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, 2021

☐						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

Not Applicable

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, 2021: 530,391,043 shares

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Table of Contents

INDEX

			Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020			5
Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2021 and 2020			6
Condensed Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended September 30, 2021 and 2020			7
Condensed Consolidated Statements of Stockholder's Equity for the three-month and nine-month periods ended September 30, 2021 and 2020			8
Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2021 and 2020			10
Notes to Condensed Consolidated Financial Statements			11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			75
Item 3. Quantitative and Qualitative Disclosures About Market Risk			109
Item 4. Controls and Procedures			109
PART II. OTHER INFORMATION			110
Item 1. Legal Proceedings			110
Item 1A. Risk Factors			110
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			110
Item 3. Defaults upon Senior Securities			110
Item 4. Mine Safety Disclosures			110
Item 5. Other Information			110
Item 6. Exhibits			112
SIGNATURES			114
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 contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements about the Company’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words and phrases such as “may,” “could,” “should,” “looking forward,” “will,” “would,” “believes,” “expects,” “hope,” “anticipates,” “estimate,” “intends,” “plans,” “assume," "goal," "seek," "can", "predicts," "potential," "projects," "continuing," "ongoing," and similar expressions.

Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date on which the statements are made, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors and assumptions, some of which are beyond the Company's control. Among the factors that could cause the Company’s financial performance to differ materially from that suggested by forward-looking statements are:

•the effects of regulation, actions and/or policies of the 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 may increase to the extent our loans are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral, and changes in the credit quality of SHUSA's customers and counterparties;

•adverse economic conditions in the United States and worldwide, including the extent of recessionary conditions in the U.S. 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;

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

•natural or man-made disasters including pandemics and other significant public health emergencies, outbreaks of hostilities or effects of climate change, and SHUSA's ability to deal with disruptions caused by such disasters and emergencies;

•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;

•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;

•risks SHUSA faces implementing its growth strategy, including 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;

•Reduction in SHUSA's access to funding or increases in the cost of its funding, such as in connection with changes in credit ratings assigned to SHUSA or its subsidiaries, or a significant reduction in customer deposits;

•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 and impact our net income adversely;

•There can be no assurance that the proposed acquisition of all of SC's outstanding common stock by SHUSA will be agreed upon, approved and ultimately consummated, and the terms of any such transaction may differ materially from those originally proposed by SHUSA;

•SC's agreement with Stellantis may not result in currently anticipated levels of growth;

•changes in customer spending, investment or savings behavior;

•the ability of SHUSA and its third-party vendors to convert, maintain and 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;

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

•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 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 reflect the current beliefs and expectations of the Company's management and only speak as of the date of this document, and the Company undertakes no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.

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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						CRA NPR: The NPR related to the CRA issued by the OCC and FDIC on December 12, 2019
ACL: Allowance for credit losses						CRE: Commercial Real Estate
AFS: Available-for-sale						CRE & VF: Commercial Real Estate and Vehicle Finance
ALLL: Allowance for loan and lease losses						DCF: Discounted cash flow
AOCI: Accumulated other comprehensive income						DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act
ARRC: Alternative Reference Rate Committee						DOJ: Department of Justice
ASC: Accounting Standards Codification						DPD: Days past due
ASU: Accounting Standards Update						DRIVE: Drive Auto Receivables Trust, a securitization platform
ATM: Automated teller machine						DTI: Debt-to-income
BHC: Bank holding company						EAD: Exposure at default
BHCA: Bank Holding Company Act of 1956, as amended						Economic Growth Act: The Economic Growth, Regulatory Relief, and Consumer Protection Act
BOLI: Bank-owned life insurance						EIP: Economic impact payments
BSI: Banco Santander International						EIR: Effective interest rate
BSPR: Banco Santander Puerto Rico						EPS: Enhanced Prudential Standards
C&I: Commercial & industrial						ETR: Effective tax rate
CARES Act: Coronavirus Aid, Relief, and Economic Security Act						Evaluation Date: September 30, 2021
CBB: Consumer and Business Banking						Exchange Act: Securities Exchange Act of 1934, as amended
CBP: Citizens Bank of Pennsylvania						FASB: Financial Accounting Standards Board
CCAP: Chrysler Capital; trade name used in providing services under the MPLFA						FBO: Foreign banking organization
CCAR: Comprehensive Capital Analysis and Review						FDIC: Federal Deposit Insurance Corporation
CD: Certificate of deposit						Federal Reserve: Board of Governors of the Federal Reserve System
CECL: Current expected credit losses as defined by ASU 2016-13, ASU 2019-04, and ASU 2019-11, Financial Instruments - Credit Losses						FHLB: Federal Home Loan Bank
CEF: Closed-end fund						FHLMC: Federal Home Loan Mortgage Corporation
CEO: Chief Executive Officer						FICO®: Fair Isaac Corporation credit scoring model
CET1: Common Equity Tier 1						FINRA: Financial Industrial Regulatory Authority
CEVF: Commercial equipment vehicle financing						FNMA: Federal National Mortgage Association
CFPB: Consumer Financial Protection Bureau						FRB: Federal Reserve Bank
CFO: Chief Financial Officer						FVO: Fair value option
CIB: Corporate and Investment Banking						GAAP: Accounting principles generally accepted in the United States of America
CID: Civil investigative demand						GBP: British pound sterling
CLTV: Combined loan-to-value						GDP: Gross domestic product
CMO: Collateralized mortgage obligation						GNMA: Government National Mortgage Association
CODM: Chief Operating Decision Maker						GSIB: Global systemically important bank
Company: Santander Holdings USA, Inc.						HFI: Held for investment
Covered Fund: a hedge fund or private equity fund						HFS: Held for sale
COVID-19: a novel strain of coronavirus, declared a pandemic by the World Health Organization in March 2020						HPI: Housing Price Index
CPR: Constant prepayment rate						HTM: Held to maturity
CRA: Community Reinvestment Act						IBOR: Inter-bank offered rate
CRA Final Rule: the final rule relating to the CRA issued by the OCC on July 20, 2020						IDI: Insured depository institution

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IHC: U.S. intermediate holding company						RWA: Risk-weighted asset
Interim Policy: Policy issued by the Federal Reserve for the third quarter of 2020 and extended through the first quarter of 2021 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 UK: Santander UK plc
LCR: Liquidity coverage ratio						SBNA: Santander Bank, National Association
LGD: Loss given default						SBC: Santander BanCorp and its subsidiaries
LHFI: Loans held for investment						SC: Santander Consumer USA Holdings Inc. and its subsidiaries
LHFS: Loans held for sale						SCB: Stress capital buffer
LIBOR: London Interbank Offered Rate						SC Common Stock: Common shares of SC
LIHTC: Low income housing tax credit						SCART: Santander Consumer Auto Receivables Trust
LTD: Long-term debt						SCF: Statement of cash flows
LTV: Loan-to-value						SCRA: Servicemembers' Civil Relief Act
MBS: Mortgage-backed securities						SDART: Santander Drive Auto Receivables Trust
MD&A: Management's Discussion and Analysis of Financial Condition and Results of Operations						SDGT: Specially Designated Global Terrorist
Moody's: Moody's Investor Service, Inc.						SEC: Securities and Exchange Commission
MPLFA: Ten-year master private-label financing agreement with Stellantis signed in May 2013						Securities Act: Securities Act of 1933, as amended
MSPA: Master Securities Purchase Agreement						Securities Financing Agreements: Resale, repurchase securities borrowed and securities lending agreements
MSR: Mortgage servicing right						SFS: Santander Financial Services, Inc.
MVE: Market value of equity						SHUSA: Santander Holdings USA, Inc.
NCI: Non-controlling interest						SIS: Santander Investment Securities Inc.
NMDs: Non-maturity deposits						SOFR: Secured overnight financing rate
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						Stellantis: Fiat Chrysler Automobiles US LLC parent Stellantis N.V. and/or any affiliates
OCC: Office of the Comptroller of the Currency						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.
OCI: Other comprehensive income						TALF: Term asset-backed securities loan facility
OIS: Overnight indexed swap						TDR: Troubled debt restructuring
OREO: Other real estate owned						TLAC Rule: The Federal Reserve's total loss-absorbing capacity rule
Offer Price: offer of $41.50 per share at which SHUSA has offered to purchase all outstanding shares of common stock of SC not already owned by SHUSA						TLAC: Total loss-absorbing capacity
Parent Company: The parent holding company of SBNA and other consolidated subsidiaries						Transaction: definitive agreement whereby SHUSA will acquire SC's shares for $41.50 per share in cash
PCH: Pierpont Capital Holdings LLC						Trusts: Securitization trusts
PCI: purchased credit-impaired						UPB: Unpaid principal balance
PD: Probability of default						USD: United States dollar
REIT: Real estate investment trust						VIE: Variable interest entity
RIC: Retail installment contract						VOE: Voting rights entity
ROU: Right-of-use						YTD: Year-to-date
RV: Recreational vehicle

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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, 2021						December 31, 2020
ASSETS
Cash and cash equivalents			$	18,605,798					$	12,621,281
Federal funds sold and securities purchased under resale agreements or similar arrangements			1,589,324						—
Investment securities:
AFS at fair value			11,376,852						11,313,489
HTM (fair value of $6,609,487 and $5,677,929 as of September 30, 2021 and December 31, 2020, respectively)			6,594,046						5,504,685
Other investments (includes trading securities of $38,748 and $40,435 as of September 30, 2021 and December 31, 2020, respectively)			1,307,319						1,553,862
LHFI(1) (5)			91,821,705						92,133,182
ALLL (5)			(6,715,088)						(7,338,493)
Net LHFI			85,106,617						84,794,689
LHFS (2)(5)			690,567						2,226,196
Premises and equipment, net (3)			802,316						787,341
Operating lease assets, net (5)(6)			15,772,188						16,412,929
Goodwill			2,596,161						2,596,161
Intangible assets, net			349,564						357,547
BOLI			1,931,865						1,908,806
Restricted cash (5)			5,612,743						5,303,460
Other assets (4) (5)			3,525,147						4,052,230
TOTAL ASSETS			$	155,860,507					$	149,432,676
LIABILITIES
Accounts payables and accrued expenses			$	5,274,593					$	4,700,349
Deposits and other customer accounts			79,460,190						75,303,707
Federal funds purchased and securities loaned or sold under repurchase agreements			1,586,537						—
Borrowings and other debt obligations (5)			43,726,930						46,359,467
Advance payments by borrowers for taxes and insurance			160,754						144,214
Deferred tax liabilities, net			648,438						182,353
Other liabilities (5)			1,098,502						1,479,874
TOTAL LIABILITIES			131,955,944						128,169,964
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, 2021 and December 31, 2020)			17,875,938						17,876,818
AOCI/(loss), net of taxes			(56,286)						166,295
Retained earnings			4,256,133						1,843,765
TOTAL SHUSA STOCKHOLDER'S EQUITY			22,075,785						19,886,878
NCI			1,828,778						1,375,834
TOTAL STOCKHOLDER'S EQUITY			23,904,563						21,262,712
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY			$	155,860,507					$	149,432,676

(1) LHFI includes $39.4 million and $50.4 million of loans recorded at fair value at September 30, 2021 and December 31, 2020, respectively.

(2) Includes $194.1 million and $265.4 million of loans recorded at the FVO at September 30, 2021 and December 31, 2020, respectively.

(3) Net of accumulated depreciation of $1.8 billion and $1.6 billion at September 30, 2021 and December 31, 2020, respectively.

(4) Includes MSRs of $79.6 million and $77.5 million at September 30, 2021 and December 31, 2020, respectively, for which the Company has elected the FVO. See Note 13 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, 2021 and December 31, 2020, LHFI included $21.8 billion and $22.6 billion, LHFS included $0.1 billion and $0.6 billion Operating leases assets, net included $15.5 billion and $16.4 billion, restricted cash included $1.7 billion and $1.7 billion, Other assets included $706.1 million and $791.3 million, Borrowings and other debt obligations included $30.6 billion and $31.7 billion, and Other liabilities included $107.7 million and $84.9 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 $3.9 billion and $4.8 billion at September 30, 2021 and December 31, 2020, 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,
			2021						2020						2021						2020
INTEREST INCOME:
Loans			$	1,733,092					$	1,916,091					$	5,355,656					$	5,773,102
Interest-earning deposits			7,125						7,049						18,786						47,471
Investment securities:
AFS			28,383						38,084						79,005						159,738
HTM			25,950						24,530						76,214						71,305
Other investments			1,788						5,578						6,512						17,482
TOTAL INTEREST INCOME			1,796,338						1,991,332						5,536,173						6,069,098
INTEREST EXPENSE:
Deposits and other customer accounts			18,175						52,325						69,946						250,060
Borrowings and other debt obligations			244,012						317,615						780,909						1,072,878
TOTAL INTEREST EXPENSE			262,187						369,940						850,855						1,322,938
NET INTEREST INCOME			1,534,151						1,621,392						4,685,318						4,746,160
Credit loss expense / (benefit)			19,493						405,825						(221,724)						2,568,808
NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE			1,514,658						1,215,567						4,907,042						2,177,352
NON-INTEREST INCOME:
Consumer and commercial fees			109,475						123,834						335,620						356,907
Lease income			708,814						742,946						2,214,598						2,269,613
Miscellaneous income, net(1) (2)			249,381						308,222						868,991						330,165
TOTAL FEES AND OTHER INCOME			1,067,670						1,175,002						3,419,209						2,956,685
Net gain / (loss) on sale of investment securities			(106)						(148)						15,138						31,646
TOTAL NON-INTEREST INCOME			1,067,564						1,174,854						3,434,347						2,988,331
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES:
Compensation and benefits			478,577						461,992						1,432,036						1,391,786
Occupancy and equipment expenses			164,119						152,998						504,609						464,784
Technology, outside service, and marketing expense			149,610						124,211						423,980						386,192
Loan expense			66,356						67,139						248,441						219,483
Lease expense			468,340						612,639						1,546,325						1,844,270
Impairment of goodwill			—						—						—						1,848,228
Other expenses			171,201						150,249						384,123						427,978
TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES			1,498,203						1,569,228						4,539,514						6,582,721
INCOME / (LOSS) BEFORE INCOME TAX (BENEFIT)/PROVISION			1,084,019						821,193						3,801,875						(1,417,038)
Income tax (benefit)/provision			227,335						(53,343)						885,809						(272,856)
NET INCOME / (LOSS) INCLUDING NCI			856,684						874,536						2,916,066						(1,144,182)
LESS: NET INCOME / (LOSS) ATTRIBUTABLE TO NCI			149,985						101,701						503,698						82,087
NET INCOME / (LOSS) ATTRIBUTABLE TO SHUSA			$	706,699					$	772,835					$	2,412,368					$	(1,226,269)

(1) Netted down by impact of lower of cost or market adjustments on a portion of the Company's LHFS portfolio $56.6 million and $387.9 million for the three-month and nine-month periods ended September 30, 2020, respectively. This portion of the portfolio was sold in the first quarter of 2021.

(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,
			2021						2020						2021						2020
NET INCOME / (LOSS) INCLUDING NCI			$	856,684					$	874,536					$	2,916,066					$	(1,144,182)
OCI, NET OF TAX
Net unrealized changes in cash flow hedge derivative financial instruments, net of tax (1)			(19,361)						(38,702)						(85,519)						116,951
Net unrealized (losses) / gains on AFS investment securities, net of tax(1)			(26,031)						(41,551)						(139,187)						149,569
Pension and post-retirement actuarial gains, net of tax			626						18,240						2,125						19,360
TOTAL OCI / (LOSS), NET OF TAX			(44,766)						(62,013)						(222,581)						285,880
COMPREHENSIVE INCOME			811,918						812,523						2,693,485						(858,302)
NET INCOME ATTRIBUTABLE TO NCI			149,985						101,701						503,698						82,087
COMPREHENSIVE INCOME ATTRIBUTABLE TO SHUSA			$	661,933					$	710,822					$	2,189,787					$	(940,389)

(1) Excludes $1.2 million and $4.0 million of OCI/(loss) attributable to NCI for the three-month and nine-month periods ended September 30, 2021, respectively, compared to $1.4 million and $(8.7) million for the corresponding periods in 2020, 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, 2021			530,391												17,875,938						(11,520)						3,549,434						1,689,469						23,103,321
Comprehensive income attributable to SHUSA			—												—						(44,766)						706,699						—						661,933
Other comprehensive (OCI) income attributable to NCI			—												—						—						—						1,179						1,179
Net income attributable to NCI			—												—						—						—						149,985						149,985
Impact of SC stock option activity			—												—						—						—						1,453						1,453
Dividends paid to NCI			—												—						—						—						(13,308)						(13,308)
Balance, September 30, 2021			530,391												$	17,875,938					$	(56,286)					$	4,256,133					$	1,828,778					$	23,904,563
Balance, July 1, 2020			530,391												17,890,181						259,686						685,025						1,391,885						20,226,777
Cumulative-effect adjustment upon adoption of new accounting standards (Note 1)			—												—						(62,013)						772,835						—						710,822
OCI/(loss) 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

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			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, 2021			530,391												17,876,818						166,295						1,843,765						1,375,834						21,262,712
Comprehensive income/(loss) attributable to SHUSA			—												—						(222,581)						2,412,368						—						2,189,787
Other comprehensive income/(loss) attributable to NCI			—												—						—						—						4,027						4,027
Net income attributable to NCI			—												—						—						—						503,698						503,698
Impact of SC stock option activity			—												—						—						—						7,017						7,017
Dividends paid to NCI			—												—						—						—						(53,204)						(53,204)
Stock repurchase attributable to NCI			—												(880)						—						—						(8,594)						(9,474)
Balance, September 30, 2021			530,391												$	17,875,938					$	(56,286)					$	4,256,133					$	1,828,778					$	23,904,563
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 ASU 2016-02			—												—						—						(1,346,097)						(439,367)						(1,785,464)
Comprehensive income/(loss) attributable to SHUSA			—												—						285,880						(1,226,269)						—						(940,389)
OCI/(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

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

			Nine-Month Period Ended September 30,
			2021						2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) including NCI			$	2,916,066					$	(1,144,182)
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of goodwill			—						1,848,228
Credit loss (benefit)/expense			(221,724)						2,568,808
Deferred tax expense/(benefit)			509,727						(396,533)
Depreciation, amortization and accretion			1,665,858						2,120,365
Net (gain)/loss on sale of loans			(31,872)						269,411
Net gain on sale of investment securities			(15,138)						(31,646)
Loss on debt extinguishment			—						1,026
Net loss/(gain) on real estate owned, premises and equipment, and other			8,133						(60,626)
Stock-based compensation			—						33
Equity loss on equity method investments			16,599						11,352
Originations of LHFS			(2,283,675)						(2,675,625)
Proceeds from sales of and collections on LHFS (1)			2,935,656						1,622,585
Net change in:
Revolving personal loans			34,247						(59,096)
Other assets, BOLI and trading securities			473,719						350,696
Other liabilities			(46,016)						469,276
NET CASH PROVIDED BY OPERATING ACTIVITIES			5,961,580						4,894,072
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS investment securities			1,326,299						2,665,593
Proceeds from prepayments and maturities of AFS investment securities			3,527,712						6,703,624
Purchases of AFS investment securities			(5,107,524)						(5,587,453)
Proceeds from prepayments and maturities of HTM investment securities			1,412,227						743,380
Purchases of HTM investment securities			(2,532,889)						(2,187,454)
Proceeds from sales of other investments			43,291						315,091
Proceeds from maturities of other investments			500,000						85
Purchases of other investments			(293,994)						(900,193)
Net change in federal funds sold and securities purchased under resale agreements			(1,589,324)						—
Proceeds from sales of LHFI (2)			2,709,436						3,540,036
Proceeds from the sales of equity method investments			8,100						—
Distributions from equity method investments			5,912						5,132
Contributions to equity method and other investments			(118,025)						(102,762)
Proceeds from settlements of BOLI policies			22,925						5,542
Purchases of LHFI			(1,266,638)						(77,136)
Net change in loans other than purchases and sales			(578,897)						(3,762,585)
Purchases and originations of operating leases			(6,148,651)						(4,891,504)
Proceeds from the sale and termination of operating leases			5,462,681						3,103,187
Manufacturer incentives			52,054						358,197
Proceeds from sales of real estate owned and premises and equipment			31,382						44,476
Purchases of premises and equipment			(158,603)						(137,059)
NET CASH USED IN INVESTING ACTIVITIES			(2,692,526)						(161,803)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits and other customer accounts			4,156,483						1,919,274
Net change in short-term borrowings			(182,385)						455,578
Net proceeds from long-term borrowings			24,037,961						34,327,398
Repayments of long-term borrowings			(26,128,510)						(32,891,548)
Proceeds from FHLB advances (with terms greater than 3 months)			—						2,500,000
Repayments of FHLB advances (with terms greater than 3 months)			(400,000)						(6,935,882)
Net change in federal funds purchased and securities loaned or sold under repurchase agreements			1,586,537						—
Net change in advance payments by borrowers for taxes and insurance			16,540						10,971
Dividends paid on common stock			—						(125,000)
Dividends paid to NCI			(53,204)						(50,546)
Stock repurchase attributable to NCI			(9,474)						(770,499)
Proceeds from the issuance of common stock			798						660
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES			3,024,746						(1,559,594)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			6,293,800						3,172,675
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD			17,924,741						11,526,252
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (3)			$	24,218,541					$	14,698,927
NON-CASH TRANSACTIONS
Loans transferred to/(from) OREO			(18,556)						(47,033)
Loans transferred from/(to) LHFI (from)/to LHFS, net			156,195						2,770,335
Unsettled purchases of investment securities			111,506						508,635

(1) Included in this balance is sales proceeds from Bluestem portfolio sale of $608 million for loans originated as HFS for the nine-month period ended September 30, 2021.

