sheets. In certain instances, the Company is over-collateralized since the actual amount of collateral pledged exceeds the associated financial liability. As a result, the actual amount of collateral pledged that is reported in Other assets may be greater than the amount shown in the table above.

NOTE 12. FAIR VALUE

Fair value measurement requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs, and also establishes a fair value hierarchy that categorizes the inputs to valuation techniques used to measure fair value into three levels as follows:

•Level 1 inputs are quoted prices in active markets for identical assets or liabilities that can be accessed as of the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

•Level 2 inputs are those other than quoted prices included in Level 1 that are observable for the assets or liabilities, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•Level 3 inputs are those that are unobservable or not readily observable for the asset or liability and are used to measure fair value to the extent relevant observable inputs are not available.

Assets and liabilities measured at fair value, by their nature, result in a higher degree of financial statement volatility. When available, the Company uses 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.

NOTE 12. FAIR VALUE (continued)

The Company values assets and liabilities based on the principal market in which each would be sold (in the case of assets) or transferred (in the case of liabilities). The principal market is the forum with the greatest volume and level of activity. In the absence of a principal market, the valuation is based on the most advantageous market. In the absence of observable market transactions, the Company considers liquidity valuation adjustments to reflect the uncertainty in pricing the instruments. The fair value of a financial asset is measured on a stand-alone basis and cannot be measured as a group, with the exception of certain financial instruments held and managed on a net portfolio basis. In measuring the fair value of a nonfinancial asset, the Company assumes the highest and best use of the asset by a market participant, not just the intended use, to maximize the value of the asset. The Company also considers whether any credit valuation adjustments are necessary based on the counterparty's credit quality.

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

The Company'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.

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, 2020 and December 31, 2019.


(in thousands)	Level 1		Level 2		Level 3		Balance at September 30, 2020		Level 1		Level 2		Level 3		Balance at December 31, 2019
Financial assets:
U.S. Treasury securities	$	—	$	215,654	$	—	$	215,654	$	—	$	4,090,938	$	—	$	4,090,938
Corporate debt	—		172,908		—		172,908		—		139,713		—		139,713
ABS	—		60,575		50,566		111,141		—		75,165		63,235		138,400
State and municipal securities	—		3		—		3		—		9		—		9
MBS	—		10,579,266		—		10,579,266		—		9,970,698		—		9,970,698
Investment in debt securities AFS(3)	—		11,028,406		50,566		11,078,972		—		14,276,523		63,235		14,339,758
Other investments - trading securities	2,359		40,105		—		42,464		379		718		—		1,097
RICs HFI(4)	—		—		61,448		61,448		—		17,634		84,334		101,968
LHFS (1)(5)	—		240,190		—		240,190		—		289,009		—		289,009
MSRs (2)	—		—		81,776		81,776		—		—		130,855		130,855
Other assets - derivatives (3)	—		1,387,232		16,367		1,403,599		—		553,222		3,109		556,331










Total financial assets (6)	$	2,359	$	12,695,933	$	210,157	$	12,908,449	$	379	$	15,137,106	$	281,533	$	15,419,018
Financial liabilities:
Other liabilities - derivatives (3)	—		1,214,548		5,837		1,220,385		—		543,560		2,854		546,414










Total financial liabilities	$	—	$	1,214,548	$	5,837	$	1,220,385	$	—	$	543,560	$	2,854	$	546,414

(1) LHFS disclosed on the Condensed Consolidated Balance Sheets also includes LHFS that are held at the lower of cost or fair value and are not presented within this table.

(2) The Company had total MSRs of $81.8 million and $132.7 million as of September 30, 2020 and December 31, 2019, respectively. The Company has elected to account for the majority of its MSR balance using the FVO, while the remainder of the MSRs are accounted for using the lower of cost or fair value and are not presented within this table.

(3) Refer to Note 2 for the fair value of investment securities and to Note 11 for the fair values of derivative assets and liabilities on a further disaggregated basis.

(4) RICs collateralized by vehicle titles at SC and RV/marine loans at SBNA.

(5) Residential mortgage loans.

(6) Approximately $210.2 million of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 1.6% of total assets measured at fair value on a recurring basis and approximately 0.1% of total consolidated assets.

NOTE 12. FAIR VALUE (continued)

Valuation Processes and Techniques - Recurring Fair Value Assets and Liabilities

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

Investments in debt securities AFS

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

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

Certain ABS are valued using DCF models. The DCF models are obtained from a third-party pricing vendor which uses observable market data and therefore are classified as Level 2. Other ABS that could not be valued using a third-party pricing service are valued using an internally-developed DCF model and are classified as Level 3.

Realized gains and losses on investments in debt securities are recognized in the Condensed Consolidated Statements of Operations through Net gain(loss) on sale of investment securities.

RICs HFI

For certain RICs reported in LHFI, net, the Company has elected the FVO. At December 31, 2019, the Company has used the most recent purchase price as the fair value for certain loans and hence classified those RICs as Level 2. The estimated fair value of the all RICs HFI at September 30, 2020 is estimated using a DCF model and are classified as Level 3.

LHFS

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

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

NOTE 12. FAIR VALUE (continued)

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 CPRs and the discount rate, reflective of a market participant's required return on an investment for similar assets. Other important valuation assumptions include market-based servicing costs and the anticipated earnings on escrow and similar balances held by the Company in the normal course of mortgage servicing activities. All of these assumptions are considered to be unobservable inputs. Historically, servicing costs and discount rates have been less volatile than CPR and earnings rates, both of which are directly correlated with changes in market interest rates. Increases in prepayment speeds, discount rates and servicing costs result in lower valuations of MSRs. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of MSRs. For each of these items, the Company makes assumptions based on current market information and future expectations. All of the assumptions are based on standards that the Company believes would be utilized by market participants in valuing MSRs and are derived and/or benchmarked against independent public sources. Accordingly, MSRs are classified as Level 3. Gains and losses on MSRs are recognized on the Condensed Consolidated Statements of Operations through Miscellaneous income, net.

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

• A 10% and 20% increase in the CPR speed would decrease the fair value of the residential servicing asset by $4.7 million and $9.0 million, respectively, at September 30, 2020.

•A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $2.3 million and $4.5 million, respectively, at September 30, 2020.

Significant increases/(decreases) in any of those inputs in isolation would result in significantly (lower)/higher fair value measurements, respectively. These sensitivity calculations are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a 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 commonly accepted valuation techniques, including DCF analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable and unobservable market-based inputs. The fair value represents the estimated amount the Company would receive or pay to terminate the contract or agreement, taking into account current interest rates, foreign exchange rates, equity prices and, when appropriate, the current creditworthiness of the counterparties.

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

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

NOTE 12. FAIR VALUE (continued)

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 to these Consolidated Financial Statements for a discussion of derivatives activity.

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

The tables below present the changes in Level 3 balances for the three-month and nine-month periods ended September 30, 2020 and 2019, respectively, for those assets and liabilities measured at fair value on a recurring basis.


	Three-Month Period Ended September 30, 2020								Three-Month Period Ended September 30, 2019
(in thousands)	Investments AFS		RICs HFI		MSRs		Derivatives, net		Total		Investments AFS		RICs HFI		MSRs		Derivatives, net		Total
Balances, beginning of period	$	50,664	$	72,862	$	88,674	$	9,970	$	222,170	$	324,979	$	104,193	$	129,913	$	1,939	$	561,024
Losses in OCI	(97)		—		—		—		(97)		(634)		—		—		—		(634)
Gains/(losses) in earnings	—		3,895		(2,834)		495		1,556		—		2,841		(8,878)		(2,395)		(8,432)
Additions/Issuances	—		—		3,365		—		3,365		—		—		10,353		—		10,353
Settlements(1)	(1)		(15,309)		(7,429)		65		(22,674)		(250,815)		(13,641)		(4,897)		117		(269,236)
Balances, end of period	$	50,566	$	61,448	$	81,776	$	10,530	$	204,320	$	73,530	$	93,393	$	126,491	$	(339)	$	293,075
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period	$	—	$	3,895	$	(2,834)	$	812	$	1,873	$	—	$	2,841	$	(8,878)	$	(2,022)	$	(8,059)

	Nine-Month Period Ended September 30, 2020								Nine-Month Period Ended September 30, 2019
(in thousands)	Investments AFS		RICs HFI		MSRs		Derivatives, net		Total		Investments AFS		RICs HFI		MSRs		Derivatives, net		Total
Balances, beginning of period	$	63,235	$	84,334	$	130,855	$	255	$	278,679	$	327,199	$	126,312	$	149,660	$	1,866	$	605,037
Losses in OCI(2)	(416)		—		—		—		(416)		(2,136)		—		—		—		(2,136)
Gains/(losses) in earnings	—		10,845		(38,457)		10,045		(17,567)		—		9,793		(32,815)		(2,496)		(25,518)
Additions/Issuances	—		2,512		9,788		—		12,300		—		2,079		21,456		—		23,535
Transfer from level 2(3)	—		17,634		—		—		17,634		—		—		—		—		—
Settlements(1)	(12,253)		(53,877)		(20,410)		230		(86,310)		(251,533)		(44,791)		(11,810)		291		(307,843)
Balances, end of period	$	50,566	$	61,448	$	81,776	$	10,530	$	204,320	$	73,530	$	93,393	$	126,491	$	(339)	$	293,075
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period	$	—	$	10,845	$	(38,457)	$	(3,031)	$	(30,643)	$	—	$	9,793	$	(32,815)	$	(3,917)	$	(26,939)

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

(2)Losses in OCI during the three-month period ended September 30, 2020 increased by $0.1 million from the prior reporting date of June 30, 2020.

(3)The Company transferred RIC's from Level 2 to Level 3 during 2020 because the fair value for these assets cannot be determined by using readily observable inputs as of September 30, 2020. There were no other transfers into or out of Level 3 during the three-month and nine-month periods ended September 30, 2020 and 2019.

NOTE 12. FAIR VALUE (continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company may be required to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP from time to time. These adjustments to fair value usually result from application of lower-of-cost-or-fair value accounting or certain impairment measures. Assets measured at fair value on a nonrecurring basis that were still held on the balance sheet were as follows:


(in thousands)	Level 1		Level 2		Level 3		Balance at September 30, 2020		Level 1		Level 2		Level 3		Balance at December 31, 2019
Impaired commercial LHFI	$	—	$	47,237	$	160,798	$	208,035	$	—	$	133,640	$	356,220	$	489,860
Foreclosed assets	—		9,926		34,739		44,665		—		17,168		51,080		68,248
Vehicle inventory	—		374,071		—		374,071		—		346,265		—		346,265
LHFS(1)	—		—		907,389		907,389		—		—		1,131,214		1,131,214
Auto loans impaired due to bankruptcy	—		188,226		—		188,226		—		200,504		503		201,007
Goodwill	—		—		350,000		350,000		—		—		—		—
MSRs	—		—		—		—		—		—		8,197		8,197

(1) These amounts include $763.3 million and $1.0 billion of personal LHFS that were impaired as of September 30, 2020 and December 31, 2019, respectively.

Valuation Processes and Techniques - Nonrecurring Fair Value Assets and Liabilities

Impaired commercial LHFI in the table above represents the recorded investment of impaired commercial loans for which the Company measures impairment during the period based on the fair value of the underlying collateral supporting the loan. Written offers to purchase a specific impaired loan are considered observable market inputs, which are considered Level 1 inputs. Appraisals are obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and are considered Level 2 inputs. Loans for which the value of the underlying collateral is determined using a combination of real estate appraisals, field examinations and internal calculations are classified as Level 3. The inputs in the internal calculations may include the loan balance, estimation of the collectability of the underlying receivables held by the customer used as collateral, sale and liquidation value of the inventory held by the customer used as collateral and historical loss-given-default parameters. In cases in which the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized. The net carrying value of these loans was $192.7 million and $448.8 million at September 30, 2020 and December 31, 2019, respectively. Loans previously impaired which were not marked to fair value during the periods presented are excluded from this table.

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

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

The Company's LHFS portfolios that are measured at fair value on a nonrecurring basis primarily consist of personal, commercial, and RIC LHFS. The estimated fair value of these LHFS is calculated based on a combination of estimated market rates for similar loans with similar credit risks and a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, including historical default rates and adjustments to reflect voluntary prepayments, prepayment rates, discount rates reflective of the cost of funding, and credit loss expectations. The lower of cost or fair value adjustment for personal LHFS includes customer default activity and adjustments related to the net change in the portfolio balance during the reporting period.

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

NOTE 12. FAIR VALUE (continued)

The estimated fair value of goodwill is valued using unobservable inputs and is classified as Level 3. Fair value is calculated using widely-accepted valuation techniques, such as the guideline public company market approach (earnings and price-to-tangible book value multiples of comparable public companies) and the income approach (the DCF method). The Company uses a combination of these accepted methodologies to determine the fair valuation of reporting units. Several factors are taken into account, including actual operating results, future business plans, economic projections, and market data. On a quarterly basis, the Company assesses whether or not impairment indicators are present. For information on the Company's goodwill impairment test and the results of the most recent goodwill impairment test, see Note 5 for a description of the Company's goodwill valuation methodology.

Fair Value Adjustments

The following table presents the increases and decreases in value of certain assets that are measured at fair value on a nonrecurring basis for which a fair value adjustment has been included in the Condensed Consolidated Statements of Operations relating to assets held at period-end:


		Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
(in thousands)	Statement of Operations Location	2020		2019		2020		2019
Impaired LHFI	Credit loss expense	$	(12,036)	$	(3,877)	$	(5,883)	$	(9,990)
Foreclosed assets	Miscellaneous income, net (1)	(736)		(4,014)		(3,857)		(7,798)

LHFS	Miscellaneous income, net (1)	(56,598)		(67,021)		(387,900)		(239,059)
Auto loans impaired due to bankruptcy	Credit loss expense	—		1,943		—		(9,721)
Goodwill impairment	Impairment of goodwill (1)(2)	—		—		(1,848,228)		—
MSRs	Miscellaneous income, net (1)	—		(128)		(138)		(483)

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

(2) In the period ended September 30, 2020, Goodwill totaling $2.2 billion was written down to its implied fair value of $350.0 million, resulting in a goodwill impairment charge of $1.8 billion.

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

The following table presents quantitative information about the significant unobservable inputs within significant Level 3 recurring and nonrecurring assets and liabilities at September 30, 2020 and December 31, 2019, respectively:

(dollars in thousands)

Fair Value at September 30, 2020

Valuation Technique

Unobservable Inputs

Range
(Weighted Average)

Financial Assets:

ABS

Financing bonds

50,566

DCF

Discount rate (1)

0.32% - 0.32% (0.32% )

RICs HFI

61,448

DCF

CPR (2)

6.66

Discount rate (3)

9.5% - 14.5% (11.66%)

Recovery rate (4)

25% - 43% (42.22%)

Personal LHFS (8)

763,292

Lower of market or Income approach

Market participant view

60.00% - 70.00%

Discount rate

20.00% - 30.00%

Default rate

40.00% - 50.00%

Net principal & interest payment rate

65.00% - 75.00%

Loss severity rate

90.00% - 95.00%

MSRs (7)

81,776

DCF

CPR (5)

[0.00% - 30.60%] (16.30%)

Discount rate (6)

9.38

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

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

(3) Based on the cost of funding of debt issuance and recent historical equity yields. Weighted average amount was developed by weighting the associated relative unpaid principal balances.

(4) Based on the average severity utilizing reported severity rates and loss severity utilizing available market data from a comparable securitized pool. Weighted average amount was developed by weighting the associated relative unpaid principal balances.

(5) Average CPR projected from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the associated relative unpaid principal balances.

(6) Average discount rate from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the associated relative unpaid principal balances.

(7) Excludes MSR valued on a non-recurring basis for which we do not consider there to be significant unobservable assumptions.

NOTE 12. FAIR VALUE (continued)

(8) Excludes non-significant Level 3 LHFS portfolios. The estimated fair value for personal LHFS (Bluestem) is calculated based on the lower of market participant view, a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, and also considers the possible outcomes of the Bluestem bankruptcy process.


(dollars in thousands)	Fair Value at December 31, 2019		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Financial Assets:
ABS
Financing bonds	$	51,001	DCF	Discount rate (1)	1.64% - 1.64% (1.64% )
Sale-leaseback securities	12,234		Consensus pricing (9)	Offered quotes (10)	103.00	%
RICs HFI	84,334		DCF	CPR (2)	6.66	%
				Discount rate (3)	9.50% - 14.50% (13.16%)
				Recovery rate (4)	25% - 43% (41.12%)
Personal LHFS (8)	1,007,105		Lower of market or Income approach	Market participant view	70.00% - 80.00%
				Discount rate	15.00% - 25.00%
				Default rate	30.00% - 40.00%
				Net principal & interest payment rate	70.00% - 85.00%
				Loss severity rate	90.00% - 95.00%




MSRs (7)	130,855		DCF	CPR (5)	7.83% - 100.00% (11.97%)
				Discount rate (6)	9.63	%

(1), (2), (3), (4), (5), (6), (7), (8) - See corresponding footnotes to the September 30, 2020 Level 3 significant inputs table above.

(9) 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.

(10) Based on the nature of the input, a range or weighted average does not exist. The Company owns one sale-leaseback security.

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, 2020										December 31, 2019
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	8,871,504	$	8,871,504	$	8,871,504	$	—	$	—	$	7,644,372	$	7,644,372	$	7,644,372	$	—	$	—
Investments in debt securities AFS	11,078,972		11,078,972		—		11,028,406		50,566		14,339,758		14,339,758		—		14,276,523		63,235
Investments in debt securities HTM	5,488,576		5,668,891		—		5,668,891		—		3,938,797		3,957,227		—		3,957,227		—
Other investments (3)	792,464		792,465		2,359		790,106		—		1,097		1,097		379		718		—
LHFI, net	85,377,508		89,460,378		—		47,237		89,413,141		89,059,251		90,490,760		—		1,142,998		89,347,762
LHFS	1,147,578		1,147,579		—		240,190		907,389		1,420,223		1,420,295		—		289,009		1,131,286
Restricted cash	5,827,423		5,827,423		5,827,423		—		—		3,881,880		3,881,880		3,881,880		—		—
MSRs(1)	81,776		81,776		—		—		81,776		132,683		139,052		—		—		139,052
Derivatives	1,403,599		1,403,599		—		1,387,232		16,367		556,331		556,331		—		553,222		3,109

Financial liabilities:
Deposits (2)	4,385,602		4,421,527		—		4,421,527		—		9,375,281		9,384,994		—		9,384,994		—
Borrowings and other debt obligations	48,135,215		49,010,598		—		32,953,345		16,057,253		50,654,406		51,232,798		—		36,114,404		15,118,394
Derivatives	1,220,385		1,220,385		—		1,214,548		5,837		546,414		546,414		—		543,560		2,854

(1) The Company has elected to account for the majority of its MSR balance using the FVO, while the remainder of the MSRs are accounted for using the lower of cost or fair value.

(2) This line item excludes deposit liabilities with no defined or contractual maturities in accordance with ASU 2016-01.

(3) This line item includes CDs with a maturity greater than 90 days and investments in trading securities.

NOTE 12. FAIR VALUE (continued)

Valuation Processes and Techniques - Financial Instruments

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

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

Cash, cash equivalents and restricted cash

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

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.

Investments in debt securities HTM

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

LHFI, net

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

LHFS

The Company has LHFS portfolios that are accounted for at the lower of cost or market. This primarily consists of RICs HFS for which the estimated fair value is based on prices obtained in recent market transactions or expected to be obtained in the subsequent sales for similar assets.

Deposits

For deposits with no stated maturity, such as non-interest-bearing and interest-bearing demand deposit accounts, savings accounts and certain money market accounts, the carrying value approximates fair values. The fair value of fixed-maturity deposits is estimated by discounting cash flows using currently offered rates for deposits of similar remaining maturities and have been classified as Level 2.

NOTE 12. FAIR VALUE (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, they are considered to be Level 3.

FVO for Financial Assets and Financial Liabilities

LHFS

The Company's LHFS portfolios that are measured using the FVO consist of residential mortgage LHFS. The adoption of the FVO for residential mortgage loans classified as HFS 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.

RICs HFI

To reduce accounting and operational complexity, the Company elected the FVO for certain of its RICs HFI. These loans consisted primarily of SC’s RICs accounted for by SC under ASC 310-30 and non-performing loans acquired by SC under optional clean up calls from its non-consolidated Trusts.

The following table summarizes the differences between the fair value and the principal balance of LHFS and RICs measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019:


	September 30, 2020						December 31, 2019
(in thousands)	Fair Value		Aggregate UPB		Difference		Fair Value		Aggregate UPB		Difference
LHFS(1)	$	240,190	$	227,691	$	12,499	$	289,009	$	284,111	$	4,898

RICs HFI	61,448		64,646		(3,198)		101,968		113,863		(11,895)
Nonaccrual loans	2,343		3,036		(693)		10,616		12,917		(2,301)

(1) LHFS disclosed on the Condensed Consolidated Balance Sheets also includes LHFS that are held at the lower of cost or fair value that are not presented within this table. There were no nonaccrual loans related to the LHFS measured using the FVO.

Residential MSRs

The Company maintains an MSR asset for sold residential real estate loans serviced for others. The Company elected to account for the majority of its existing portfolio of MSRs at fair value. This election created greater flexibility with regard to risk management of the asset by aligning the accounting for the MSRs with the accounting for risk management instruments, which are also generally carried at fair value. At September 30, 2020 and December 31, 2019, the balance of these loans serviced for others accounted for at fair value was $13.4 billion and $15.0 billion, respectively. Changes in fair value are recorded through Miscellaneous income, net on the Condensed Consolidated Statements of Operations. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase MBS. See further discussion on these derivative activities in Note 11 to these Condensed Consolidated Financial Statements. The remainder of the MSRs are accounted for using the lower of cost or fair value and are presented above in the section captioned "Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis."

NOTE 13. NON-INTEREST INCOME AND OTHER EXPENSES

The following table presents the details of the Company's Non-interest income for the following periods:


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
(in thousands)	2020		2019		2020		2019
Non-interest income:
Consumer and commercial fees	$	123,834	$	133,049	$	356,907	$	412,566
Lease income	742,946		735,783		2,269,613		2,116,503
Miscellaneous income, net
Mortgage banking income, net	14,115		15,343		47,243		38,067
BOLI	14,855		15,338		43,764		45,769
Capital market revenue	56,949		48,326		179,417		146,290
Net gain on sale of operating leases	120,387		48,490		170,484		120,980
Asset and wealth management fees	52,984		45,020		156,575		132,224
Loss on sale of non-mortgage loans	(56,684)		(87,399)		(241,324)		(238,771)
Other miscellaneous (loss) / income, net	105,616		44,915		(25,994)		83,290
Net gain on sale of investment securities	(148)		2,267		31,646		2,646
Total Non-interest income	$	1,174,854	$	1,001,132	$	2,988,331	$	2,859,564

Disaggregation of Revenue from Contracts with Customers

The following table presents the Company's Non-interest income disaggregated by revenue source:


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
(in thousands)	2020		2019		2020		2019
Non-interest income:
In-scope of revenue from contracts with customers:
Depository services(1)	$	45,674	$	63,016	$	144,703	$	179,298
Commission and trailer fees(2)	47,466		39,971		144,730		119,607
Interchange income, net(2)	15,648		16,891		47,567		49,854
Underwriting service fees(2)	35,186		27,043		110,593		77,835
Asset and wealth management fees(2)	32,283		35,169		101,574		109,166
Other revenue from contracts with customers(2)	13,577		9,924		52,168		30,303
Total in-scope of revenue from contracts with customers	189,834		192,014		601,335		566,063
Out-of-scope of revenue from contracts with customers:
Consumer and commercial fees(3)	64,860		59,432		178,248		200,972
Lease income	742,946		735,783		2,269,613		2,116,503
Miscellaneous loss(3)	177,362		11,636		(92,511)		(26,620)
Net gain/(loss) on sale of investment securities	(148)		2,267		31,646		2,646
Total out-of-scope of revenue from contracts with customers	985,020		809,118		2,386,996		2,293,501
Total non-interest income	$	1,174,854	$	1,001,132	$	2,988,331	$	2,859,564

(1) Primarily recorded in the Company's Consolidated Statements of Operations within Consumer and commercial fees.

