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

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

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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, as well as in 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 slowing or reversal of the current U.S. economic expansion 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 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;

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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;

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

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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, is subject to performance conditions that could result in termination of the agreement, and is also subject to an option giving FCA the right to acquire an equity participation in the Chrysler Capital portion of SC's business;

•	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 SHUSA uses to manage 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,

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Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidance significantly changes how entities will measure credit losses for most financial assets and certain other instruments measured at amortized cost. The amendment introduces a new credit reserving framework known as CECL, which 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 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 is under the current 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 estimated increase was based on forecasts of expected future economic conditions and was primarily driven by the fact that the allowance will cover expected credit losses over the full expected life of the loan portfolios.

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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 Company’s contracts and hedging relationship 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.

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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. This change will be reflected prospectively. It did not have a material impact to the Company’s business, financial position, results of operations, or disclosures.

•	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

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

•	The exposure at default 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 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.

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•	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.

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(1)	Includes net realized gain/(losses) on trading securities of $(1.4) million and $(0.3) million for the three-month periods ended March 31, 2020 and 2019, respectively.

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•	For RICs, the Company adjusted the ACL using an additional pandemic-specific economic forecast that considered a V-shaped economic recovery of COVID-19.

•	For other portfolios, in addition to the pandemic-specific economic forecast, the Company considered other specific portfolio characteristics, to determine an appropriate ACL.

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

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

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

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(1)	Includes $60.1 million of LHFS at March 31, 2020.

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

(3)	Loans originated during the three-months ended March 31, 2020.

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

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

(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 three-months ended March 31, 2020.

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

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(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.

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(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.

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

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•	Deferred tax asset, net - Refer to Note 13 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 12 to these Condensed Consolidated Financial Statements for the detail of these amounts.

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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 14.

•	Income tax receivables - Refer to Note 13 of these Condensed Consolidated Financial Statements for more information on tax-related activities.

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

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(1)	Includes foreign deposits, as defined by the FRB, of $9.9 billion and $8.9 billion at March 31, 2020 and December 31, 2019, respectively.

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

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

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(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. The maturity date for the repurchase facilities trade expiring in April 2020 extended to May 2020.

(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.

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(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.

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

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(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.

(4)	Balance includes $2.6 million and $25.3 million of derivative assets due from an affiliate at March 31, 2020 and December 31, 2019, respectively.

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(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.

(4)	Balance includes $2.6 million and $25.3 million of derivative assets due from an affiliate at March 31, 2020 and December 31, 2019, respectively.

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(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 $99.4 million and $132.7 million as of March 31, 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 3 for the fair value of investment securities and to Note 12 for the fair values of derivative assets and liabilities on a further disaggregated basis.

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•	A 10% and 20% increase in the CPR speed would decrease the fair value of the residential servicing asset by $5.7 million and $11.0 million, respectively, at March 31, 2020.

•	A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $2.8 million and $5.4 million, respectively, at March 31, 2020.

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

(2)	Losses in OCI during the three-month period ended March 31, 2020 decreased by $2.3 million from the prior reporting date of December 31, 2019.

(3)	The Company transferred RIC's from Level 2 to Level 3 during the three-months ended March 31, 2020 because the fair value for these assets cannot be determined by using readily observable inputs at March 31, 2020. There were no other transfers into or out of Level 3 during the three months ended March 31, 2020 and 2019.

(1)	These amounts include $912.1 million and $1.0 billion of personal LHFS that were impaired as of March 31, 2020 and December 31, 2019, respectively.

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

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

(2)	Consensus pricing refers to fair value estimates that are generally developed using information such as dealer quotes or other third-party valuations or comparable asset prices.

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

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

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

(6)	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.

(7)	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.

(8)	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.

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

(10)	Excludes non-significant Level 3 LHFS portfolios.

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(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.

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(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.

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SC received a civil subpoena from the DOJ 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.

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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. These states serve as an executive committee on behalf of a group of 33 state Attorneys General (and the District of Columbia). The subpoenas and/or CIDs from the executive committee states contain broad requests for information and the production of documents related to SC’s underwriting, securitization, servicing and collection of nonprime vehicle loans. SC has responded to these requests within the deadlines specified in the CIDs, and has otherwise cooperated with the Attorneys General with respect to this matter.

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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.

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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. 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.

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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.

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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.

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(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.

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Impact on workforce: The health and well-being of our colleagues and customers is 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 80 hours of additional paid time off to use – either continuously or intermittently, and before exhausting other paid time off – to assist with needs related to COVID-19. Further, the Company is providing $250 a week in pay premiums for frontline customer support workers to help defray additional costs incurred while coming to work during the pandemic.