(2) Included in this balance is sales proceeds from Bluestem portfolio sale of $188 million for loans originated as HFI for the nine-month period ended September 30, 2021.

(3) The nine-month periods ended September 30, 2021 and 2020 include cash and cash equivalents balances of $18.6 billion and $8.9 billion, respectively, and restricted cash balances of $5.6 billion, and $5.8 billion, respectively.

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

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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 headquartered in Dallas, Texas; 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; 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; SFS, a consumer credit institution headquartered in Puerto Rico; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC and SIS are registered investment advisers with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.

As of September 30, 2021, 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."

Acquisitions and Divestitures

On September 1, 2020 the Company sold its investment in SBC, a financial holding company headquartered in Puerto Rico that offered a full range of financial services through its wholly-owned banking subsidiary, BSPR.

Acquisition of Credit Agricole Miami Wealth Management Business

In May 2021, BSI closed an agreement with Crédit Agricole Corporate and Investment Bank, S.A. to take over management of $3.1 billion in global wealth management client assets and liabilities for consideration of $188 million. The Company has recorded assets acquired of $565 million (including loans of $528 million and definite-lived intangible assets of approximately $37 million) and liabilities assumed, comprised of deposits of $377 million, at fair value. Intangible assets will be amortized over the estimated useful life of six years.

Agreement to Acquire Pierpont Capital Holdings LLC

In July 2021, SHUSA announced that it has reached an agreement to acquire PCH, parent company of Amherst Pierpont Securities, a market-leading independent fixed-income broker dealer, for a total consideration of approximately $450 million. PCH has a net book value of approximately $300 million. Amherst Pierpont Securities has approximately 230 employees serving more than 1,300 active institutional clients from its headquarters in New York and offices in Chicago, San Francisco, Austin, other U.S. locations and Hong Kong. The transaction is expected to close subject to regulatory approvals and customary closing conditions.

Proposal to Acquire SC Shares

In August 2021, SHUSA entered into a definitive agreement whereby SHUSA agreed to acquire all of the outstanding shares of SC Common Stock not already owned by SHUSA via an all-cash tender offer. Under the terms of the definitive agreement, a wholly-owned subsidiary of SHUSA commenced a tender offer to acquire all outstanding shares of SC Common Stock that SHUSA does not already own at a price of $41.50 per share in cash. SHUSA agreed to acquire all remaining shares not tendered in the tender offer through a second-step merger at the same price as in the tender offer. Consummation of the tender offer is subject to various conditions, including regulatory approval by the Federal Reserve and other customary closing conditions. Upon completion of the transaction, SC will become a wholly-owned subsidiary of SHUSA.

Core Business

SBNA’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. SBNA uses its deposits, as well as other financing sources, to fund its loan and investment portfolios.

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

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 auto 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 the MPLFA with Stellantis, SC has operated as Stellantis's preferred provider for consumer loans, leases, and dealer loans and provides services to Stellantis customers and dealers under the CCAP 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 MPLFA which modified that agreement to, among other things, adjust certain performance metrics, exclusivity commitments and payment provisions.

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 provides other consumer finance products.

Basis of Presentation

These Condensed Consolidated Financial Statements include the accounts of the Company and its consolidated subsidiaries, including certain Trusts that are considered VIEs. The Company generally 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.

These Condensed Consolidated Financial Statements have been prepared in accordance with GAAP and pursuant to SEC regulations. In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments of a normal and recurring nature necessary for a fair statement of the Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholder's Equity and Statement of Cash Flow for the periods indicated, and contain adequate disclosure to make the information presented not misleading. 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 Annual Report on Form 10-K for the year ended December 31, 2020.

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 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, fair value measurements, expected end-of-term lease residual values, goodwill, and income taxes. These estimates, although based on actual historical trends and modeling, may potentially show significant variances over time.

Accounting Policies

There have been no changes in the Company's accounting policies from those disclosed in the 2020 Annual Report on Form 10-K.

Subsequent Events

The Company evaluated events from the date of these Condensed Consolidated Financial Statements on September 30, 2021 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 as of September 30, 2021.

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NOTE 2. INVESTMENT SECURITIES

Summary of Investments in Debt Securities - AFS and HTM

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

						September 30, 2021																								December 31, 2020
(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						$	89,437					$	1,251					$	—					$	90,688					$	168,075					$	2,578					$	—					$	170,653
Corporate debt securities						239,614						208						(17)						239,805						155,610						114						(9)						155,715
ABS						544,463						472						(410)						544,525						109,888						686						(1,236)						109,338
MBS:
GNMA - Residential						4,226,980						36,398						(11,248)						4,252,130						3,467,611						69,864						(1,350)						3,536,125
GNMA - Commercial						2,017,435						3,295						(33,476)						1,987,254						1,706,648						26,949						(235)						1,733,362
FHLMC and FNMA - Residential						4,213,992						26,002						(42,952)						4,197,042						5,464,821						77,813						(4,351)						5,538,283
FHLMC and FNMA - Commercial						60,870						4,538						—						65,408						63,732						6,283						(2)						70,013
Total investments in debt securities AFS						$	11,392,791					$	72,164					$	(88,103)					$	11,376,852					$	11,136,385					$	184,287					$	(7,183)					$	11,313,489

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

						September 30, 2021																								December 31, 2020
(in thousands)						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Loss						Fair Value						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Loss						Fair Value
ABS						$	101,815					$	634					$	—					$	102,449					$	44,841					$	765					$	—					$	45,606
MBS:
GNMA - Residential						2,660,934						24,048						(20,090)						2,664,892						1,966,247						51,417						(1,819)						2,015,845
GNMA - Commercial						3,831,297						47,934						(37,085)						3,842,146						3,493,597						124,429						(1,548)						3,616,478
Total investments in debt securities HTM						$	6,594,046					$	72,616					$	(57,175)					$	6,609,487					$	5,504,685					$	176,611					$	(3,367)					$	5,677,929

As of September 30, 2021 and December 31, 2020, the Company had investment securities with an estimated carrying value of $5.1 billion and $3.5 billion, respectively, pledged as collateral, which were comprised of the following: $1.7 billion and $754.1 million, respectively, were pledged as collateral for the Company's borrowing capacity with the FRB; $3.0 billion and $2.2 billion, respectively, were pledged to secure public fund deposits; $54.9 million and $103.4 million, respectively, were pledged to various independent parties to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; and $372.5 million and $388.0 million, respectively, were pledged to secure the Company's customer overnight sweep product. The Company also participates in Securities Financing Arrangements discussed further in Note 11 to these Condensed Consolidated Financial Statements.

At September 30, 2021 and December 31, 2020, the Company had $28.9 million and $34.6 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, 2021 or December 31, 2020.

There were no transfers of securities between AFS and HTM during the periods ended September 30, 2021 or December 31, 2020.

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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, 2021 were as follows:

(in thousands)						Amortized Cost						Fair Value
Due within one year						$	206,717					$	207,443
Due after 1 year but within 5 years						174,702						177,935
Due after 5 years but within 10 years						287,378						296,585
Due after 10 years						10,723,994						10,694,889
Total						$	11,392,791					$	11,376,852

Contractual maturities of the Company’s investments in debt securities HTM at September 30, 2021 were as follows:

(in thousands)						Amortized Cost						Fair Value
Due within one year						$	—					$	—
Due after 1 year but within 5 years						48,200						48,491
Due after 5 years but within 10 years						53,615						53,958
Due after 10 years						6,492,231						6,507,038
Total						$	6,594,046					$	6,609,487

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, 2021 and December 31, 2020 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, 2021																								December 31, 2020
						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
Corporate debt securities						$	122,897					$	(17)					$	—					$	—					$	98,800					$	(9)					$	—					$	—
ABS						387,006						(119)						18,072						(291)						—						—						49,033						(1,236)
MBS:
GNMA - Residential						2,147,459						(11,248)						—						—						347,821						(1,334)						8,875						(16)
GNMA - Commercial						1,824,347						(32,021)						48,992						(1,455)						103,891						(235)						—						—
FHLMC and FNMA - Residential						2,623,491						(42,397)						98,797						(555)						1,040,474						(4,165)						22,749						(186)
FHLMC and FNMA - Commercial						—						—						—						—						—						—						420						(2)
Total investments in debt securities AFS						$	7,105,200					$	(85,802)					$	165,861					$	(2,301)					$	1,590,986					$	(5,743)					$	81,077					$	(1,440)

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NOTE 2. INVESTMENT SECURITIES (continued)

The following table presents the aggregate amount of unrealized losses as of September 30, 2021 and December 31, 2020 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, 2021																								December 31, 2020
						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						$	1,468,773					$	(19,916)					$	31,233					$	(174)					$	212,471					$	(1,819)					$	—					$	—
GNMA - Commercial						2,096,426						(35,707)						45,135						(1,378)						155,263						(1,548)						—						—
Total investments in debt securities HTM						$	3,565,199					$	(55,623)					$	76,368					$	(1,552)					$	367,734					$	(3,367)					$	—					$	—

Allowance for credit-related losses on AFS securities

The Company did not record an allowance for credit-related losses on AFS or HTM securities at September 30, 2021 or December 31, 2020. As discussed in Note 1 of the Company's 2020 Annual Report on Form 10-K, securities for which management has an expectation that nonpayment of the amortized cost basis is zero do not have a reserve.

For securities that do not qualify for the zero credit loss expectation exception, management has concluded that the unrealized losses 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)						2021						2020						2021						2020
Proceeds from the sales of AFS securities						$	—					$	1,112,033					$	1,326,299					$	2,665,593
Gross realized gains						$	—					$	573					$	18,267					$	33,400
Gross realized losses						(106)						(721)						(3,129)						(1,754)
Net realized gains/(losses) (1)						$	(106)					$	(148)					$	15,138					$	31,646

(1)    Includes net realized gain/(losses) on trading securities of $(0.1) million, and $(0.8) million for the three-month and nine-month periods ended September 30, 2021, respectively, and $(0.1) million and $(1.0) million for the three-month and nine-month periods ended September 30, 2020, 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, 2021						December 31, 2020
FHLB of Pittsburgh and FRB stock						$	415,418					$	435,330
LIHTC investments						338,292						313,603
Equity securities not held for trading (1)						14,861						14,494
Interest-bearing deposits with an affiliate bank						500,000						750,000
Trading securities						38,748						40,435
Total						$	1,307,319					$	1,553,862

(1)    Includes $2.7 million and $1.4 million of equity certificates related to an off-balance sheet securitization as of September 30, 2021 and December 31, 2020, respectively.

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NOTE 2. INVESTMENT SECURITIES (continued)

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, 2021, the Company purchased $1.1 million and $4.5 million of FHLB stock at par, respectively, and redeemed $4.9 million and $23.8 million of FHLB stock at par. The Company redeemed zero and $0.7 million of FRB stock at par during the three-month and nine-month periods ended September 30, 2021, respectively. The Company did not purchase any FRB stock during the nine-month period ended September 30, 2021. There was no gain or loss associated with these redemptions.

The Company's LIHTC investments are accounted for using the proportional amortization method. Equity securities are measured at fair value as of September 30, 2021, 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.

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 $46.4 billion at September 30, 2021 and $52.0 billion at December 31, 2020.

Loans that the Company intends to sell are classified as LHFS. The LHFS portfolio balance at September 30, 2021 was $690.6 million, compared to $2.2 billion at December 31, 2020. For a discussion on the valuation of LHFS at fair value, see Note 13 to these Condensed Consolidated Financial Statements. LHFS in the residential mortgage portfolio that were originated with the intent to sell were $194.1 million as of September 30, 2021 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, 2021 and December 31, 2020, accrued interest receivable on the Company's loans was $478.9 million and $589.2 million, respectively.

During the nine-month periods ended September 30, 2021 and 2020, SC originated $11.1 billion and $11.1 billion, respectively, in CCAP loans (including through the SBNA originations program), which represented 53% and 61%, respectively, of the UPB of SC's total RIC originations (including the SBNA originations program).

Purchased receivables

During the nine months ended September 30, 2021, SBNA approved and completed purchases of performing personal unsecured loans with a UPB of approximately $641.0 million.

During the three and nine months ended September 30, 2021, SC purchased financial receivables from third party lenders for $67.0 million. The UPB of these loans as of the acquisition date was $112.1 million.

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

Sales of receivables

During the first quarter of 2021, SC completed the sale of $1.3 billion in UPB of its Bluestem personal lending portfolio to a third party. In addition, SC executed a forward flow sale agreement with a third party to purchase all personal lending receivables that SC purchases from Bluestem through the term of the agreement with Bluestem. Prior to the sale, these loans were classified as LHFS.

During the second quarter of 2021, SFS sold the majority of its commercial and consumer loan and REO HFS portfolios to third parties at their approximate fair values with no material gain or loss. In addition, during the second quarter of 2021, SC sold RICs with a UPB of approximately $310 million to a third party.

During the nine months ended September 30, 2021, SC sold RICs with a UPB of approximately $3.0 billion to third-parties in three separate transactions. Two of these transactions were accounted for as off-balance sheet securitizations.

Loan and Lease Portfolio Composition

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

						September 30, 2021												December 31, 2020
(dollars in thousands)						Amount						Percent						Amount						Percent
Commercial LHFI:
CRE loans						$	7,453,398					8.1		%				$	7,327,853					8.0		%
C&I loans						14,950,498						16.3		%				16,537,899						17.9		%
Multifamily loans						7,325,464						8.0		%				8,367,147						9.1		%
Other commercial(2)(4)						8,082,374						8.8		%				7,455,504						8.1		%
Total commercial LHFI						37,811,734						41.2		%				39,688,403						43.1		%
Consumer loans secured by real estate:
Residential mortgages						5,741,848						6.3		%				6,590,168						7.2		%
Home equity loans and lines of credit						3,614,472						3.9		%				4,108,505						4.5		%
Total consumer loans secured by real estate						9,356,320						10.2		%				10,698,673						11.7		%
Consumer loans not secured by real estate:
RICs and auto loans						42,952,453						46.8		%				40,698,642						44.1		%
Personal unsecured loans						1,542,315						1.7		%				824,430						0.9		%
Other consumer(3)						158,883						0.1		%				223,034						0.2		%
Total consumer loans						54,009,971						58.8		%				52,444,779						56.9		%
Total LHFI(1)						$	91,821,705					100.0		%				$	92,133,182					100.0		%
Total LHFI:
Fixed rate						$	64,095,444					69.8		%				$	64,036,154					69.5		%
Variable rate						27,726,261						30.2		%				28,097,028						30.5		%
Total LHFI(1)						$	91,821,705					100.0		%				$	92,133,182					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 $3.0 billion and $3.1 billion as of September 30, 2021 and December 31, 2020, respectively.

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

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

(4)Includes loans with a carrying value of $39.3 million for which a fair value hedge resulting in a fair value adjustment of $0.2 million.

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

Portfolio segments and classes

The Company discloses information about the credit quality of its 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. 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.

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, 2021 and 2020 was as follows:

						Three-Month Period Ended September 30, 2021
(in thousands)						Commercial						Consumer												Total
ALLL, beginning of period (1)						$	641,515					$	6,247,801											$	6,889,316
Credit loss expense / (benefit)						(37,806)						46,120												8,314
Charge-offs						(28,835)						(660,488)												(689,323)
Recoveries						15,636						491,145												506,781
Charge-offs, net of recoveries						(13,199)						(169,343)												(182,542)
ALLL, end of period						$	590,510					$	6,124,578											$	6,715,088
Reserve for unfunded lending commitments, beginning of period (1)						$	101,477					$	22,807											$	124,284
Credit loss expense / (benefit) on unfunded lending commitments						12,953						(1,774)												11,179
Reserve for unfunded lending commitments, end of period						114,430						21,033												135,463
Total ACL, end of period						$	704,940					$	6,145,611											$	6,850,551
						Nine-Month Period Ended September 30, 2021
(in thousands)						Commercial						Consumer												Total
ALLL, beginning of period						$	752,196					$	6,586,297											$	7,338,493
Credit loss expense / (benefit)						(107,265)						(103,466)												(210,731)
Charge-offs						(108,523)						(2,049,202)												(2,157,725)
Recoveries						54,102						1,690,949												1,745,051
Charge-offs, net of recoveries						(54,421)						(358,253)												(412,674)
ALLL, end of period						$	590,510					$	6,124,578											$	6,715,088
Reserve for unfunded lending commitments, beginning of period						$	119,129					$	27,326											$	146,455
Credit loss expense / (benefit) on unfunded lending commitments						(4,699)						(6,293)												(10,992)
Reserve for unfunded lending commitments, end of period						114,430						21,033												135,463
Total ACL, end of period						$	704,940					$	6,145,611											$	6,850,551

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

						Three-Month Period Ended September 30, 2020
(in thousands)						Commercial						Consumer						Unallocated						Total
ALLL, beginning of period						$	759,599					$	6,353,139					$	—					$	7,112,738
Credit loss expense / (benefit)						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						$	95,022					$	27,721					$	—					$	122,743
Credit loss expense / (benefit) 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						198,919						2,383,711						(46,748)						2,535,882
Credit loss expense / (benefit)						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 / (benefit) on unfunded lending commitments						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

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

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

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

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 adjustments for macroeconomic uncertainty and considers adjustments to macroeconomic inputs and outputs based on market volatility. 