(2) Primarily recorded in the Company's Consolidated Statements of Operations within Miscellaneous income, net.

(3) The balance presented excludes certain revenue streams that are considered in-scope and presented above.

NOTE 13. NON-INTEREST INCOME AND OTHER EXPENSES (continued)

Other Expenses

The following table presents the Company's other expenses for the following periods:


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
(in thousands)	2020		2019		2020		2019(1)
Other expenses:
Amortization of intangibles	$	14,724	$	14,742	$	44,211	$	44,250
Deposit insurance premiums and other expenses	13,440		11,104		39,779		53,348
Loss on debt extinguishment	—		6		1,026		1,133

Other administrative expenses	115,909		145,870		313,344		404,399
Other miscellaneous expenses	6,176		18,407		29,618		33,236
Total Other expenses	$	150,249	$	190,129	$	427,978	$	536,366

(1) The nine-month period ended September 30, 2019 includes $25.3 million of FDIC insurance premiums that relates to periods from the first quarter of 2015 through the fourth quarter of 2018. The Company has concluded that the out-of-period correction is immaterial to all impacted periods.

NOTE 14. INCOME TAXES

An income tax benefit of $53.3 million and a provision of $112.9 million were recorded for the three-month periods ended September 30, 2020 and 2019, respectively. An income tax benefit of $272.9 million and a provision of $384.5 million were recorded for the nine-month periods ended September 30, 2020 and 2019, respectively. This resulted in an ETR of (6.5)% and 29.5% for the three-month periods ended September 30, 2020 and 2019, respectively, and 19.3% and 29.6% for the nine-month periods ended September 30, 2020 and 2019, respectively. The lower ETR for the three-month period ended September 30, 2020, compared to the three-month period ended September 30, 2019, was primarily the result of an expected pre-tax loss for 2020, compared to pre-tax income in 2019 and the reversal of the deferred tax liability associated with the book over tax basis difference for the investment in SC in the third quarter of 2020. The lower ETR for the nine-month period ended September 30, 2020, compared to the nine-month period ended September 30, 2019, was primarily the result of an expected pre-tax loss for 2020, compared to pre-tax income in 2019, and the impairment of goodwill that is non-deductible for tax purposes, offset with the reversal of the deferred tax liability associated with the book over tax basis difference for the Company's investment in SC, as described further below.

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

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

NOTE 14. INCOME TAXES (continued)

On September 5, 2019, the Federal District Court in Massachusetts entered a stipulated judgment resolving the Company’s litigation relating to the proper tax consequences of two financing transactions with an international bank through which the Company borrowed $1.2 billion that was previously disclosed within its Form 10-K for 2018. That stipulated judgment resolved the Company’s tax liability for the 2003 through 2005 tax years with no material effect on net income. The Company has agreed with the IRS to resolve the treatment of the same financing transactions for the 2006 and 2007 tax years on terms consistent with the September 5, 2019, stipulated judgment. The Congressional Joint Committee on Taxation has completed its review of the proposed resolution of the 2006 and 2007 tax years with no objection. The Company and the IRS are now finalizing that resolution, which will have no impact on net income.

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 2006.

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

The Company had a net deferred tax liability balance of $69.2 million at September 30, 2020, compared to a net deferred tax liability balance of $1.0 billion at December 31, 2019 (consisting of a deferred tax asset balance of $503.7 million and a deferred tax liability balance of $1.5 billion). During the quarter, the Company’s ownership of SC reached the 80% threshold which requires SC to file a consolidated federal tax return with the Company. Due to the filing of the consolidated federal tax return, SC and SHUSA's deferred tax assets and liabilities are now offset and reported on a net basis. SHUSA also reversed its deferred tax liability of $306.6 million for the book over tax basis difference in its investment in SC as SHUSA now has the ability and expects to recover its investment in SC in a tax free manner. The $948.2 million decrease in net deferred liability for the nine-month period ended September 30, 2020 was primarily due to the adoption of the CECL standard during the first quarter of 2020 and the reversal of the deferred tax liability for the book over tax basis difference associated with the Company’s investment in SC during the third quarter of 2020.

NOTE 15. COMMITMENTS, CONTINGENCIES, AND GUARANTEES

Off-Balance Sheet Risk - Financial Instruments

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

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

NOTE 15. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

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


Other Commitments	September 30, 2020		December 31, 2019
	(in thousands)
Commitments to extend credit	$	32,140,936	$	30,685,478
Letters of credit	1,626,932		1,592,726
Commitments to sell loans	44,193		21,341
Unsecured revolving lines of credit	—		24,922
Recourse exposure on sold loans	26,957		53,667
Total commitments	$	33,839,018	$	32,378,134

Commitments to Extend Credit

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

Included within the reported balances for Commitments to extend credit at September 30, 2020 and December 31, 2019 are $6.0 billion and $5.7 billion, respectively, of commitments that can be canceled by the Company without notice.

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

Letters of Credit

The Company’s letters of credit meet the definition of a guarantee. Letters of credit commit the Company to make payments on behalf of its customers if specified future events occur. The guarantees are primarily issued to support public and private borrowing arrangements. The weighted average term of these commitments at September 30, 2020 was 14 months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. In the event of a requested draw by the beneficiary that complies with the terms of the letter of credit, the Company would be required to honor the commitment. The Company has various forms of collateral for these letters of credit, including real estate assets and other customer business assets. The maximum undiscounted exposure related to these commitments at September 30, 2020 was $1.6 billion. The fees related to letters of credit are deferred and amortized over the life of the respective commitments, and were immaterial to the Company’s financial statements at September 30, 2020. Management believes that the utilization rate of these letters of credit will continue to be substantially less than the amount of the commitments, as has been the Company’s experience to date. The credit risk associated with letters of credit is monitored using the same risk rating system utilized within the loan and financing lease portfolio. As of September 30, 2020 and December 31, 2019, the liability related to unfunded lending commitments of $148.0 million and $89.6 million, respectively.

Unsecured Revolving Lines of Credit

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

Loans Sold with Recourse

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

NOTE 15. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Commitments to Sell Loans

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

SC Commitments

The following table summarizes liabilities recorded for commitments and contingencies as of September 30, 2020 and December 31, 2019, all of which are included in Accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets:


Agreement or Legal Matter	Commitment or Contingency	September 30, 2020		December 31, 2019
		(in thousands)
Chrysler Agreement	Revenue-sharing and gain/(loss), net-sharing payments	$	50,809	$	12,132
Agreement with Bank of America	Servicer performance fee	1,508		2,503
Agreement with CBP	Loss-sharing payments	392		1,429
Other contingencies	Consumer arrangements	25,099		1,991

Following is a description of the agreements and legal matters pursuant to which the liabilities in the preceding table were recorded.

Chrysler Agreement

Under the terms of the Chrysler Agreement, SC must make revenue sharing payments to FCA and also must share with FCA when residual gains/(losses) on leased vehicles exceed a specified threshold. The agreement also requires that SC maintain at least $5.0 billion in funding available for floor plan loans and $4.5 billion of financing dedicated to FCA retail financing. In turn, FCA must provide designated minimum threshold percentages of its subvention business to SC.

Agreement with Bank of America

Until January 2017, SC had a flow agreement with Bank of America whereby SC was committed to sell up to $300.0 million of eligible loans to the bank each month. SC retains servicing on all sold loans and may receive or pay a servicer performance payment based on an agreed-upon formula if performance on the sold loans is better or worse, respectively, than expected performance at the time of sale. Servicer performance payments are due six years from the cut-off date of each loan sale.

Agreement with CBP

Until May 2017, SC sold loans to CBP under terms of a flow agreement and predecessor sale agreements. SC retained servicing on the sold loans and owes CBP a loss-sharing payment capped at 0.5% of the original pool balance if losses exceed a specified threshold, established on a pool-by-pool basis. Loss-sharing payments are due the month in which net losses exceed the established threshold of each loan sale.

NOTE 15. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Agreements

Bluestem

SC is party to agreements with Bluestem whereby SC is committed to purchase certain new advances on personal revolving financings receivables, along with existing balances on accounts with new advances, originated by Bluestem for an initial term ending in April 2020 and renewing through April 2022 at Bluestem's option. As of September 30, 2020 and December 31, 2019, the total unused credit available to customers was $2.8 billion and $3.0 billion, respectively. In 2020, SC purchased $0.8 billion of receivables out of the $3.0 billion unused credit available to customers as of December 31, 2019. In 2019, SC purchased $1.2 billion of receivables out of the $3.1 billion unused credit available to customers as of December 31, 2018. In addition, SC purchased $151.2 million and $137.8 million of receivables related to newly-opened customer accounts during the nine-month periods ended September 30, 2020 and 2019, respectively.

Each customer account generated under the agreements generally is approved with a credit limit higher than the amount of the initial purchase, with each subsequent purchase automatically approved as long as it does not cause the account to exceed its limit and the customer is in good standing. As of September 30, 2020 and December 31, 2019, SC was obligated to purchase $13.3 million and $10.6 million, respectively, in receivables that had been originated by Bluestem but not yet purchased by SC. SC also is required to make a profit-sharing payment to Bluestem each month if performance exceeds a specified return threshold. The agreement, among other provisions, gives Bluestem the right to repurchase up to 9.99% of the existing portfolio at any time during the term of the agreement and, provides that, if the repurchase right is exercised, Bluestem has the right to retain up to 20.00% of new accounts subsequently originated.

On March 9, 2020, Bluestem and certain of its subsidiaries and affiliates filed Chapter 11 bankruptcy in the United States District Court for the District of Delaware. On August 28, 2020, BLST Operating Company LLC. purchased the Bluestem assets from bankruptcy and assumed Bluestem's obligations under the parties' agreement.

Others

Under terms of an application transfer agreement with Nissan, SC has the first opportunity to review for its own portfolio any credit applications turned down by Nissan’s captive finance company. The agreement does not require SC to originate any loans, but for each loan originated SC will pay Nissan a referral fee.

In connection with the sale of RICs through securitizations and other sales, SC has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require SC to repurchase loans previously sold to on- or off-balance sheet Trusts or other third parties. As of September 30, 2020, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for SC's ABS or other sales. In the opinion of management, the potential exposure of other recourse obligations related to SC’s RICs sale agreements is not expected to have a material adverse effect on the Company's or SC’s business, consolidated financial position, results of operations, or cash flows.

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

In November 2015, SC executed a forward flow asset sale agreement with a third party under the terms of which SC is committed to sell $350.0 million in charged-off loan receivables in bankruptcy status on a quarterly basis. However, any sale of more than $275.0 million is subject to a market price check. The remaining aggregate commitment as of September 30, 2020 and December 31, 2019 not subject to a market price check was $27.7 million and $39.8 million, respectively.

Other Off-Balance Sheet Risk

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

NOTE 15. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Legal and Regulatory Proceedings

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

In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal and regulatory proceedings when those matters present material loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a legal or regulatory proceeding develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether the matter presents a material loss contingency that is probable and estimable. If a determination is made during a given quarter that a material loss contingency is probable and estimable, an accrued liability is established during such quarter with respect to such loss contingency, and the Company continues to monitor the matter for further developments that could affect the amount of the accrued liability previously established.

As of September 30, 2020 and December 31, 2019, the Company accrued aggregate legal and regulatory liabilities of approximately $161 million and $295 million, respectively. Further, the Company estimates the aggregate range of reasonably possible losses for legal and regulatory proceedings, in excess of reserves established, of up to approximately $147 million as of September 30, 2020. Set forth below are descriptions of the material lawsuits, regulatory matters and other legal proceedings to which the Company is subject.

SHUSA Matters

On March 21, 2017, SC and SHUSA entered into a written agreement with the FRB of Boston. Under the terms of that agreement, SC is required to enhance its compliance risk management program, board oversight of risk management and senior management oversight of risk management, and SHUSA is required to enhance its oversight of SC's management and operations.

Mortgage Escrow Interest Putative Class Action

The Bank is a defendant in a putative class action lawsuit (the “Tepper Lawsuit”) in the United States District Court, Southern District of New York, captioned Daniel and Rebecca Ruf-Tepper v. Santander Bank, N.A., No. 20-cv-00501. The Tepper Lawsuit, filed in January 2020, alleges that the Bank is obligated to pay interest on mortgage escrow accounts pursuant to state law. Plaintiffs filed an amended complaint and the Bank has filed a motion to dismiss.

Congressional Inquiry into PPP

After June 15, 2020, SBNA and seven other financial institutions received a request from the Congressional Select Subcommittee on the Coronavirus Crisis to provide information and documents related to PPP implementation. SBNA produced documents in response to this request and continues to cooperate with the subcommittee. On October 16, 2020, the Subcommittee issued its staff report on the investigation entitled “Undeserved and Unprotected: How the Trump Administration Neglected the Neediest Small Businesses in the PPP.”

NOTE 15. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

SC Matters

Securities Class Action and Shareholder Derivative Lawsuits

Deka Lawsuit: SC is a defendant in a purported securities class action lawsuit (the "Deka Lawsuit") in the United States District Court, Northern District of Texas, captioned Deka Investment GmbH et al. v. Santander Consumer USA Holdings Inc. et al., No. 3:15-cv-2129-K. The Deka Lawsuit, which was filed in August 2014, was brought against SC, certain of its current and former directors and executive officers and certain institutions that served as underwriters in SC's IPO, including SIS, on behalf of a class consisting of those who purchased or otherwise acquired SC securities between January 23, 2014 and June 12, 2014. The complaint alleges, among other things, that the IPO registration statement and prospectus and certain subsequent public disclosures violated federal securities laws by containing misleading statements concerning SC’s ability to pay dividends and the adequacy of SC’s compliance systems and oversight. In December 2015, SC and the individual defendants moved to dismiss the lawsuit, which was denied. In December 2016, the plaintiffs moved to certify the proposed classes. In July 2017, the court entered an order staying the Deka Lawsuit pending the resolution of the appeal of a class certification order in In re Cobalt Int’l Energy, Inc. Sec. Litig., No. H-14-3428, 2017 U.S. Dist. LEXIS 91938 (S.D. Tex. June 15, 2017). In October 2018, the court vacated the order staying the Deka Lawsuit and ordered that merits discovery in the Deka Lawsuit be stayed until the court ruled on the issue of class certification. On July 28, 2020, the Company entered into a Stipulation of Settlement with the plaintiffs in the Deka Lawsuit that fully resolves all of the plaintiffs' claims, for a cash payment of $47 million. On August 13, 2020, the Court entered an order preliminarily approving the settlement and providing for notice, setting the final settlement hearing for January 12, 2021.

In Re Santander Consumer USA Holdings, Inc. Derivative Litigation: In October 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-VCG (the "Feldman Lawsuit"). The Feldman Lawsuit names as defendants certain 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 nonprime auto lending practices, resulting in harm to SC. The complaint seeks unspecified damages and equitable relief. In December 2015, the Feldman Lawsuit was stayed pending the resolution of the Deka Lawsuit. In September 2016, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware captioned Jackie888, Inc. v. Jason Kulas, et al., C.A. No. 12775-VCG (the "Jackie888 Lawsuit"). The Jackie888 Lawsuit names as defendants current and former members of SC’s Board of Directors, and names SC as a nominal defendant. The complaint alleges, among other things, that the director defendants breached their fiduciary duties in connection with SC’s accounting practices and controls. The complaint seeks unspecified damages and equitable relief. In April 2017, the Jackie888 Lawsuit was stayed pending the resolution of the Deka Lawsuit. In March 2018, the Feldman Lawsuit and Jackie888 Lawsuit were consolidated under the caption In Re Santander Consumer USA Holdings, Inc. Derivative Litigation, Consol. C.A. No. 11614-VCG. In January 2020, the Company executed a Stipulation and Agreement of Settlement, Compromise and Release with the plaintiffs in the consolidated action that, subject to court approval, fully resolves all of the plaintiffs’ claims in the Feldman Lawsuit and the Jackie888 Lawsuit. The Stipulation provides for the settlement of the consolidated action and, in return the Company has enacted or will enact and implement certain corporate governance reforms and enhancements. The settlement hearing at which the Court would consider the settlement was scheduled for May 27, 2020, but a shareholder filed its notice of intent to object to the settlement and the parties agreed to postpone the settlement hearing to a later date.

Consumer Lending Cases

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

Regulatory Investigations and Proceedings

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

NOTE 15. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Currently, such matters include, but are not limited to, the following:

•SC received a civil subpoena from the DOJ in 2014 under the Financial Institutions Reform, Recovery and Enforcement Act requesting the production of documents and communications that, among other things, relate to the underwriting and securitization of nonprime vehicle loans. SC has responded to these requests within the deadlines specified in the subpoenas and has otherwise cooperated with the DOJ with respect to this matter.

•In October 2014, May 2015, July 2015 and February 2017, SC received subpoenas and/or CIDs from the Attorneys General of California, Illinois, Oregon, New Jersey, Maryland and Washington under the authority of each state's consumer protection statutes. On May 19, 2020, all of the Consortium members and SC announced a settlement of the investigation requiring SC to: (1) pay a total of $65 million to the states for consumer remediation; (2) pay $5 million to the states for investigation costs; (3) pay up to $2 million in settlement administration costs; (4) provide $45 million in prospective debt forgiveness; (5) provide deficiency waivers for a defined class of SC customers; and (6) implement certain enhancements to its loan underwriting process.

•In August 2017, SC received CIDs from the CFPB. The stated purpose of the CIDs are to determine whether SC has complied with the Fair Credit Reporting Act and related regulations. SC has responded to these requests within the applicable deadlines and has otherwise cooperated with the CFPB with respect to this matter. In February 2020, the Company received a communication from the CFPB inviting the Company to respond to the CFPB’s identified issues in the form of a Notice of Opportunity to Respond and Advise, in which the CFPB identified potential claims it might bring against SC. SC responded to the CFPB and continues to cooperate in connection with the investigation.

Mississippi Attorney General Lawsuit

In January 2017, Mississippi AG filed a lawsuit against SC in the Chancery Court of the First Judicial District of Hinds County, State of Mississippi, captioned State of Mississippi ex rel. Jim Hood, Attorney General of the State of Mississippi v. Santander Consumer USA Inc., C.A. # G-2017-28. The complaint alleges that SC engaged in unfair and deceptive business practices to induce Mississippi consumers to apply for loans that they could not afford. The complaint asserts claims under the Mississippi Consumer Protection Act and seeks unspecified civil penalties, equitable relief and other relief. In March 2017, SC filed motions to dismiss the lawsuit and the parties are proceeding with discovery.

IHC Matters

Periodically, SSLLC is party to pending and threatened legal actions and proceedings, including FINRA arbitration actions and class action claims.

Puerto Rico FINRA Arbitrations

As of September 30, 2020, SSLLC had received 766 FINRA arbitration cases related to Puerto Rico bonds and Puerto Rico CEFs, generally, that SSLLC previously recommended and/or sold to clients. Most of these cases are based upon concerns regarding the local Puerto Rico securities market. The statements of claims allege, among other things, fraud, negligence, breach of fiduciary duty, breach of contract, unsuitability, over-concentration and failure to supervise. There were 267 arbitration cases pending as of September 30, 2020. The Company has experienced a decrease in the volume of claims since September 30, 2019; however, it is reasonably possible that it could experience an increase in claims in future periods.

NOTE 15. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Puerto Rico Putative Class Action: SSLLC, SBC, BSPR, the Company and Santander are defendants in a putative class action alleging federal securities and common law claims relating to the solicitation and purchase of more than $180.0 million of Puerto Rico bonds and $101.0 million of CEFs during the period from December 2012 to October 2013. The case is pending in the United States District Court for the District of Puerto Rico and is captioned Jorge Ponsa-Rabell, et. al. v. SSLLC, Civ. No. 3:17-cv-02243. The amended complaint alleges that defendants acted in concert to defraud purchasers in connection with the underwriting and sale of Puerto Rico municipal bonds, CEFs and open-end funds. In May 2019, the defendants filed a motion to dismiss the amended complaint. On July 22, 2020, the District Court dismissed the complaint. Plaintiffs have appealed to the United States Court of Appeals for the First Circuit.

Puerto Rico Municipal Bond Insurer Litigation: On August 8, 2019, bond insurers National Public Finance Guarantee Corporation and MBIA Insurance Corporation filed suit in Puerto Rico state court against eight Puerto Rico municipal bond underwriters, including SSLLC, alleging that the underwriters made misrepresentations in connection with the issuance of the debt and that the bond insurers relied on such misrepresentations in agreeing to insure certain of the bonds. The complaint alleges damages of not less than $720.0 million. The defendants removed the case to federal court, and plaintiffs have sought to return the case to state court. On September 16, 2020, the defendants moved to dismiss the complaint.

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

NOTE 16. RELATED PARTY TRANSACTIONS

The Company has various debt agreements with Santander. For a listing of these debt agreements, see Note 11 to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2019. 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.

During the nine-month period ended September 30, 2019, the Company received $88.9 million of capital contributions from Santander. During the nine-month period ended September 30, 2020, the Company did not receive any capital contributions from Santander.

On March 29, 2017, SC entered into an MSPA with Santander, under which it has the option to sell a contractually determined amount of eligible prime loans to Santander through the SPAIN trust securitization platform, for a term that ended in December 2018. SC provided servicing on all loans originated under this arrangement. Servicing fee income of $4.5 million and $15.7 million were recognized in the Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2020, respectively, and $4.7 million and $20.9 million for the three-month and nine-month periods ended September 30, 2019, respectively. SC had $6.9 million and $8.2 million of collections due to Santander as of September 30, 2020 and December 31, 2019, respectively.

Beginning in 2018, SC agreed to provide SBNA with origination support services in connection with the processing, underwriting, and purchase of RICs, primarily from Chrysler dealers. In addition, SC agreed to perform the servicing for any RICs originated on SBNA's behalf. For the three-month and nine-month periods ended September 30, 2020, SC facilitated the purchase of $1.1 billion and $3.9 billion, respectively, of RICs. For the three-month and nine-month periods ended September 30, 2019, SC facilitated the purchase of $2.1 billion and $5.0 billion, respectively, of RICs. SC recognizes referral fee income and servicing fee income related to this agreement that eliminates in the consolidation of SHUSA.