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Impact on services: The COVID-19 outbreak as well as state stay-at-home orders have 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 has instituted temporary changes to how it operates, including closure of certain branches and limitations on services provided to others. Certain limited service locations may only perform 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-thru. In addition, some branches only provide 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. 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.

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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.

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Impact on originations, including the relationship with FCA: In many jurisdictions, businesses such as automobile dealers have been required to temporarily close or restrict their operations. Further, even for dealerships that have remained open, consumer demand has deteriorated rapidly. As a result, SC has partnered with FCA to launch new incentive programs including the first payment deferred for 90 days on select FCA models and a 0% annual percentage yield for 84 months on select 2019/2020 FCA models. However, if the economic slowdown caused by the pandemic is sustained, it could result in further declines in new and used vehicle sales and downward pressure on used vehicle values, which could materially adversely affect our origination of auto loans and leases and the performance of our existing loans and leases.

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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 have declined, and the Bank has had to stop loan and line originations in certain states.  Because it is unclear how long these executive orders and laws related to COVID-19 will remain in place, it is difficult to estimate the overall negative impact these orders will continue to have on mortgage and home equity line of credit originations and refinancings.

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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.

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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 quarter of 2020, 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.

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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. The analysis did not indicate any impairment for the Company's loan and lease portfolios, goodwill, 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.

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Santander UK holds 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. Revenues and profits generated by Santander UK on these accounts in the first quarter of 2020 were negligible relative to the overall profits of Santander UK.

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Santander UK holds two frozen current accounts for two UK nationals who are designated by the U.S. under the SDGT sanctions program. The accounts held by each customer have been frozen since their designation and remained frozen through the first quarter 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 quarter of 2020.

•	The Santander Group also has certain legacy performance guarantees for the benefit of Bank Sepah and Bank Mellat (stand-by letters of credit to guarantee the obligations - either under tender documents or under contracting agreements - of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.

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(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 4 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 8 to the Condensed Consolidated Financial Statements for further discussion.

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

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

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

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

(11)	Intercompany investment income is eliminated from this line item.

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•	Lease expense increased $111.1 million for the three-month period ended March 31, 2020 compared to 2019. This increase was primarily due to the continued growth of the Company's leased vehicle portfolio.

•	Other expenses decreased $57.4 million for the three-month period ended March 31, 2020, compared to the corresponding period in 2019. This decrease was primarily attributable to a decrease in legal and operational risk expenses.

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•	Credit loss expense increased $128.5 million for the three-month period ended March 31, 2020 compared to the first quarter of 2019. This increase was due to large reserve builds in response to the COVID-19 outbreak during the first quarter of 2020.

•	Credit loss expense increased $26.0 million for the three-month period ended March 31, 2020 compared to the first quarter of 2019. This increase was due to large reserve builds in response to the COVID-19 outbreak during the first quarter of 2020.

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•	Credit loss expense increased $49.3 million for the three-month period ended March 31, 2020 compared to the first quarter of 2019. This increase was due to large reserve builds in response to the COVID-19 outbreak during the first quarter of 2020.

•	Total assets increased $2.3 billion due to increased volatility in the capital markets, resulting from the COVID-19 outbreak. This volatility resulted in more unsettled trades at March 31, 2020 compared to the first quarter of 2019.

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•	Total expenses decreased $48.7 million for the three-month period ended March 31, 2020 compared to the first quarter of 2019, due to lower operational risk expenses.

•	Total non-interest income increased $98.3 million for the three-month period ended March 31, 2020 compared to the first quarter of 2019, due to increasing operating lease income from the continued growth in the operating lease vehicle portfolio.

•	Credit loss expense increased $357.0 million for the three-month period ended March 31, 2020 compared to the first quarter of 2019 due to higher expected loan losses resulting from the COVID-19 outbreak.

•	Total expenses increased $112.8 million for the three-month period ended March 31, 2020 compared to the first quarter of 2019 due to increasing lease expense from the continued growth in the operating lease vehicle portfolio.

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(1)	New TDRs includes drawdowns on lines of credit that have previously been classified as TDRs.

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(1)	Other securities primarily include corporate debt securities and ABS.

(2)	HTM securities are measured and presented at amortized cost.

(1)	Includes U.S. government agency MBS.

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(1)	As defined by Federal Reserve regulations. The Company's ratios are presented under a Basel III phasing-in basis.

(2)	As defined by OCC regulations. The Bank's ratios are presented on a Basel III phasing-in basis.

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•	securitizations on its DRIVE, deeper subprime platform, for approximately $1.1 billion;

•	lease securitizations on its SRT platform for approximately $1.1 billion;

•	private amortizing lease facilities for approximately $1.8 billion; and

•	issuance of a retained bond on its SRT platform for approximately $52.6 million.

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•	BSI declared and paid $7.5 million in dividends to SHUSA.

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(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 March 31, 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 $79.1 million.

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