The Company's allowance for loan losses decreased by $623.4 million from December 31, 2020, primarily due to an improved macroeconomic outlook as well as improved credit quality and performance.

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
(in thousands)						September 30, 2021						December 31, 2020						September 30, 2021						December 31, 2020
Non-accrual loans:
Commercial:
CRE						$	110,376					$	106,751					$	89,547					$	84,816
C&I						85,597						107,053						47,027						60,029
Multifamily						116,605						72,392						116,441						65,936
Other commercial						10,598						20,019						6,443						3,778
Total commercial loans						323,176						306,215						259,458						214,559
Consumer:
Residential mortgages						98,952						160,172						39,094						98,308
Home equity loans and lines of credit						92,998						91,606						41,921						32,130
RICs and auto loans						1,242,960						1,174,317						204,193						191,370
Personal unsecured loans						—						—						—						—
Other consumer						4,848						6,325						63						34
Total consumer loans						1,439,758						1,432,420						285,271						321,842
Total non-accrual loans						1,762,934						1,738,635						544,729						536,401
OREO						3,960						29,799						—						—
Repossessed vehicles						232,614						204,653						—						—
Foreclosed and other repossessed assets						944						3,247						—						—
Total OREO and other repossessed assets						237,518						237,699						—						—
Total non-performing assets						$	2,000,452					$	1,976,334					$	544,729					$	536,401

(1) Interest income recognized on nonaccrual loans was $26.3 million and $73.0 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to $21.8 million and $84.4 million for the three-month and nine-month periods ended September 30, 2020, respectively.

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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, 2021
(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(3)						$	24,743					$	49,067					$	73,810					$	7,393,232					$	7,467,042					$	—
C&I(1)						27,356						22,439						49,795						15,000,779						15,050,574						—
Multifamily						36,505						25,840						62,345						7,286,327						7,348,672						—
Other commercial						179,750						2,884						182,634						7,899,740						8,082,374						—
Consumer:
Residential mortgages(2)						75,958						72,590						148,548						5,787,378						5,935,926						—
Home equity loans and lines of credit						19,914						60,829						80,743						3,533,729						3,614,472						—
RICs and auto loans(4)						3,153,639						229,792						3,383,431						39,928,583						43,312,014						—
Personal unsecured loans						7,977						5,554						13,531						1,528,784						1,542,315						2,214
Other consumer						3,007						306						3,313						155,570						158,883						—
Total						$	3,528,849					$	469,301					$	3,998,150					$	88,514,122					$	92,512,272					$	2,214

(1) C&I loans includes $100.1 million of LHFS at September 30, 2021.

(2) Residential mortgages includes $194.1 million of LHFS at September 30, 2021.

(3) CRE loans include $13.6 million of LHFS at September 30, 2021.

(4) RICs and auto loans includes $359.6 million of LHFS at September 30, 2021.

			As of
						December 31, 2020
(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						$	41,320					$	70,304					$	111,624					$	7,244,247					$	7,355,871					$	—
C&I (1)						59,759						45,883						105,642						16,654,606						16,760,248						—
Multifamily						47,116						66,664						113,780						8,257,122						8,370,902						—
Other commercial						80,993						9,214						90,207						7,365,629						7,455,836						56
Consumer:
Residential mortgages(2)						209,274						111,698						320,972						6,673,411						6,994,383						—
Home equity loans and lines of credit						31,488						72,197						103,685						4,004,820						4,108,505						—
RICs and auto loans						2,944,376						284,985						3,229,361						38,143,329						41,372,690						—
Personal unsecured loans(3)						56,041						56,582						112,623						1,605,286						1,717,909						52,807
Other consumer						5,358						1,688						7,046						215,988						223,034						—
Total						$	3,475,725					$	719,215					$	4,194,940					$	90,164,438					$	94,359,378					$	52,863

(1)C&I loans included $222.3 million of LHFS at December 31, 2020.

(2) Residential mortgages included $404.2 million of LHFS at December 31, 2020.

(3) Personal unsecured loans included $893.5 million of LHFS at December 31, 2020.

(4) RICs and auto loans includes $674.0 million of LHFS at December 31, 2020.

(5) Multifamily loans includes $3.8 million of LHFS at December 31, 2020.

(6) Other Commercial loans includes $0.3 million of LHFS at December 31, 2020.

(7) CRE loans include $28.0 million of LHFS at December 31, 2020.

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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.

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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, 2021						Commercial Loan Portfolio (1)
(dollars in thousands)						Amortized Cost by Origination Year
Regulatory Rating:						2021(3)						2020						2019						2018						2017						Prior						Total
CRE
Pass						$	532,153					$	1,162,932					$	1,649,972					$	1,081,959					$	508,030					$	1,662,006					$	6,597,052
Special mention						—						11,066						2,374						94,256						113,481						49,668						270,845
Substandard						—						5,285						123,962						180,459						47,017						242,422						599,145
Doubtful						—						—						—						—						—						—						—
N/A						—						—						—						—						—						—						—
Total CRE						$	532,153					$	1,179,283					$	1,776,308					$	1,356,674					$	668,528					$	1,954,096					$	7,467,042
C&I
Pass						$	2,804,360					$	3,543,973					$	2,250,445					$	1,557,532					$	663,272					$	2,269,634					$	13,089,216
Special mention						38,417						22,186						176,902						97,231						54,970						103,840						493,546
Substandard						20,631						73,811						15,206						110,128						28,208						249,871						497,855
Doubtful						—						—						—						—						—						—						—
N/A(2)						399,089						299,470						206,636						47,936						7,860						8,966						969,957
Total C&I						$	3,262,497					$	3,939,440					$	2,649,189					$	1,812,827					$	754,310					$	2,632,311					$	15,050,574
Multifamily
Pass						$	790,294					$	785,282					$	1,459,687					$	929,974					$	839,620					$	1,119,423					$	5,924,280
Special mention						—						10,128						86,128						101,569						15,931						75,389						289,145
Substandard						4,075						79,534						245,272						389,024						185,282						232,060						1,135,247
Doubtful						—						—						—						—						—						—						—
N/A						—						—						—						—						—						—						—
Total Multifamily						$	794,369					$	874,944					$	1,791,087					$	1,420,567					$	1,040,833					$	1,426,872					$	7,348,672
Remaining commercial
Pass						$	3,001,967					$	2,252,908					$	1,039,187					$	510,508					$	288,220					$	949,740					$	8,042,530
Special mention						37						—						3,157						5,509						657						4,150						13,510
Substandard						475						654						7,757						2,647						2,162						12,483						26,178
Doubtful						81						—						—						75						—						—						156
N/A						—						—						—						—						—						—						—
Total Remaining commercial						$	3,002,560					$	2,253,562					$	1,050,101					$	518,739					$	291,039					$	966,373					$	8,082,374
Total Commercial loans
Pass						$	7,128,774					$	7,745,095					$	6,399,291					$	4,079,973					$	2,299,142					$	6,000,803					$	33,653,078
Special mention						38,454						43,380						268,561						298,565						185,039						233,047						1,067,046
Substandard						25,181						159,284						392,197						682,258						262,669						736,836						2,258,425
Doubtful						81						—						—						75						—						—						156
N/A(2)						399,089						299,470						206,636						47,936						7,860						8,966						969,957
Total commercial loans						$	7,591,579					$	8,247,229					$	7,266,685					$	5,108,807					$	2,754,710					$	6,979,652					$	37,948,662

(1)Includes $136.9 million of LHFS at September 30, 2021.

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

(3)Loans originated during the year-to-date ended September 30, 2021.

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

December 31, 2020						Commercial Loan Portfolio (1)
(dollars in thousands)						Amortized Cost by Origination Year
Regulatory Rating:						2020(3)						2019						2018						2017						2016						Prior						Total
CRE
Pass						$	722,210					$	1,424,392					$	1,656,560					$	816,607					$	542,979					$	1,536,812					$	6,699,560
Special mention						28,876						15,480						81,167						43,368						79,555						83,751						332,197
Substandard						8,259						16,609						29,761						33,833						45,936						189,716						324,114
Doubtful						—						—						—						—						—						—						—
N/A						—						—						—						—						—						—						—
Total CRE						$	759,345					$	1,456,481					$	1,767,488					$	893,808					$	668,470					$	1,810,279					$	7,355,871
C&I
Pass						$	4,661,409					$	3,365,828					$	2,798,209					$	868,373					$	585,083					$	2,305,305					$	14,584,207
Special mention						11,000						136,413						134,388						49,601						99,042						254,102						684,546
Substandard						60,034						15,309						173,900						59,814						84,642						213,908						607,607
Doubtful						3,153						145						80						1,616						1,282						11,226						17,502
N/A(2)						411,319						294,652						75,091						15,101						15,388						54,835						866,386
Total C&I						$	5,146,915					$	3,812,347					$	3,181,668					$	994,505					$	785,437					$	2,839,376					$	16,760,248
Multifamily
Pass						$	880,199					$	1,938,271					$	1,361,178					$	1,198,819					$	503,267					$	1,365,066					$	7,246,800
Special mention						—						39,433						147,872						110,906						31,348						59,072						388,631
Substandard						5,355						104,945						203,437						148,251						49,445						224,038						735,471
Doubtful						—						—						—						—						—						—						—
N/A						—						—						—						—						—						—						—
Total Multifamily						$	885,554					$	2,082,649					$	1,712,487					$	1,457,976					$	584,060					$	1,648,176					$	8,370,902
Remaining commercial
Pass						$	3,530,625					$	1,416,704					$	766,454					$	443,244					$	199,297					$	1,038,584					$	7,394,908
Special mention						53						11,096						11,271						105						83						8,102						30,710
Substandard						2,115						3,974						4,181						4,246						5,983						9,160						29,659
Doubtful						351						—						99						—						101						8						559
N/A						—						—						—						—						—						—						—
Total Remaining commercial						$	3,533,144					$	1,431,774					$	782,005					$	447,595					$	205,464					$	1,055,854					$	7,455,836
Total Commercial loans
Pass						$	9,794,443					$	8,145,195					$	6,582,401					$	3,327,043					$	1,830,626					$	6,245,767					$	35,925,475
Special mention						39,929						202,422						374,698						203,980						210,028						405,027						1,436,084
Substandard						75,763						140,837						411,279						246,144						186,006						636,822						1,696,851
Doubtful						3,504						145						179						1,616						1,383						11,234						18,061
N/A(2)						411,319						294,652						75,091						15,101						15,388						54,835						866,386
Total commercial loans						$	10,324,958					$	8,783,251					$	7,443,648					$	3,793,884					$	2,243,431					$	7,353,685					$	39,942,857

(1)Includes $254.5 million of LHFS at December 31, 2020.

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

(3)Loans originated during the year ended December 31, 2020.

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

Consumer Lending Asset Quality Indicators-Credit Score

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

As of September 30, 2021						RICs and auto loans
(dollars in thousands)						Amortized Cost by Origination Year(3)
Credit Score Range						2021(2)						2020						2019						2018						2017						Prior						Total			Percent
No FICO(1)						$	1,180,058					$	855,656					$	520,721					$	284,251					$	254,373					$	149,940					$	3,244,999		7.6		%
<600						5,850,839						4,280,234						2,935,090						1,716,119						685,895						655,324						16,123,501			37.5		%
600-639						2,810,074						1,819,849						1,213,116						624,180						197,671						655,329						7,320,219			17.0		%
>=640						7,287,090						4,720,566						3,111,366						847,553						149,072						148,087						16,263,734			37.9		%
Total						$	17,128,061					$	11,676,305					$	7,780,293					$	3,472,103					$	1,287,011					$	1,608,680					$	42,952,453		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 year-to-date ended September 30, 2021.

(3)    Excludes LHFS.

As of December 31, 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)						$	1,326,026					$	839,412					$	450,539					$	484,975					$	230,382					$	142,746					$	3,474,080		8.5		%
<600						6,056,260						4,373,991						2,648,215						1,126,742						685,830						634,480						15,525,518			38.2		%
600-639						2,782,566						1,912,731						1,001,985						335,111						229,690						173,501						6,435,584			15.8		%
>=640						8,427,478						4,832,173						1,382,133						264,635						200,430						156,611						15,263,460			37.5		%
Total						$	18,592,330					$	11,958,307					$	5,482,872					$	2,211,463					$	1,346,332					$	1,107,338					$	40,698,642		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 year ended December 31, 2020.

(3)    Excludes LHFS.

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 CECL loss calculation incorporates the refreshed LTV information to update the distribution of defaulted loans by LTV as well as the associated LGD 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.

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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, 2021						Residential Mortgages(1)(3)
(dollars in thousands)						Amortized Cost by Origination Year
FICO Score						2021(4)			2020			2019			2018			2017			Prior						Grand Total
N/A(2)
LTV <= 70%						$	—		$	724		$	—		$	—		$	489		$	2,599					$	3,812
70.01-80%						—			—			—			—			—			—						—
80.01-90%						—			—			—			—			—			—						—
90.01-100%						—			—			—			—			—			—						—
100.01-110%						—			—			—			—			—			—						—
LTV>110%						—			—			—			—			—			—						—
LTV - N/A(2)						24,542			3,211			2,397			1,194			1,661			6,827						39,832
<600
LTV <= 70%						$	303		$	1,820		$	8,684		$	7,022		$	12,684		$	88,637					$	119,150
70.01-80%						443			1,600			6,042			10,375			5,587			1,014						25,061
80.01-90%						271			2,250			3,167			607			—			406						6,701
90.01-100%						391			—			—			—			—			70						461
100.01-110%						—			—			—			—			—			—						—
LTV>110%						—			—			—			—			—			—						—
LTV - N/A(2)						—			—			—			—			—			69						69
600-639
LTV <= 70%						$	747		$	4,214		$	10,821		$	5,123		$	9,309		$	72,888					$	103,102
70.01-80%						1,235			1,905			5,924			6,462			1,160			409						17,095
80.01-90%						882			2,820			3,290			—			—			624						7,616
90.01-100%						1,548			—			—			—			—			634						2,182
100.01-110%						—			—			—			—			—			—						—
LTV>110%						—			—			—			—			—			—						—
LTV - N/A(2)						—			—			—			—			—			—						—
640-679
LTV <= 70%						$	5,134		$	19,573		$	22,500		$	16,731		$	26,099		$	129,752					$	219,789
70.01-80%						3,429			7,325			15,019			11,572			3,818			1,097						42,260
80.01-90%						3,401			11,427			7,939			—			—			609						23,376
90.01-100%						4,311			—			—			—			—			395						4,706
100.01-110%						—			—			—			—			—			65						65
LTV>110%						—			—			—			—			—			151						151
LTV - N/A(2)						—			—			—			—			—			—						—
680-719
LTV <= 70%						$	36,616		$	47,378		$	63,985		$	30,568		$	59,576		$	223,345					$	461,468
70.01-80%						18,685			10,144			21,765			15,028			5,495			1,619						72,736
80.01-90%						6,793			20,699			14,308			—			—			1,428						43,228
90.01-100%						15,600			—			—			—			—			988						16,588
100.01-110%						—			—			—			—			—			124						124
LTV>110%						—			—			—			—			—			1,496						1,496
LTV - N/A(2)						—			—			—			—			—			73						73
720-759
LTV <= 70%						$	128,411		$	125,712		$	111,006		$	69,477		$	102,655		$	312,501					$	849,762
70.01-80%						77,977			33,441			42,009			30,662			6,214			2,006						192,309
80.01-90%						10,703			40,860			27,872			—			—			841						80,276
90.01-100%						19,676			99			—			—			—			100						19,875
100.01-110%						—			—			—			—			—			450						450
LTV>110%						—			—			—			—			—			94						94
LTV - N/A(2)						—			—			—			—			—			172						172
>=760
LTV <= 70%						$	361,688		$	550,188		$	332,476		$	150,815		$	306,095		$	1,140,650					$	2,841,912
70.01-80%						143,389			136,002			75,253			45,085			15,981			4,450						420,160
80.01-90%						17,019			56,004			29,765			—			—			1,204						103,992
90.01-100%						18,804			—			—			—			561			574						19,939
100.01-110%						—			—			—			—			—			—						—
LTV>110%						—			—			—			—			—			1,517						1,517
LTV - N/A(2)						—			—			—			—			—			249						249
Total - All FICO Bands
LTV <= 70%						$	532,899		$	749,609		$	549,472		$	279,736		$	516,907		$	1,970,372					$	4,598,995
70.01-80%						245,158			190,417			166,012			119,184			38,255			10,595						769,621
80.01-90%						39,069			134,060			86,341			607			—			5,112						265,189
90.01-100%						60,330			99			—			—			561			2,761						63,751
100.01-110%						—			—			—			—			—			639						639
LTV>110%						—			—			—			—			—			3,258						3,258
LTV - N/A(2)						24,542			3,211			2,397			1,194			1,661			7,390						40,395
Grand Total						$	901,998		$	1,077,396		$	804,222		$	400,721		$	557,384		$	2,000,127					$	5,741,848

(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 year-to-date ended September 30, 2021.