BSI enters into transactions with affiliates in the ordinary course of business. As of September 30, 2020, BSI held interest-bearing deposits with an unconsolidated affiliate of $1.0 billion.

NOTE 17. BUSINESS SEGMENT INFORMATION

Business Segment Products and Services

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

NOTE 17. BUSINESS SEGMENT INFORMATION (continued)

•The CBB segment includes the products and services provided to Bank consumer and business banking customers, including consumer deposit, business banking, residential mortgage, unsecured lending and investment services. This segment offers a wide range of products and services to consumers and business banking customers, including demand and interest-bearing demand deposit accounts, money market and savings accounts, CDs and retirement savings products. It also offers lending products such as credit cards, mortgages, home equity lines of credit, and business loans such as business lines of credit and commercial cards. The Bank also finances indirect consumer automobile RICs through an intercompany agreement with SC. In addition, the Bank provides investment services to its retail customers, including annuities, mutual funds, and insurance products. Santander Universities, which provides grants and scholarships to universities and colleges as a way to foster education through research, innovation and entrepreneurship, is the last component of this segment.

•The C&I segment currently provides commercial lines, loans, letters of credit, receivables financing and deposits to medium- and large-sized commercial customers, as well as financing and deposits for government entities. This segment also provides niche product financing for specific industries.

•The CRE & VF segment offers CRE loans and multifamily loans to customers. This segment also offers commercial loans to dealers and financing for commercial equipment and vehicles. This category also includes the Bank’s community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.

•The CIB segment serves the needs of global commercial and institutional customers by leveraging the international footprint of Santander to provide financing and banking services to corporations with over $500 million in annual revenues. CIB also includes SIS, a registered broker-dealer located in New York that provides services in investment banking, institutional sales, and trading and offering research reports of Latin American and European equity and fixed-income securities. CIB's offerings and strategy are based on Santander's local and global capabilities in wholesale banking.

•SC is a specialized consumer finance company focused on vehicle finance and third-party servicing. SC’s primary business is the indirect origination of RICs, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. In conjunction with the Chrysler agreement, SC offers a full spectrum of auto financing products and services to FCA customers and dealers under the Chrysler Capital brand. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. SC also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders. During 2015, SC announced its intention to exit the personal lending business. SC has entered into a number of intercompany agreements with the Bank as described above as part of the Other segment. All intercompany revenue and fees between the Bank and SC are eliminated in the consolidated results of the Company.

SBNA also offers customer-related derivatives to hedge interest rate risk, and for C&I and CIB offers derivatives relating to foreign exchange and lending arrangements. See Note 11 to the Condensed Consolidated Financial Statements for additional details.

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

The Company’s segment results, excluding SC and the entities that have been transferred to the IHC, are derived from the Company’s business unit profitability reporting system by specifically attributing managed balance sheet assets, deposits and other liabilities and their related interest income or expense to each of the segments. Funds transfer pricing 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.

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

NOTE 17. BUSINESS SEGMENT INFORMATION (continued)

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.

In July 2020, the Company announced organizational changes to Business Banking to meet the evolving needs of its business customers including the re-alignment of Upper Business Banking into the C&I segment from the CBB segment effective for internal reporting on October 31, 2020. The CODM internal reporting package will be updated for this change in the fourth quarter of 2020 after changes to the CODM internal reporting are finalized.

The CODM manages SC on a historical basis by reviewing the results of SC on a pre-Change in Control basis. The Results of Segments table below discloses SC's operating information on the same basis that it is reviewed by the CODM. The adjustments column includes adjustments to reconcile SC's GAAP results to SHUSA's consolidated results.

Results of Segments

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


For the Three-Month Period Ended	SHUSA Reportable Segments
September 30, 2020	CBB		C&I		CRE & VF		CIB		Other(2)		SC(3)		SC Purchase Price Adjustments(4)		Eliminations(4)		Total
	(in thousands)
Net interest income	$	374,014	$	61,115	$	93,451	$	44,035	$	(17,518)	$	1,061,986	$	(165)	$	4,474	$	1,621,392
Non-interest income	73,721		13,605		4,671		71,956		186,836		830,126		3,035		(9,096)		1,174,854
Provision for/(release of) credit losses	50,109		22,400		11,963		(15,384)		(4,038)		340,548		227		—		405,825
Total expenses	402,962		47,791		30,569		63,343		131,571		888,973		9,804		(5,785)		1,569,228
Income/(loss) before income taxes	(5,336)		4,529		55,590		68,032		41,785		662,591		(7,161)		1,163		821,193
Intersegment revenue/(expense)(1)	273		2,847		1,232		(4,352)		—		—		—		—		—


For the Nine-Month Period Ended	SHUSA Reportable Segments
September 30, 2020	CBB		C&I		CRE & VF		CIB(5)		Other(2)		SC(3)		SC Purchase Price Adjustments(4)		Eliminations(4)		Total
	(in thousands)
Net interest income	$	1,082,275	$	188,970	$	281,332	$	123,411	$	1,591	$	3,058,137	$	(588)	$	11,032	$	4,746,160
Non-interest income	228,646		39,556		8,561		212,506		253,541		2,271,200		8,056		(33,735)		2,988,331
Credit loss expense	402,293		93,578		78,800		18,071		(134,923)		2,110,330		659		—		2,568,808
Total expenses	2,743,783		434,828		86,857		188,266		425,152		2,692,396		29,397		(17,958)		6,582,721
Income/(loss) before income taxes	(1,835,155)		(299,880)		124,236		129,580		(35,097)		526,611		(22,588)		(4,745)		(1,417,038)
Intersegment revenue/(expense)(1)	1,234		7,790		3,985		(13,009)		—		—		—		—		—
Total assets	23,612,515		6,475,164		20,296,999		11,532,762		35,373,234		48,448,921		—		—		145,739,595

(1)Intersegment revenue/(expense) represents charges or credits for funds used or provided by each of the segments and is included in net interest income.

(2)Other includes the results of the entities transferred to the IHC, with the exception of SIS, earnings from non-strategic assets, the investment portfolio, interest expense on the Bank’s and the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.

(3)Management of SHUSA manages SC by analyzing the pre-Change in Control results of SC, which are presented in this column.

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

(5)Includes results and assets of SIS.

NOTE 17. BUSINESS SEGMENT INFORMATION (continued)


For the Three-Month Period Ended	SHUSA Reportable Segments
September 30, 2019	CBB		C&I		CRE & VF		CIB		Other(2)		SC(3)		SC Purchase Price Adjustments(4)		Eliminations(4)		Total
	(in thousands)
Net interest income	$	381,759	$	59,738	$	104,076	$	36,577	$	8,586	$	1,002,661	$	10,189	$	15,524	$	1,619,110
Non-interest income	120,264		17,631		3,428		53,341		102,489		734,149		1,162		(31,332)		1,001,132
Provision for/(release of) credit losses	37,915		4,985		6,425		(3,878)		(7,874)		566,849		(787)		—		603,635
Total expenses	414,836		59,242		32,718		66,092		203,816		855,267		9,934		(8,661)		1,633,244
Income/(loss) before income taxes	49,272		13,142		68,361		27,704		(84,867)		314,694		2,204		(7,147)		383,363
Intersegment revenue/(expense)(1)	600		1,683		1,605		(3,888)		—		—		—		—		—


For the Nine-Month Period Ended	SHUSA Reportable Segments
September 30, 2019	CBB		C&I		CRE & VF		CIB(5)		Other(2)		SC(3)		SC Purchase Price Adjustments(4)		Eliminations(4)		Total
	(in thousands)
Net interest income	$	1,120,907	$	170,525	$	311,790	$	114,646	$	80,489	$	2,978,709	$	27,315	$	39,337	$	4,843,718
Non-interest income	281,464		50,641		9,860		159,970		309,123		2,123,441		5,476		(80,411)		2,859,564
Credit loss expense / (Recovery of) credit loss expense	115,130		20,570		9,824		(6,624)		520		1,548,404		(3,346)		—		1,684,478
Total expenses	1,208,908		173,426		95,385		198,653		610,116		2,421,754		30,324		(20,521)		4,718,045
Income/(loss) before income taxes	78,333		27,170		216,441		82,587		(221,024)		1,131,992		5,813		(20,553)		1,300,759
Intersegment revenue/(expense)(1)	1,576		3,986		5,396		(10,958)		—		—		—		—		—
Total assets	23,447,787		7,948,200		18,772,209		9,605,098		40,133,105		47,279,015		—		—		147,185,414

(1)- (5) Refer to corresponding notes above.

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

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE SUMMARY

SHUSA is the parent holding company of SBNA, a national banking association, and owns approximately 80.2% (as of September 30, 2020) of SC, a specialized consumer finance company. SHUSA is headquartered in Boston, Massachusetts and the Bank's main office is in Wilmington, Delaware. SC is headquartered in Dallas, Texas. SHUSA is a wholly-owned subsidiary of Santander. SHUSA is also the parent company of SSLLC, a registered broker-dealer headquartered in Boston; BSI, a financial services company headquartered in Miami that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; SIS, a registered broker-dealer headquartered in New York providing services in investment banking, institutional sales, trading and offering research reports of Latin American and European equity and fixed-income securities; and several other subsidiaries. SSLLC, SIS and another SHUSA subsidiary, SAM, are registered investment advisers with the SEC.

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 BOLI. The principal non-interest expenses include employee compensation and benefits, occupancy and facility-related costs, technology and other administrative expenses. The financial results of the Bank are affected by the economic environment, including interest rates and consumer and business confidence and spending, as well as the competitive conditions within the Bank's geographic footprint.

SC is a specialized consumer finance company focused on vehicle finance and third-party servicing. SC's primary business is the indirect origination and securitization of RICs, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to subprime retail consumers. Further information about SC’s business is provided below in the “Chrysler Capital” section.

SC is managed through a single reporting segment which included vehicle financial products and services, including RICs, vehicle leases, and dealer loans, as well as financial products and services related to recreational and marine vehicles and other consumer finance products.

SC also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile and recreational and marine vehicle portfolios for other lenders. Additionally, SC has other relationships through which it holds other consumer finance products. However, in 2015, SC announced its exit from personal lending and, accordingly, all of its personal lending assets are classified as LHFS at December 31, 2019.

Since its IPO, SC has been consolidated with the Company and Santander for financial reporting and accounting purposes. Now that the Company directly owns more than 80% or more of SC Common Stock, SC is consolidated with the Company for tax filing and capital planning purposes. Among other things, tax consolidation (1) facilitates certain offsets of SC’s taxable income, (2) eliminates the double taxation of dividends from SC, and (3) triggered a release into SHUSA’s income of an approximately $306.6 million deferred tax liability recognized with respect to the GAAP basis vs. the income tax basis in the Company's ownership of SC. Tax consolidation also allows for SC's net deferred tax liability to offset the Company's net deferred tax asset, which provides a regulatory capital benefit. In addition, SHUSA and Santander recognizes a larger percentage of SC's net income. On August 10 2020, SC substantively exhausted the amount of shares the Company was permitted to repurchase under the exception SHUSA was granted to the Interim Policy, and as a result of these repurchases, SHUSA now owns approximately 80.2% of SC. SC Common Stock is listed for trading on the NYSE under the trading symbol "SC"

Chrysler Capital

Since May 2013, under the Chrysler Agreement, SC has operated as FCA’s preferred provider for consumer loans, leases and dealer loans and provides services to FCA customers and dealers under the Chrysler Capital brand. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit.

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

Chrysler Capital continues to be a focal point of SC's strategy. On June 28, 2019, SC entered into an amendment to the Chrysler Agreement with FCA which modified the Chrysler Agreement to, among other things, adjust certain performance metrics, exclusivity commitments and payment provisions under the agreement. The amendment also established an operating framework that is mutually beneficial for both parties for the remainder of the contract. The Company's average penetration rate under the Chrysler Agreement for the third quarter of 2020 was 33%, a decrease from 36% for the same period in 2019.

SC has dedicated financing facilities in place for its Chrysler Capital business and has worked strategically and collaboratively with FCA to continue to strengthen its relationship and create value within the Chrysler Capital program. During the nine-month period ended September 30, 2020, SC originated $11.1 billion in Chrysler Capital loans, which represented 61% of the UPB of its total RIC originations, as well as $4.9 billion in Chrysler Capital leases. Additionally, substantially all of the leases originated by SC during nine-month period ended September 30, 2020 were under the Chrysler Agreement.

ECONOMIC AND BUSINESS ENVIRONMENT

Overview

During the third quarter of 2020, unemployment decreased and year-to-date market results were mixed, reflecting the effects of COVID-19.

The unemployment rate at September 30, 2020 was 7.9%, compared to 11.1% at June 30, 2020, and 3.5% one year ago. According to the U.S. Bureau of Labor Statistics, employment rose sharply in the leisure and hospitality sector. In addition, notable increases were seen in retail trade, social assistance and health services, and professional and business services.

Market year-to-date returns for the following indices based on closing prices at September 30, 2020 were:


						September 30, 2020
Dow Jones Industrial Average						(2.4)%
S&P 500						4.4%
NASDAQ Composite						24.8%

In light of the effects COVID-19 will have on economic activity, at its September 2020 meeting, the Federal Open Market Committee decided to maintain the federal funds rate target range to 0.00% to 0.25%. The Committee expects to maintain this target rate until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability. This action will help support economic activity, strong labor market conditions and inflation to remain at the targeted rate of 2.0%.

The ten-year Treasury bond rate at September 30, 2020 was 0.68%, down from 1.90% at December 31, 2019. Within the industry, changes in this metric are often considered to correspond to changes in 15-year and 30-year mortgage rates.

Changing market conditions are considered a significant risk factor to the Company. The interest rate environment can present challenges in the growth of net interest income for the banking industry, which continues to rely on non-interest activities to support revenue growth. Changing market conditions and political 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 credit loss expense and legal expense.

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

Credit Rating Actions

The following table presents Moody’s, S&P and Fitch credit ratings for the Bank, SHUSA, and Santander senior debt / long-term issuer rating:

SANTANDER (1)

SHUSA

SBNA

Overall Outlook

Fitch

BBB+

Negative

Moody's

Baa3

Baa1

Stable

S&P

BBB+

A-

Negative

(1) Senior preferred rating

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, however, could impact SHUSA's or its subsidiaries' credit ratings, and any other change in the condition of Santander could affect SHUSA.

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

Impacts of COVID- 19 on our current and future financial and operating status and planning

The current outbreak of COVID-19 has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.

Due to the unpredictable and rapidly changing nature of this outbreak and the resulting economic distress, it is not possible to determine with certainty the ultimate impact on our results of operations or whether other currently unanticipated consequences of the pandemic are reasonably likely to materially affect our results of operations; however, certain adverse effects have already occurred or are probable. The following summarizes our current discussion of the impacts of COVID-19 on the Company's current financial and operating status, as well as on its future operational and financial planning as of the date hereof:

•Impact on workforce: The health and well-being of our colleagues and customers are a top priority for the Company. The Company has implemented business continuity plans and has followed guidelines issued by government authorities regarding social distancing and work-from-home arrangements. Currently, approximately 90-95% of the workforce continues to work from home. In addition, the Company has established a Temporary Emergency Paid Leave Program that provides employees with up to 120 hours of additional paid time off to use – either continuously or intermittently, and before exhausting other paid time off – to assist with dependent care needs related to COVID-19. Further, the Company provided $250 a week in pay premiums for frontline customer support workers to help defray additional costs incurred while working during the pandemic.

While our business continuity plans are in place, if significant portions of our workforce, our subsidiaries' workforces, or our vendors' workforces are unable to work effectively as a result of the COVID-19 outbreak, including because of illness, stay-at-home orders, facility closures, reductions in services or hours of operation, or ineffective remote work arrangements, there may be disruptions to our origination and servicing operations, which could result in reduced originations and/or collection effectiveness or impair our or our subsidiaries' ability to operate our businesses and satisfy obligations under third-party servicing agreements. Each of these scenarios could have materially adverse effects on our business, financial condition, and results of operations.

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

•Impact on services: The COVID-19 outbreak as well as state stay-at-home orders resulted in the closure of certain branches in highly affected areas within the Bank's footprint. To comply with social distancing guidelines and help minimize the spread of the coronavirus, the Bank instituted temporary changes to how it operates, including closure of certain branches and limitations on services provided to others. Certain limited service locations were only performing teller transactions- such as depositing and cashing checks and handling requests for cash withdrawals, money orders and cashier's checks - in the lobby or at the drive-through. In addition, some branches were only providing account opening and servicing with a banker by appointment only. Full and limited-service branches are limiting the number of people allowed in our locations at one time. Branch hours have been changed temporarily, with certain branches providing special hours for high-risk customers. As the quarter wore on and states changed their guidance, the Bank has resumed normal branch operations for over 90% of its current branches while maintaining applicable social distancing guidelines. Retail customers are encouraged to take advantage of mobile and online banking enabling customers to bank anytime, anywhere, for services including: checking account balances, remote check deposit, transfers, bill pay, and more. Retail customers can also utilize automated services via phone to make balance and transaction inquiries, payments on loans, transfers between accounts, stop payments, and more. Our call center remains staffed and open seven days a week to better serve our customers. Business customers can continue to utilize the business mobile banking application and business online banking to minimize the need to go to branches or exchange cash. We have developed the "Business First Coronavirus Resource Page" for our business customers during this time.

•Impact on customers and loan and lease performance: The COVID-19 outbreak and associated economic crisis have led to negative effects on our customers. Unlike the regional impact of natural disasters, such as hurricanes, the COVID-19 outbreak is impacting customers nationwide and is expected to have a materially more significant impact on the performance of our loan and lease portfolios than even the most severe historical natural disaster.

Closures and disruptions to businesses in the United States have led to negative effects on our customers. Similar to many other financial institutions, we have taken and will continue to take measures to mitigate our customers’ COVID-19-related economic challenges. The Company is actively working with its borrowers who have been impacted by COVID-19. This unique and evolving situation has created temporary personal and financial challenges for our retail and commercial borrowers. The Company is working prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19 and has developed loan modification and deferral programs to mitigate the adverse effects of COVID-19 to our loan customers. We have experienced a sharp increase in requests for extensions and modifications related to COVID-19 nationwide and a significant number of such extensions and modifications have been granted. The Bank also permitted fee reversals for those customers impacted by COVID-19, even if the amount exceed the allowable courtesy fee reversal. The Bank also joined other U.S. banks in providing overdrawn customers full access to their EIP by providing a temporary credit in the amount of their overdrawn balance as of the end of the day prior to receipt of the EIP, up to a limit of 5,000. To date, the Bank has provided over $3 million in temporary credits, helping nearly 10,000 customers. Beginning July 15, 2020, the Bank began removing these temporary credits from customers’ accounts.

These customer support programs, by their nature, are expected to negatively impact our financial performance and other results of operations in the near term. Our business, financial condition and results of operations may be materially and adversely affected in the longer term if the COVID-19 outbreak leads us to continue to provide such programs for a significant period of time, if the number of customers experiencing hardship related directly or indirectly to the outbreak of COVID-19 increases, or if our customer support programs are not effective in mitigating the effects of COVID-19 on our customers' financial situations. Given the unpredictable nature of this situation, the nature and extent of such effects cannot be predicted at this time.

In addition to the measures discussed above, the Bank is providing assistance for its retail customers, including helping those experiencing difficulties with loan payments, waiving fees for early CD withdrawals, refunding late payment and overdraft fees, offering credit card limit increases, and increasing cash availability limits at ATMs. The policy of a more relaxed approach to providing fee refunds in the wake of hardship caused by the COVID-19 pandemic remains, but beginning in August the Bank began to see fewer refund requests. As a result, fee reversals are approaching pre-pandemic levels. For business banking customers, the Bank is working with customers in offering interest-only loan accommodations, and deferrals and extensions up to 90 days for customers (and deferrals up to 180 days for SBA loan customers) experiencing hardships.

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

The PPP, a key part of the CARES Act, authorizes loans to small businesses to help meet payroll costs and pay other eligible expenses during the COVID-19 outbreak. The program is administered by the SBA, and the loans and accrued interest are forgivable as long as the borrower uses at least 60% of the proceeds of the loan for eligible purposes, such as payroll, benefits, rent and utilities, and maintains employee and payroll levels. The original funding for the PPP was fully allocated by mid-April 2020, with additional funding made available on April 24, 2020. Original loans were originated with a two-year maturity, unless extended by mutual agreement between the lender and borrower. Loans made on or after June 5, 2020 have a five-year maturity. In July 2020, the PPP was extended through August 8, 2020. The Bank originated loans in the first and second rounds of PPP. To date, SBNA has assisted more than 12,070 business customers in receiving PPP loans for more than $1.2 billion in funding. SBNA launched a pilot of the PPP loan forgiveness application on August 14, 2020. The PPP loan forgiveness application, process, and platform are in pilot, and are currently being enhanced to account for guidance released by the U.S. Treasury and the SBA on October 8, 2020 related to PPP loans under $50,000.

•Impact on originations, including the relationship with FCA: Since the COVID-19 outbreak, SC has partnered with FCA to launch new incentive programs including implementing 90 day first payment deferrals and a 0% annual percentage rate for 84 months on select 2019/2020 FCA models. Today, all dealers are open and operating at full capacity; however, many are operating with a different business model (e.g. appointments only, home delivery, etc.). Third party sources are reporting a new car seasonally adjusted annual rate that is approximately 95% of pre-COVID expectations. While an economic downturn associated with the pandemic will impact sales, most dealers have developed business models that will allow them to continue operation in some capacity.

While banking is considered an essential business in all of the Bank’s footprint states, executive orders have limited the scope of work of vendors supporting mortgage and home equity lines of credit such as appraisers, notaries, law firms, title companies and settlement agents or stopped these vendors from working altogether. As a result of these restrictions, the number of mortgages, home equity lines of credit and refinancings declined, for a period in certain states. While many of these restrictions have been lifted, it remains difficult to estimate the overall negative impact these limitations will have on mortgages, home equity lines of credits and refinancing as restrictions may be reinstated with rising COVID-19 numbers in the upcoming months.

•Impact on operations: Government and regulatory authorities could also implement laws, regulations, executive orders and other guidance that allow customers to forgo making scheduled payments for some period of time, require modifications to receivables (e.g., waiving accrued interest), preclude creditors from exercising certain rights or taking certain actions with respect to collateral, including repossession or liquidation of collateral, or mandate limited operations or temporary closures of the Company or our vendors as “non-essential businesses” or otherwise. While we have business continuity plans in place, if significant portions of our or our vendors’ workforces are unable to work effectively as a result of the COVID-19 pandemic, including because of illness, stay-at-home orders, facility closures reductions in services or hours of operation, or ineffective remote work arrangements, there may be servicing disruptions, which could result in reduced collection effectiveness or our ability to operate our business and satisfy our obligations under our third-party servicing agreements. Each of these scenarios could have negative effects on our business, financial condition and results of operations.

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

•Impact on debt and liquidity: As international trade and business activity has slowed and supply chains have been disrupted, global credit and financial markets have recently experienced, and may continue to experience significant disruption and volatility. During the first and second quarters of 2020 particularly, financial markets experienced significant declines and volatility, and such market conditions may continue and/or precede recessionary conditions in the U.S. economy. Under these circumstances, we may experience some or all of the risks related to market volatility and recessionary conditions described under the caption "We are vulnerable to disruptions and volatility in the global financial markets" in the Risk Factors section of our Form 10-K.