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

As of September 30, 2021						Home Equity Loans and Lines of Credit(2)
(in thousands)						Amortized Cost by Origination Year
FICO Score						2021(4)			2020			2019			2018			2017			Prior			Total			Revolving
N/A(2)
LTV <= 70%						$	—		$	562		$	116		$	299		$	421		$	996		$	2,394		$	2,394
70.01-90%						—			—			—			—			—			45			45			45
90.01-110%						—			—			—			—			—			—			—			—
LTV>110%						—			—			—			—			—			—			—			—
LTV - N/A(2)						1,542			3,173			4,148			5,115			4,865			69,967			88,810			49,855
<600
LTV <= 70%						$	124		$	620		$	3,645		$	9,914		$	12,290		$	114,231		$	140,824		$	122,844
70.01-90%						1			—			557			558			359			3,726			5,201			4,727
90.01-110%						—			—			—			—			—			787			787			726
LTV>110%						—			—			—			—			—			1,060			1,060			1,059
LTV - N/A(2)						—			—			—			—			115			—			115			115
600-639
LTV <= 70%						$	289		$	1,903		$	4,973		$	10,285		$	11,263		$	94,386		$	123,099		$	112,785
70.01-90%						13			95			798			658			392			4,673			6,629			5,986
90.01-110%						—			—			—			—			—			1,936			1,936			1,770
LTV>110%						—			—			—			—			—			807			807			770
LTV - N/A(2)						—			—			—			—			—			520			520			520
640-679
LTV <= 70%						$	1,597		$	5,573		$	15,241		$	27,201		$	22,875		$	159,398		$	231,885		$	223,027
70.01-90%						296			713			2,066			1,660			628			9,564			14,927			14,171
90.01-110%						—			—			—			—			—			2,731			2,731			2,496
LTV>110%						—			—			—			—			—			1,274			1,274			1,259
LTV - N/A(2)						—			—			25			—			—			177			202			183
680-719
LTV <= 70%						$	11,184		$	28,844		$	37,291		$	51,241		$	53,239		$	265,031		$	446,830		$	433,930
70.01-90%						3,853			3,962			5,308			2,630			1,305			13,274			30,332			29,438
90.01-110%						—			—			—			—			—			4,072			4,072			3,884
LTV>110%						219			36			—			—			—			4,729			4,984			4,820
LTV - N/A(2)						—			—			51			—			—			61			112			112
720-759
LTV <= 70%						$	20,770		$	42,665		$	60,782		$	74,017		$	83,775		$	361,248		$	643,257		$	631,838
70.01-90%						7,016			5,546			6,098			3,480			1,439			15,545			39,124			38,020
90.01-110%						394			—			—			—			—			4,511			4,905			4,546
LTV>110%						163			—			—			—			—			2,968			3,131			3,065
LTV - N/A(2)						—			24			—			—			5			147			176			167
>=760
LTV <= 70%						$	58,845		$	135,150		$	169,879		$	213,693		$	187,656		$	934,891		$	1,700,114		$	1,669,288
70.01-90%						13,044			16,395			13,194			4,666			1,906			47,204			96,409			94,126
90.01-110%						1,149			266			116			—			—			8,451			9,982			9,206
LTV>110%						1,524			973			—			—			—			4,306			6,803			6,764
LTV - N/A(2)						218			—			8			111			65			593			995			995
Total - All FICO Bands
LTV <= 70%						$	92,809		$	215,317		$	291,927		$	386,650		$	371,519		$	1,930,181		$	3,288,403		$	3,196,106
LTV 70.01 - 90%						24,223			26,711			28,021			13,652			6,029			94,031			192,667			186,513
LTV 90.01 - 110%						1,543			266			116			—			—			22,488			24,413			22,628
LTV>110%						1,906			1,009			—			—			—			15,144			18,059			17,737
LTV - N/A(2)						1,760			3,197			4,232			5,226			5,050			71,465			90,930			51,947
Grand Total						$	122,241		$	246,500		$	324,296		$	405,528		$	382,598		$	2,133,309		$	3,614,472		$	3,474,931

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

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

As of December 31, 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%						$	750		$	—		$	521		$	500		$	—		$	3,148					$	4,919
70.01-80%						—			—			—			—			—			—						—
80.01-90%						—			—			—			—			—			—						—
90.01-100%						—			—			—			—			—			—						—
100.01-110%						—			—			—			—			—			—						—
LTV>110%						—			—			—			—			—			—						—
LTV - N/A(2)						109,388			2,170			1,200			1,547			1,485			4,410						120,200
<600
LTV <= 70%						$	876		$	3,988		$	6,255		$	13,646		$	13,775		$	109,076					$	147,616
70.01-80%						1,053			5,235			4,603			7,707			3,406			2,832						24,836
80.01-90%						221			8,801			8,442			1,577			—			1,102						20,143
90.01-100%						292			2,792			—			—			219			690						3,993
100.01-110%						—			—			—			—			—			353						353
LTV>110%						—			—			—			—			—			1,445						1,445
LTV - N/A(2)						—			—			—			—			—			92						92
600-639
LTV <= 70%						$	3,058		$	3,923		$	4,275		$	11,593		$	10,710		$	81,496					$	115,055
70.01-80%						1,585			4,839			3,901			5,300			2,040			2,935						20,600
80.01-90%						1,233			6,910			5,693			1,870			249			581						16,536
90.01-100%						2,321			2,364			—			—			—			193						4,878
100.01-110%						—			—			—			—			—			707						707
LTV>110%						—			—			—			—			—			333						333
LTV - N/A(2)						—			—			—			—			—			—						—
640-679
LTV <= 70%						$	11,264		$	21,946		$	17,039		$	24,447		$	26,992		$	124,559					$	226,247
70.01-80%						12,585			18,756			8,079			7,117			1,377			2,426						50,340
80.01-90%						2,385			18,975			12,715			1,265			—			1,108						36,448
90.01-100%						7,256			4,501			—			—			—			573						12,330
100.01-110%						—			—			—			—			—			240						240
LTV>110%						—			—			—			—			—			432						432
LTV - N/A(2)						—			—			—			—			—			—						—
680-719
LTV <= 70%						$	34,802		$	49,625		$	41,447		$	56,362		$	54,836		$	196,173					$	433,245
70.01-80%						38,582			37,546			20,202			18,615			5,047			4,556						124,548
80.01-90%						7,616			39,239			22,510			2,195			—			3,025						74,585
90.01-100%						29,050			8,147			—			—			—			526						37,723
100.01-110%						101			—			—			—			—			475						576
LTV>110%						—			—			—			—			—			802						802
LTV - N/A(2)						—			—			—			—			—			73						73
720-759
LTV <= 70%						$	105,769		$	89,140		$	88,485		$	145,301		$	132,720		$	285,308					$	846,723
70.01-80%						81,595			62,488			29,767			25,421			8,163			5,334						212,768
80.01-90%						16,714			57,807			30,850			2,754			355			1,566						110,046
90.01-100%						37,846			12,066			—			—			—			563						50,475
100.01-110%						—			—			—			—			—			68						68
LTV>110%						—			—			—			—			—			206						206
LTV - N/A(2)						—			—			—			—			—			227						227
>=760
LTV <= 70%						$	381,713		$	335,559		$	224,505		$	456,792		$	527,624		$	1,066,295					$	2,992,488
70.01-80%						221,896			227,139			71,681			48,411			17,893			8,473						595,493
80.01-90%						42,464			134,309			50,128			7,977			—			3,886						238,764
90.01-100%						37,279			21,057			—			—			74			1,419						59,829
100.01-110%						—			—			—			571			—			1,008						1,579
LTV>110%						—			—			—			—			92			1,734						1,826
LTV - N/A(2)						—			—			—			—			—			381						381
Total - All FICO Bands
LTV <= 70%						$	538,232		$	504,181		$	382,527		$	708,641		$	766,657		$	1,866,055					$	4,766,293
70.01-80%						357,296			356,003			138,233			112,571			37,926			26,556						1,028,585
80.01-90%						70,633			266,041			130,338			17,638			604			11,268						496,522
90.01-100%						114,044			50,927			—			—			293			3,964						169,228
100.01-110%						101			—			—			571			—			2,851						3,523
LTV>110%						—			—			—			—			92			4,952						5,044
LTV - N/A(2)						109,388			2,170			1,200			1,547			1,485			5,183						120,973
Grand Total						$	1,189,694		$	1,179,322		$	652,298		$	840,968		$	807,057		$	1,920,829					$	6,590,168

(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 year ended December 31, 2020.

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

As of December 31, 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%						$	—		$	—		$	—		$	—		$	77		$	531		$	608		$	608
70.01-90%						8			—			—			—			—			—			8			8
90.01-110%						—			—			—			—			—			—			—			—
LTV>110%						—			—			—			—			—			—			—			—
LTV - N/A(2)						2,840			4,407			5,504			5,514			4,083			83,060			105,408			53,654
<600
LTV <= 70%						$	727		$	3,389		$	7,255		$	10,780		$	15,566		$	121,240		$	158,957		$	137,921
70.01-90%						238			1,901			4,029			2,727			1,698			13,383			23,976			21,484
90.01-110%						—			—			—			—			—			2,389			2,389			2,017
LTV>110%						—			—			—			—			—			2,391			2,391			2,369
LTV - N/A(2)						—			—			—			15			—			562			577			555
600-639
LTV <= 70%						$	1,265		$	2,589		$	8,921		$	13,240		$	11,873		$	100,148		$	138,036		$	128,515
70.01-90%						728			3,149			5,618			2,491			433			8,812			21,231			19,784
90.01-110%						—			—			—			—			—			1,803			1,803			1,706
LTV>110%						—			—			—			—			—			3,235			3,235			2,858
LTV - N/A(2)						—			—			—			—			—			51			51			29
640-679
LTV <= 70%						$	4,983		$	15,432		$	23,718		$	26,211		$	19,167		$	152,823		$	242,334		$	231,152
70.01-90%						2,166			8,599			10,455			5,391			1,377			17,425			45,413			44,187
90.01-110%						—			53			—			—			—			6,279			6,332			5,784
LTV>110%						48			—			—			—			—			723			771			533
LTV - N/A(2)						95			—			—			100			—			70			265			265
680-719
LTV <= 70%						$	26,177		$	31,112		$	49,618		$	53,778		$	49,893		$	249,565		$	460,143		$	444,254
70.01-90%						8,483			17,515			19,442			11,250			2,996			24,541			84,227			82,534
90.01-110%						90			—			—			—			—			7,810			7,900			7,128
LTV>110%						—			—			—			—			—			5,756			5,756			5,477
LTV - N/A(2)						—			144			—			63			—			149			356			351
720-759
LTV <= 70%						$	39,927		$	49,716		$	62,795		$	79,821		$	68,503		$	348,679		$	649,441		$	634,206
70.01-90%						14,064			28,552			30,553			15,094			5,386			35,066			128,715			126,755
90.01-110%						—			69			—			—			—			8,270			8,339			7,128
LTV>110%						—			—			—			—			—			7,611			7,611			7,313
LTV - N/A(2)						35			56			—			253			—			122			466			466
>=760
LTV <= 70%						$	112,532		$	149,381		$	178,602		$	188,693		$	156,633		$	896,901		$	1,682,742		$	1,646,127
70.01-90%						30,306			61,647			60,023			34,640			11,120			86,265			284,001			280,811
90.01-110%						396			21			—			—			—			22,839			23,256			22,252
LTV>110%						710			62			—			—			—			9,700			10,472			9,899
LTV - N/A(2)						185			554			129			68			—			359			1,295			1,284
Total - All FICO Bands
LTV <= 70%						$	185,611		$	251,619		$	330,909		$	372,523		$	321,712		$	1,869,887		$	3,332,261		$	3,222,783
LTV 70.01 - 90%						55,993			121,363			130,120			71,593			23,010			185,492			587,571			575,563
LTV 90.01 - 110%						486			143			—			—			—			49,390			50,019			46,015
LTV>110%						758			62			—			—			—			29,416			30,236			28,449
LTV - N/A(2)						3,155			5,161			5,633			6,013			4,083			84,373			108,418			56,604
Grand Total						$	246,003		$	378,348		$	466,662		$	450,129		$	348,805		$	2,218,558		$	4,108,505		$	3,929,414

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

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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, 2021						December 31, 2020
Performing						$	4,015,933					$	3,850,622
Non-performing						570,679						473,507
Total (1)						$	4,586,612					$	4,324,129

(1) Excludes LHFS.

The increase in total TDRs was primarily due to the resumption of the pre-COVID-19 method of determining whether or not a modification qualifies as a TDR for RICs effective January 1, 2021.

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, 2021 and 2020:

			Three-Month Period Ended September 30, 2021
			Number of Contracts						Pre-TDR Amortized Cost(1)																											Post-TDR Amortized Cost(2)
			(dollars in thousands)
Commercial:
CRE			1						$	458																										$	458
C&I			46						3,299																											3,295
Other commercial			10						174																											174
Consumer:
Residential mortgages(3)			41						11,217																											11,205
Home equity loans and lines of credit			132						18,796																											18,804
RICs and auto loans			12,680						238,473																											239,197
Personal unsecured loans			51						747																											744
Other consumer			8						137																											137
Total			12,969						$	273,301																										$	274,014
			Nine-Month Period Ended September 30, 2021
			Number of Contracts						Pre-TDR Amortized Cost(1)																											Post-TDR Amortized Cost(2)
			(dollars in thousands)
Commercial:
CRE			12						$	44,463																										$	44,463
C&I			416						46,888																											46,941
Multi-family			2						29,370																											29,370
Other commercial			190						14,827																											14,827
Consumer:
Residential mortgages(3)			384						105,943																											105,695
Home equity loans and lines of credit			498						72,648																											73,107
RICs and auto loans			70,117						1,418,303																											1,425,079
Personal unsecured loans			128						1,746																											1,731
Other consumer			24						727																											717
Total			71,771						$	1,734,915																										$	1,741,930

(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.

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

			Three-Month Period Ended September 30, 2020
			Number of Contracts						Pre-TDR Recorded Investment(1)																											Post-TDR Recorded Investment(2)
			(dollars in thousands)
Commercial:
CRE			20						$	33,898																										$	33,898
C&I			126						22,611																											22,631
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			14,885						327,080																											328,610
Personal unsecured loans			2						7																											—
Other consumer			1						1,250																											1,250
Total			15,220						$	400,351																										$	401,997
			Nine-Month Period Ended September 30, 2020
			Number of Contracts						Pre-TDR Recorded Investment(1)																											Post-TDR Recorded Investment(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			70,527						1,428,155																											1,446,032
Personal unsecured loans			4						7																											—
Other consumer			12						1,323																											1,306
Total			71,363						$	1,604,460																										$	1,622,944

(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.

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

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, 2021 and 2020, respectively.

			Three-Month Period Ended September 30,																								Nine-Month Period Ended September 30,
			2021												2020												2021												2020
			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			1						$	738					2						$	3,011					1						$	738					34						$	8,125
C&I			33						8,391						26						905						87						10,464						42						9,165
Other commercial			—						—						—						—						1						17						1						45
Consumer:
Residential mortgages			11						2,553						3						397						21						4,037						33						5,278
Home equity loans and lines of credit			3						104						—						—						7						869						22						3,104
RICs and auto loans			4,749						91,722						4,398						83,849						14,554						285,451						10,519						186,049
Personal unsecured loans			3						56						—						—						9						139						—						—
Other consumer			4						61						—						—						4						61						1						44
Total			4,804						$	103,625					4,429						$	88,162					14,684						$	301,776					10,652						$	211,810

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

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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 MPLFA.

Income continues to accrue during the extension period and remaining lease payments are recorded on a straight-line basis over the modified lease term. Beginning in the third quarter of 2021, SC agreed to provide SBNA with support services in connection with the origination and servicing of vehicle leases, primarily from Stellantis dealers, that are funded and owned by SBNA. SC recognizes referral fee and servicing fee income in connection with these agreements that eliminate in consolidation.

Operating lease assets, net consisted of the following as of September 30, 2021 and December 31, 2020:

(in thousands)						September 30, 2021						December 31, 2020
Leased vehicles						$	20,280,991					$	22,056,063
Less: accumulated depreciation						(3,924,669)						(4,796,595)
Depreciated net capitalized cost						16,356,322						17,259,468
Manufacturer Subvention payments, net of accretion						(708,216)						(934,381)
Origination fees and other costs						122,214						66,020
Leased vehicles, net						15,770,320						16,391,107
Commercial equipment vehicles and aircraft, gross						2,677						28,661
Less: accumulated depreciation						(809)						(6,839)
Commercial equipment vehicles and aircraft, net						1,868						21,822
Total operating lease assets, net						$	15,772,188					$	16,412,929

The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of September 30, 2021 (in thousands):

2021						$	919,573
2022						2,137,143
2023						1,398,539
2024						306,335
2025						26,952
Thereafter						1,295
Total						$	4,789,837

During the three-month and nine-month periods ended September 30, 2021, the Company recognized $103.2 million and $390.0 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 $120.4 million and $170.5 million for the corresponding periods in 2020. 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 the Company's goodwill by its reporting units as of September 30, 2021:

(in thousands)						CBB						C&I						CRE & VF						CIB						SC																		Total
Goodwill at September 30, 2021						$	297,802					$	52,198					$	1,095,071					$	131,130					$	1,019,960																	$	2,596,161

During the three-month and nine-month periods ended September 30, 2021, there were no disposals, additions, impairments or re-allocations of goodwill.

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, 2020 using generally accepted valuation methods. As a result of that impairment test, no goodwill impairment was identified.

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NOTE 5. GOODWILL AND OTHER INTANGIBLES (continued)

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. 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 $0.3 billion 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.

During the fourth quarter of 2020, the Company implemented organizational changes which resulted in the transfer of Upper Business Banking customers into the C&I segment from the CBB segment. Refer to Note 18 to these Consolidated Financial Statements for additional details on the Company's reportable segments. As a result of the re-organization, the Company re-allocated approximately $25.1 million of goodwill from the CBB reporting unit to the C&I reporting unit. Upon re-allocation, the Company performed a post evaluation for impairment on the CBB and C&I reporting units utilizing assumptions consistent with our October 1, 2020 impairment test and noted no impairment.

Other Intangible Assets

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

						September 30, 2021												December 31, 2020
(in thousands)						Net Carrying Amount						Accumulated Amortization (2)						Net Carrying Amount						Accumulated Amortization
Intangibles subject to amortization:
Dealer networks						$	289,833					$	(180,167)					$	308,768					$	(271,232)
Chrysler relationship						23,750						(115,000)						35,000						(103,750)
Trade name						—						—						12,300						(5,700)
Other intangibles(1)						35,981						(46,891)						1,479						(55,694)
Total intangibles subject to amortization						$	349,564					$	(342,058)					$	357,547					$	(436,376)

(1) Includes approximately $37 million of intangible assets added in connection with the close of its agreement with Crédit Agricole Corporate and Investment Bank, S.A.to take over management of global wealth management client assets and liabilities. This intangible asset will be amortized over a six year useful life.

(2) Includes removal of accumulated amortization on fully-amortized intangible assets.

At September 30, 2021 and December 31, 2020, the Company did not have any intangibles, other than goodwill, that were not subject to amortization.

Amortization expense on intangible assets was $11.4 million and $33.5 million for the three-month and nine-month periods ended September 30, 2021, respectively, and $14.7 million and $44.2 million for the corresponding periods in 2020.

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)
2021						$	43,462					$	33,450					$	10,012
2022						44,874						—						44,874
2023						33,621						—						33,621
2024						29,764						—						29,764
2025						29,729						—						29,729
Thereafter						201,572						—						201,572

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NOTE 6. OTHER ASSETS

The following is a detail of items that comprised Other assets at September 30, 2021 and December 31, 2020:

(in thousands)						September 30, 2021						December 31, 2020
Operating lease ROU assets						$	529,222					$	540,222
Deferred tax assets						45,614						11,114
Accrued interest receivable						512,407						634,509
Derivative assets at fair value						774,978						1,219,090
Other repossessed assets						233,558						207,900
Equity method investments						251,025						272,633
MSRs						79,580						77,545
OREO						3,960						29,799
Income tax receivables						194,646						225,736
Prepaid expense						296,563						225,251
Miscellaneous assets and receivables						603,594						608,431
Total Other assets						$	3,525,147					$	4,052,230

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, 2021, operating lease expenses were $32.2 million and $109.0 million, respectively, compared to $36.8 million and $112.6 million for the corresponding periods in 2020. Sublease income was $1.1 million and $3.4 million, respectively, for the three-month and nine-month periods ended September 30, 2021 compared to $0.7 million and $3.3 million for the corresponding periods in 2020. These are reported within Occupancy and equipment expenses in the Company’s Condensed Consolidated Statements of Operations.

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NOTE 6. OTHER ASSETS (continued)

Supplemental balance sheet information related to leases was as follows:

Maturity of Lease Liabilities at September 30, 2021						Total Operating leases
						(in thousands)
2021						$	35,618
2022						137,500
2023						120,166
2024						104,982
2025						79,129
Thereafter						169,556
Total lease liabilities						$	646,951
Less: Interest						(51,996)
Present value of lease liabilities						$	594,955

Supplemental Balance Sheet Information						September 30, 2021						December 31, 2020
Operating lease ROU assets						$529,222						$540,222
Other liabilities						594,955						606,000
Weighted-average remaining lease term (years)						6.2						6.5
Weighted-average discount rate						2.8%						2.9%

						Nine-Month Period Ended September 30,
Other Information						2021						2020
						(in thousands)
Operating cash flows from operating leases(1)						$	(108,458)					$	(105,497)
Leased assets obtained in exchange for new operating lease liabilities						$	68,248					$	34,921

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

The remainder of Other assets is comprised of:

•Deferred tax asset, net - Refer to Note 15 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.

•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 13.

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

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

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

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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 8) in the Company's 2020 Annual Report on Form 10-K.

On-balance sheet VIEs

The assets of consolidated VIEs presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, 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:

(in thousands)						September 30, 2021						December 31, 2020
Assets
Restricted cash						$	1,682,654					$	1,737,021
LHFS						113,313						581,938
LHFI						21,785,308						22,572,549
Operating lease assets, net						15,529,610						16,391,107
Various other assets						706,130						791,306
Total Assets						$	39,817,015					$	42,073,921
Liabilities
Notes payable						$	30,632,558					$	31,700,709
Various other liabilities						107,743						84,922
Total Liabilities						$	30,740,301					$	31,785,631

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, 2021 and December 31, 2020, the Company was servicing $26.1 billion and $27.7 billion, respectively, of gross RICs that have been transferred to consolidated Trusts. The remainder of the Company’s RICs remain unpledged.

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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, 2021, and 2020 is as follows:

						Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,
(in thousands)						2021						2020						2021						2020
Assets securitized						$	7,095,782					$	5,282,901					$	18,457,441					$	15,845,707
Net proceeds from new securitizations (1)						$	6,591,786					$	4,662,211					$	16,168,394					$	11,470,857
Net proceeds from sale of retained bonds						—						1,293						195,967						57,286
Cash received for servicing fees (2)						228,194						242,245						686,789						735,533
Net distributions from Trusts (2)						1,391,970						1,173,276						4,435,605						2,730,657
Total cash received from Trusts						$	8,211,950					$	6,079,025					$	21,486,755					$	14,994,333

(1) Includes additional advances on existing securitizations.

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

Off-balance sheet VIEs

During the nine-month periods ended September 30, 2021, and 2020, SC sold $1.9 billion and $1.1 billion, respectively, of gross RICs to third-party investors in off-balance sheet securitizations for a gain of $7.2 million and a loss of $40.6 million, respectively. The gains and losses were recorded in Miscellaneous income, net, in the accompanying Condensed Consolidated Statements of Income.

As of September 30, 2021 and December 31, 2020, the Company was servicing $2.8 billion and $2.2 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, 2021						December 31, 2020
Related party SPAIN securitizations																		$	687,158					$	1,214,644
Third-party SCART serviced securitizations																		2,067,156						929,429
Third-party CCAP securitizations																		—						82,713
Total serviced for other portfolio																		$	2,754,314					$	2,226,786

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, 2021 and 2020, respectively, were as follows:

						Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,
(in thousands)						2021						2020						2021						2020
Receivables securitized (1)						$	—					$	636,301					$	1,891,278					$	1,148,587
Net proceeds from new securitizations						—						592,455						1,779,532						1,052,541
Cash received for servicing fees						8,041						6,598						24,061						17,856
Total cash received from Trusts						$	8,041					$	599,053					$	1,803,593					$	1,070,397

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

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NOTE 8. DEPOSITS AND OTHER CUSTOMER ACCOUNTS

Deposits and other customer accounts are summarized as follows:

						September 30, 2021												December 31, 2020
(dollars in thousands)						Balance						Percent of total deposits						Balance						Percent of total deposits
Interest-bearing demand deposits						$	12,840,744					16.2		%				$	11,097,595					14.7		%
Non-interest-bearing demand deposits						24,143,966						30.4		%				21,800,278						28.9		%
Savings						5,533,013						7.0		%				4,827,065						6.4		%
Customer repurchase accounts						385,667						0.5		%				323,398						0.4		%
Money market						33,798,890						42.5		%				33,358,315						44.4		%
CDs						2,757,910						3.4		%				3,897,056						5.2		%
Total deposits (1)						$	79,460,190					100.0		%				$	75,303,707					100.0		%

(1) Includes foreign deposits, as defined by the FRB, of $6.3 billion and $5.8 billion at September 30, 2021 and December 31, 2020, respectively.

Deposits collateralized by investment securities, loans, and other financial instruments totaled $3.0 billion and $2.2 billion at September 30, 2021 and December 31, 2020, respectively.

Demand deposit overdrafts that have been reclassified as loan balances were $258.9 million and $110.5 million at September 30, 2021 and December 31, 2020, respectively.

At September 30, 2021 and December 31, 2020, the Company had $198.0 million and $768.2 million, respectively, of CDs greater than $250 thousand.

NOTE 9. BORROWINGS

Total borrowings and other debt obligations at September 30, 2021 were $43.7 billion, compared to $46.4 billion at December 31, 2020. The Company's debt agreements impose certain limitations on dividend payments and other transactions. The Company is currently in compliance with these limitations.

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

SBNA

SBNA had no securities issuances during the nine-month periods ended September 30, 2021 or 2020 and no repurchases during the nine-month period ended September 30, 2021.

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.

SHUSA

SHUSA had no securities issuances during the nine-month period ended September 30, 2021.

During the nine-month period ended September 30, 2021, SHUSA called $427.9 million of its senior floating-rate notes due June 2022.

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 note 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 borrowing due February 2021 to an affiliate.

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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

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, 2021												December 31, 2020
(dollars in thousands)						Balance						Effective Rate						Balance						Effective Rate
Parent Company
4.45% senior notes due December 2021						$	491,998					4.61 %						$	491,411					4.61 %
3.70% senior notes due March 2022						706,757						3.67 %						707,896						3.67		%
3.40% senior notes due January 2023						998,269						3.54 %						997,298						3.54 %
3.50% senior notes due June 2024						1,097,516						4.56 %						996,687						3.60 %
4.50% senior notes due July 2025						1,049,556						4.40 %						1,097,074						4.56 %
4.40% senior notes due July 2027						997,376						3.60 %						1,049,531						4.40 %
2.88% senior notes due January 2024 (3)						750,000						2.88 %						750,000						2.88 %
5.83% senior notes due March 2023 (3)						500,000						5.83 %						500,000						5.83 %
3.24% senior notes due November 2026						917,427						3.97 %						913,239						3.97 %
3.45% senior notes, due June 2025						995,701						3.58 %						994,871						3.58 %
3.50% senior notes, due April 2023						447,090						3.52 %						447,039						3.52 %
Senior notes due June 2022(1)						720,937						1.30 %						427,925						1.84 %
Senior notes due January 2023 (2)						439,069						1.31 %						720,904						2.06 %
Senior notes due July 2023 (2)						—						—		%				439,022						2.04 %
Short-term borrowing due within one year, with an affiliate						—						—		%				123,453						2.00 %
Subsidiaries
2.00% subordinated debt maturing through 2021						11						2.00		%				11						2.00		%
Short-term borrowing with an affiliate, maturing January 2021						—						—		%				200,000						0.10		%
Short-term borrowing due within one year, maturing October 2021						33,365						0.05		%				15,750						0.05		%
Total Parent Company and subsidiaries' borrowings and other debt obligations						$	10,145,072					3.65 %						$	10,872,111					3.57		%

(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 LIBOR plus 110 basis points per annum.

(3) These notes are payable to SHUSA's parent company, Santander.

SBNA Borrowings and Debt Obligations

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

						September 30, 2021												December 31, 2020
(dollars in thousands)						Balance						Effective Rate						Balance						Effective Rate
FHLB advances, maturing through May 2022						$	750,000					0.63 %						$	1,150,000					0.64 %

SBNA had outstanding irrevocable letters of credit totaling $153.5 million from the FHLB of Pittsburgh at September 30, 2021 used to secure uninsured deposits placed with SBNA by state and local governments and their political subdivisions.

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NOTE 9. BORROWINGS (continued)

SC Credit Facilities

The following tables present information regarding SC's credit facilities as of September 30, 2021 and December 31, 2020, respectively:

						September 30, 2021
(dollars in thousands)						Balance						Committed Amount						Effective Rate						Assets Pledged						Restricted Cash Pledged
Warehouse line due June 2023						$	—					$	500,000					—		%				$	367,404					$	—
Warehouse line due March 2023						—						1,250,000						—		%				246,480						1
Warehouse line due October 2022						—						1,500,000						—		%				121,046						—
Warehouse line due October 2022						—						3,500,000						—		%				133,429						—
Warehouse line due October 2022						—						500,000						—		%				13,409						500
Warehouse line due October 2022						—						2,100,000						—		%				175,624						64
Warehouse line due January 2023						—						1,000,000						—		%				477,840						—
Warehouse line due November 2022						—						500,000						—		%				279,703						—
Warehouse line due July 2022						—						900,000						—		%				—						—
Total facilities with third parties						$	—					$	11,750,000					—		%				$	1,814,935					$	565
Promissory note with Santander due June 2022						$	2,000,000					$	2,000,000					2.03		%				$	—					$	—
Promissory note with Santander due September 2022						2,000,000						2,000,000						1.01		%				—						—
Total facilities with related parties						$	4,000,000					$	4,000,000					1.52		%				$	—					$	—
Total SC credit facilities						$	4,000,000					$	15,750,000					1.52		%				$	1,814,935					$	565

						December 31, 2020
(dollars in thousands)						Balance						Committed Amount						Effective Rate						Assets Pledged						Restricted Cash Pledged
Warehouse line due March 2022						$	942,845					$	1,250,000					1.34		%				$	1,621,206					$	1
Warehouse line due November 2022						177,600						500,000						1.18		%				371,959						—
Warehouse line due October 2022						168,300						500,000						3.07		%				243,649						1,201
Warehouse line due October 2022						845,800						2,100,000						3.29		%				1,156,885						—
Warehouse line due August 2022						—						500,000						1.50		%				159,348						—
Warehouse line due January 2022						415,700						1,000,000						1.81		%				595,518						—
Warehouse line due July 2022						—						900,000						1.46		%				—						1,684
Warehouse line due October 2022						1,000,600						1,500,000						1.85		%				639,875						—
Warehouse line due October 2022						441,143						3,500,000						3.45		%				2,057,758						—
Repurchase facility due January 2021						167,967						167,967						1.64		%				217,200						—
Total facilities with third parties						$	4,159,955					$	11,917,967					2.21		%				$	7,063,398					$	2,886
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 credit facilities						$	8,159,955					$	15,917,967					1.72		%				$	7,063,398					$	2,886

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.

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NOTE 9. BORROWINGS (continued)

Secured Structured Financings

The following tables present information regarding SC's secured structured financings as of September 30, 2021 and December 31, 2020, respectively:

						September 30, 2021
(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 July 2022 and March 2029(1)						$	24,657,131					$	51,829,495					0.48% - 3.42%						$	31,403,177					$	1,665,870
SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027 (3)						4,174,727						8,761,563						1.28% - 3.90%						6,757,436						16,219
Total SC secured structured financings						$	28,831,858					$	60,591,058					0.48% - 3.90%						$	38,160,613					$	1,682,089

(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.

						December 31, 2020
(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 May 2022 and May 2028						$	18,942,160					$	44,775,735					0.60% - 3.42%						$	25,022,577					$	1,710,351
SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027						7,235,241						10,747,563						1.28% - 3.90%						11,232,123						23,785
Total SC secured structured financings						$	26,177,401					$	55,523,298					0.60% - 3.90%						$	36,254,700					$	1,734,136

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, 2021 and December 31, 2020, SC had private issuances of notes backed by vehicle leases outstanding totaling $6.6 billion and $8.7 billion, respectively.

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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, 2021, and 2020, respectively.

									Total Other Comprehensive Income/(Loss)																		Total Accumulated Other Comprehensive Income/(Loss)
									Three-Month Period Ended September 30, 2021																		June 30, 2021												September 30, 2021
(in thousands)						Pretax Activity						Tax Effect						Net Activity						Beginning Balance						Net Activity						Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments									$	(32,419)					$	7,022					$	(25,397)
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)									8,043						(2,007)						6,036
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments									(24,376)						5,015						(19,361)						$	12,009					$	(19,361)					$	(7,352)
Change in unrealized (losses) on investments in debt securities AFS									(35,412)						9,304						(26,108)
Reclassification adjustment for (gains)/losses included in net income/(expense) on debt securities AFS (2)									105						(28)						77
Net unrealized gains on investments in debt securities AFS									(35,307)						9,276						(26,031)						4,107						(26,031)						(21,924)
Pension and post-retirement actuarial gain(3)									756						(130)						626						(27,636)						626						(27,010)
As of September 30, 2021									$	(58,927)					$	14,161					$	(44,766)					$	(11,520)					$	(44,766)					$	(56,286)

						Total Other Comprehensive Income/(Loss)																		Total Accumulated Other Comprehensive Income/(Loss)
						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 (gains)/losses on cash flow hedge derivative financial instruments(1)						274						18						292
Net unrealized gains on cash flow hedge derivative financial instruments						(34,647)						(4,055)						(38,702)						$	135,539					$	(38,702)					$	96,837
Change in unrealized gains on investment securities						(15,446)						2,124						(13,322)
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS(2)(4)						(32,731)						4,502						(28,229)
Net unrealized (losses) on investment 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

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

									Total Other Comprehensive Income/(Loss)																		Total Accumulated Other Comprehensive Income/(Loss)
									Nine-Month Period Ended September 30, 2021																		December 31, 2020												September 30, 2021
(in thousands)						Pretax Activity						Tax Effect						Net Activity						Beginning Balance						Net Activity						Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments									$	(122,661)					$	30,017					$	(92,644)
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)									8,326						(1,201)						7,125
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments									(114,335)						28,816						(85,519)						$	78,167					$	(85,519)					$	(7,352)
Change in unrealized gains/(losses) on investments in debt securities									(173,102)						45,108						(127,994)
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)									(15,138)						3,945						(11,193)
Net unrealized gains/(losses) on investments in debt securities									(188,240)						49,053						(139,187)						117,263						(139,187)						(21,924)
Pension and post-retirement actuarial gain(3)									2,738						(613)						2,125						(29,135)						2,125						(27,010)
As of September 30, 2021									$	(299,837)					$	77,256					$	(222,581)					$	166,295					$	(222,581)					$	(56,286)

(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.

						Total Other Comprehensive Income/(Loss)																		Total Accumulated Other Comprehensive Income/(Loss)
						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 loss/(gains) 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
Cumulative impact of adoption of new ASUs (4)																														—
Net unrealized (losses) on cash flow hedge derivative financial instruments upon adoption																														116,951						96,837
Change in unrealized gains/(losses) on investments in debt securities						257,976						(70,309)						187,667
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)						(55,246)						17,148						(38,098)
Net unrealized gains/(losses) on investment 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

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

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NOTE 11. SECURITIES FINANCING AGREEMENTS

The Company may enter into Securities Financing Agreements primarily to deploy the Company’s excess cash and investment positions. Securities Financing Agreements are treated as collateralized financings and are included in "Federal funds sold and securities purchased under resale agreements or similar arrangements" and "Federal funds purchased and securities loaned or sold under repurchase agreements" on the Company’s Condensed Consolidated Balance Sheets. Resale and repurchase agreements are generally carried at the amounts at which the securities will be subsequently sold or repurchased. These agreements are generally carried at the amount of cash collateral advanced or received plus accrued interest. Where appropriate under applicable accounting guidance, Securities Financing Agreements with the same counterparty are reported on a net basis. Refer to Note 1 for further discussion of the offsetting of assets and liabilities.

Securities transferred to counterparties under repurchase agreements and securities lending transactions continue to be recognized on the Condensed Consolidated Balance Sheets, are measured at fair value, and are included in Investment securities AFS on the Company’s Condensed Consolidated Balance Sheets. Securities received from counterparties under reverse repurchase agreements and securities borrowed transactions are not recognized on the Condensed Consolidated Balance Sheets unless the counterparty defaults. The securities transferred under Securities Financing Agreements typically are U.S. Treasury and agency securities or residential agency MBS. In general, the securities transferred can be sold, re-pledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. The Company may be exposed to counterparty risk, with such risk managed by performing assessments independent of business line managers, and establishing concentration limits on each counterparty. Additionally, these transactions include collateral arrangements that require the fair values of the underlying securities to be determined daily, resulting in cash being obtained or refunded to counterparties to maintain specified collateral levels. These financing transactions do not create material credit risk given the collateral provided and the related monitoring process.

Securities borrowed and purchased under agreements to resell, at their respective carrying values, consisted of the following:

(in thousands)			September 30, 2021						December 31, 2020
Securities purchased under agreements to resell			$	623,140					$	—
Securities borrowed			966,184						—
Total			$	1,589,324					$	—

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

(in thousands)			September 30, 2021						December 31, 2020
Securities sold under agreements to repurchase			$	1,586,537					$	—

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NOTE 11. SECURITIES FINANCING AGREEMENTS (continued)

Securities Financing Agreements are generally executed under standard industry agreements, including master agreements that create a single contract under which all transactions between two counterparties are executed, allowing for trade aggregation of receivables and payables into a single net payment or settlement. At September 30, 2021, there was an immaterial amount of Securities Financing Agreement assets or liabilities which qualified for offset in the Condensed Consolidated Balance Sheets.

The following tables present the gross amounts of liabilities associated with Securities Financing Agreements by remaining contractual maturity:

						September 30, 2021
(in thousands)						Open and overnight						Up to 30 days						31-90 days						Greater than 90 days						Total
Securities sold under agreements to repurchase						$	1,586,537					$	—					$	—					$	—					$	1,586,537

The following tables present the gross amounts of liabilities associated with Securities Financing Agreements by class of underlying collateral as of September 30, 2021:

(in thousands)						Repurchase agreements
U.S. Treasury and federal agency securities						$	946,745
Residential agency MBS						$	639,792
Total						$	1,586,537

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NOTE 12. 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 13 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, 2021, derivatives in this category had a fair value of $0.6 million. The credit ratings of the Company and SBNA are currently considered investment grade. During the third quarter of 2021, no additional collateral would be required if there were a further 1- or 2- notch downgrade by either S&P or Moody's.

As of September 30, 2021 and December 31, 2020, 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 $8.5 million and $9.9 million, respectively. The Company had $8.6 million and $3.9 million in cash and securities collateral posted to cover those positions as of September 30, 2021 and December 31, 2020, 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.

Fair Value Hedges

During the second quarter of 2021, the Company began entering into derivatives to hedge the risk of changes in fair value of a portion of its LHFI portfolio. These derivatives are designated as fair value hedges at inception. The gains/(losses) from changes in the fair value of the hedging derivative and the offsetting gains/(losses) from changes in the fair value of the related underlying hedged items are reporting in the same line item in the Condensed Consolidated Statements of Operations as earnings from the hedged items. The cumulative fair value hedge basis adjustments included in the carrying amount of hedged assets is reversed through earnings in future periods as an adjustment to yield. The Company includes gains/(losses) on the hedging derivatives and the related hedged items in the assessment of hedge effectiveness. All of these swaps have been deemed highly effective fair value hedges. The last of the hedges is scheduled to expire in 2026.

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NOTE 12. DERIVATIVES (continued)

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 AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same Condensed Consolidated Statements of Operations line item as the earnings effect of the hedged item.

The last of the hedges is scheduled to expire in March 2027. The Company includes all components of each derivative's gain or loss in the assessment of hedge effectiveness. As of September 30, 2021, the Company estimated that approximately $24.3 million of unrealized gains included in AOCI would 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, 2021 and December 31, 2020 included:

(dollars in thousands)						Notional Amount						Asset						Liability						Weighted Average Receive Rate						Weighted Average Pay Rate						Weighted Average Life (Years)
September 30, 2021
Fair value hedges:
Cross-currency swaps						$	14,743					$	421					$	22					1.34		%				7.3 %						1.84
Interest rate swaps						$	39,300					$	139					$	275					0.05		%				0.71 %						4.74
Cash flow hedges:
Pay variable - receive fixed interest rate swaps						11,945,000						78,699						44,857						0.99 %						0.08 %						2.19
Interest rate floor						925,000						612						—						0.05 %						—		%				1.93
Total						$	12,924,043					$	79,871					$	45,154					0.92 %						0.08 %						2.18
December 31, 2020
Cash flow hedges:
Pay fixed — receive variable interest rate swaps						$	2,450,000					$	124					$	70,589					0.18 %						1.50 %						1.90
Pay variable - receive fixed interest rate swaps						8,745,000						150,206						182						1.16 %						0.14 %						2.12
Interest rate floor						3,525,000						27,507						—						1.28 %						—		%				1.10
Total						$	14,720,000					$	177,837					$	70,771					1.03 %						0.33 %						1.84

During 2018, 2019, and 2020, SC entered into interest rate swap agreements with an aggregate notional amount of $2.2 billion. The interest rate swaps were to be used to hedge SC’s variable rate debt and had maturity dates ranging from two to five years. During the third quarter of 2021, SC de-designated the hedge relationships and terminated the swaps resulting in a fair value adjustment of $6.5 million recorded as a reduction to interest expense. Amounts previously recorded in AOCI related to these interest rate swaps, totaling $50.6 million, are being reclassified into earnings over the term as the previously hedged cash flow impacts earnings. For the terminated swaps, SC reclassified $7.9 million previously recorded in AOCI into interest expense during the quarter ending September 30, 2021.