Governmental and regulatory authorities have recently implemented fiscal and monetary policies and initiatives to mitigate the effects of the pandemic on the economy and individual businesses and households, such as the reduction of the Federal Reserve's benchmark interest rate to near zero in March 2020. Further, the Federal Reserve's TALF is available, if necessary, to support investment in SC's eligible ABS bonds. However, the Company does not expect to need to utilize TALF, given recent tightening in ABS credit spreads. These governmental and regulatory actions may not be successful in mitigating the adverse economic effects of COVID-19 and could affect our net interest income and reduce our profitability. Sustained adverse economic effects from the outbreak may also result in downgrades in our credit ratings or adversely affect the interest rate environment. If our access to funding is reduced or if our costs to obtain such funding significantly increases, our business, financial condition and results of operations could be materially and adversely affected.

The Company's liquidity comes from several primary sources outlined in the "Liquidity and Capital Resources" section of this MD&A, including deposits, as well as public and financing activities. During the quarter, there were no unsecured debt issuances executed by SHUSA. During the third quarter, SBNA maintained ample liquidity driven by stable deposits whereby maturing FHLB advances and Brokered CDs were not renewed, resulting in lower outstanding balances for both products. As a result, there was minimal new wholesale funding activity at SBNA over the quarter, limited to a $56.5 million brokered CD issuance in August and $700 million of additional FHLB advances in September. In addition to significant amounts of liquidity from warehouse lines and affiliate lines of credit, SC successfully continued to access the ABS market in the quarter. During the quarter SC completed on-balance sheet funding transactions totaling approximately $6.5 billion, including: private amortizing lease facilities for approximately $1.2 billion; two securitizations on its SDART platform for approximately $3.3 billion; and a $2 billion unsecured debt issuance with Santander. However, due to the evolving nature of the COVID-19 outbreak, it is not possible to predict whether unanticipated consequences of the pandemic will materially affect our liquidity and capital resources in the future.

•Impact on dividends: Historically the Company made dividend payments to Santander, and received dividends from the Bank and other IHC entities. The amount and size of any future dividends, however, will be subject to various factors, including the Company's capital and liquidity positions, regulatory considerations, impacts related to the COVID-19 outbreak, any accounting standards that affect capital or liquidity (including CECL), financial and operational performance, alternative uses of capital, and general market conditions, and may be changed or suspended at any time.

•Impact on impairment of goodwill, indefinite-lived and long-lived assets: The Company has analyzed the impact of COVID-19 on its financial statements, including the potential for impairment. As a result of this analysis, the Company has recorded a goodwill impairment charge of $1.8 billion during the second quarter of 2020. The analysis did not indicate any impairment for the Company's loan and lease portfolios, leased vehicles, ROU assets, or other non-financial assets such as upfront fees or other intangibles.

•Impact on communities: The Company is committed to supporting our communities impacted by the COVID-19 pandemic and the Company's non-profit foundation has begun responding to the COVID-19 crisis with $200 thousand in donations to a select group of organizations addressing community issues.

In addition, SHUSA's ongoing support for non-profit partners providing essential services in our communities includes $15.0 million in charitable giving this year. Further SHUSA will provide $25.0 million in financing to community development financial institutions to fund small business loans and will expedite grant funding and payments where possible to help sustain nonprofit operations during this time.

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

REGULATORY MATTERS

The activities of the Company and its subsidiaries, including the Bank and SC, are subject to regulation under various U.S. federal laws and regulatory agencies which impose regulations, supervise and conduct examinations, and may affect the operations and management of the Company and its ability to take certain actions, including making distributions to our parent, Santander. The Company is regulated on a consolidated basis by the Federal Reserve, including the FRB of Boston, and the CFPB. The Company's subsidiaries are further supervised by the OCC, the FRB of Atlanta, and NYDFS. As a subsidiary of the Company, SC is also subject to regulatory oversight by the Federal Reserve as well as the CFPB.

Payment of Dividends

SHUSA is the parent holding company of SBNA and other consolidated subsidiaries, and is a legal entity separate and distinct from its subsidiaries. SHUSA and SBNA are subject to various regulatory restrictions relating to the payment of dividends, including regulatory capital minimums and the requirement to remain "well-capitalized" under prompt corrective action regulations. As a consolidated subsidiary of the Company, SC is included in various regulatory restrictions relating to the payment of dividends as described under the caption “Stress Tests and Capital Planning” in this section. Refer to the "Liquidity and Capital Resources" section of this MD&A for detail of the capital actions of the Company and its subsidiaries during the period.

In June 2020, the Federal Reserve announced that, due to the economic uncertainty resulting from COVID-19, it will require all large banks, including SHUSA, to update and resubmit their capital plans under new scenarios by November 2, 2020. In addition, the Federal Reserve issued the Interim Policy which includes:

•A cap on common stock dividends that cannot exceed the average of the trailing four quarters’ net income; and

•A prohibition on share repurchases.

The Interim Policy applied to the third quarter of 2020, and was extended into the fourth quarter by the Federal Reserve. Based on the Interim Policy and the Company’s expected average trailing four quarters of net income, the Company and SC are prohibited from paying dividends in the third quarter of 2020. SC is consolidated into SHUSA’s capital plan and therefore is subject to the Interim Policy that utilizes SHUSA’s average trailing income to determine the cap on common stock dividends. SHUSA requested an exception to the Interim Policy for SC to be able to pay dividends of up to $0.22 per share in the third quarter of 2020. The Federal Reserve granted this request, and on July 31, 2020 SC’s Board of Directors declared a quarterly cash dividend of $0.22 per share of SC Common Stock payable to shareholders of record as of August 13, 2020. This dividend was paid on August 24, 2020. SC does not currently expect to declare or pay a dividend in the fourth quarter of 2020.

FBOs

In February 2014, the Federal Reserve issued the Final Rule implementing certain EPS mandated by the DFA. Under the Final Rule, FBOs with over $50 billion of U.S. non-branch assets, including Santander, were required to consolidate U.S. subsidiary activities under an IHC. In addition, the Final Rule required U.S. BHCs and FBOs with at least $50 billion in total U.S. consolidated non-branch assets to be subject to EPS and heightened capital, liquidity, risk management, and stress testing requirements. Due to both its global and U.S. non-branch total consolidated asset size, Santander was subject to both of the above provisions of the Final Rule. As a result of this rule, Santander has transferred substantially all of its U.S. bank and non-bank subsidiaries previously outside the Company to the Company, which became an IHC effective July 1, 2016.

Economic Growth Act

In May 2018, the Economic Growth Act was signed into law. The Economic Growth Act scales back certain requirements of the DFA. In October 2019, the Federal Reserve finalized a rulemaking implementing the changes required by the Economic Growth Act. The rulemaking provides a tailored approach to the EPS mandated by Section 165 of the DFA. Under the new tailored approach, banks are placed into different categories based on asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. The tailoring rule applies to both Santander and the Company. Both Santander and the Company were placed into category four of the tailoring rule. The new tailored standards are discussed further below.

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

Regulatory Capital Requirements

U.S. Basel III regulatory capital rules are applicable to both SHUSA and the Bank and establish 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.

These rules narrow the definition of regulatory capital and establish higher minimum risk-based capital ratios and prompt corrective action thresholds that require banking organizations, including the Company and the Bank, to maintain a minimum CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total capital ratio of 8.0% and a minimum leverage ratio, calculated as the ratio of Tier 1 capital to average consolidated assets for the quarter, of 4.0%. A further capital conservation buffer of 2.5% above these minimum ratios was phased in effective January 1, 2019. This buffer is required for banking institutions and BHCs to avoid restrictions on their ability to make capital distributions, including paying dividends.

These U.S. Basel III regulatory capital rules include deductions from and adjustments to CET1. These include, for example, the requirement that MSRs and deferred tax assets dependent upon future taxable income are deducted from CET1 to the extent any one such category exceeds 25% of CET1. Implementation of the deductions and other adjustments to CET1 for the Company and the Bank began on January 1, 2015 and was initially planned over three years, with a fully phased-in requirement of January 1, 2018. However, during 2017, the regulatory agencies finalized changes to the capital rules that became effective on January 1, 2018. These changes extended the current treatment and deferred the final transition provision phase-in at non-advanced approach institutions for certain capital elements, and suspended the risk weight to 100 percent for certain deferred taxes and mortgage servicing assets not disallowed from capital, in lieu of advancing to 250 percent. During 2019, the regulatory agencies approved a final rule which includes simplifications for non-advanced approaches to the generally applicable capital rules, specifically with regard to the treatment of minority interest, as well as modifying the risk-weight to 250 percent for certain deferred taxes and mortgage servicing assets not disallowed from capital. This final rule became effective on April 1, 2020.

As described in our Annual Report on Form 10-K for 2019, on January 1, 2020, we adopted the CECL standard, which upon adoption resulted in a reduction to our opening retained earnings balance, net of income tax, and an increase to the allowance for loan losses of approximately $2.5 billion. As also described in our Form 10-K, the U.S. banking agencies in December 2018 approved a final rule to address the impact of CECL on regulatory capital by allowing banking organizations, including the Company, the option to phase in the day-one impact of CECL until the first quarter of 2023. In March 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. The Company has elected this alternative option instead of the one described in the December 2018 rule.

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

If capital has reached the significantly or critically undercapitalized levels, further material restrictions can be imposed, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver or conservator. Critically undercapitalized institutions generally may not, beginning 60 days after becoming critically undercapitalized, make any payment of principal or interest on their subordinated debt. All but well-capitalized institutions are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to the Federal Deposit Insurance Corporation Improvements Act and OCC regulations, institutions which are not categorized as well-capitalized or adequately-capitalized are restricted from making capital distributions, which include cash dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the capital account of the institution. At September 30, 2020, the Bank met the criteria to be classified as “well-capitalized.”

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

On March 4, 2020, the Federal Reserve adopted a final rule to simplify capital rules for large banks. Under the final rule, firms' supervisory stress test results are now used to establish the size of the SCB requirement, replacing the 2.5% of risk-weighted assets component under the prior capital conservation buffer requirement. The SCB is calculated as the maximum decline in CET1 in the severely adverse scenario (subject to a 2.5% floor) plus four quarters of dividends. The rule results in new regulatory capital minimums which are equal to 4.5% of CET1 plus the SCB, any GSIB surcharge, and any countercyclical capital buffer. The GSIB buffer is applicable only to the largest and most complex firms and does not apply to SHUSA. In the event a firm falls below its new minimums, the rule imposes restrictions on capital distributions and discretionary bonuses. Firms continue to submit a capital plan annually. Supervisory expectations for capital planning processes do not change under the proposal. The Company does not expect this rule to have a material impact on its current or future planned capital actions.

Stress Testing and Capital Planning

In October 2019, the Federal Reserve issued rules that tailor the stress testing a company is required to perform based on the company’s asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. In March 2020, the Federal Reserve amended and simplified its capital planning rules and introduced the SCB to more closely align individual firm capital requirements to the firm’s risk profile. The SCB uses the results from the Federal Reserve's supervisory stress tests, which are one component of the CCAR, to help determine each firm's capital requirements for the coming year. On August 10, 2020 the Federal Reserve announced the individual large bank capital requirements. SHUSA’s CET1 SCB is 2.5% resulting in a 7% CET1 capital requirement under the revised rules. The simplified SCB rule was effective on October 1, 2020 but has been superseded, temporarily in the third and fourth quarter of 2020, by the Interim Policy which limits distributions as described above under “Payment of Dividends”.

On October 7, 2020 the Federal Reserve proposed amendments to capital planning and stress testing requirements for large BHCs. Under the proposal, as a Category IV firm under the supervisory tailoring rule, SHUSA would be required to submit a capital plan on an annual basis but would generally no longer be required to utilize the scenarios provided by the Federal Reserve. The Company continues to evaluate planned capital actions in its annual capital plan and on an ongoing basis.

Liquidity Rules

The Federal Reserve, the FDIC, and the OCC have established a rule 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. The 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. Smaller covered companies (more than $50 billion in assets) such as the Company were required to calculate the LCR monthly beginning January 2016.

In October 2019, the Federal Reserve finalized rules that tailor the liquidity requirements based on a company’s asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. In light of the fact that the Company is under $250 billion in assets and has less than $50 billion in short-term wholesale funding, the Company is no longer required to disclose the US LCR.

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

In October 2020, the joint agencies published the final rule for the NSFR. The NSFR is designed to encourage more medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon. The metric requires large banking organizations to maintain a stable funding profile in relation to their on- and off-balance sheet activities, thereby reducing the likelihood that disruptions to a bank's regular sources of funding will erode its liquidity in a way that could increase the risk of its failure and potentially lead to broader systemic stress. Similar to the aforementioned criteria used to determine US LCR reporting requirements, the final NSFR rule would not be applicable to the Company based upon its size and risk profile.

Resolution Planning

The DFA requires the Company to prepare and regularly update resolution plans. The 165(d) resolution plan must assume that the covered company is resolved under the U.S. Bankruptcy Code and that no “extraordinary support” is received from the U.S. or any other government. The most recent 165(d) resolution plan was submitted to the Federal Reserve and FDIC in December 2018. In addition, under amended Federal Deposit Insurance Corporation Improvements Act rules, the IDI resolution plan rule requires that a bank with assets of $50 billion or more develop a plan for its resolution that supports depositors’ rapid access to their insured deposits, maximizes the net present value return from the sale or disposition of its assets, and minimizes the amount of any loss realized by creditors in resolution. The most recent IDI resolution plan was submitted to the FDIC in June 2018.

TLAC

The TLAC Rule requires certain U.S. organizations to maintain a minimum amount of loss-absorbing instruments, including a minimum amount of unsecured LTD. The TLAC Rule applies to U.S. GSIBs and to IHCs with $50 billion or more in U.S. non-branch assets that are controlled by a global systemically important FBO. The Company is such an IHC.

Under the TLAC Rule, companies are required to maintain a minimum amount of TLAC, which consists of a minimum amount of LTD and Tier 1 capital. As a result, SHUSA must hold the higher of 18% of its RWAs or 9% of its total consolidated assets in the form of TLAC, of which 6% of its RWAs or 3.5% of total consolidated assets must consist of LTD. In addition, SHUSA must maintain a TLAC buffer composed solely of CET1 capital and will be subject to restrictions on capital distributions and discretionary bonus payments based on the size of the TLAC buffer it maintains. The TLAC Rule became effective on January 1, 2019.

Volcker Rule

The DFA added new Section 13 to the BHCA, which is commonly referred to as the “Volcker Rule.” The Volcker Rule prohibits a “banking entity” from engaging in “proprietary trading” or engaging in any of the following activities with respect to a Covered Fund: (i) acquiring or retaining any equity, partnership or other ownership interest in the Covered Fund; (ii) controlling the Covered Fund; or (iii) engaging in certain transactions with the fund if the banking entity or any affiliate is an investment adviser or sponsor to the Covered Fund. These prohibitions are subject to certain exemptions for permitted activities.

Because the term “banking entity” includes an IDI, a depository institution holding company and any of their affiliates, the Volcker Rule has sweeping worldwide application and covers entities such as Santander, the Company, and certain of the Company’s subsidiaries (including the Bank and SC), as well as other Santander subsidiaries in the United States and abroad.

The Company implemented certain policies and procedures, training programs, recordkeeping, internal controls and other compliance requirements that were necessary to comply with the Volcker Rule. As required by the Volcker Rule, the compliance infrastructure has been tailored to each banking entity based on its size and its level of trading and Covered Fund activities. SHUSA's compliance program includes, among other things, processes for prior approval of new activities and investments permitted under the Volcker Rule, testing and auditing for compliance and a process for attesting annually that the compliance program is reasonably designed to achieve compliance with the rule.

In October 2019, the joint agencies responsible for administering the Volcker Rule finalized revisions to Volcker Rule. The final rule tailors the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of a trading account, clarify certain key provisions in the Volcker Rule, and simplify the information companies are required to provide the banking agencies. The Company is in the process of transitioning to the requirements of this revised rule.

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

In July 2020, the joint agencies finalized a rule that revised the Volcker Rule further. The 2020 revisions provide an exemption for activities of qualifying foreign excluded funds, revise the exclusions from the definition of a “covered fund”, create new exclusions from the definition of a covered fund, and modify the definition of an ownership interest. The new rule became effective on October 1, 2020, and the Company is in the process of transitioning to the requirements of this revised rule.

Risk Retention Rule

In December 2014, the Federal Reserve issued its final credit risk retention rule, which generally requires sponsors of ABS to retain at least five percent of the credit risk of the assets collateralizing ABS. SHUSA, primarily through SC, is an active participant in the structured finance markets and began to comply with the retention requirements effective in December 2016.

Market Risk Rule

The market risk rule requires certain national banks to measure and hold risk-based regulatory capital for the market risk of their covered positions. The bank must measure and hold capital for its market risk using its internal-risk based models. The market risk rule outlines quantitative requirements for the bank's internal risk based models, as well as qualitative requirements for the bank's management of market risk. Banks subject to the market risk rule must also measure and hold market risk regulatory capital for the specific risk associated with certain debt and equity positions.

A bank is subject to the market risk capital rules if its consolidated trading activity, defined as the sum of trading assets and liabilities as reported in its FFIEC 031 and FR Y-9C for the previous quarter, equals the lesser of: (1) 10 percent or more of the bank's total assets as reported in its Call Report and FR Y-9C for the previous quarter, or (2) $1 billion or more. At September 30, 2019, SBNA reported aggregate trading exposure in excess of the market risk threshold and, as a result, both the Company and SBNA began holding the market risk component within RWAs of the risk-based capital ratios, and submitted the FFIEC 102 - Market Risk Regulatory Report beginning for the period ended December 31, 2019. The incorporation of market risk within regulatory capital has resulted in a decrease in the risk-based capital ratios.

Capital Simplification Rule

The federal banking agencies adopted a final rule that simplifies for non-advanced approaches banking organizations the generally applicable capital rules and makes a number of technical corrections. Specifically, it reverses the previous transition provision freeze on MSRs and deferred tax assets by modifying the risk-weight from 100% to 250%. The rule will also replace the existing methodology for calculating includible minority interest with a flat 10% limit at each capital level. The increased risk weighting presents an unfavorable decline to the Company's risk-based ratios, but Tier 1 and total capital ratios has improve overall due to the additional minority interest includible under the simplified rule. Adoption of the capital simplification rule was required by the regulatory agencies on April 1, 2020.

Heightened Standards

OCC guidelines to strengthen the governance and risk management practices of large financial institutions are commonly referred to as “heightened standards.” The heightened standards apply to insured national banks with $50 billion or more in consolidated assets. The heightened standards require covered institutions to establish and adhere to a written risk governance framework to manage and control their risk-taking activities. The heightened standards also provide minimum standards for the institutions’ boards of directors to oversee the risk governance framework.

Transactions with Affiliates

Depository institutions must remain in compliance with Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve's Regulation W, which governs transactions of the Company's banking subsidiaries with affiliated companies and individuals. Section 23A imposes limits on certain specified “covered transactions,” which include loans, lines, and letters of credit to affiliated companies or individuals, and investments in affiliated companies, as well as certain other transactions with affiliated companies and individuals. .

Section 23B of the Federal Reserve Act prohibits a depository institution from engaging in certain transactions with affiliates unless the transactions are considered arms'-length. As a U.S. domiciled subsidiary of a global parent with significant non-bank affiliates, the Company faces elevated compliance risk in this area.

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

Regulation AB II

Regulation AB II, among other things, expanded disclosure requirements and modified the offering and shelf registration process for ABS. SC must comply with these rules, which impact all offerings of publicly registered ABS and all reports under the Exchange Act, for outstanding publicly-registered ABS, and affect SC's public securitization platform.

CRA

SBNA and BSPR are subject to the requirements of the CRA, which requires the appropriate federal financial supervisory agency to assess an institution's record of helping to meet the credit needs of the local communities in which it is located. BSPR’s current CRA rating is “Outstanding” and SBNA’s current CRA rating is "Satisfactory." The OCC takes into account the Bank’s CRA rating in considering certain regulatory applications the Bank makes, including applications related to establishing and relocating branches, and the Federal Reserve does the same with respect to certain regulatory applications the Company makes.

On December 12, 2019, the OCC and the FDIC jointly issued the CRA NPR to modernize the regulatory framework implementing the CRA. On May 20, 2020, the OCC issued the CRA Final Rule implementing many of the provisions of the CRA NPR. The CRA NPR generally focuses on clarifying and expanding the activities that qualify for CRA consideration, allowing the OCC to evaluate a bank’s CRA performance through quantitative measures intended to assess the volume and value of activity, updating how assessment areas are determined to account for institutions such as internet-based banks that receive a substantial portion of their deposits outside physical branch locations, and increasing transparency and timeliness in reporting. In connection with promulgating the CRA Final Rule, the OCC issued a publicly available, non-exhaustive list of activities that would automatically receive CRA consideration. and a process for confirming that particular activities meet the qualifying activities criteria. In addition, the CRA Final Rule allows banks to receive consideration for certain qualifying activities conducted outside their assessment areas. While the CRA Final Rule took effect on October 1, 2020, SBNA will have until January 1, 2023 to bring its operations into compliance with the rule. Although SBNA will be required to comply with the CRA Final Rule in 2023, the OCC has deferred to a future rulemaking process how to calibrate the key thresholds and benchmarks used in the rule to determine the level of performance necessary to achieve a performance rating.

Other Regulatory Matters

On March 21, 2017, SC and the Company entered into a written agreement with the FRB of Boston. Under the terms of that agreement, SC is required to enhance its compliance risk management program, board oversight of risk management and senior management oversight of risk management, and the Company is required to enhance its oversight of SC's management and operations.

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

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 Exchange Act of 1934, 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 SHUSA within Santander. During the period covered by this annual report:

•Santander UK holds three blocked accounts for two customers, with the first customer holding one GBP savings account and one GBP current account, and the second customer holding one GBP savings account. Both of the customers, who are resident in the UK, are currently designated by the U.S. under the SDGT sanctions program with accounts blocked since designation. The accounts are dormant. Revenues and profits generated by Santander UK on these accounts in the first three quarters of 2020 were negligible relative to the overall profits of Santander.

•Santander UK holds two frozen current accounts for two UK nationals who are designated by the U.S. under the SDGT sanctions program. The accounts held by one customer were fully inaccessible at the time of the US designation and were blocked at the time of the account going into a debit balance. The accounts held by the second customer were blocked immediately following the US designation and have been frozen throughout the first three quarters of 2020. These accounts are frozen in order to comply with Articles 2, 3 and 7 of Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the Al-Qaeda network, by virtue of Commission Implementing Regulation (EU) 2015/1815. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK's Collections and Recoveries Department. No revenues or profits were generated by Santander UK on these accounts in the first three quarters of 2020.

•Santander, 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.

In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the first three quarters of 2020 which were negligible relative to the overall revenues and profits of Santander. Santander has undertaken significant steps to withdraw from the Iranian market, such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. Santander is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, Santander intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

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

This MD&A is based on the Consolidated Financial Statements and accompanying notes that have been prepared in accordance with GAAP. The significant accounting policies of the Company are described in Note 1 of the Company's Annual Form 10-K as of December 31, 2019, and have been updated as appropriate in Note 1 of these Condensed Consolidated Financial Statements. The preparation of financial statements in accordance with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, accordingly, have a greater possibility of producing results that could be materially different than originally reported. Our estimates include consideration of the current uncertainty in the economy and the results may be materially different. Management identified accounting for ACL, estimates of expected residual values of leased vehicles subject to operating leases, accretion of discounts and subvention on RICs, goodwill, fair value measurements and income taxes as the Company's most critical accounting estimates, in that they are important to the portrayal of the Company's financial condition and results and require management’s most difficult, subjective and complex judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain.

There have been material changes in the Company’s critical accounting estimates from those disclosed in Item 7 of the Company's 2019 Annual Report on Form 10-K. These changes are a result of the Company's adoption of the CECL standard on January 1, 2020. Refer to Note 1, Note 4 of the Condensed Consolidated Financial Statements and the section captioned "Credit Quality" of this MD&A for detailed discussions around accounting policy, estimation process and assumptions used in determining the ACL.

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

NET INTEREST INCOME AND NET INTEREST MARGIN



CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
	THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2020 AND 2019
	2020 (1)						2019 (1)						Interest		Change due to
(dollars in thousands)	Average Balance		Interest		Yield/ Rate(2)		Average Balance		Interest		Yield/ Rate(2)		Increase/(Decrease)		Volume		Rate
EARNING ASSETS
INVESTMENTS AND INTEREST EARNING DEPOSITS	$	26,828,719	$	75,241	1.12	%	$	22,225,245	$	134,440	2.42	%	$	(59,199)	$	37,147	$	(96,346)
LOANS(3):
Commercial loans	33,281,183		276,206		3.32	%	33,673,664		355,272		4.22	%	(79,066)		(4,096)		(74,970)
Multifamily	8,512,238		73,134		3.44	%	8,415,539		87,766		4.17	%	(14,632)		1,027		(15,659)
Total commercial loans	41,793,421		349,340		3.34	%	42,089,203		443,038		4.21	%	(93,698)		(3,069)		(90,629)
Consumer loans:
Residential mortgages	8,155,884		71,210		3.49	%	9,847,104		100,531		4.08	%	(29,321)		(15,918)		(13,403)
Home equity loans and lines of credit	4,375,284		34,251		3.13	%	5,018,365		64,442		5.14	%	(30,191)		(7,451)		(22,740)
Total consumer loans secured by real estate	12,531,168		105,461		3.37	%	14,865,469		164,973		4.44	%	(59,512)		(23,369)		(36,143)
RICs and auto loans	40,026,191		1,322,556		13.22	%	33,516,284		1,271,550		15.18	%	51,006		152,146		(101,140)
Personal unsecured	1,841,369		134,260		29.17	%	2,390,750		164,692		27.55	%	(30,432)		(40,898)		10,466
Other consumer(4)	255,944		4,474		6.99	%	357,361		6,414		7.18	%	(1,940)		(1,775)		(165)
Total consumer	54,654,672		1,566,751		11.47	%	51,129,864		1,607,629		12.58	%	(40,878)		86,104		(126,982)
Total loans	96,448,093		1,916,091		7.95	%	93,219,067		2,050,667		8.80	%	(134,576)		83,035		(217,611)
Intercompany investments	—		—		—	%	—		—		—	%	—		—		—
TOTAL EARNING ASSETS	123,276,812		1,991,332		6.46	%	115,444,312		2,185,107		7.57	%	(193,775)		120,182		(313,957)
Allowance for loan losses (5)	(7,192,161)						(3,772,807)
Other assets(6)	34,156,248						32,392,411
TOTAL ASSETS	$	150,240,899					$	144,063,916
INTEREST BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits	$	11,334,566	$	1,936	0.07	%	$	11,223,790	$	23,901	0.85	%	$	(21,965)	$	239	$	(22,204)
Savings	5,957,740		1,937		0.13	%	5,767,649		3,477		0.24	%	(1,540)		119		(1,659)
Money market	30,775,793		30,032		0.39	%	24,778,267		83,340		1.35	%	(53,308)		27,507		(80,815)
Certificates of deposit (“CDs”)	5,148,959		18,420		1.43	%	8,291,661		42,235		2.04	%	(23,815)		(13,313)		(10,502)
TOTAL INTEREST-BEARING DEPOSITS	53,217,058		52,325		0.39	%	50,061,367		152,953		1.22	%	(100,628)		14,552		(115,180)
BORROWED FUNDS:
Federal Home Loan Bank (“FHLB”) advances, federal funds, and repurchase agreements	4,015,217		6,680		0.67	%	6,129,891		39,970		2.61	%	(33,290)		(10,553)		(22,737)
Other borrowings	45,076,390		310,935		2.76	%	42,279,698		373,074		3.53	%	(62,139)		27,043		(89,182)
TOTAL BORROWED FUNDS (7)	49,091,607		317,615		2.59	%	48,409,589		413,044		3.41	%	(95,429)		16,490		(111,919)
TOTAL INTEREST-BEARING FUNDING LIABILITIES	102,308,665		369,940		1.45	%	98,470,956		565,997		2.30	%	(196,057)		31,042		(227,099)
Noninterest bearing demand deposits	19,141,277						14,482,711
Other liabilities(8)	7,920,941						6,192,978
TOTAL LIABILITIES	129,370,883						119,146,645
STOCKHOLDER’S EQUITY	20,870,016						24,917,271
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	150,240,899					$	144,063,916

NET INTEREST SPREAD (9)					5.01	%					5.27	%
NET INTEREST MARGIN (10)					5.26	%					5.61	%
NET INTEREST INCOME (11)			$	1,621,392					$	1,619,110

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



CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
	NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2020 AND 2019
	2020 (1)						2019 (1)								Change due to
(dollars in thousands)	Average Balance		Interest		Yield/ Rate(2)		Average Balance		Interest		Yield/ Rate(2)		Increase/(Decrease)		Volume		Rate
EARNING ASSETS
INVESTMENTS AND INTEREST EARNING DEPOSITS	$	26,940,052	$	295,996	1.46	%	$	21,485,208	$	417,085	2.59	%	$	(121,089)	$	168,544	$	(289,633)
LOANS(3):
Commercial loans	33,430,857		885,374		3.53	%	33,356,133		1,089,897		4.36	%	(204,523)		2,434		(206,957)
Multifamily	8,501,040		229,027		3.59	%	8,380,211		259,649		4.13	%	(30,622)		3,794		(34,416)
Total commercial loans	41,931,897		1,114,401		3.54	%	41,736,344		1,349,546		4.31	%	(235,145)		6,228		(241,373)
Consumer loans:
Residential mortgages	8,532,737		237,596		3.71	%	10,121,409		309,529		4.08	%	(71,933)		(45,591)		(26,342)
Home equity loans and lines of credit	4,522,847		121,949		3.60	%	5,179,086		200,682		5.17	%	(78,733)		(23,179)		(55,554)
Total consumer loans secured by real estate	13,055,584		359,545		3.67	%	15,300,495		510,211		4.45	%	(150,666)		(68,770)		(81,896)
RICs and auto loans	38,269,859		3,847,016		13.40	%	31,755,513		3,701,535		15.54	%	145,481		442,582		(297,101)
Personal unsecured	2,180,322		437,300		26.74	%	2,483,911		502,887		26.99	%	(65,587)		(60,970)		(4,617)
Other consumer(4)	281,204		14,840		7.04	%	390,032		20,974		7.17	%	(6,134)		(5,760)		(374)
Total consumer	53,786,969		4,658,701		11.55	%	49,929,951		4,735,607		12.65	%	(76,906)		307,082		(383,988)
Total loans	95,718,866		5,773,102		8.04	%	91,666,295		6,085,153		8.85	%	(312,051)		313,310		(625,361)
Intercompany investments			—		—	%	—		—		—	%	—		—		—
TOTAL EARNING ASSETS	122,658,918		6,069,098		6.60	%	113,151,503		6,502,238		7.66	%	(433,140)		481,854		(914,994)
Allowance for loan losses(5)	(6,711,184)						(3,832,455)
Other assets(6)	34,537,325						31,153,498
TOTAL ASSETS	$	150,485,059					$	140,472,546
INTEREST-BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits	$	11,345,723	$	21,851	0.26	%	$	10,607,947	$	63,570	0.80	%	$	(41,719)	$	4,794	$	(46,513)
Savings	5,898,275		7,296		0.16	%	5,839,750		10,145		0.23	%	(2,849)		97		(2,946)
Money market	29,070,436		140,333		0.64	%	24,397,708		235,925		1.29	%	(95,592)		58,617		(154,209)
CDs	6,756,472		80,580		1.59	%	8,129,517		118,746		1.95	%	(38,166)		(18,236)		(19,930)
TOTAL INTEREST-BEARING DEPOSITS	53,070,906		250,060		0.63	%	48,974,922		428,386		1.17	%	(178,326)		45,272		(223,598)
BORROWED FUNDS:
FHLB advances, federal funds, and repurchase agreements	5,973,325		64,866		1.45	%	5,166,044		106,160		2.74	%	(41,294)		20,515		(61,809)
Other borrowings	44,698,919		1,008,012		3.01	%	41,377,822		1,123,974		3.62	%	(115,962)		105,467		(221,429)
TOTAL BORROWED FUNDS (7)	50,672,244		1,072,878		2.82	%	46,543,866		1,230,134		3.52	%	(157,256)		125,982		(283,238)
TOTAL INTEREST-BEARING FUNDING LIABILITIES	103,743,150		1,322,938		1.70	%	95,518,788		1,658,520		2.32	%	(335,582)		171,254		(506,836)
Noninterest bearing demand deposits	17,529,234						14,460,711
Other liabilities(8)	7,357,434						5,945,936
TOTAL LIABILITIES	128,629,818						115,925,435
STOCKHOLDER’S EQUITY	21,855,241						24,547,111
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	150,485,059					$	140,472,546

NET INTEREST SPREAD (9)					4.90	%					5.34	%
NET INTEREST MARGIN (10)					5.16	%					5.71	%
NET INTEREST INCOME (11)			$	4,746,160					$	4,843,718

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

(2)Yields calculated using taxable equivalent net interest income.

(3)Interest on loans includes amortization of premiums and discounts on purchased loan portfolios and amortization of deferred loan fees, net of origination costs. Average loan balances includes non-accrual loans and LHFS.

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

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

(6)Other assets primarily includes leases, 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 6 to the Condensed Consolidated Financial Statements for further discussion.

(7)Refer to Note 9 to the Condensed Consolidated Financial Statements for further discussion.

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

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

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

(11)Intercompany investment income is eliminated from this line item.

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

Net interest income increased $2.3 million and decreased $97.6 million for the three-month and nine-month periods ended September 30, 2020, respectively, compared to the comparative periods in 2019. The most significant factors contributing to these changes are as follows:

Interest Income on Investment Securities and Interest-Earning Deposits

Interest income on investment securities and interest-earning deposits decreased $59.2 million for the quarter ended September 30, 2020 compared to 2019. The average balances of investment securities and interest-earning deposits for the quarter ended September 30, 2020 was $26.8 billion with an average yield of 1.12%, compared to an average balance of $22.2 billion with an average yield of 2.42% for the corresponding period in 2019. The decrease in interest income on investment securities and interest-earning deposits for the quarter ended September 30, 2020 was primarily due to a decrease in the average yield on interest-earning deposits resulting from the Federal Reserve response to the outbreak of COVID-19.

Interest income on investment securities and interest-earning deposits decreased $121.1 million for the nine-month period ended September 30, 2020 compared to 2019. The average balances of investment securities and interest-earning deposits for the nine-month period ended September 30, 2020 was $26.9 billion with an average yield of 1.46%, compared to an average balance of $21.5 billion with an average yield of 2.59% for the corresponding period in 2019. The decrease in interest income on investment securities and interest-earning deposits for the nine-month period ended September 30, 2020 was primarily due to a decrease in the average yield on interest-earning deposits resulting from the Federal Reserve response to the outbreak of COVID-19.

Interest Income on Loans

Interest income on loans for the three-month and nine-month periods ended September 30, 2020, compared to 2019 reflected increases in the average balance for both periods, offset by decreasing rates, particularly during the first half of 2020.

Interest Expense on Deposits and Related Customer Accounts

Interest expense on deposits and related customer accounts decreased for the three-month and nine-month periods ended September 30, 2020 compared to 2019. These decreases were a result of the near zero interest rate environment offset by builds in overall deposits.

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

Interest Expense on Borrowed Funds

Interest expense on borrowed funds decreased $95.4 million for the quarter ended September 30, 2020 compared to 2019. This decrease was due to lower interest rates being paid, offset by increased balances during the quarter ended September 30, 2020. The average balance of total borrowings was $49.1 billion with an average cost of 2.59% for the quarter ended September 30, 2020, compared to an average balance of $48.4 billion with an average cost of 3.41% for 2019. The average balance of borrowed funds increased for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, primarily due to increases in FHLB advances, credit facilities and secured structured financings.

Interest expense on borrowed funds decreased $157.3 million for the nine-month period ended September 30, 2020 compared to 2019. This decrease was due to lower interest rates being paid offset by increased balances during the nine-month period ended September 30, 2020. The average balance of total borrowings was $50.7 billion with an average cost of 2.82% for the nine-month period ended September 30, 2020, compared to an average balance of $46.5 billion with an average cost of 3.52% for 2019. The average balance of borrowed funds increased for the nine-month period ended September 30, 2020 compared to the nine-month period ended September 30, 2019, primarily due to increases in FHLB advances, credit facilities and secured structured financings.

CREDIT LOSS EXPENSE

Credit loss expense was $405.8 million and $2.6 billion for the three-month and nine-month periods ended September 30, 2020, respectively, compared to $603.6 million and $1.7 billion, respectively, for the comparative periods in 2019. The increase year over year was primarily due to reserve build during the first and second quarters of 2020 associated with a weaker economic outlook related to COVID-19. The decrease quarter over quarter was due to a decrease in net charge offs.

Total charge-offs of $606.1 million and $2.8 billion for three-month and nine-month periods ended September 30, 2020, respectively, were lower by $818.5 million and $1.3 billion from the comparative periods in 2019 as a result of the Company's programs in response to COVID-19. Total recoveries during these periods also decreased.

NON-INTEREST INCOME


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,				QTD Change				YTD Change
(dollars in thousands)	2020		2019		2020		2019		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Consumer fees	$	88,239	$	92,734	$	254,953	$	295,857	$	(4,495)	(4.8)	%	$	(40,904)	(13.8)	%
Commercial fees	35,595		40,315		101,954		116,709		(4,720)		(11.7)	%	(14,755)		(12.6)	%
Lease income	742,946		735,783		2,269,613		2,116,503		7,163		1.0	%	153,110		7.2	%
Miscellaneous (loss) / income, net	308,222		130,033		330,165		327,849		178,189		137.0	%	2,316		0.7	%
Net gains recognized in earnings	(148)		2,267		31,646		2,646		(2,415)		(106.5)	%	29,000		1,096.0	%
Total non-interest income	$	1,174,854	$	1,001,132	$	2,988,331	$	2,859,564	$	173,722	17.4	%	$	128,767	4.5	%

Total non-interest income increased $173.7 million and $128.8 million for the three-month and nine-month periods ended September 30, 2020 compared to the corresponding periods in 2019. The increase for the three-month period ended September 30, 2020 was primarily related to an increase in miscellaneous income. The increase for the nine-month period ended September 30, 2020 was primarily due to an increase in lease income, partially offset by a decrease in consumer fees.

Consumer fees

Consumer fees decreased $40.9 million for the nine-month period ended September 30, 2020 compared to 2019. This decrease was primarily related to a decrease in consumer deposit fees, related to more few waivers given in 2020 compared to 2019.

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

Commercial fees

Commercial fees consists of deposit overdraft fees, deposit automated teller machine fees, cash management fees, letter of credit fees, and loan syndication fees for commercial accounts. Commercial fees remained relatively stable for the nine-month period ended September 30, 2020 compared to 2019.

Lease income

Lease income increased $153.1 million for the nine-month period ended September 30, 2020 compared to 2019. This increase was the result of the growth in the Company's lease portfolio, with an average balance of $16.4 billion for the nine-month period ended September 30, 2020, compared to $15.1 billion at September 30, 2019.

Miscellaneous income/(loss)


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,				QTD Change				YTD Change
(dollars in thousands)	2020		2019		2020		2019		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Mortgage banking income, net	$	14,115	$	15,343	$	47,243	$	38,067	$	(1,228)	(8.0)	%	$	9,176	24.1	%
BOLI	14,855		15,338		43,764		45,769		(483)		(3.1)	%	(2,005)		(4.4)	%
Capital market revenue	56,949		48,326		179,417		146,290		8,623		17.8	%	33,127		22.6	%
Net gain on sale of operating leases	120,387		48,490		170,484		120,980		71,897		148.3	%	49,504		40.9	%
Asset and wealth management fees	52,984		45,020		156,575		132,224		7,964		17.7	%	24,351		18.4	%
Loss on sale of non-mortgage loans	(56,684)		(87,399)		(241,324)		(238,771)		30,715		35.1	%	(2,553)		(1.1)	%
Other miscellaneous (loss) / income, net	105,616		44,915		(25,994)		83,290		60,701		135.1	%	(109,284)		(131.2)	%
Total miscellaneous (loss) / income	$	308,222	$	130,033	$	330,165	$	327,849	$	178,189	137.0	%	$	2,316	0.7	%

Miscellaneous income increased $178.2 million for the three-month period ended September 30, 2020 as compared to the corresponding period in 2019. The increase is primarily related to an increase in gain on sale of operating leases, a decrease in loss on sale of non-mortgage loans, and a gain recognized on the sale of SBC.

Miscellaneous income increased $2.3 million for the nine-month period ended September 30, 2020 as compared to the corresponding period in 2019. The increase is primarily related to the three-month period ended September 30, 2020 activity above, partially offset by a decrease in other miscellaneous income due to fair value adjustments related to the transfer of loan to HFS in the second quarter of 2020.

GENERAL, ADMINISTRATIVE AND OTHER EXPENSES


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,				QTD Change				YTD Change
(dollars in thousands)	2020		2019		2020		2019		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Compensation and benefits	$	461,992	$	485,920	$	1,391,786	$	1,432,730	$	(23,928)	(4.9)	%	$	(40,944)	(2.9)	%
Occupancy and equipment expenses	152,998		156,603		464,784		441,643		(3,605)		(2.3)	%	23,141		5.2	%
Technology, outside services, and marketing expense	124,211		178,053		386,192		482,183		(53,842)		(30.2)	%	(95,991)		(19.9)	%
Loan expense	67,139		98,639		219,483		308,139		(31,500)		(31.9)	%	(88,656)		(28.8)	%
Lease expense	612,639		523,900		1,844,270		1,516,984		88,739		16.9	%	327,286		21.6	%
Impairment of goodwill	—		—		1,848,228		—		—		0%		1,848,228		100%
Other expenses	150,249		190,129		427,978		536,366		(39,880)		(21.0)	%	(108,388)		(20.2)	%
Total general, administrative and other expenses	$	1,569,228	$	1,633,244	$	6,582,721	$	4,718,045	$	(64,016)	(3.9)	%	$	1,864,676	39.5	%

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

Total general, administrative and other expenses decreased $64.0 million and increased $1.9 billion for the three-month and nine-month periods ended September 30, 2020, compared to the corresponding periods of 2019. The most significant factors contributing to the quarter-to-date changes were as follows:

•Technology, outside services, and marketing expense decreased $53.8 million for the quarter ended September 30, 2020, compared to the corresponding period in 2019. This decrease was primarily due to reduced marketing and technology spending in response to the COVID-19 pandemic.

•Loan expense decreased $31.5 million for the quarter ended September 30, 2020, compared to the corresponding period in 2019. This decrease was primarily the result of lower repossession volumes due to the COVID-19 pandemic.

•Lease expense increased $88.7 million for the quarter ended September 30, 2020, compared to the corresponding period in 2019. This increase was primarily due to more depreciation on a larger lease portfolio and fewer liquidations.

•Other expenses decreased $39.9 million for the quarter ended September 30, 2020, compared to the corresponding period in 2019. This decrease was the result of lower legal and operational risk expenses.

In addition to the goodwill impairment charge discussed above, other significant factors for the year-to-date included:

•Technology, outside services, and marketing expense decreased $96.0 million for the nine-month period ended September 30, 2020 compared to 2019. This decrease was driven by reductions in marketing and technology spending that have resulted in response to the COVID-19 pandemic.

•Loan expense decreased $88.7 million for the nine-month period ended September 30, 2020 compared to 2019. This is primarily due to the lower repossession volumes as a result of the COVID-19 pandemic.

•Lease expense increased $327.3 million for the nine-month period ended September 30, 2020 compared to 2019. This increase was primarily due to more depreciation on a larger lease portfolio and less liquidations.

•Other expenses decreased $108.4 million for the nine-month period ended September 30, 2020, compared to the corresponding period in 2019. This decrease was primarily attributable to a decrease in legal and operational risk expenses. Travel and entertainment expenses also saw a significant decrease as COVID-19 has limited corporate travel.

INCOME TAX PROVISION

The Company's ETR in future periods will be affected by the results of operations allocated to the various tax jurisdictions in which the Company operates, any change in income tax laws or regulations within those jurisdictions, and interpretations of income tax regulations that differ from the Company's interpretations by tax authorities that examine tax returns filed by the Company or any of its subsidiaries.

Refer to Note 14 to the Condensed Consolidated Financial Statements for the year-to-year comparison of the ETR.

LINE OF BUSINESS RESULTS

General

The Company's segments at September 30, 2020 and 2019 consisted of CBB, C&I, CRE & VF, CIB and SC.

Results Summary

CBB

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


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,				QTD Change				YTD Change
(dollars in thousands)	2020		2019		2020		2019		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	374,014	$	381,759	$	1,082,275	$	1,120,907	$	(7,745)	(2.0)	%	$	(38,632)	(3.4)	%
Total non-interest income	73,721		120,264		228,646		281,464		(46,543)		(38.7)	%	(52,818)		(18.8)	%
Credit loss expense	50,109		37,915		402,293		115,130		12,194		32.2	%	287,163		249.4	%
Total expenses	402,962		414,836		2,743,783		1,208,908		(11,874)		(2.9)	%	1,534,875		127.0	%
(Loss)/income/ before income taxes	(5,336)		49,272		(1,835,155)		78,333		(54,608)		(110.8)	%	(1,913,488)		(2,442.8)	%
Intersegment revenue	273		600		1,234		1,576		(327)		(54.5)	%	(342)		(21.7)	%
Total assets	23,612,515		23,447,787		23,612,515		23,447,787		164,728		0.7	%	164,728		0.7	%

CBB reported a loss before income taxes of $5.3 million and $1.8 billion for the three-month and nine-month periods ended September 30, 2020, compared to income before income taxes of $49.3 million and $78.3 million for the three-month and nine-month periods ended September 30, 2019. Factors contributing to this change were:

•Non-interest income decreased $46.5 million for the quarter ended September 30, 2020 compared to the third quarter of 2019. This decrease was due to a one-time gain recorded on the sale of branches in 2019, and decreased fee income in 2020 resulting from lower transaction volumes during the COVID-19 pandemic.