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.

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NOTE 12. DERIVATIVES (continued)

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.

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NOTE 12. DERIVATIVES (continued)

Derivatives Not Designated in Hedge Relationships – Notional and Fair Values

Other derivative activities at September 30, 2021 and December 31, 2020 included:

						Notional												Asset derivatives Fair value												Liability derivatives Fair value
(in thousands)						September 30, 2021						December 31, 2020						September 30, 2021						December 31, 2020						September 30, 2021						December 31, 2020
Mortgage banking derivatives:
Forward commitments to sell loans						$	351,750					$	520,299					$	1,980					$	—					$	—					$	3,835
Interest rate lock commitments						165,172						262,471						4,141						13,202						—						—
Mortgage servicing						593,000						495,000						21,933						33,419						9,534						13,402
Total mortgage banking risk management						1,109,922						1,277,770						28,054						46,621						9,534						17,237
Customer-related derivatives:
Swaps receive fixed						14,840,199						15,350,026						505,972						901,509						53,816						8,778
Swaps pay fixed						15,144,606						15,749,590						64,419						14,644						487,824						874,260
Other						5,187,393						3,781,316						25,480						15,446						24,374						13,782
Total customer-related derivatives						35,172,198						34,880,932						595,871						931,599						566,014						896,820
Other derivative activities:
Foreign exchange contracts						4,455,165						4,258,869						57,649						52,530						47,727						62,616
Interest rate swap agreements						250,000						250,000						—						—						8,085						12,934
Interest rate cap agreements						7,649,971						10,199,134						13,314						4,617						—						—
Options for interest rate cap agreements						7,649,971						10,199,134						—						—						13,314						4,617
Other						112,799						240,083						219						5,886						1,789						7,031
Total						$	56,400,026					$	61,305,922					$	695,107					$	1,041,253					$	646,463					$	1,001,255

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NOTE 12. DERIVATIVES (continued)

Gains (Losses) on All Derivatives

The following Condensed Consolidated Statement of Operations line items were impacted by the Company’s derivative activities for the three-month and nine-month periods ended September 30, 2021 and 2020:

(in thousands)												Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,
						Line Item						2021						2020						2021						2020
Fair value hedges:
Cross-currency swaps						Net interest income						$	421					$	—					$	421					$	—
Interest rate swaps						Net interest income						$	69					$	—					$	139					$	—
Cash flow hedges:
Pay fixed-receive variable interest rate swaps						Interest expense on borrowings						(6,946)						(8,939)						(22,254)						(17,260)
Pay variable receive-fixed interest rate swap						Interest income on loans						26,396						34,767						75,499						57,691
Interest rate floors						Interest income on loans						2,790						—						20,867						—
Other derivative activities:
Forward commitments to sell loans						Miscellaneous income, net						2,102						3,175						5,815						85
Interest rate lock commitments						Miscellaneous income, net						(1,374)						(316)						(9,061)						13,077
Mortgage servicing						Miscellaneous income, net						(649)						62						(5,993)						32,175
Customer-related derivatives						Miscellaneous income, net						7,111						5,741						20,904						13,861
Foreign exchange						Miscellaneous income, net						(498)						755						5,696						13,560
Interest rate swaps, caps, and options						Miscellaneous income, net						(143)						(567)						(113)						(11,253)
Other						Miscellaneous income, net						(144)						4,502						(553)						583

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

The net amount of change recognized in OCI for cash flow hedge derivatives was a loss of $25.4 million and $92.6 million, net of tax, for the three-month and nine-month periods ended September 30, 2021, respectively, and 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.

The net amount of changes reclassified from OCI into earnings for cash flow hedge derivatives were losses of $6.0 million and $7.1 million, net of tax, for the three-month and nine-month periods ended September 30, 2021, respectively, and 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.

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.

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NOTE 12. DERIVATIVES (continued)

Information about financial assets and liabilities that are eligible for offset on the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, respectively, is presented in the following tables:

						Offsetting of Financial Assets
																											Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
(in thousands)						Gross Amounts of Recognized Assets						Gross Amounts Offset in the Condensed Consolidated Balance Sheets						Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheets									Collateral Received (3)									Net Amount
September 30, 2021
Fair value hedges						$	560					$	—					$	560																	$	560
Cash flow hedges						79,311						—						79,311									$	—								79,311
Other derivative activities(1)						688,986						—						688,986									24,297									664,689
Total derivatives subject to a master netting arrangement or similar arrangement						768,857						—						768,857									24,297									744,560
Total derivatives not subject to a master netting arrangement or similar arrangement(2)						6,121						—						6,121									2,472									3,649
Total Derivative Assets						$	774,978					$	—					$	774,978								$	26,769								$	748,209
December 31, 2020
Cash flow hedges						$	177,837					$	—					$	177,837								$	85,065								$	92,772
Other derivative activities(1)						1,028,051						—						1,028,051									7,771									1,020,280
Total derivatives subject to a master netting arrangement or similar arrangement						1,205,888						—						1,205,888									92,836									1,113,052
Total derivatives not subject to a master netting arrangement or similar arrangement(2)						13,202						—						13,202									—									13,202
Total Derivative Assets						$	1,219,090					$	—					$	1,219,090								$	92,836								$	1,126,254

(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.

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NOTE 12. DERIVATIVES (continued)

						Offsetting of Financial Liabilities
																											Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
(in thousands)						Gross Amounts of Recognized Liabilities						Gross Amounts Offset in the Condensed Consolidated Balance Sheets						Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets									Collateral Pledged (3)									Net Amount
September 30, 2021
Fair value hedges						$	297					$	—					$	297																	$	297
Cash flow hedges						$	44,857					$	—					$	44,857								$	9,986								$	34,871
Other derivative activities(1)						646,463						2,694						643,769									305,390									338,379
Total derivatives subject to a master netting arrangement or similar arrangement						691,617						2,694						688,923									315,376									373,547
Total derivatives not subject to a master netting arrangement or similar arrangement(2)						—						—						—									—									—
Total Derivative Liabilities						$	691,617					$	2,694					$	688,923								$	315,376								$	373,547
December 31, 2020
Cash flow hedges						$	70,771					$	—					$	70,771								$	70,589								$	182
Other derivative activities(1)						997,420						3,517						993,903									584,971									408,932
Total derivatives subject to a master netting arrangement or similar arrangement						1,068,191						3,517						1,064,674									655,560									409,114
Total derivatives not subject to a master netting arrangement or similar arrangement(2)						3,835						—						3,835									2,382									1,453
Total Derivative Liabilities						$	1,072,026					$	3,517					$	1,068,509								$	657,942								$	410,567

(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 13. FAIR VALUE

The fair value hierarchy categorizes the underlying assumptions and inputs to valuation techniques that are used to measure fair value into three levels. The three fair value hierarchy classification levels are defined 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. See Note 1 of the 2020 Annual Report on Form 10-K for a broad discussion of fair value measurement techniques. 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.

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NOTE 13. 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, 2021 and December 31, 2020:

(in thousands)						Level 1						Level 2						Level 3						Balance at September 30, 2021						Level 1						Level 2						Level 3						Balance at December 31, 2020
Financial assets:
U.S. Treasury securities						$	—					$	90,688					$	—					$	90,688					$	—					$	170,653					$	—					$	170,653
Corporate debt						—						239,805						—						239,805						—						155,715						—						155,715
ABS						—						544,525						—						544,525						—						58,945						50,393						109,338
MBS						—						10,501,834						—						10,501,834						—						10,877,783						—						10,877,783
Investment in debt securities AFS(2)						—						11,376,852						—						11,376,852						—						11,263,096						50,393						11,313,489
Other investments - trading securities						—						38,748						—						38,748						—						40,435						—						40,435
RICs HFI(3)						—						3,774						35,616						39,390						—						—						50,391						50,391
LHFS (1)(4)						—						194,078						—						194,078						—						265,428						—						265,428
MSRs						—						—						79,580						79,580						—						—						77,545						77,545
Other assets - derivatives (2)						—						770,816						4,162						774,978						—						1,205,690						13,400						1,219,090
Total financial assets (5)						$	—					$	12,384,268					$	119,358					$	12,503,626					$	—					$	12,774,649					$	191,729					$	12,966,378
Financial liabilities:
Other liabilities - derivatives (2)						—						689,828						1,789						691,617						—						1,068,074						3,952						1,072,026
Total financial liabilities						$	—					$	689,828					$	1,789					$	691,617					$	—					$	1,068,074					$	3,952					$	1,072,026

(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)    Refer to Note 2 for the fair value of investment securities and to Note 12 for the fair values of derivative assets and liabilities on a further disaggregated basis.

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

(4) Residential mortgage loans.

(5) Approximately $119.4 million of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 1.0% of total assets measured at fair value on a recurring basis and approximately 0.1% of total consolidated assets.

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NOTE 13. FAIR VALUE (continued)

Valuation Processes and Techniques - Recurring Fair Value Assets and Liabilities

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

Investments in debt securities AFS

Investments in debt securities AFS are accounted for at fair value. The Company utilizes a third-party pricing service to value its investment securities portfolios on a global basis. Its primary pricing service has 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. The estimated fair value of all RICs HFI 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."

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NOTE 13. FAIR VALUE (continued)

MSRs

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

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

Gains and losses on MSRs are recognized on the Condensed Consolidated Statements of Operations through Miscellaneous income, net.

Significant assumptions used in the valuation of residential MSRs include CPRs and the discount rate. Other important valuation assumptions include market-based servicing costs and the anticipated earnings on escrow and similar balances held by the Company in the normal course of mortgage servicing activities. Below is a sensitivity analysis of the most significant inputs utilized by the Company in the evaluation of residential MSRs:

• A 10% and 20% increase in the CPR speed would decrease the fair value of the residential servicing asset by $3.5 million and $6.9 million, respectively, at September 30, 2021.

•A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $2.4 million and $4.7 million, respectively, at September 30, 2021.

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.

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NOTE 13. FAIR VALUE (continued)

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

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

See Note 12 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, 2021 and 2020, respectively, for those assets and liabilities measured at fair value on a recurring basis.

						Three-Month Period Ended September 30, 2021																														Three-Month Period Ended September 30, 2020
(in thousands)						Investments AFS						RICs HFI						MSRs						Derivatives, net												Total						Investments AFS						RICs HFI						MSRs						Derivatives, net												Total
Balances, beginning of period						$	50,063					$	39,436					$	79,730					$	3,471											$	172,700					$	50,664					$	72,862					$	88,674					$	9,970											$	222,170
Losses in OCI						(63)						—						—						—												(63)						(97)						—						—						—												(97)
Gains/(losses) in earnings						—						—						1,878						(1,097)												781						—						3,895						(2,834)						495												1,556
Additions/Issuances						—						1,171						3,343						—												4,514						—						—						3,365						—												3,365
Settlements(1)						(50,000)						(4,991)						(5,371)						—												(60,362)						(1)						(15,309)						(7,429)						65												(22,674)
Balances, end of period						$	—					$	35,616					$	79,580					$	2,374											$	117,570					$	50,566					$	61,448					$	81,776					$	10,530											$	204,320
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period						$	—					$	—					$	1,878					$	276											$	2,154					$	—					$	3,895					$	(2,834)					$	812											$	1,873
						Nine-Month Period Ended September 30, 2021																														Nine-Month Period Ended September 30, 2020
(in thousands)						Investments AFS						RICs HFI						MSRs						Derivatives, net												Total						Investments AFS						RICs HFI						MSRs						Derivatives, net												Total
Balances, beginning of period						$	50,393					$	50,391					$	77,545					$	9,448											$	187,777					$	63,235					$	84,334					$	130,855					$	255											$	278,679
Losses in OCI						(393)						—						—						—												(393)						(416)						—						—						—												(416)
Gains/(losses) in earnings						—						—						10,530						(7,074)												3,456						—						10,845						(38,457)						10,045												(17,567)
Additions/Issuances						—						—						10,969						—												10,969						—						2,512						9,788						—												12,300
Transfer from level 2(3)						—						1,171						—						—												1,171						—						17,634						—						—												17,634
Settlements(1)						(50,000)						(15,946)						(19,464)						—												(85,410)						(12,253)						(53,877)						(20,410)						230												(86,310)
Balances, end of period						$	—					$	35,616					$	79,580					$	2,374											$	117,570					$	50,566					$	61,448					$	81,776					$	10,530											$	204,320
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period						$	—					$	—					$	10,530					$	1,987											$	12,517					$	—					$	10,845					$	(38,457)					$	(3,031)											$	(30,643)

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

(2) The Company transferred RICs from Level 2 to Level 3 during 2020 because the fair value for these assets cannot be determined by using readily observable inputs. There were no other transfers into or out of Level 3 during the three-month and nine-month periods ended September 30, 2021 or 2020.

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NOTE 13. FAIR VALUE (continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

(in thousands)						Level 1						Level 2						Level 3						Balance at September 30, 2021						Level 1						Level 2						Level 3						Balance at December 31, 2020
Impaired commercial LHFI						$	—					$	18,005					$	696					$	18,701					$	—					$	32,609					$	11,925					$	44,534
Foreclosed assets						—						(279)						—						(279)						—						8,232						23,528						31,760
Vehicle inventory						—						271,040						—						271,040						—						313,754						—						313,754
LHFS(1)						—						—						496,489						496,489						—						—						1,960,768						1,960,768
Auto loans impaired due to bankruptcy						—						204,594						—						204,594						—						191,785						—						191,785

(1)    These amounts include zero and $0.9 billion of personal LHFS that were impaired as of September 30, 2021 and December 31, 2020, respectively. On March 16, 2021 the Company sold the personal lending portfolio. Refer to Note 1 for more information.

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 $12.7 million and $33.2 million at September 30, 2021 and December 31, 2020, 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 RICs 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 the collateral securing the loans.

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NOTE 13. FAIR VALUE (continued)

The estimated fair value of goodwill is valued using unobservable inputs and is classified as Level 3 at October 1 annually or more frequently if impairment indicators are present at an interim date. 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						2021						2020						2021						2020 (2)
Impaired LHFI			Credit loss expense						$	(1,021)					$	(12,036)					$	(6,008)					$	(5,883)
Foreclosed assets			Miscellaneous income, net (1)						—						(736)						(321)						(3,857)
LHFS			Miscellaneous income						—						(56,598)						—						(387,900)
Auto loans impaired due to bankruptcy			Credit loss expense						—						—						—						—

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

(2) Also included $1.8 billion of impairment of goodwill taken in the second quarter of 2020. Refer to Note 5 to these Condensed Consolidated Financial Statements for further information.

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, 2021 and December 31, 2020, respectively:

(dollars in thousands)

Fair Value at September 30, 2021 (4)

Valuation Technique

Unobservable Inputs

Range (Weighted Average)

Financial Assets:

RICs HFS

359,561

DCF

Discount rate

1.00 % - 2.00 % (2.00 %)

Default rate

4.00 % - 10.00 % (7.00%)

Prepayment rate

15.00 % - 20.00 % (17.00 %)

Loss severity rate

50.00 % - 55.00 % (52.00 %)

MSRs

79,580

DCF

CPR (2)

0.00% - 74.44% (13.47%)

Discount rate (3)

9.35 %

(1)    Based on the applicable term and discount index. The Company owns one financing bond security.

(2)    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.

(3)    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.

(4) Excluded insignificant level 3 assets and liabilities.

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NOTE 13. FAIR VALUE (continued)

(dollars in thousands)			Fair Value at December 31, 2020						Valuation Technique						Unobservable Inputs						Range (Weighted Average)
Financial Assets:
ABS
Financing bonds			$	50,393					DCF						Discount rate (1)						0.22%
Personal LHFS (4)			893,479						Lower of market or income approach						Market participant view						60.00% - 70.00%
															Discount rate						20.00% - 30.00%
															Default rate						35.00% - 45.00%
															Net principal & interest payment rate						65.00% - 75.00%
															Loss severity rate						90.00% - 95.00%
RICs HFS			$	674,048					DCF						Discount Rate						1.5% - 2.5% (2.0%)
															Default Rate						2.0% - 4.0% (3.0%)
															Prepayment Rate						10.0% - 20.0% (15.0%)
															Loss Severity Rate						50.0% - 60.0% (55.0%)
MSRs			77,545						DCF						CPR (2)						7.66% - 45.35% (16.11%)
															Discount rate (3)						9.37		%

(1), (2), (3) - See corresponding footnotes to the September 30, 2021 Level 3 significant inputs table above.

(4) 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.

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, 2021																														December 31, 2020
(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						$	18,605,798					$	18,605,798					$	18,605,798					$	—					$	—					$	12,621,281					$	12,621,281					$	12,621,281					$	—					$	—
Federal funds sold and securities purchased under resale agreements or similar arrangements(3)						1,589,324						1,609,687						—						1,609,687						—						—						—						—						—						—
Investments in debt securities AFS						11,392,791						11,376,852						—						11,376,852						—						11,313,489						11,313,489						—						11,263,096						50,393
Investments in debt securities HTM						6,594,046						6,609,487						—						6,609,487						—						5,504,685						5,677,929						—						5,677,929						—
Other investments (2)						538,748						539,371						—						539,371						—						790,435						801,056						—						801,056						—
LHFI, net						85,106,617						88,509,050						—						18,053						88,490,997						84,794,689						89,395,086						—						32,609						89,362,477
LHFS						690,567						690,567						—						325,721						364,846						2,226,196						2,226,196						—						265,428						1,960,768
Restricted cash						5,612,743						5,612,743						5,612,743						—						—						5,303,460						5,303,460						5,303,460						—						—
MSRs						79,580						79,580						—						—						79,580						77,545						77,545						—						—						77,545
Derivatives						774,978						774,978						—						770,816						4,162						1,219,090						1,219,090						—						1,205,690						13,400
Financial liabilities:
Deposits (1)						2,757,910						2,764,659						—						2,764,659						—						3,897,056						3,920,096						—						3,920,096						—
Federal funds purchased and securities loaned or sold under repurchase agreements(3)						1,586,537						1,586,744						—						1,586,744						—						—						—						—						—						—
Borrowings and other debt obligations						43,726,930						44,515,357						—						33,512,352						11,003,005						46,359,467						47,081,852						—						30,538,951						16,542,901
Derivatives						691,617						691,617						—						689,828						1,789						1,072,026						1,072,026						—						1,068,074						3,952

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

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

(3) Approximates the fair value of the underlying collateral.

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NOTE 13. 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.

Securities Financing Agreements

Securities Financing Agreements include repurchase and reverse repurchase agreements, including bonds borrowed. The related fair measurements have been classified as Level 2, based on the underlying collateral which is comprised of Level 2 U.S. Treasury and mortgage-backed agency debt securities

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.