•Credit loss expense increased $287.2 million for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019. This increase was due to large reserve builds in response to the economic uncertainty related to the COVID-19 outbreak and the growing auto loan portfolio.

•Total expenses increased $1.5 billion for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019. This increase was due to the goodwill impairment that was recorded in the second quarter of 2020.

C&I Banking


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,				QTD Change				YTD Change
(dollars in thousands)	2020		2019		2020		2019		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	61,115	$	59,738	$	188,970	$	170,525	$	1,377	2.3	%	$	18,445	10.8	%
Total non-interest income	13,605		17,631		39,556		50,641		(4,026)		(22.8)	%	(11,085)		(21.9)	%
Credit loss expense	22,400		4,985		93,578		20,570		17,415		349.3	%	73,008		354.9	%
Total expenses	47,791		59,242		434,828		173,426		(11,451)		(19.3)	%	261,402		150.7	%
(Loss) / income before income taxes	4,529		13,142		(299,880)		27,170		(8,613)		(65.5)	%	(327,050)		(1,203.7)	%
Intersegment revenue	2,847		1,683		7,790		3,986		1,164		69.2	%	3,804		95.4	%
Total assets	6,475,164		7,948,200		6,475,164		7,948,200		(1,473,036)		(18.5)	%	(1,473,036)		(18.5)	%

C&I reported income before income taxes of $4.5 million and a loss before income taxes of $299.9 million for the three-month and nine-month periods ended September 30, 2020, respectively, compared to income before income taxes of $13.1 million and $27.2 million for the corresponding periods in 2019. Factors contributing to these changes were:

•Credit loss expense increased $73.0 million for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019. This increase was due to large reserve builds in response to the economic uncertainty related to the COVID-19 outbreak.

•Total expenses increased $261.4 million for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019. This increase was the result of the goodwill impairment recorded during the second quarter of 2020, offset by small reductions in travel and entertainment expenses, and marketing expenses related to the COVID-19 outbreak.

•Total assets decreased $1.5 billion due to the commercial loan sale that was completed in the fourth quarter of 2019.

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

CRE & VF


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,				QTD Change				YTD Change
(dollars in thousands)	2020		2019		2020		2019		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	93,451	$	104,076	$	281,332	$	311,790	$	(10,625)	(10.2)	%	$	(30,458)	(9.8)	%
Total non-interest income	4,671		3,428		8,561		9,860		1,243		36.3	%	(1,299)		(13.2)	%
Credit loss expense / (Release of) credit loss expense	11,963		6,425		78,800		9,824		5,538		86.2	%	68,976		702.1	%
Total expenses	30,569		32,718		86,857		95,385		(2,149)		(6.6)	%	(8,528)		(8.9)	%
Income before income taxes	55,590		68,361		124,236		216,441		(12,771)		(18.7)	%	(92,205)		(42.6)	%
Intersegment revenue	1,232		1,605		3,985		5,396		(373)		(23.2)	%	(1,411)		(26.1)	%
Total assets	20,296,999		18,772,209		20,296,999		18,772,209		1,524,790		8.1	%	1,524,790		8.1	%

CRE & VF reported income before income taxes of $55.6 million and $124.2 million for the three-month and nine-month periods ended September 30, 2020, respectively, compared to income before income taxes of $68.4 million and $216.4 million for 2019. Factors contributing to these changes were:

•Credit loss expense increased $69.0 million for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019. This increase was due to large reserve builds in response to the economic uncertainty related to COVID-19 outbreak.

CIB


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,				QTD Change				YTD Change
(dollars in thousands)	2020		2019		2020		2019		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	44,035	$	36,577	$	123,411	$	114,646	$	7,458	20.4	%	$	8,765	7.6	%
Total non-interest income	71,956		53,341		212,506		159,970		18,615		34.9	%	52,536		32.8	%
Credit loss expense / (release of) credit loss expenses	(15,384)		(3,878)		18,071		(6,624)		(11,506)		(296.7)	%	24,695		372.8	%
Total expenses	63,343		66,092		188,266		198,653		(2,749)		(4.2)	%	(10,387)		(5.2)	%
Income before income taxes	68,032		27,704		129,580		82,587		40,328		145.6	%	46,993		56.9	%
Intersegment expense	(4,352)		(3,888)		(13,009)		(10,958)		(464)		(11.9)	%	(2,051)		(18.7)	%
Total assets	11,532,762		9,605,098		11,532,762		9,605,098		1,927,664		20.1	%	1,927,664		20.1	%

CIB reported income before income taxes of $68.0 million and $129.6 million for the three-month and nine-month periods ended September 30, 2020, compared to income before income taxes of $27.7 million and $82.6 million for 2019. Factors contributing to these changes were:

•Total non-interest income increased $52.5 million for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019. This increase was due to the increase in fee income resulting from the large amounts of debt underwritten during the second quarter of 2020 in response to the COVID-19 related economic uncertainty, and higher fixed income revenues.

•Credit loss expense increased $24.7 million for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019. This increase was due to large reserve builds in response to the economic uncertainty related to the COVID-19 outbreak.

•Total assets increased $1.9 billion, as a result of growth in the business and client growth at September 30, 2020 compared to 2019.

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

Other


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,				QTD Change				YTD Change
(dollars in thousands)	2020		2019		2020		2019		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	(17,518)	$	8,586	$	1,591	$	80,489	$	(26,104)	(304.0)	%	$	(78,898)	(98.0)	%
Total non-interest income	186,836		102,489		253,541		309,123		84,347		82.3	%	(55,582)		(18.0)	%
(Release of Credit loss expense)/Credit loss expense	(4,038)		(7,874)		(134,923)		520		3,836		(48.7)	%	(135,443)		(26,046.7)	%
Total expenses	131,571		203,816		425,152		610,116		(72,245)		(35.4)	%	(184,964)		(30.3)	%
Income/Loss before income taxes	41,785		(84,867)		(35,097)		(221,024)		126,652		149.2	%	185,927		84.1	%
Intersegment (expense)/revenue	—		—		—		—		—		0%		—		0%
Total assets	35,373,234		40,133,105		35,373,234		40,133,105		(4,759,871)		(11.9)	%	(4,759,871)		(11.9)	%

The Other category reported income before income taxes of $41.8 million and a loss before income taxes of $35.1 million for the three-month and nine-month periods ended September 30, 2020, respectively, compared to losses before income taxes of $84.9 million and $221.0 million for the comparative periods of 2019. Factors contributing to these changes were:

•Net interest income decreased $26.1 million for the quarter ended September 30, 2020 compared to the third quarter of 2019, due to the sale of SBC and lower rates during the quarter.

•Total non-interest income increased $84.3 million for the quarter ended September 30, 2020 compared to the third quarter of 2019, due to the gain on sale of SBC.

•Total expenses decreased $72.2 million for the quarter ended September 30, 2020 compared to the third quarter of 2019, due to lower operational risk expenses.

•Net interest income decreased $78.9 million for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019, due to lower rates.

•Total non-interest income decreased $55.6 million for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019, due to fair value adjustments related to the transfer of loans to HFS in the second quarter of 2020, offset by the gain on sale of SBC.

•Credit loss expense decreased $135.4 million for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019, due to the release of provision related to SBC during the second quarter of 2020.

•Total expenses decreased $185.0 million for the nine-month period ended September 30, 2020 compared to the corresponding period of 2019, due to lower operational risk expenses and lower FDIC premiums.

•Total assets decreased $4.8 billion, as a result of the third quarter sale of SBC.

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


	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,				QTD Change				YTD Change
(dollars in thousands)	2020		2019		2020		2019		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	1,061,986	$	1,002,661	$	3,058,137	$	2,978,709	$	59,325	5.9	%	$	79,428	2.7	%
Total non-interest income	830,126		734,149		2,271,200		2,123,441		95,977		13.1	%	147,759		7.0	%
Credit loss expense	340,548		566,849		2,110,330		1,548,404		(226,301)		(39.9)	%	561,926		36.3	%
Total expenses	888,973		855,267		2,692,396		2,421,754		33,706		3.9	%	270,642		11.2	%
Income before income taxes	662,591		314,694		526,611		1,131,992		347,897		110.6	%	(605,381)		(53.5)	%

Total assets	48,448,921		47,279,015		48,448,921		47,279,015		1,169,906		2.5	%	1,169,906		2.5	%

SC reported income before income taxes of $662.6 million and $526.6 million for the three-month and nine-month periods ended September 30, 2020, respectively, compared to income before income taxes of $314.7 million and $1.1 billion for the three-month and nine-month periods ended of 2019. Contributing to these changes were:

•Credit loss expense decreased $226.3 million for the quarter ended September 30, 2020 compared to the third quarter of 2019. This decrease was due to decreased net charge offs, offset by higher allowance reserves.

•Credit loss expense increased $561.9 million for the nine-month period ended September 30, 2020 compared to the first nine months of 2019 due to large reserve builds in response to the economic uncertainty related to COVID-19 outbreak.

•Total expenses increased $270.6 million for the nine-month period ended September 30, 2020 compared to the nine-month period ended September 30, 2019 due to increasing lease expense from depreciation on a larger lease portfolio.

Refer to the "Economic and Business Environment" section of this MD&A for additional details on the impact of the COVID-19 pandemic on the Company's current financial and operating status, as well as its future financial and operational planning.

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

FINANCIAL CONDITION

LOAN PORTFOLIO

The Company's LHFI portfolio consisted of the following at the dates indicated:


	September 30, 2020				December 31, 2019				Dollar Increase / (Decrease)		Percent Increase (Decrease)

(dollars in thousands)	Amount		Percent		Amount		Percent
Commercial LHFI:
CRE	$	7,466,898	8.0	%	$	8,468,023	9.1	%	$	(1,001,125)	(11.8)	%
C&I	16,289,708		17.6	%	16,534,694		17.8	%	(244,986)		(1.5)	%
Multifamily	8,677,483		9.4	%	8,641,204		9.3	%	36,279		0.4	%
Other commercial	7,217,276		7.8	%	7,390,795		8.2	%	(173,519)		(2.3)	%
Total commercial loans (1)	39,651,365		42.8	%	41,034,716		44.4	%	(1,383,351)		(3.4)	%

Consumer loans secured by real estate:
Residential mortgages	7,132,279		7.7	%	8,835,702		9.5	%	(1,703,423)		(19.3)	%
Home equity loans and lines of credit	4,288,526		4.6	%	4,770,344		5.1	%	(481,818)		(10.1)	%
Total consumer loans secured by real estate	11,420,805		12.3	%	13,606,046		14.6	%	(2,185,241)		(16.1)	%

Consumer loans not secured by real estate:
RICs and auto loans	40,615,831		43.7	%	36,456,747		39.3	%	4,159,084		11.4	%



Personal unsecured loans	845,860		0.9	%	1,291,547		1.4	%	(445,687)		(34.5)	%
Other consumer	243,245		0.3	%	316,384		0.3	%	(73,139)		(23.1)	%

Total consumer loans	53,125,741		57.2	%	51,670,724		55.6	%	1,455,017		2.8	%
Total LHFI	$	92,777,106	100.0	%	$	92,705,440	100.0	%	71,666		0.1	%

Total LHFI with:
Fixed	$	64,631,198	69.7	%	$	61,775,942	66.6	%	2,855,256		4.6	%
Variable	28,145,908		30.3	%	30,929,498		33.4	%	(2,783,590)		(9.0)	%
Total LHFI	$	92,777,106	100.0	%	$	92,705,440	100.0	%	71,666		0.1	%

(1) As of September 30, 2020, the Company had $377.9 million of commercial loans that were denominated in a currency other than the U.S. dollar.

Commercial

Commercial loans decreased approximately $1.4 billion, or 3.4%, from December 31, 2019 to September 30, 2020. This decrease was comprised of decreases in CRE loans of $1.0 billion C&I loans of $245.0 million. This decrease is reflective of the sale of SBC, largely in the CRE and C&I portfolios, offset by originations of C&I loans, including PPP loans.



	At September 30, 2020, Maturing
(in thousands)	In One Year Or Less		One to Five Years		After Five Years		Total (1)
CRE loans	$	1,732,855	$	4,749,945	$	984,098	$	7,466,898
C&I and other commercial	10,083,493		11,904,885		1,662,703		23,651,081
Multifamily loans	1,015,231		5,139,760		2,522,492		8,677,483
Total	$	12,831,579	$	21,794,590	$	5,169,293	$	39,795,462
Loans with:
Fixed rates	$	4,430,884	$	9,957,281	$	3,024,440	$	17,412,605
Variable rates	8,400,695		11,837,309		2,144,853		22,382,857
Total	$	12,831,579	$	21,794,590	$	5,169,293	$	39,795,462

(1) Includes LHFS.

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

Consumer Loans Secured By Real Estate

Consumer loans secured by real estate decreased $2.2 billion, or 16.1%, from December 31, 2019 to September 30, 2020. This decrease was comprised of decreases in the residential mortgage portfolio of $1.7 billion, which is partially attributable to the sale of SBC, and decreases in the home equity loans and lines of credit portfolio of $481.8 million.

Consumer Loans Not Secured By Real Estate

RICs and auto loans

RICs and auto loans increased $4.2 billion, or 11.4%, from December 31, 2019 to September 30, 2020. The increase in the RIC and auto loan portfolio was primarily due to an increase in originations, net of securitizations. RICs are collateralized by vehicle titles, and the lender has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. Most of the Company's RICs HFI are pledged against warehouse lines or securitization bonds. Refer to further discussion of these in Note 9 to the Condensed Consolidated Financial Statements.

As of September 30, 2020, 62.9% of the Company's RIC and auto loan portfolio balance was comprised of 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. This also includes 10.7% of loans for which no FICO score is available or legacy portfolios for which FICO is not considered in the ALLL model. While underwriting guidelines are designed to establish that the customer would be a reasonable credit risk, nonprime loans will nonetheless experience higher default rates than a portfolio of obligations of prime customers. Additionally, higher unemployment rates, higher gasoline prices, unstable real estate values, re-sets of adjustable rate mortgages to higher interest rates, the general availability of consumer credit, and other factors that impact consumer confidence or disposable income could lead to an increase in delinquencies, defaults, and repossessions, as well as decreased consumer demand for used automobiles and other consumer products, weaken collateral values and increase losses in the event of default. Because SC'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 for these credits reflects a disciplined approach to credit risk management to mitigate the risks of nonprime customers. The Company's robust historical data on both organically originated and acquired loans provides it with the ability to perform advanced loss forecasting. Each applicant is automatically assigned a proprietary custom score using information such as FICO scores, DTI ratios, LTV ratios, and over 30 other predictive factors, placing the applicant in one of 100 pricing tiers. The pricing in each tier is continuously monitored and adjusted to reflect market and risk trends. In addition to the Company's automated process, it maintains a team of underwriters for manual review, consideration of exceptions, and review of deal structures with dealers.

At September 30, 2020, a typical RIC was originated with an average annual percentage rate of 13.8% and was purchased from the dealer at a premium of 1.0%. All of the Company's RICs and auto loans are fixed-rate loans.

The Company records an ALLL to cover its estimate of inherent losses on its RICs incurred as of the balance sheet date.

Personal unsecured and other consumer loans

Personal unsecured and other consumer loans decreased from December 31, 2019 to September 30, 2020 by $518.8 million.

As a result of the strategic evaluation of SC's personal lending portfolio, in the third quarter of 2015, SC began reviewing strategic alternatives for exiting its personal loan portfolios. SC's other significant personal lending relationship is with Bluestem. SC continues to perform in accordance with the terms and operative provisions of the agreements under which it is obligated to purchase personal revolving loans originated by Bluestem for a term ending in 2020, or 2022 if extended at Bluestem's option. The Bluestem loan portfolio is carried as held-for-sale in our Condensed Consolidated Financial Statements. Accordingly, the Company has recorded lower-of-cost-or-market adjustments on this portfolio, and there may be further such adjustments required in future period financial statements. Management is currently evaluating alternatives for the Bluestem portfolio. As of September 30, 2020, SC's personal unsecured portfolio was held-for-sale and thus does not have a related allowance.

100

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

NON-PERFORMING ASSETS

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


	Period Ended						Change
(dollars in thousands)	September 30, 2020			December 31, 2019			Dollar		Percentage
Non-accrual loans:
Commercial:
CRE	$	95,621		$	83,117		$	12,504	15.0	%
C&I	102,274			153,428			(51,154)		(33.3)	%
Multifamily	51,349			5,112			46,237		904.5	%
Other commercial	16,984			31,987			(15,003)		(46.9)	%
Total commercial loans	266,228			273,644			(7,416)		(2.7)	%

Consumer loans secured by real estate:
Residential mortgages	164,001			134,957			29,044		21.5	%
Home equity loans and lines of credit	94,872			107,289			(12,417)		(11.6)	%
Consumer loans not secured by real estate:
RICs and auto loans	967,101			1,643,459			(676,358)		(41.2)	%
Personal unsecured loans	—			2,212			(2,212)		(100.0)	%
Other consumer	7,135			11,491			(4,356)		(37.9)	%
Total consumer loans	1,233,109			1,899,408			(666,299)		(35.1)	%
Total non-accrual loans	1,499,337			2,173,052			(673,715)		(31.0)	%

Other real estate owned	43,015			66,828			(23,813)		(35.6)	%
Repossessed vehicles	249,572			212,966			36,606		17.2	%
Other repossessed assets	3,206			4,218			(1,012)		(24.0)	%
Total OREO and other repossessed assets	295,793			284,012			11,781		4.1	%
Total non-performing assets	$	1,795,130		$	2,457,064		$	(661,934)	(26.9)	%

Past due 90 days or more as to interest or principal and accruing interest	$	45,117		$	93,102		$	(47,985)	(51.5)%
Annualized net loan charge-offs to average loans (1)	1.9		%	2.8		%	n/a		n/a
Non-performing assets as a percentage of total assets	1.2		%	1.6		%	n/a		n/a
NPLs as a percentage of total loans	1.6		%	2.3		%	n/a		n/a

ALLL as a percentage of total NPLs	493.5		%	167.8		%	n/a		n/a

(1) Annualized net loan charge-offs are based on year-to-date charge-offs.

The increase in the ALLL as a percentage of total NPLs is a result of the adoption of the CECL standard effective January 1, 2020.

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 for more than 30 days but less than 90 days. Potential problem commercial loans totaled approximately $262.7 million and $179.9 million at September 30, 2020 and December 31, 2019, respectively. This increase was primarily due to one large borrower within the Other Commercial portfolio.

Potential problem consumer loans amounted to $2.7 billion and $4.7 billion at September 30, 2020 and December 31, 2019, respectively. Management has included these loans in its evaluation of the Company's ACL and reserved for them during the respective periods.

Non-performing assets decreased to $1.8 billion, or 1.2% of total assets, at September 30, 2020, compared to $2.5 billion, or 1.6% of total assets, at December 31, 2019, due to lower NPLs resulting from COVID-19 deferral program.

101

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

Commercial

Commercial NPLs decreased $7.4 million from December 31, 2019 to September 30, 2020. Commercial NPLs accounted for 0.7% of commercial LHFI at September 30, 2020 and December 31, 2019, respectively. The decrease in commercial NPLs was primarily comprised of decreases of $51.2 million in C&I offset by increases of $46.2 million in the Multifamily portfolio.

Consumer Loans Not Secured by Real Estate

RICs and amortizing personal loans are classified as non-performing when they are more than 60 DPD (i.e., 61 or more DPD) with respect to principal or interest. Except for loans accounted for using the FVO, at the time a loan is placed on non-performing status, previously accrued and uncollected interest is reversed against interest income. When an account is 60 days or less past due, it is returned to 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.

RIC TDRs are placed on non-accrual status when the account becomes past due more than 60 days. For loans in non-accrual status, interest income is recognized on a cash basis. For loans on non-accrual status, the accrual of interest is resumed if a delinquent account subsequently becomes 60 days or less past due. NPLs in the RIC and auto loan portfolio decreased by $676.4 million from December 31, 2019 to September 30, 2020. Non-performing RICs and auto loans accounted for 2.4% and 4.5% of total RICs and auto loans at September 30, 2020 and December 31, 2019, respectively.

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, 2020 and December 31, 2019, respectively:


	September 30, 2020						December 31, 2019
(dollars in thousands)	Residential mortgages			Home equity loans and lines of credit			Residential mortgages			Home equity loans and lines of credit
NPLs - HFI	$	164,001		$	94,872		$	134,957		$	107,289
Total LHFI	7,132,279			4,288,526			8,835,702			4,770,344
NPLs as a percentage of total LHFI	2.3		%	2.2		%	1.5		%	2.2		%

The NPL ratio is usually higher for the Company's residential mortgage loan portfolio compared to the home equity loans and lines of credit 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. Foreclosures on consumer loans secured by real estate were $258.9 million or 32.0% of non-performing consumer loans secured by real estate at September 30, 2020, compared to $242.2 million and 45.9% of consumer loans secured by real estate at December 31, 2019.

102

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

Delinquencies

The Company generally considers an account delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date.

Overall, total delinquencies decreased by $2.2 billion, or 38.5%, from December 31, 2019 to September 30, 2020, most significantly within the RICs and auto loan portfolio, which decreased $2.1 billion. Delinquent balances and nonaccrual balances overall were lower as of September 30, 2020 primarily due to the large number of deferrals granted to borrowers impacted by COVID-19.

TDRs

TDRs are loans that have been modified as the Company has agreed to make certain concessions to both meet the needs of customers and maximize its ultimate recovery on the loans. TDRs occur when a borrower is experiencing 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.

TDRs are generally placed on nonaccrual status upon modification, unless the loan was performing immediately prior to modification. For most portfolios, TDRs may return to accrual status after a sustained period of repayment performance, as long as the Company believes the principal and interest of the restructured loan will be paid in full. RIC TDRs are placed on nonaccrual status when the Company believes repayment under the revised terms is not reasonably assured and, at the latest, when the account becomes more than 60 DPD. RIC TDRs are considered for return to accrual when the account becomes 60 days or less past due. 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:


	As of September 30, 2020
(in thousands)	Commercial			%		Consumer Loans Secured by Real Estate			%		RICs and Auto Loans			%		Other Consumer			%		Total TDRs
Performing	$	77,377		42.7	%	$	97,685		49.5	%	$	3,499,277		91.5	%	$	35,785		97.3	%	$	3,710,124
Non-performing	103,926			57.3	%	99,813			50.5	%	324,340			8.5	%	994			2.7	%	529,073
Total	$	181,303		100.0	%	$	197,498		100.0	%	$	3,823,617		100.0	%	$	36,779		100.0	%	$	4,239,197

% of loan portfolio	0.5		%	n/a		1.7		%	n/a		9.4		%	n/a		3.4		%	n/a		4.6		%
(1) Excludes LHFS.

	As of December 31, 2019
(in thousands)	Commercial			%		Consumer Loans Secured by Real Estate			%		RICs and Auto Loans			%		Other Consumer			%		Total TDRs
Performing	$	64,538		49.5	%	$	182,105		67.8	%	$	3,332,246		86.6	%	$	67,465		91.7	%	$	3,646,354
Non-performing	65,741			50.5	%	86,335			32.2	%	515,573			13.4	%	6,128			8.3	%	673,777
Total	$	130,279		100.0	%	$	268,440		100.0	%	$	3,847,819		100.0	%	$	73,593		100.0	%	$	4,320,131

% of loan portfolio	0.3		%	n/a		2.0		%	n/a		10.6		%	n/a		4.6		%	n/a		4.7		%

(1) Excludes LHFS.

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

The following table provides a summary of TDR activity:



	Nine-Month Period Ended September 30, 2020				Nine-Month Period Ended September 30, 2019
(in thousands)	RICs and Auto Loans		All Other Loans(1)		RICs and Auto Loans		All Other Loans(1)
TDRs, beginning of period	$	3,847,819	$	472,312	$	5,251,769	$	670,584
New TDRs(1)	1,442,007		189,658		912,394		66,106
Charged-Off TDRs	(574,501)		(5,803)		(1,093,934)		(8,657)
Sold TDRs	(27,397)		(163,210)		(1,363)		(5,991)
Payments on TDRs	(864,311)		(77,377)		(902,745)		(110,780)
TDRs, end of period	$	3,823,617	$	415,580	$	4,166,121	$	611,262

(1) New TDRs includes drawdowns on lines of credit that have previously been classified as TDRs.

The decrease in total delinquent TDRs is primarily due to the significant increase in deferrals provided to borrowers in response to COVID-19 impacts.

In accordance with the Company’s policies and guidelines, the Company may offer extensions (deferrals) to consumers on its RICs, whereby the consumer is allowed to move a maximum of three payments per event to the end of the loan. The Company’s policies and guidelines limit the frequency of each new deferral that may be granted to one deferral every six months, regardless of the length of any prior deferral. The maximum number of lifetime months extended for all automobile RICs was eight, while some marine and RV contracts had a maximum of twelve months extended to reflect their longer term. Additionally, the Company generally limits the granting of deferrals on new accounts until a requisite number of payments has been received. However, many of these practices have been temporarily revised to accommodate borrowers impacted by COVID-19, including increasing the maximum number of extensions, allowing more than one deferral every six months and removing the requirement that a requisite number of months have passed since origination. 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. This may result in the classification of the loan as current and therefore not considered a delinquent account. However, there are other instances when a deferral is granted but the loan is not brought completely current, such as when the account days past due is greater than the deferment period granted. Such accounts are aged based on the timely payment of future installments in the same manner as any other account. Historically, the majority of deferrals on RICs are approved for borrowers who are either 31-60 or 61-90 DPD and these borrowers are typically reported as current after deferral. For the RIC portfolio, if a customer receives two or more deferrals over the life of the loan, the loan would generally advance to a TDR designation.

However in March 2020, the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.” This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19 and concludes that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were impacted by COVID-19 and who were less than 30 days past due as of the implementation date of a relief program are not TDRs. Additionally, Section 4013 of the CARES Act grants companies the option of not applying the GAAP TDR guidance to certain loans with COVID-19 modifications.

In March 2020, the Company began actively working with its borrowers impacted by COVID-19 and provided loan modification programs to mitigate the adverse effects of COVID-19. In both its consumer and commercial portfolios, the programs generally include payment deferrals for a period of one to six months. In the Company's RIC and auto loan portfolio, the predominant program offering is a deferral of payments to the end of the loan term and waiver of late charges of up to three months. For credit cards, we offer a temporary payment reduction program for a period of up to three months. Payment deferrals on mortgages can be for up to one year. The Company does not consider payment deferrals of up to six months to customers who were current prior to implementation of the Company's relief programs to be TDRs, in accordance with its accounting policy and interagency regulatory guidelines. Additionally, the Company applies the TDR provisions of the CARES Act to certain consumer loans that received COVID19 modifications, if they were current as of December 31, 2019. Consumer loans that are granted deferrals beyond 180 days are not classified as TDRs if they comply with the requirements of the CARES Act.

Since the implementation of the programs in March 2020, we experienced a sharp increase in requests for relief related to COVID-19 nationwide and a significant number of such extensions have been granted. Through September 30, 2020 the Bank had granted extensions to approximately 43,000 unique customer accounts totaling approximately $7.0 billion in connection with COVID-19. Additionally, SC has granted over 911,000 loan extensions to 645,000 unique customer accounts totaling approximately $11 billion of loans that have been granted a COVID-19 deferral.

The following table provides a summary of SBNA and SC loan balances with active payment deferrals due to COVID-19 as of the end of each reporting period:

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


	September 30, 2020		June 30, 2020
	Loan balance of active extensions (1)	% of Portfolio	Loan balance of active extensions (1)	% of Portfolio
Santander Bank
Commercial	$949,619	2.7%	$4,274,150	12.0%
Consumer (including SBNA RICs)	441,266	2.2%	1,367,414	6.6%
Total SBNA	$1,390,885	2.5%	$5,641,564	11.2%
Santander Consumer
RICs	$959,236	2.9%	$3,753,717	12.3%

(1) Santander Consumer balances exclude deferrals with payments due in the current month.

As of September 30, 2020, approximately 11% of SBNA customer accounts that received extensions were active, 82% had exited deferral, and 7% had paid down or charged off. Of the loans that have exited deferral status, 98% of the loan balances are less than 30 days past due.

As of September 30, 2020, approximately 33% of SC's unique customer accounts have required COVID-19 assistance. Of these accounts, 86% have exited deferral status, 7% remain in active deferral, 5% have paid-off, and 2% have charged off. Of the loans that have exited deferral status, 85% are less than 30 days past due and 96% of these accounts have made at least one payment since their first COVID-19 extension.

The Company evaluates the results of its deferral strategies based upon the amount of cash installments that are collected on accounts after they have been deferred compared to the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, the Company believes that payment deferrals granted according to its policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.

Changes in deferral levels do not have a direct impact on the ultimate amount of consumer finance receivables charged-off. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent deferrals impact the ultimate timing of when an account is charged-off, historical charge-off ratios, loss confirmation periods, and cash flow forecasts used in the determination of the adequacy of the ALLL for loans classified as TDRs are also impacted. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the ALLL and related credit loss expense. Changes in these ratios and periods are considered in determining the appropriate level of the ALLL and related credit loss expense. For loans that are classified as TDRs, the Company generally compares the present value of expected cash flows to the outstanding recorded investment of TDRs to determine the amount of allowance and related credit loss expense that should be recorded. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated costs to sell.

CREDIT RISK

The risk inherent in the Company’s loan and lease portfolios is driven by credit and collateral quality, and is affected by borrower-specific and economy-wide facts such as changes in employment, GDP, HPI, CRE price index, used car prices, and other factors. In general, there is an inverse relationship between credit quality of transactions and projections of impairment losses so that transactions with better credit quality require a lower expected loss. The Company manages this risk through its underwriting, pricing and credit approval guidelines and servicing policies and practices, as well as geographic and other concentration limits.

The Company's ACL is principally based on various models subject to the Company's Model Risk Management Framework. New models are approved by the Company's Model Risk Management Committee. Models, inputs and documentation are further reviewed and validated at least annually, and the Company completes a detailed variance analysis of historical model projections against actual observed results on a quarterly basis. Required actions resulting from the Company's analysis, if necessary, are governed by its ACL Committee.

105

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

Management uses the qualitative framework to exercise judgment about matters that are inherently uncertain and that are not considered by the quantitative framework. These adjustments are documented and reviewed through the Company’s risk management processes. Furthermore, management reviews, updates, and validates its process and loss assumptions on a periodic basis. This process involves an analysis of data integrity, review of loss and credit trends, a retrospective evaluation of actual loss information to loss forecasts, and other analyses.

ACL levels are collectively reviewed for adequacy and approved quarterly. Required actions resulting from the Company's analysis, if necessary, are governed by its ACL Committee. The ACL levels are approved by the Board-level committees quarterly.

ACL

Changes to the ACL are discussed in Note 3 to the Condensed Consolidated Financial Statements.

Reserve for Unfunded Lending Commitments

The reserve for unfunded lending commitments increased from $91.8 million at December 31, 2019 to $148.0 million at September 30, 2020. The increase of the reserve for unfunded lending commitments included an increase from the adoption of the CECL standard of $10.4 million while the remainder was primarily related to changes in the business environment resulting from COVID-19. The net impact of business as usual change in the reserve for unfunded lending commitments to the overall ACL was immaterial.

106

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

INVESTMENT SECURITIES

Investment securities consist primarily of U.S. Treasuries, MBS, ABS and FHLB and FRB stock. MBS consist of pass-through, CMOs 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 AFS investment strategy is to purchase liquid fixed-rate and floating-rate investments to manage the Company's liquidity position and interest rate risk adequately.

Total investment securities AFS decreased $3.3 billion to $11.1 billion at September 30, 2020, compared to $14.3 billion at December 31, 2019. During the nine-month period ended September 30, 2020, the composition of the Company's investment portfolio changed due to a decrease in U.S. Treasury securities, partially offset with an increase in MBS. U.S. Treasuries decreased by $3.9 billion primarily due to investment sales and maturities. MBS increased by $608.6 million primarily due to investment purchases and an increase in unrealized gains, partially offset by investment sales, maturities and principal paydowns. For additional information with respect to the Company’s investment securities, see Note 2 to the Condensed Consolidated Financial Statements.

Debt securities for which the Company has the positive intent and ability to hold the securities until maturity are classified as HTM securities. HTM securities are reported at cost and adjusted for amortization of premium and accretion of discount. Total investment securities HTM were $5.5 billion at September 30, 2020. The Company had 125 investment securities classified as HTM as of September 30, 2020.

Total gross unrealized gain/(loss) position on investment securities AFS increased by $199.3 million during the nine-month period ended September 30, 2020. This increase was primarily related to an increase in unrealized gains of $200.4 million on MBS, primarily due to a decrease in interest rates.

The average life of the AFS investment portfolio (excluding certain ABS) at September 30, 2020 was approximately 4.14 years. The average effective duration of the investment portfolio (excluding certain ABS) at September 30, 2020 was approximately 2.60 years. The actual maturities of MBS AFS will differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties.

The following table presents the fair value of investment securities by obligor at the dates indicated:


(in thousands)	September 30, 2020		December 31, 2019
Investment securities AFS:
U.S. Treasury securities and government agencies	$	5,062,082	$	9,735,337
FNMA and FHLMC securities	5,732,838		4,326,299
State and municipal securities	3		9
Other securities (1)	284,049		278,113
Total investment securities AFS	11,078,972		14,339,758
Investment securities HTM:
U.S. government agencies	5,488,576		3,938,797
Total investment securities HTM(2)	5,488,576		3,938,797

Other investments	1,657,706		995,680
Total investment portfolio	$	18,225,254	$	19,274,235

(1) Other securities primarily include corporate debt securities and ABS.

(2) HTM securities are measured and presented at amortized cost.

The following table presents the securities of single issuers (other than obligations of the United States and its political subdivisions, agencies, and corporations) having an aggregate book value in excess of 10% of the Company's stockholder's equity that were held by the Company at September 30, 2020:


	September 30, 2020
(in thousands)	Amortized Cost		Fair Value
FNMA	$	3,422,466	$	3,472,243
FHLMC	2,231,378		2,260,595
GNMA (1)	10,174,627		10,464,377

Total	$	15,828,471	$	16,197,215

(1) Includes U.S. government agency MBS.

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

GOODWILL

The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired less the fair value of liabilities assumed as goodwill. Consistent with ASC 350, the Company does not amortize goodwill, and reviews the goodwill recorded for impairment on an annual basis or more frequently when events or changes in circumstances indicate the potential for goodwill impairment. At September 30, 2020, goodwill totaled $2.6 billion and represented 1.8% of total assets and 12.5% of total stockholder's equity. The following table shows goodwill by reporting units at September 30, 2020:


(in thousands)	CBB		C&I		CRE & VF		CIB		SC		Total
Goodwill at December 31, 2019	$	1,880,304	$	317,924	$	1,095,071	$	131,130	$	1,019,960	$	4,444,389
Impairment during the period	(1,557,384)		(290,844)		—		—		—		$	(1,848,228)

Goodwill at September 30, 2020	$	322,920	$	27,080	$	1,095,071	$	131,130	$	1,019,960	$	2,596,161

The Company conducted its annual goodwill impairment tests as of October 1, 2019 using generally accepted valuation methods.

The Company completes a quarterly review for impairment indicators over each of its reporting units, which includes consideration of economic and organizational factors that could impact the fair value of the Company’s reporting units. As disclosed in footnote 5 to these Condensed Consolidated Financial Statements, the Company determined that goodwill triggering events occurred in the CBB, C&I and CRE & VF reporting units during the second quarter of 2020.

For the CBB reporting unit’s second quarter valuation analysis, a weighting of 25% to the market approach and 75% to the income approach was applied. For the income approach, the Company selected a discount rate of 10.0%, which represents management’s best estimate of the rate of return expected by market participants and aligns with the reporting unit's cost of equity at the time of the analysis. The Company increased a component of the discount rate to reflect the risk and uncertainty related to the reporting unit’s projected cash flows, which were adjusted downward from the Company’s year-end financial plan as a result of the estimated economic impact of the COVID-19 pandemic. A long-term growth rate of 2.50 %, down from 3.0% at March 31, 2020, was applied in determining the terminal value. For the market approach, the Company selected a 30% control premium based on the Company’s review of transactions observable in the marketplace that were determined to be comparable. The equity value as a multiple of tangible book value of 0.9x was selected based on publicly traded peers of the reporting unit. The results of the fair value analysis did not exceed the carrying value for the CBB reporting unit, indicating that the reporting unit was considered to be impaired at June 30, 2020. As a result, the Company recorded a $1.6 billion impairment charge relate to the CBB reporting unit.

For the C&I reporting unit’s second quarter valuation analysis, a weighting of 25% to the market approach and 75% to the income approach was applied. For the income approach, the Company selected a discount rate of 11.4%, which represents management’s best estimate of the rate of return expected by market participants and aligns with the reporting unit's cost of equity at the time of the analysis. The Company increased a component of the discount rate to reflect the risk and uncertainty related to the reporting unit’s projected cash flows, which were adjusted downward from the Company’s year-end financial plan as a result of the estimated economic impact of the COVID-19 pandemic. A long-term growth rate of 2.50%, down from 4.0% at October 1, 2019, was applied in determining the terminal value. For the market approach, the Company selected a 30% control premium based on the Company’s review of transactions observable in the marketplace that were determined to be comparable. The equity value as a multiple of tangible book value of 0.8x was selected based on publicly traded peers of the reporting unit. The results of the fair value analysis did not exceed the carrying value for the C&I reporting unit indicating that the reporting unit was considered to be impaired at June 30, 2020. As a result, the Company recorded a $0.3 billion impairment charge relate to the C&I reporting unit.

108

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

For the CRE & VF reporting unit’s second quarter valuation analysis, a weighting of 25% to the market approach and 75% to the income approach was applied. For the income approach, the Company selected a discount rate of 11.6%, which represents management’s best estimate of the rate of return expected by market participants and aligns with the reporting unit's cost of equity at the time of the analysis. The Company increased a component of the discount rate to reflect the risk and uncertainty related to the reporting unit’s projected cash flows, which were adjusted downward from the Company’s year-end financial plan as a result of the estimated economic impact of the COVID-19 pandemic. A long-term growth rate of 2.50%, down from 3.0% at October 1, 2019, was applied in determining the terminal value. For the market approach, the Company selected a 30% control premium based on the Company’s review of transactions observable in the marketplace that were determined to be comparable. The equity value as a multiple of tangible book value of 1.2x was selected based on publicly traded peers of the reporting unit. The results of the fair value analysis exceeded the carrying value for the CRE & VF reporting unit by less than 5%, indicating that the reporting unit was not considered to be impaired at June 30, 2020.

The Company is in the process of completing its annual goodwill impairment analysis as of October 1, 2020. In addition to completing this analysis in the fourth quarter of 2020, the Company will continue monitoring changes to all reporting units for potential indicators. There is an increased risk that further impairment or impairment within additional reporting units, up to the amount of remaining goodwill, could be recognized based on continued or additional declines in the market in future periods.

DEFERRED TAXES AND OTHER TAX ACTIVITY

The Company had a net deferred tax liability balance of $69.2 million at September 30, 2020, compared to a net deferred tax liability balance of $1.0 billion at December 31, 2019 (consisting of a deferred tax asset balance of $503.7 million and a deferred tax liability balance of $1.5 billion). During the quarter, the Company’s ownership of SC reached the 80% threshold which requires SC to file a consolidated federal tax return with the Company. As a result, SHUSA reversed its deferred tax liability of $306.6 million for the book over tax basis difference in its investment in SC. The $948.2 million decrease in net deferred liability for the nine-month period ended September 30, 2020 was primarily due to the adoption of the CECL standard during the first quarter of 2020 and the reversal of the deferred tax liability for the book over tax basis difference associated with the Company’s investment in SC during the third quarter of 2020.

OFF-BALANCE SHEET ARRANGEMENTS

See further discussion of the Company's off-balance sheet arrangements in Note 7 and Note 15 to the Condensed Consolidated Financial Statements, and the "Liquidity and Capital Resources" section of this MD&A.

For a discussion of the status of litigation with which the Company is involved with the IRS, please refer to Note 14 to the Condensed Consolidated Financial Statements.

BANK REGULATORY CAPITAL

The Company's capital priorities are to support client growth and business investment while maintaining appropriate capital in light of economic uncertainty and the Basel III framework.

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, 2020 and December 31, 2019, based on the Bank’s capital calculations, the Bank was considered well-capitalized under the applicable capital framework. In addition, the Company's capital levels as of September 30, 2020 and December 31, 2019, based on the Company’s capital calculations, exceeded the required capital ratios 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" in this MD&A.

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 SHUSA 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. The OCC's prior approval would also be required if the Bank were notified by the OCC that it is a problem institution or in troubled condition.

109

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

Any dividend declared and paid or return of capital has the effect of reducing capital ratios. During the nine-month periods ended September 30, 2020 and 2019, the Company paid cash dividends of $125.0 million, and $150.0 million, respectively, to its common stock shareholder.

The following schedule summarizes the actual capital balances of SHUSA and the Bank at September 30, 2020:


	SHUSA

	September 30, 2020		Well-capitalized Requirement(1)		Minimum Requirement(1)
CET1 capital ratio	15.44	%	6.50	%	4.50	%
Tier 1 capital ratio	16.86	%	8.00	%	6.00	%
Total capital ratio	18.26	%	10.00	%	8.00	%
Leverage ratio	13.19	%	5.00	%	4.00	%


	Bank

	September 30, 2020		Well-capitalized Requirement(1)		Minimum Requirement(1)
CET1 capital ratio	15.37	%	6.50	%	4.50	%
Tier 1 capital ratio	15.37	%	8.00	%	6.00	%
Total capital ratio	16.61	%	10.00	%	8.00	%
Leverage ratio	12.13	%	5.00	%	4.00	%

(1) Capital ratios through March 31, 2020 calculated under the U.S. Basel III framework on a transitional basis. Capital ratios starting in the first quarter of 2020 calculated under CECL transition provisions permitted by the CARES Act

LIQUIDITY AND CAPITAL RESOURCES

Overall

The Company continues to maintain strong liquidity. Liquidity represents the ability of the Company to obtain cost-effective funding to meet the needs of customers as well as the Company's financial obligations. Factors that impact the liquidity position of the Company include loan origination volumes, loan prepayment rates, the maturity structure of existing loans, core deposit growth levels, CD maturity structure and retention, the Company's credit ratings, investment portfolio cash flows, the maturity structure of the Company's wholesale funding, and other factors. These risks are monitored and managed centrally. The Company's Asset/Liability Committee reviews and approves the Company's liquidity policy and guidelines on a regular basis. This process includes reviewing all available wholesale liquidity sources. The Company also forecasts future liquidity needs and develops strategies to ensure adequate liquidity is available at all times. SHUSA conducts monthly liquidity stress test analyses to manage its liquidity under a variety of scenarios, all of which demonstrate that the Company has ample liquidity to meet its short-term and long-term cash requirements.

Further changes to the credit ratings of SHUSA, Santander and its affiliates or the Kingdom of Spain could have a material adverse effect on SHUSA's business, including its liquidity and capital resources. The credit ratings of SHUSA have changed in the past and may change in the future, which could impact its cost of and access to sources of financing and liquidity. Any reductions in the long-term or short-term credit ratings of SHUSA would increase its borrowing costs and require it to replace funding lost due to the downgrade, which may include the loss of customer deposits, 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.

110

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

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. In addition, the Company has other sources of funding to meet its liquidity requirements such as dividends and returns of investments from its subsidiaries, short-term investments held by non-bank affiliates, and access to the capital markets.

SC requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. SC funds its operations through its lending relationships with 13 third-party banks, Santander and SHUSA, and through securitizations in the ABS market and flow agreements. SC seeks to issue debt that appropriately matches the cash flows of the assets that it originates. SC has more than $5.0 billion of stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements.

During the quarter ended September 30, 2020, SC completed on-balance sheet funding transactions totaling approximately $4.4 billion, including:

•private amortizing lease facilities for approximately $1.2 billion; and

•securitizations on its SDART platform for approximately $3.3 billion.

SC also completed approximately $0.6 billion in asset sales to third parties during the quarter.

For information regarding SC's debt, see Note 9 to the Condensed Consolidated Financial Statements.

IHC

On June 6, 2017, SIS entered into a revolving subordinated loan agreement with SHUSA not to exceed $290.0 million for a two-year term to mature in 2019. On October 16, 2018, the revolving loan agreement was increased to $895.0 million.

As needed, SIS will draw down from another subordinated loan with Santander in order to enable SIS to underwrite certain large transactions in excess of the subordinated loan described above. At September 30, 2020, there was no outstanding balance on the subordinated loan.

BSI's primary sources of liquidity are from customer deposits and deposits from affiliated banks.

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, 2020, the Bank had approximately $19.3 billion in committed liquidity from the FHLB and the FRB. Of this amount, $16.0 billion was unused and therefore provides additional borrowing capacity and liquidity for the Company. At September 30, 2020 and December 31, 2019, liquid assets (cash and cash equivalents and LHFS) and securities AFS exclusive of securities pledged as collateral) totaled approximately $19.4 billion and $15.0 billion, respectively. These amounts represented 28.6% and 24.3% of total deposits at September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, the Bank and BSI had $1.1 billion and $980.3 million, respectively, in cash held at the FRB. Management believes that the Company has ample liquidity to fund its operations.

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

Cash, cash equivalents, and restricted cash


	Nine-Month Period Ended September 30,
(in thousands)	2020		2019
Net cash flows from operating activities	$	4,894,072	$	4,636,896
Net cash flows from investing activities	(161,803)		(12,979,078)
Net cash flows from financing activities	(1,559,594)		9,022,335

Cash flows from operating activities

Net cash flow from operating activities was $4.9 billion for the nine-month period ended September 30, 2020, which was primarily comprised of $1.4 billion in proceeds from sales of LHFS, $2.1 billion in depreciation, amortization and accretion, $2.6 billion of credit loss expense, and $1.8 billion from impairment of goodwill, partially offset by a net loss of $1.1 billion and $2.5 billion of originations of LHFS, net of repayments.

Net cash flow from operating activities was $4.6 billion for the nine-month period ended September 30, 2019, which was primarily comprised of net income of $916.3 million, $1.1 billion in proceeds from sales of LHFS, $1.7 billion in depreciation, amortization and accretion, and $1.7 billion of credit loss expense, partially offset by $1.1 billion of originations of LHFS, net of repayments.