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NOTE 13. FAIR VALUE (continued)

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.

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.

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, 2021 and December 31, 2020, the balance of these loans serviced for others accounted for at fair value was $10.8 billion and $12.5 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 12 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."

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 NPLs 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, 2021 and December 31, 2020:

						September 30, 2021																		December 31, 2020
(in thousands)						Fair Value						Aggregate UPB						Difference						Fair Value						Aggregate UPB						Difference
LHFS(1)						$	194,078					$	188,892					$	5,186					$	265,428					$	250,822					$	14,606
RICs HFI						39,391						39,591						(200)						50,391						50,624						(233)
Nonaccrual loans						541						619						(78)						1,474						2,178						(704)

(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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NOTE 14. 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)						2021						2020						2021						2020
Non-interest income:
Consumer and commercial fees						$	109,475					$	123,834					$	335,620					$	356,907
Lease income						708,814						742,946						2,214,598						2,269,613
Miscellaneous income, net
Mortgage banking income, net						13,024						14,115						34,437						47,243
BOLI						15,051						14,855						45,984						43,764
Capital market revenue						47,082						56,949						189,016						179,417
Net gain on sale of operating leases						103,172						120,387						389,979						170,484
Asset and wealth management fees						60,251						52,984						177,722						156,575
Gain / (loss) on sale of non-mortgage loans						3,420						(56,684)						(19,766)						(241,324)
Other miscellaneous income / (loss), net						7,381						105,616						51,619						(25,994)
Net gain on sale of investment securities						(106)						(148)						15,138						31,646
Total Non-interest income						$	1,067,564					$	1,174,854					$	3,434,347					$	2,988,331

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)						2021						2020						2021						2020
Non-interest income:
In-scope of revenue from contracts with customers:
Depository services(1)						$	47,725					$	45,674					$	134,265					$	144,703
Commission and trailer fees(2)						51,189						47,466						159,253						144,730
Interchange income, net(2)						18,589						15,648						53,351						47,567
Underwriting service fees(2)						26,156						35,186						121,075						110,593
Asset and wealth management fees(2)						36,679						32,283						100,428						101,574
Other revenue from contracts with customers(2)						8,556						13,577						29,589						52,168
Total in-scope of revenue from contracts with customers						188,894						189,834						597,961						601,335
Out-of-scope of revenue from contracts with customers:
Consumer and commercial fees(3)						46,610						64,860						155,945						178,248
Lease income						708,814						742,946						2,214,598						2,269,613
Other miscellaneous income / (loss), net (3)						123,352						177,362						450,705						(92,511)
Net gain/(loss) on sale of investment securities						(106)						(148)						15,138						31,646
Total out-of-scope of revenue from contracts with customers						878,670						985,020						2,836,386						2,386,996
Total non-interest income						$	1,067,564					$	1,174,854					$	3,434,347					$	2,988,331

(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.

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

Other Expenses

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

						Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,
(in thousands)						2021						2020						2021						2020
Other expenses:
Amortization of intangibles						$	11,416					$	14,724					$	33,450					$	44,211
Deposit insurance premiums and other expenses						6,982						13,440						25,950						39,779
Loss on debt extinguishment						—						—						—						1,026
Other administrative expenses						146,123						115,909						301,565						313,344
Other miscellaneous expenses						6,680						6,176						23,158						29,618
Total Other expenses						$	171,201					$	150,249					$	384,123					$	427,978

NOTE 15. INCOME TAXES

An income tax expense of $227.3 million and a benefit of $53.3 million were recorded for the three-month periods ended September 30, 2021 and 2020, respectively. An income tax expense of $885.8 million and a benefit of $272.9 million were recorded for the nine-month periods ended September 30, 2021 and 2020, respectively. This resulted in an ETR of 21.0% and (6.5)% for the three-month periods ended September 30, 2021 and 2020, respectively, and 23.3% and 19.3% for the nine-month periods ended September 30, 2021 and 2020, respectively. The increase in the ETR for the three-month and nine-month periods ended September 30, 2021, compared to the three-month and nine-month periods ended September 30, 2020, was primarily the result of expected pre-tax income for 2021, compared to a pre-tax loss in 2020, and the impairment of goodwill in 2020 that was non-deductible for tax purposes.

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.

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NOTE 15. INCOME TAXES (continued)

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 $602.8 million at September 30, 2021 (consisting of a deferred tax asset balance of $45.6 million and a deferred tax liability balance of $648.4 million with respect to jurisdictional netting), compared to a net deferred tax liability balance of $171.2 million at December 31, 2020 (consisting of a deferred tax asset balance of $11.1 million and a deferred tax liability balance of $182.4 million). The $431.6 million increase in net deferred liability for the nine-month period ended September 30, 2021 was primarily due to a decrease in net operating loss carryforwards.

NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES

Off-Balance Sheet Risk - Financial Instruments

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

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

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

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

Other Commitments						September 30, 2021						December 31, 2020
						(in thousands)
Commitments to extend credit						$	28,118,571					$	30,883,502
Letters of credit						1,324,186						1,432,764
Commitments to sell loans						33,038						49,791
Recourse exposure on sold loans						19,621						26,362
Total commitments						$	29,495,416					$	32,392,419

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, 2021 and December 31, 2020 were $4.1 billion and $5.4 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, 2021 was 15.9 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, 2021 was $1.3 billion. The fees related to letters of credit are deferred and amortized over the lives of the respective commitments, and were immaterial to the Company’s financial statements at September 30, 2021. 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, 2021 and December 31, 2020, the liability related to unfunded lending commitments was $135.5 million and $146.5 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.

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NOTE 16. 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.

Securities Borrowed and Lending Subject to Repurchase or Resale Agreements

In the second quarter of 2021, the Company began entering into Securities Financing Agreements primarily to deploy the Company’s excess cash and investments. Refer to Note 11 to these Condensed Consolidated Financial Statements for further discussion of the Company's commitments in connection with those agreements.

SC Commitments

The following table summarizes liabilities recorded for commitments and contingencies as of September 30, 2021 and December 31, 2020, 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, 2021						December 31, 2020
												(in thousands)
MPLFA						Revenue-sharing and gain/(loss), net-sharing payments						$	70,675					$	43,778
Agreement with Bank of America						Servicer performance fee						462						1,200
Agreement with CBP						Loss-sharing payments						286						181
Other contingencies						Consumer arrangements						29,070						22,155

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

MPLFA

Under the terms of the MPLFA, SC must make revenue sharing payments to Stellantis and also must share with Stellantis when residual gains/(losses) on leased vehicles exceed a specified threshold. The MPLFA 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 Stellantis retail financing. In turn, Stellantis 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.

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NOTE 16. 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 through April 2022.

During the first quarter in 2021, SC completed the sale of the Bluestem personal lending portfolio to a third party. In addition, SC executed a forward flow sale agreement with a third party to purchase all personal lending receivables that SC purchases from Bluestem through the term of the agreement with Bluestem.

As of December 31, 2020, the total unused credit available to customers was $2.7 billion. In 2021, SC purchased $0.3 billion of receivables out of the $2.7 billion of unused credit available to customers as of December 31, 2020. In 2020, SC purchased $1.2 billion of receivables out of the $3.0 billion of unused credit available to customers as of December 31, 2019. In addition, SC purchased $24.9 million and $151.2 million of receivables related to newly-opened customer accounts during the nine-month periods ended September 30, 2021 and 2020, 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.

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 by SC, it 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, 2021, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for SC's ABS or other sales. In the opinion of management, the potential exposure of other recourse obligations related to SC’s RIC sale agreements is not expected to have a material adverse effect on the Company's or SC’s business, consolidated financial position, results of operations, or cash flows.

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, 2021 and December 31, 2020 not subject to a market price check was $6.2 million and $15.3 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.

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NOTE 16. 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, 2021 and December 31, 2020, the Company accrued aggregate legal and regulatory liabilities of approximately $28.7 million and $109.5 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 $15.6 million as of September 30, 2021. Set forth below are descriptions of the material lawsuits, regulatory matters and other legal proceedings to which the Company is subject.

SBNA Matters

Mortgage Escrow Interest Putative Class Action

SBNA is a defendant in a putative class action 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 SBNA is obligated to pay interest on mortgage escrow accounts pursuant to state law. Plaintiffs filed an amended complaint and SBNA has filed a motion to dismiss. On July 12, 2021, plaintiffs filed a motion seeking preliminary approval of a settlement with SBNA pursuant to which SBNA will pay a total of $2 million to resolve the litigation.

Overtime Putative Class Action

SBNA is a defendant in a putative class action lawsuit in the United States District Court, District of New Jersey, captioned Crystal Sanchez, et. Al. v. Santander Bank, N.A., No. 17-cv-5775. The lawsuit alleges that SBNA failed to pay overtime to current and former branch operations managers. The Court denied SBNA’s motion to dismiss. Plaintiff's motion seeking to amend its complaint to add additional state law claims is fully briefed.

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

SC Matters

Shareholder Derivative Lawsuits

Seattle City Employees Retirement System v. Santander Holdings USA, Inc., et al: In November 2020, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Seattle City v. Santander Holdings USA, Inc., C.A. No. 2020-0977-AGB. The plaintiff seeks unspecified monetary damages and other injunctive relief in the complaint. The complaint alleges, among other things, that SHUSA and the current director breached their fiduciary duties by causing SC to engage in share repurchases for the purpose of increasing SHUSA’s ownership of SC above 80%, which the complaint alleges would allow SHUSA to obtain tax and other benefits not available to the rest of SC’s shareholders. The defendants filed an answer to the complaint.

Caldwell v. Santander Consumer USA Holdings Inc.: In September 2020, a purported shareholder of SC Common Stock filed a complaint against SC and its Board of Directors in the United States District Court for the Southern District of New York, captioned Craig Caldwell v. Santander Consumer USA Holdings Inc., 1:21-cv-07842, alleging violations of the Exchange Act when the Board allegedly authorized the filing of a materially incomplete and misleading Solicitation/Recommendation Statement with the SEC in connection with SHUSA’s proposed purchase of the remaining shares of SC Common Stock not already owned by SHUSA. The plaintiff seeks to enjoin the defendants from proceeding with the proposed transaction.

Consumer Lending Cases

The Company and its subsidiaries are 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.

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

Mississippi Attorney General Lawsuit: In January 2017, Mississippi Attorney General filed a lawsuit against SC in the Chancery Court of the First Judicial District of Hinds County, 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. In July 2021, SC and the state of Mississippi entered into a settlement agreement resolving this matter for a monetary payment of $3.7 million to the state of Mississippi. On July 21, 2021, the Mississippi Attorney General publicly announced the settlement agreement.

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, 2021, SSLLC had received 773 FINRA arbitration cases related to Puerto Rico bonds and Puerto Rico CEFs 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 19 arbitration cases pending as of September 30, 2021. The Company has experienced a decrease in the volume of claims since September 30, 2019 and does not expect to see a significant increase in claims in future periods.

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NOTE 16. 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. On September 16, 2020, the defendants moved to dismiss the complaint. On June 2, 2021, the court denied the defendants’ motion to dismiss. Defendants are seeking to appeal the decision.

On October 28, 2020, bond insurer Ambac Assurance Corporation filed an amended complaint in Puerto Rico state court adding SSLLC and four other Puerto Rico municipal bond underwriters to a pending suit against seven underwriters, alleging that the underwriters made misrepresentations in connection with the issuance of the debt and that Ambac relied on such misrepresentations in agreeing to insure certain of the bonds. The amended complaint alleges damages of not less than $508 million. On July 30, 2021, the court granted the defendants’ motion to dismiss the complaint. Plaintiffs have appealed.

On November 27, 2020, bond insurer Financial Guaranty Insurance Company filed suit in Puerto Rico state court against twelve Puerto Rico municipal bond underwriters, including SSLLC, alleging that the underwriters made misrepresentations in connection with the issuance of the debt and that Financial Guaranty Insurance Company relied on such misrepresentations in agreeing to insure certain of the bonds. The complaint alleges damages of not less than $447 million. On February 1, 2021, the defendants moved to dismiss the complaint. On July 9, 2021, the court granted the defendants’ motion to dismiss. Plaintiff has appealed.

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 17. RELATED PARTY TRANSACTIONS

The Company and its affiliates have various debt and derivative agreements with Santander. For further details of these agreements, see Note 10 and Note 20 to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. 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.

SC had an MSPA with Santander, whereby SC 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 provides servicing on all loans originated under this arrangement. For the three-month and nine-month periods ended September 30, 2021, servicing fee income of $2.0 million and $7.3 million, respectively, was recognized in the Condensed Consolidated Statements of Operations compared to $4.5 million and $15.7 million for the three-month and nine-month periods ended September 30, 2020, respectively. SC had $4.8 million and $6.2 million of collections due to Santander as of September 30, 2021 and December 31, 2020, 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 Stellantis 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, 2021, SC facilitated the purchase of RICs of $1.5 billion and $6.1 billion, respectively. For the three-month and nine-month periods ended September 30, 2020, SC facilitated the purchase of RICs of $1.1 billion and $3.9 billion, respectively. SC recognizes referral fee income and servicing fee income related to this agreement that eliminates in the consolidation of SHUSA.

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NOTE 17. RELATED PARTY TRANSACTIONS (continued)

Beginning in the third quarter of 2021, SC agreed to provide SBNA with support services in connection with the origination and servicing of vehicle leases, primarily from Stellantis dealers, that are funded and owned by SBNA. SC recognizes referral fee and servicing fee income in connection with these agreements that eliminate in consolidation.

Banco Santander (Brasil) S.A. had deposits with the Bank of $0.2 billion and $2.0 billion as of September 30, 2021 and December 31, 2020, respectively. Banco Santander-Chile had deposits with the Bank of $1.2 billion and $0.8 billion as of September 30, 2021 and December 31, 2020, respectively. Banco Santander Rio had deposits with the Bank of $0.1 billion and zero as of September 30, 2021 and December 31, 2020, respectively. These transactions do not eliminate in the consolidation of SHUSA.

NOTE 18. BUSINESS SEGMENT INFORMATION

Business Segment Products and Services

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

•The CBB segment includes the products and services provided to Bank consumer and small business banking customers, including consumer deposit, small 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. SBNA also finances indirect consumer automobile RICs and leases through intercompany agreements with SC. In addition, SBNA 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 lower middle market commercial customers and 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 SBNA’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 MPLFA, SC offers a full spectrum of auto financing products and services to Stellantis customers and dealers under the CCAP 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 SBNA 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 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.

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NOTE 18. BUSINESS SEGMENT INFORMATION (continued)

The Company’s segment results, excluding SC and the entities that have been transferred to the Company as 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.

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.

During the fourth quarter of 2020, the Company implemented organizational changes to meet the evolving needs of its business customers including the re-alignment of Upper Business Banking with the C&I segment from the CBB segment. In addition, the Company moved the assets associated with its Community Development Finance business from its “Other” category to the CRE&VF segment to align its LIHTC assets with similar CRE assets and liabilities. All prior period results have been revised for these segment changes.

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, 2021			CBB			C&I			CRE & VF			CIB(4)			Other(1)						SC(2)			SC Purchase Price Adjustments(3)			Eliminations(3)						Total
			(in thousands)
Net interest income			$	367,414		$	70,511		$	93,061		$	25,514		$	(48,074)					$	1,019,999		$	(280)		$	6,006					$	1,534,151
Non-interest income			79,955			16,480			7,354			48,352			105,497						821,398			—			(11,472)						1,067,564
Credit loss expense / (benefit)			(14,248)			6,826			(5,087)			(9,775)			(281)						42,058			—			—						19,493
Total expenses			373,697			63,244			35,478			68,592			129,693						827,408			5,875			(5,784)						1,498,203
Income/(loss) before income taxes			87,920			16,921			70,024			15,049			(71,989)						971,931			(6,155)			318						1,084,019
Intersegment revenue/(expense)			(194)			2,853			757			(3,415)			(1)						—			—			—						—

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NOTE 18. BUSINESS SEGMENT INFORMATION (continued)

For the Year-to-Date Ended			SHUSA Reportable Segments
September 30, 2021			CBB			C&I			CRE & VF			CIB(4)			Other(1)						SC(2)			SC Purchase Price Adjustments(3)			Eliminations(3)						Total
			(in thousands)
Net interest income			$	1,087,118		$	215,573		$	281,023		$	83,170		$	(146,536)					$	3,149,027		$	(207)		$	16,150					$	4,685,318
Non-interest income			227,746			52,197			28,364			179,627			319,613						2,666,681			—			(39,881)						3,434,347
Credit loss expense / (benefit)			(50,839)			(45,236)			(4,167)			(32,102)			(3,896)						(85,484)			—			—						(221,724)
Total expenses			1,113,128			190,759			108,287			199,551			366,573						2,562,527			18,935			(20,246)						4,539,514
Income/(loss) before income taxes			252,575			122,247			205,267			95,348			(189,600)						3,338,665			(19,142)			(3,485)						3,801,875
Intersegment revenue/(expense)			(665)			9,077			1,879			(10,291)			—						—			—			—						—
Total assets			23,633,610			7,133,308			18,870,996			12,560,907			44,587,236						49,074,450			—			—						155,860,507

(1) 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 SBNA’s and the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.

(2) Management of SHUSA manages SC by analyzing the historical results of SC, which are presented in this column.

(3) 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.

(4) Includes results and assets of SIS.

For the Three-Month Period Ended			SHUSA Reportable Segments
September 30, 2020			CBB			C&I			CRE & VF			CIB(4)			Other(1)						SC(2)			SC Purchase Price Adjustments(3)			Eliminations(3)						Total
			(in thousands)
Net interest income			$	352,604		$	82,926		$	94,532		$	34,125		$	(9,090)					$	1,061,986		$	(165)		$	4,474					$	1,621,392
Non-interest income			71,175			16,214			4,606			71,931			186,863						830,126			3,035			(9,096)						1,174,854
Credit loss expense / (benefit)			31,755			40,897			11,963			(15,384)			(4,181)						340,548			227			—						405,825
Total expenses			381,824			66,453			36,454			63,762			127,743						888,973			9,804			(5,785)						1,569,228
Income/(loss) before income taxes			10,200			(8,210)			50,721			57,678			54,211						662,591			(7,161)			1,163						821,193
Intersegment revenue/(expense)			(342)			3,462			1,232			(4,351)			(1)						—			—			—						—

For the Year-to-Date Ended			SHUSA Reportable Segments
September 30, 2020			CBB			C&I			CRE & VF			CIB(4)			Other(1)						SC(2)			SC Purchase Price Adjustments(3)			Eliminations(3)						Total
			(in thousands)
Net interest income			$	1,021,721		$	250,603		$	286,639		$	101,642		$	16,974					$	3,058,137		$	(588)		$	11,032					$	4,746,160
Non-interest income			220,052			48,318			8,971			212,440			253,029						2,271,200			8,056			(33,735)						2,988,331
Credit loss expense / (benefit)			363,363			132,951			78,800			18,071			(135,366)						2,110,330			659			—						2,568,808
Total expenses			2,682,735			491,436			106,689			189,961			408,065						2,692,396			29,397			(17,958)						6,582,721
Income/(loss) before income taxes			(1,804,325)			(325,466)			110,121			106,050			(2,696)						526,611			(22,588)			(4,745)						(1,417,038)
Intersegment revenue/(expense)			(735)			9,759			3,985			(13,009)			—						—			—			—						—
Total assets			22,311,101			7,871,856			20,454,646			11,532,762			35,120,309						48,448,921			—			—						145,739,595

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

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

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

EXECUTIVE SUMMARY

SHUSA is the parent holding company of SBNA, a national banking association; SC, a consumer finance company headquartered in Dallas, Texas; 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; 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; SFS, a consumer credit institution headquartered in Puerto Rico; and several other subsidiaries. SHUSA is headquartered in Boston, Massachusetts and SBNA's main office is in Wilmington, Delaware. SSLLC and SIS and another SHUSA subsidiary, SAM, are registered investment advisers with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.