Cash flows from investing activities

For the nine-month period ended September 30, 2020, net cash flow from investing activities was $(161.8) million, primarily due to $3.8 billion in normal loan activity, $5.6 billion of purchases of investment securities AFS, $4.9 billion in operating lease purchases and originations, and $2.2 billion of purchases of HTM investment securities, partially offset by $9.4 billion of AFS investment securities sales, maturities and prepayments, $3.1 billion in proceeds from sales and terminations of operating leases, and $3.5 billion in proceeds from sales of LHFI.

For the nine-month period ended September 30, 2019, net cash flow from investing activities was $(13.0) billion, primarily due to $7.1 billion in normal loan activity, $6.0 billion of purchases of investment securities AFS, $6.8 billion in operating lease purchases and originations and $1.0 billion of purchases of HTM investment securities, partially offset by $4.3 billion of AFS investment securities sales, maturities and prepayments, $1.4 billion in proceeds from sales of LHFI, and $2.7 billion in proceeds from sales and terminations of operating leases.

Cash flows from financing activities

For the nine-month period ended September 30, 2020, net cash flow from financing activities was $(1.6) billion, which was primarily due to a decrease in net borrowing activity of $2.5 billion, $125.0 million in dividends paid on common stock, and $770.5 million in stock repurchases attributable to NCI, partially offset by a $1.9 billion increase in deposits.

Net cash flow from financing activities for the nine-month period ended September 30, 2019 was $9.0 billion, which was primarily due to an increase in net borrowing activity of $4.2 billion and a $5.2 billion increase in deposits, partially offset by $150.0 million in dividends paid on common stock and $245.7 million in stock repurchases attributable to NCI.

See the SCF for further details on the Company's sources and uses of cash.

Credit Facilities

Third-Party Revolving Credit Facilities

Warehouse Lines

SC has one credit facility with eight banks providing an aggregate commitment of $3.5 billion for the exclusive use of providing short-term liquidity needs to support Chrysler Capital lease financing. As of September 30, 2020, there was an outstanding balance of approximately $1.2 billion on this facility in the aggregate. The facility requires reduced advance rates in the event of delinquency, credit loss, or residual loss ratios, as well as other metrics exceeding specified thresholds.

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

SC has eight credit facilities with eleven banks providing an aggregate commitment of $8.3 billion for the exclusive use of providing short-term liquidity needs to support core and Chrysler Capital loan financing. As of September 30, 2020, there was an outstanding balance of approximately $1.3 billion on these facilities in the aggregate. These facilities reduced advance rates in the event of delinquency, credit loss, as well as various other metrics exceeding specific thresholds.

Repurchase Agreements

SC also obtains financing through investment management or repurchase agreements under which it pledges retained subordinate bonds on its own securitizations as collateral for repurchase agreements with various borrowers and at renewable terms ranging up to 365 days. As of September 30, 2020 and December 31, 2019, there were outstanding balances of $311.9 million and $422.3 million, respectively, under these repurchase agreements.

SHUSA and Santander Lending to SC

The Company provides SC with $3.0 billion of committed revolving credit that can be drawn on an unsecured basis. The Company also provides SC with $7.2 billion of term financing with maturities ranging from October 2020 to June 2025. These loans eliminate in the consolidation of SHUSA. Santander provides SC with $4.0 billion of unsecured financing with maturities ranging from June 2022 and September 2022.

Secured Structured Financings

SC's secured structured financings primarily consist of both public, SEC-registered securitizations, as well as private securitizations under Rule 144A of the Securities Act, and privately issues amortizing notes. SC has on-balance sheet securitizations outstanding in the market with a cumulative ABS balance of approximately $27.0 billion.

Flow Agreements

In addition to SC's credit facilities and secured structured financings, SC has a flow agreement in place with a third party for charged-off assets. Loans and leases sold under these flow agreements are not on SC's balance sheet, but provide a stable stream of servicing fee income and may also provide a gain or loss on sale. SC continues to actively seek additional flow agreements.

Off-Balance Sheet Financing

Beginning in 2017, SC had the option to sell a contractually determined amount of eligible prime loans to Santander through securitization platforms. As all of the notes and residual interests in the securitizations are acquired by Santander, SC recorded these transactions as true sales of the RICs securitized, and removed the sold assets from its consolidated balance sheets. Beginning in 2018, this program was replaced with a new program with SBNA, whereby SC has agreed to provide SBNA with origination support services in connection with the processing, underwriting, and purchasing of retail loans, primarily from FCA dealers, all of which are serviced by SC.

SC also continues to periodically execute securitizations under Rule 144A of the Securities Act. After retaining the required credit risk retention via a 5% vertical interest, SC transfers all remaining notes and residual interests in these securitizations to third parties. SC subsequently records these transactions as true sales of the RICs securitized, and removes the sold assets from its Condensed Consolidated Balance Sheets.

Uses of Liquidity

The Company uses liquidity for debt service and repayment of borrowings, as well as for funding loan commitments and satisfying deposit withdrawal requests. SIS uses liquidity primarily to support underwriting transactions.The primary use of liquidity for BSI is to meet customer liquidity requirements, such as maturing deposits, investment activities, funds transfers, and payment of operating expenses.

At September 30, 2020, the Company's liquidity to meet debt payments, debt service and debt maturities was in excess of 12 months.

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

Dividends, Contributions and Stock Issuances

As of September 30, 2020, the Company had 530,391,043 shares of common stock outstanding. During the three-month and nine-month periods ended September 30, 2020, the Company paid dividends of zero and $125.0 million, respectively, to its sole shareholder, Santander.

SC paid a dividend of $0.22 per share in February 2020, May 2020, and August 2020. SC has paid a total of $212.6 million in dividends through September 30, 2020, of which $50.5 million has been paid to NCI and $162.1 million has been paid to the Company, which eliminates in the consolidated results of the Company.

On September 30, 2020, the Federal Reserve extended the Interim Policy. Based on the Company's expected average trailing four quarters of net income, SC is prohibited from paying a dividend in the fourth quarter of 2020. Although SC’s standalone income is sufficient to declare and a pay a dividend, SC is consolidated into the Company's capital plan and therefore is subject to the Interim Policy which utilizes the Company’s average trailing income to determine the cap on common stock dividends. SC does not currently expect to declare or pay a dividend in the fourth quarter of 2020.

During the three months ended March 31, 2020, SC purchased shares of SC Common Stock through a tender offer.

On August 10, 2020, SC announced that it had substantially exhausted the amount of shares SC was permitted to repurchase under the exception to the Interim Policy the Federal Reserve granted SHUSA and that SC expected to repurchase an immaterial number of shares remaining under the exception approval.

Below are the details of SC's tender offer and other share repurchase programs for the three-month and nine-month periods ended September 30, 2020 and September 30, 2019:


	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Tender offer:(1)
Number of shares purchased	—		—		17,514,707		—
Average price per share	$	—	$	—	$	26.00	$	—
Cost of shares purchased(2)	$	—	$	—	$	455,382	$	—

Other share repurchases:
Number of shares purchased	10,198,800		5,479,650		15,956,561		10,194,772
Average price per share	$	21.91	$	25.71	$	20.00	$	24.08
Cost of shares purchased(2)	$	223,485	$	140,909	$	319,075	$	245,496

Total number of shares purchased	10,198,800		5,479,650		33,471,268		10,194,772
Average price per share	$	21.91	$	25.71	$	23.14	$	24.08
Total cost of shares purchased(2)	$	223,485	$	140,909	$	774,457	$	245,496

(1) During the three months ended March 31, 2020, SC purchased shares of SC Common Stock through a tender offer.

(2) Cost of shares exclude commissions

During the nine-month period ended September 30, 2020, SHUSA's subsidiaries had the following capital activity which eliminated in consolidation:

•BSI declared and paid $7.5 million in dividends to SHUSA.

•SIS declared and paid $4.0 million in dividends to SHUSA.

•SHUSA contributed $25.0 million to SFS.

On August 10, 2020, SC substantively exhausted the amount of shares it was permitted to repurchase under the exception to the Federal Reserve's interim capital preservation policy granted in the third quarter of 2020 and has acquired an aggregate of 9.58 million of its shares in a combination of open market and privately negotiated repurchases since July 31, 2020. As a result of these repurchases, SHUSA now owns approximately 80.2% of SC.

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

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and asset/liability management 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
(in thousands)	Total		Less than 1 year		Over 1 year to 3 years		Over 3 years to 5 years		Over 5 years
Payments due for contractual obligations:
FHLB advances (1)	$	3,060,779	$	2,308,826	$	751,953	$	—	$	—
Notes payable - revolving facilities	2,803,684		812,341		1,991,343		—		—
Notes payable - secured structured financings	27,440,072		77,643		9,245,194		11,595,201		6,522,034
Other debt obligations (1) (2)	18,908,039		1,657,486		10,588,210		4,460,584		2,201,759
CDs (1)	4,430,657		3,563,261		821,832		42,357		3,207
Non-qualified pension and post-retirement benefits	63,194		7,085		14,071		13,800		28,238
Operating leases(3)	702,016		136,568		236,624		176,663		152,161
Total contractual cash obligations	$	57,408,441	$	8,563,210	$	23,649,227	$	16,288,605	$	8,907,399
Other commitments:
Commitments to extend credit	$	32,140,936	$	7,127,545	$	7,296,125	$	5,660,716	$	12,056,550
Letters of credit	1,626,932		1,147,275		255,148		190,713		33,796
Total Contractual Obligations and Other Commitments	$	91,176,309	$	16,838,030	$	31,200,500	$	22,140,034	$	20,997,745

(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, 2020. 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 or interest of $63.8 million.

Excluded from the above table are deposits of $64.9 billion that are due on demand by customers.

The Company is a party to financial instruments and other arrangements with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and manage its exposure to fluctuations in interest rates. See further discussion on these risks in Note 11 and Note 15 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. The Treasury group also uses various other tools to manage interest rate risk, including wholesale funding maturity targeting, investment portfolio purchase strategies, asset securitizations/sales, and financial derivatives.

Interest rate risk focuses on managing four elements of risk associated with interest rates: basis risk, repricing risk, yield curve risk and option risk. Basis risk stems from rate index timing differences with rate changes, such as differences in the extent of changes in Federal funds rates compared with the three-month LIBOR. Repricing risk stems from the different timing of contractual repricing, such as one-month versus three-month reset dates, as well as the related maturities. Yield curve risk stems from the impact on earnings and market value resulting from different shapes and levels of yield curves. Option risk stems from prepayment or early withdrawal risk embedded in various products. These four elements of risk are analyzed through a combination of net interest income and balance sheet valuation simulations, shocks to those simulations, and scenario and market value analyses, and the subsequent results are reviewed by management. 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.

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

Net Interest Income Simulation Analysis

The Company utilizes a variety of measurement techniques to evaluate the impact of interest rate risk, including simulating the impact of changing interest rates on expected future interest income and interest expense, to estimate the Company's net interest income sensitivity. This simulation is run monthly and includes various scenarios that help management understand the potential risks in the Company's net interest income sensitivity. These 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 at September 30, 2020 and December 31, 2019:


	The following estimated percentage increase/(decrease) to net interest income would result
If interest rates changed in parallel by the amounts below	September 30, 2020		December 31, 2019
Down 100 basis points	(1.08)	%	(1.12)	%
Up 100 basis points	1.94 %		1.31	%
Up 200 basis points	3.71 %		2.56	%

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, 2020 and December 31, 2019.


	The following estimated percentage increase/(decrease) to MVE would result
If interest rates changed in parallel by the amounts below	September 30, 2020		December 31, 2019
Down 100 basis points	(5.82)	%	(3.01)	%
Up 100 basis points	1.25 %		(0.49)	%
Up 200 basis points	0.19 %		(3.17)	%

As of September 30, 2020, the Company’s profile reflected a decrease of MVE of 5.82% for downward parallel interest rate shocks of 100 basis points and an increase of 1.25 % for upward parallel interest rate shocks of 100 basis points. The asymmetrical sensitivity between up 100 and down 100 shock 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 NMDs).

In downward parallel interest rate shocks, mortgage-related products’ prepayments increase, their duration decreases and their market value appreciation is therefore limited. At the same time, with deposit rates remaining at comparatively low levels, the Company cannot effectively transfer interest rate declines to its NMD customers. For upward parallel interest rate shocks, extension risk weighs on a sizable portion of the Company’s mortgage-related products, which are predominantly long-term and fixed-rate; and for larger shocks, the loss in market value is not offset by the change in NMDs.

Limitations of Interest Rate Risk Analyses

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

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

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, SHUSA's Board of Directors has established certain limits relative to positions and activities. The level of price risk exposure at any point in time depends on the market environment and expectations of future price and market movements, and will vary from period to period.

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

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 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. The majority of the Company's residential MSRs are accounted for at fair value. As deemed appropriate, the Company economically hedges MSRs, using interest rate swaps and forward contracts to purchase MBS. For additional information on MSRs, see Note 12 to the Condensed Consolidated Financial Statements.

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

The Company also utilizes forward contracts to manage market risk associated with certain expected investment securities sales and equity options, which manage its market risk associated with certain customer deposit products.

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

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act as of as of the Evaluation Date. Based on that evaluation, our CEO and CFO have concluded that as of the Evaluation Date our disclosure controls and procedures; (a) are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms; and (b) include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

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, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Although a substantial portion of the Company’s workforce continues to work remotely due to the COVID-19 pandemic, this has not materially affected our internal controls over financial reporting. We continue to monitor and assess the COVID-19 situation to minimize potential impacts, if any, it may have on the design and operating effectiveness of our internal controls.

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PART II. OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

Refer to Note 14 to the Condensed Consolidated Financial Statements for disclosure regarding the lawsuit filed by SHUSA against the IRS and Note 15 to the Condensed Consolidated Financial Statements for SHUSA’s litigation disclosures, which are incorporated herein by reference.

ITEM 1A - RISK FACTORS

The Company is subject to a number of risks potentially impacting its business, financial condition, results of operations and cash flow that are set forth under Part I, Item IA, Risk Factors, in the Company's Annual Report on Form 10-K for 2019. In addition to the risk factors disclosed in that Form 10-K for the year ended December 31, 2019, the Company is subject to risks related to CECL as well as the COVID-19 outbreak, discussed further below.

Our adoption of the new standard on the measurement of credit losses on financial instruments and its resulting impact on our ACL and impairments may prove to be insufficient to absorb probable losses inherent in our loan portfolio.

The CECL standard replaces the incurred loss impairment framework in current GAAP with one that reflects expected credit losses over the full expected life of financial assets and commitments, and requires consideration of a broader range of reasonable and supportable information, including estimation of future expected changes in macroeconomic conditions. Additionally, the standard changes the accounting framework for PCD HTM debt securities and loans, and requires measurement of AFS debt securities using an allowance instead of reducing the carrying amount as under the previous OTTI framework.

The Company adopted this standard using the modified retrospective method for all financial assets measured at amortized cost and net investment in leases. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Management's evaluation takes into consideration the risks in the loan portfolio, past loan and lease loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic forecasts and other relevant factors in accordance with GAAP and based on regulatory requirements. 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. Future reserves may be different due to changes in macroeconomic conditions. Provisions for credit losses are charged to credit loss expense in amounts sufficient to maintain the ACL at levels considered adequate to cover ECL in the Company’s HFI loan portfolios.

The process for determining our ACL is complex, and we may from time to time make changes to our process for determining our ACL. In addition, regulatory agencies periodically review our ACL, as well as our methodology for calculating our ACL, and may require an increase in the credit loss expense or the recognition of additional loan charge-offs based on judgments different than those of management. Changes that we make to enhance our process for determining our ACL may lead to an increase in our ACL. Any increase in our ACL will result in a decrease in net income and capital, and may have a material adverse effect on us. Material changes to our methodology for determining our allowance for loan losses could result in the need to restate our financial statements or fines, penalties, potential regulatory action and damage to our reputation.

The current outbreak COVID-19, has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.

COVID-19 was first reported in China in December 2019 and has now spread throughout the world, including in the United States. The outbreak has been declared a public health emergency of international concern and a pandemic by the World Health Organization. As of the date hereof, a significant number of countries and the majority of state governments have also made emergency declarations related to the outbreak, and have attempted to slow community spread of the virus by providing social distancing guidelines, issuing stay-at-home orders and mandating the closure of certain non-essential businesses.

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The actions taken by authorities, however, may not be sufficient to mitigate the spread of COVID-19. Further, these actions are not always coordinated or consistent across jurisdictions and have caused economic hardship in the jurisdictions in which they have been implemented. For example, in many jurisdictions, businesses have been required to temporarily close or restrict their operations. Further, even for businesses that have remained open, consumer demand has deteriorated rapidly. As a result, earlier this year we experienced a significant decline in our origination of loans and leases. This decline in volume may be exacerbated because, for example, FCA announced in March 2020 that it has suspended production of new vehicles at certain facilities across Europe and North America, which may reduce the availability of new vehicles for FCA dealers after dealerships re-open or consumer demand increases.

Closures and disruptions to businesses in the United States have led to negative effects on our customers. Similar to many other financial institutions, we have taken and will continue to take measures to mitigate our customers’ COVID-related economic challenges. Earlier this year, we announced that we were providing additional support to customers, employees, and communities during the COVID-19 pandemic and revised our servicing practices to increase the maximum number of permitted monthly payment extensions, grant waivers for late charges and provide lease extensions. Unlike the regional impact of natural disasters, such as hurricanes, the COVID-19 outbreak is impacting customers nationwide and is expected to have a materially more significant impact on the performance of our loan and auto lease portfolios than even the most severe historical natural disaster. We have experienced a sharp increase in requests for extensions and modifications related to COVID-19 nationwide, and a significant number of such extensions and modifications have been granted. Further, we have temporarily suspended - and may continue to temporarily suspend - involuntary repossessions, although we may elect to re-initiate involuntary repossessions at any time. These customer support programs may negatively impact our financial performance and other results of operations in the near term and, if the COVID-19 pandemic leads us to conduct such activities on a large scale for a specific period of time, the number of customers experiencing hardship related directly or indirectly to the outbreak of COVID-19 increases or if our customer support programs are not effective in mitigating the effect of COVID-19 on our customers, our business, financial condition and results of operations may be materially and adversely affected .

Further, government and regulatory authorities could also enact laws, regulations, executive orders and other guidance that allow customers to forego making scheduled payments for some period of time, require modifications to receivables (e.g., waiving accrued interest), preclude creditors from exercising certain rights or taking certain actions with respect to collateral, including repossession or liquidation of the collateral, or mandate limited operations or temporary closures of the Company or our vendors as “non-essential businesses” or otherwise. While we have business continuity plans in place, if significant portions of our or our vendors’ workforces are unable to work effectively as a result of the COVID-19 pandemic, including because of illness, stay-at-home orders, facility closures, reductions in services or hours of operation, or ineffective remote work arrangements, there may be servicing disruptions, which could result in reduced collection effectiveness or our ability to operate our business and satisfy our obligations under our third-party servicing agreements. Each of these scenarios could have negative effects on our business, financial condition and results of operations.

We rely upon our ability to access various credit facilities to fund our operations. As international trade and business activity slowed and supply chains were disrupted related to the COVID-19 pandemic, global credit and financial markets experienced significant disruption and volatility. Earlier this year, financial markets experienced significant declines and volatility, and such market conditions may occur again and/or precede recessionary conditions in the U.S. economy. Under these circumstances, we may experience some or all of the risks related to market volatility and recessionary conditions described under the caption "We are vulnerable to disruptions and volatility in the global financial markets" in the Risk Factors section of our Form 10-K. These include reduced demand for our products and services and reduced access to capital markets funding. These risks could have significant adverse impacts on our financial condition, results of operations and cash flows.

Governmental and regulatory authorities implemented fiscal and monetary policies and initiatives to mitigate the effects of the pandemic on the economy and individual businesses and households, such as the reduction of the Federal Reserve’s benchmark interest rate to near zero in March 2020 and the Federal Reserve’s announcement of capital preservation measures applicable to banking organizations in June and September 2020. However, these governmental and regulatory actions may not be successful in mitigating the adverse economic effects of COVID-19 and could affect our net interest income and reduce our profitability. Sustained adverse economic effects from the pandemic may also result in downgrades in our credit ratings or adversely affect the interest rate environment. If our access to funding is reduced or if our costs to obtain such funding significantly increases, our business, financial condition and results of operations could be materially and adversely affected.

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Due to the evolving nature of the pandemic, we are currently unable to estimate the adverse impact of COVID-19 on our business, financial condition, liquidity and results of operations. The pandemic may also cause us to experience lower originations and higher credit losses in our lending portfolio, reduced access to funding or significantly increased costs of funding, impairment of our goodwill and other financial assets and other materially adverse impacts on our business, financial condition, liquidity and results of operations.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4 - MINE SAFETY DISCLOSURES

None.

ITEM 5 - OTHER INFORMATION

None.

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ITEM 6 - EXHIBITS


(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 001-16581)

(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 001-16581)

(3.3)			Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed February 5, 2010) (Commission File Number 001-16581)

(3.4)			Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.2 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed June 21, 2011) (Commission File Number 001-16581)

(3.5)			Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 3, 2017) (Commission File Number 001-16581)

(3.6)			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 August 12, 2019) (Commission File Number 001-16581)

(3.7)			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 001-16581)

(3.8)			Bylaws of Santander Holdings USA, Inc. as amended on May 23, 2019 (Incorporated by reference to Exhibit 3.1 of Santander Holdings USA, Inc.’s Current Report on Form 8-K filed May 23, 2019) (Commission File Number 001-16581)

(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)			Shareholders Agreement dated January 28, 2014 among the Company, Santander Consumer USA Holdings Inc., Sponsor Holdings, DDFS, Thomas G. Dundon and Banco Santander, S.A. (Incorporated by reference to Exhibit 1.2 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 28, 2014) (Commission File Number 001-16581)

(10.2)			Written Agreement, dated as of March 21, 2017, by and among Santander Holdings USA, Inc., Santander Consumer USA Inc., and the Federal Reserve Bank of Boston (Incorporated by reference to Exhibit 99.1 of Santander Holdings USA, Inc.'s Current Report on Form 8-K filed March 23, 2017) (Commission File Number 001-16581)

(31.1)			Chief Executive Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

(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)

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(32.2)			Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

(101.INS)			Inline XBRL Instance Document (Filed herewith)

(101.SCH)			Inline XBRL Taxonomy Extension Schema (Filed herewith)

(101.CAL)			Inline XBRL Taxonomy Extension Calculation Linkbase (Filed herewith)

(101.DEF)			Inline XBRL Taxonomy Extension Definition Linkbase (Filed herewith)

(101.LAB)			Inline XBRL Taxonomy Extension Label Linkbase (Filed herewith)

(101.PRE)			Inline XBRL Taxonomy Extension Presentation Linkbase (Filed herewith)

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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:	November 6, 2020	/s/ Juan Carlos Alvarez de Soto
		Juan Carlos Alvarez de Soto
		Chief Financial Officer and Senior Executive Vice President


Date:	November 6, 2020	/s/ David L. Cornish
		David L. Cornish
		Chief Accounting Officer, Corporate Controller and Executive Vice President

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