As of September 30, 2021, 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." Refer to Note 1 of the Condensed Consolidated Financial Statements for additional information on SHUSA's proposal to acquire the remainder of SC's outstanding shares.

SBNA'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. SBNA uses its deposits, as well as other financing sources, to fund its loan and investment portfolios. SBNA earns interest income on its loan and investment portfolios. In addition, SBNA 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. SBNA's principal non-interest expenses include employee compensation and benefits, occupancy and facility-related costs, technology and other administrative expenses. The financial results of SBNA are affected by the economic environment, including interest rates and consumer and business confidence and spending, as well as the competitive conditions within SBNA's geographic footprint.

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 auto 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 Further information about SC’s business is provided below in the “CCAP” section.

SC is managed through a single reporting segment which includes 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.

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

CCAP

Since May 2013, under the MPLFA with Stellantis, the Company has operated as Stellantis's preferred provider for consumer loans, leases and dealer loans and provides services to Stellantis customers and dealers under the CCAP brand. The Company's average penetration rate under the MPLFA for the nine-month period ended September 30, 2021 was 27%, a decrease from 33% for the nine-month period ended December 31, 2020.

SC has dedicated financing facilities in place for its CCAP business and has pursued a strategy of working collaboratively with Stellantis to continue to strengthen their relationship and create value within the CCAP program. During the nine-month period ended September 30, 2021, SC originated $11.1 billion in CCAP loans, which represented 53% of the UPB of its total RIC originations, as well as $5.8 billion in CCAP leases. Additionally, all of the leases originated by SC during nine-month period ended September 30, 2021 were under the MPLFA.

ECONOMIC AND BUSINESS ENVIRONMENT

Overview

The unemployment rate at September 30, 2021 was 4.8% compared to 5.9% at June 30, 2021 and 7.9% one year ago, which represented an improvement off the April 2020 peak of unemployment associated with the COVID-19 outbreak. According to the U.S. Bureau of Labor Statistics, the improvement from March 2021 reflects the continuing resumption of economic activity, particularly in the leisure and hospitality, public and private education, professional and business services, retail trade and other services.

Market year-to-date returns for the following indices based on closing prices at September 30, 2021 were:

						September 30, 2021
Dow Jones Industrial Average						10.6%
S&P 500						14.7%
NASDAQ Composite						12.1%

In light of the effects the COVID-19 pandemic continues to have on economic activity, at its September 2021 meeting, the Federal Open Market Committee decided to maintain the federal funds rate target range at 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, 2021 was 1.53%, up from 0.92% at December 31, 2020. 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.

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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 SBNA, SHUSA, and Santander senior debt / long-term issuer rating:

SANTANDER (1)

SHUSA

SBNA (2)

Overall Outlook

Fitch

A

BBB+

BBB+

Stable

Moody's

A2

Baa3

Baa1

Stable

S&P

A

BBB+

A-

Stable

(1) Senior preferred rating

(2) Moody's rating represents SBNA long-term issuer 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.

COVID-19 Summary

In March 2020, the novel strain of coronavirus, or COVID-19, had materially impacted our business. Similar to many other financial institutions, we took measures to mitigate our customers’ COVID-19-related economic challenges. We experienced an increase in requests for interest and amortization payment deferments extensions and modifications related to COVID-19 nationwide and a significant number of such payment deferments, extensions and modifications have been granted as detailed in the section of this MD&A captioned "TDRs". The Bank also joined other U.S. banks in providing overdrawn customers full access to their EIPs by providing a temporary credit in the amount of their overdrawn balance as of the end of the day prior to receipt of their EIP (up to a limit of $5,000) for each of the three rounds of EIP.

Please refer to Item 7 of the 2020 Annual Report on Form 10-K for additional details regarding COVID-19.

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

REGULATORY MATTERS

The activities of the Company and its subsidiaries, including SBNA 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 the NYDFS.

Payment of Dividends

SHUSA is the parent holding company of SBNA. SHUSA and SBNA are subject to various regulatory restrictions relating to the payment of dividends, including regulatory capital minimums and the requirement to remain "well-capitalized" under prompt corrective action regulations. As a consolidated 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 response to COVID-19, from June 2020 through June 30, 2021 the Federal Reserve implemented the Interim Policy, which restricted capital distributions to various measures of prior earnings.

On April 27, 2021, the Company received written notification from the FRB that the FRB has approved SHUSA’s request for an exception from the prohibition in the Interim Policy restricting the payment of certain dividends in the second quarter of 2021. On April 30, 2021, the SC’s Board of Directors declared a dividend of $0.22 per share for shareholders as of May 10, 2021 and payable on May 20, 2021.

On March 25, 2021, the Federal Reserve announced that the temporary restrictions imposed by the Interim Policy would end June 30, 2021. Beginning July 1, 2021, firms are subject to the SCB capital rules. SHUSA’s 2020 SCB was 2.5%, equating to a 7% minimum limit under the SCB rules.

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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 SBNA.

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 SBNA, to maintain a minimum CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total capital ratio of 8.0% and a minimum leverage ratio, calculated as the 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 to make capital distributions, including paying dividends.

As described in Note 1, 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 Note 1, the U.S. banking agencies in December 2018 approved a final rule to address the impact of CECL on regulatory capital by allowing banking organizations, including the Company, the option to phase in the day-one impact of CECL until the first quarter of 2023. On March 26, 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. This interim rule was subsequently updated with technical amendments in a final rule dated September 30, 2020. 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.

Material restrictions can be imposed on SBNA, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver or conservator. Critically undercapitalized banks generally may not make any payment of principal or interest on their subordinated debt and all but well-capitalized banks are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to the FDIA and OCC regulations, institutions which are not categorized as well-capitalized or adequately-capitalized are restricted from making capital distributions, which include cash dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the capital account of the institution. At September 30, 2021, SBNA met the criteria to be classified as “well-capitalized.”

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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 the RWA 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 final rule. 

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.

Resolution Planning

The DFA requires the Company to prepare and 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 FDIA rules, the IDI resolution plan rule requires that a bank with assets of $50 billion or more develop a plan for its resolution that supports depositors’ rapid access to their insured deposits, maximizes the net present value return from the sale or disposition of its assets, and minimizes the amount of any loss realized by creditors in resolution.

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.

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

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

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

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

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

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

The Federal Reserve's final credit risk retention rule generally requires sponsors of ABS to retain at least five percent of the credit risk of the assets collateralizing ABS. SHUSA, primarily through SC, is an active participant in the structured finance markets and complies with these retention requirements.

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.

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

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 Company's risk-based capital ratios.

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 between SBNA and 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.

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 is 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. SBNA’s current CRA rating is "Outstanding." The OCC takes into account SBNA’s CRA rating in considering certain regulatory applications SBNA 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.

Reference Rate Reform

The March 5, 2021, announcement by the U.K.’s Financial Conduct Authority confirmed the unavailability of LIBOR rates beyond June 30, 2023 and cessation of one-week and two-month LIBOR by December 31, 2021. ISDA announced these statements are an “Index Cessation Event” under the IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol, which in turn triggers a “Spread Adjustment Fixing Date” under the Bloomberg IBOR Fallback Rate Adjustments Rule Book. As a result, when LIBOR tenors cease and the fallback rates apply, fallbacks for derivatives under ISDA’s documentation shift to forms of the SOFR plus the fixed spread adjustment.

The regulatory agencies also confirmed that the March 5, 2021 announcements constitute a “Benchmark Transition Event” with respect to all LIBOR settings.

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

We hold loans, derivatives, and other financial instruments that use LIBOR as a reference rate and that will be impacted by the cessation of LIBOR. Transition away from LIBOR to new reference rates presents legal, financial, reputational, and operational risks to the Company as well as to other participants in the market. As of September 30, 2021, the Company had approximately $21 billion of loans and approximately $5 billion of borrowings with LIBOR exposure. We also had approximately $64 billion in notional amounts of derivative contracts with LIBOR exposure.

Under the guidance of our cross-functional LIBOR transition program, the Company is on track to offer products linked to alternative reference rates and to remediate existing contracts that use the LIBOR reference rate. We will substantially limit originations of new LIBOR-referenced products by December 1, 2021, and cease all new originations of LIBOR-referenced products by December 31, 2021.

We have progressed on the following aspects of the LIBOR transition to date:

Communications and training

•Created and updated employee and customer-facing LIBOR transition web pages

•Communicated with clients about the LIBOR transition through existing channels

•Launched conduct risk training for client-facing staff members

•Completed internal training on alternative reference rate product offerings

Contracts remediation

•Maintained current inventory of clients and contracts that have a dependency on LIBOR and that require re-negotiation

•Prepared and delivered amendments to clients

•Utilized LIBOR amendment fallback language for new or re-negotiated contracts

•Adhered to the ISDA IBOR Fallbacks Protocol

Products

•Launched SOFR-based conforming adjustable rate mortgages (in line with FNMA and FHLMC requirements) in the third quarter of 2020

•Maintained quarterly LIBOR exposure reporting

•Developed SOFR pricing framework and shared with internal teams

Models

•Created an inventory and plan for remediation of models potentially impacted by the LIBOR cessation

•Started development and validation of models impacted by the transition to alternative reference rates

Accounting and tax

•Started analysis of the accounting and tax impacts based on FASB and IRS guidance

Systems

•Completed technology systems updates and testing to support alternative reference rates

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

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
			THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2021 AND 2020
			2021 (1)																		2020 (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(3)			$	34,595,548					$	63,246					0.73		%				$	26,828,719					$	75,241					1.12		%				$	(11,995)		$	59,139		$	(71,134)
LOANS(4):
Commercial loans			30,685,084						231,156						3.01		%				33,281,183						276,206						3.32		%				(45,050)			(20,507)			(24,543)
Multifamily			7,820,441						67,308						3.44		%				8,512,238						73,134						3.44		%				(5,826)			(5,826)			—
Total commercial loans			38,505,525						298,464						3.10		%				41,793,421						349,340						3.34		%				(50,876)			(26,333)			(24,543)
Consumer loans:
Residential mortgages			5,993,158						47,752						3.19		%				8,155,884						71,210						3.49		%				(23,458)			(17,715)			(5,743)
Home equity loans and lines of credit			3,691,936						28,270						3.06		%				4,375,284						34,251						3.13		%				(5,981)			(5,232)			(749)
Total consumer loans secured by real estate			9,685,094						76,022						3.14		%				12,531,168						105,461						3.37		%				(29,439)			(22,947)			(6,492)
RICs and auto loans			43,299,400						1,324,661						12.24		%				40,026,191						1,322,556						13.22		%				2,105			22,512			(20,407)
Personal unsecured			983,977						31,294						12.72		%				1,841,369						134,260						29.17		%				(102,966)			(46,572)			(56,394)
Other consumer(5)			168,585						2,651						6.29		%				255,944						4,474						6.99		%				(1,823)			(1,410)			(413)
Total consumer			54,137,056						1,434,628						10.60		%				54,654,672						1,566,751						11.47		%				(132,123)			(48,417)			(83,706)
Total loans			92,642,581						1,733,092						7.48		%				96,448,093						1,916,091						7.95		%				(182,999)			(74,750)			(108,249)
TOTAL EARNING ASSETS			127,238,129						1,796,338						5.65		%				123,276,812						1,991,332						6.46		%				(194,994)			(15,611)			(179,383)
Allowance for loan losses (6)			(6,885,043)																		(7,192,161)
Other assets(7)			33,184,080																		34,156,248
TOTAL ASSETS			$	153,537,166																	$	150,240,899
INTEREST BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits			$	12,986,771					$	1,639					0.05		%				$	11,334,566					$	1,936					0.07		%				$	(297)		$	309		$	(606)
Savings			5,505,487						515						0.04		%				5,957,740						1,937						0.13		%				(1,422)			(140)			(1,282)
Money market			35,084,264						12,088						0.14		%				30,775,793						30,032						0.39		%				(17,944)			5,014			(22,958)
CDs			2,746,937						3,933						0.57		%				5,148,959						18,420						1.43		%				(14,487)			(6,328)			(8,159)
TOTAL INTEREST-BEARING DEPOSITS			56,323,459						18,175						0.13		%				53,217,058						52,325						0.39		%				(34,150)			(1,145)			(33,005)
Federal funds purchased			1,167,174						133						0.05		%				—						—						—		%				133			133			—
BORROWED FUNDS:
FHLB advances			751,087						1,221						0.65		%				4,015,217						6,680						0.67		%				(5,459)			(5,266)			(193)
Other borrowings			42,151,617						242,658						2.30		%				45,076,390						310,935						2.76		%				(68,277)			(19,131)			(49,146)
TOTAL BORROWED FUNDS (8)			42,902,704						243,879						2.27		%				49,091,607						317,615						2.59		%				(73,736)			(24,397)			(49,339)
TOTAL INTEREST-BEARING FUNDING LIABILITIES			100,393,337						262,187						1.04		%				102,308,665						369,940						1.45		%				(107,753)			(25,409)			(82,344)
Noninterest bearing demand deposits			21,163,682																		19,141,277
Other liabilities(9)			8,312,435																		7,920,941
TOTAL LIABILITIES			129,869,454																		129,370,883
STOCKHOLDER’S EQUITY			23,667,712																		20,870,016
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY			$	153,537,166																	$	150,240,899
NET INTEREST SPREAD (10)															4.61		%																5.01		%
NET INTEREST MARGIN (11)															4.82		%																5.26		%
NET INTEREST INCOME (12)									$	1,534,151																	$	1,621,392

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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, 2021 AND 2020
			2021 (1)																		2020 (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(3)			$	31,268,177					$	180,517					0.77		%				$	26,940,052					$	295,996					1.46		%				$	(115,479)		$	59,472		$	(174,951)
LOANS(4):
Commercial loans			31,149,170						718,923						3.08		%				33,430,857						885,374						3.53		%				(166,451)			(58,041)			(108,410)
Multifamily			8,002,324						203,959						3.40		%				8,501,040						229,027						3.59		%				(25,068)			(13,178)			(11,890)
Total commercial loans			39,151,494						922,882						3.14		%				41,931,897						1,114,401						3.54		%				(191,519)			(71,219)			(120,300)
Consumer loans:
Residential mortgages			6,336,042						149,036						3.14		%				8,532,737						237,596						3.71		%				(88,560)			(55,465)			(33,095)
Home equity loans and lines of credit			3,847,240						88,841						3.08		%				4,522,847						121,949						3.60		%				(33,108)			(16,832)			(16,276)
Total consumer loans secured by real estate			10,183,282						237,877						3.11		%				13,055,584						359,545						3.67		%				(121,668)			(72,297)			(49,371)
RICs and auto loans			42,254,454						3,986,350						12.58		%				38,269,859						3,847,016						13.40		%				139,334			337,969			(198,635)
Personal unsecured			1,196,633						198,932						22.17		%				2,180,322						437,300						26.74		%				(238,368)			(172,888)			(65,480)
Other consumer(5)			190,141						9,615						6.74		%				281,204						14,840						7.04		%				(5,225)			(4,617)			(608)
Total consumer			53,824,510						4,432,774						10.98		%				53,786,969						4,658,701						11.55		%				(225,927)			88,167			(314,094)
Total loans			92,976,004						5,355,656						7.68		%				95,718,866						5,773,102						8.04		%				(417,446)			16,948			(434,394)
TOTAL EARNING ASSETS			124,244,181						5,536,173						5.94		%				122,658,918						6,069,098						6.60		%				(532,925)			76,420			(609,345)
Allowance for loan losses(6)			(7,110,537)																		(6,711,184)
Other assets(7)			33,242,170																		34,537,325
TOTAL ASSETS			$	150,375,814																	$	150,485,059
INTEREST-BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits			$	12,411,427					$	4,544					0.05		%				$	11,345,723					$	21,851					0.26		%				$	(17,307)		$	2,278		$	(19,585)
Savings			5,314,258						1,521						0.04		%				5,898,275						7,296						0.16		%				(5,775)			(673)			(5,102)
Money market			34,530,372						44,027						0.17		%				29,070,436						140,333						0.64		%				(96,306)			33,091			(129,397)
CDs			3,123,615						19,854						0.85		%				6,756,472						80,580						1.59		%				(60,726)			(32,549)			(28,177)
TOTAL INTEREST-BEARING DEPOSITS			55,379,672						69,946						0.17		%				53,070,906						250,060						0.63		%				(180,114)			2,147			(182,261)
Federal funds purchased			511,286						154						0.04		%				—						—						—		%				154			154			—
BORROWED FUNDS:
FHLB advances			881,465						4,223						0.64		%				5,973,325						64,866						1.45		%				(60,643)			(36,634)			(24,009)
Other borrowings			43,066,558						776,532						2.40		%				44,698,919						1,008,012						3.01		%				(231,480)			(35,347)			(196,133)
TOTAL BORROWED FUNDS (8)			43,948,023						780,755						2.37		%				50,672,244						1,072,878						2.82		%				(292,123)			(71,981)			(220,142)
TOTAL INTEREST-BEARING FUNDING LIABILITIES			99,838,981						850,855						1.14		%				103,743,150						1,322,938						1.70		%				(472,237)			(69,834)			(402,403)
Noninterest bearing demand deposits			20,150,361																		17,529,234
Other liabilities(9)			7,712,391																		7,357,434
TOTAL LIABILITIES			127,701,733																		128,629,818
STOCKHOLDER’S EQUITY			22,674,081																		21,855,241
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY			$	150,375,814																	$	150,485,059
NET INTEREST SPREAD (10)															4.80		%																4.90		%
NET INTEREST MARGIN (11)															5.03		%																5.16		%
NET INTEREST INCOME (12)									$	4,685,318																	$	4,746,160

(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)Includes Federal funds sold and securities purchased under resale agreements or similar arrangements

(4)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.

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

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

(7)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.

(8)Refer to Note 9 to the Condensed Consolidated Financial Statements for further discussion.

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

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

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

84

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

Net interest income decreased $87.2 million and $60.8 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to 2020. The most significant factors contributing to the change were as follows:

•Interest income on investment securities and interest-earning deposits decreased $115.5 million for the nine-month period ended September 30, 2021 compared to 2020, attributable to an increase in average balances of $59.5 million and a decrease in average rates of $175.0 million. The decrease in rate was attributable to Federal Reserve actions in response to the COVID-19 pandemic.

•Interest income on loans decreased $417.4 million for the nine-month period ended September 30, 2021 compared to 2020, attributable to an increase in average loan balances of $16.9 million and a decrease in average rates of $434.4 million. This was the result of a lower overall interest rate environment offset by continued growth in RIC volume.

•Interest expense on deposits and related customer accounts decreased $180.1 million for the nine-month period ended September 30, 2021 compared to 2020, attributable to an increase in average interest-bearing deposit balances of $2.1 million and a decrease in average rates of $182.3 million. This was the result of lower deposit rates from the Federal Reserve setting overnight rates at zero in response to the economic uncertainty from COVID-19.

•Interest expense on borrowed funds decreased $292.1 million for the nine-month period ended September 30, 2021 compared to 2020, attributable to a decrease in average interest-bearing borrowings balances of $72.0 million and a decrease in average rates of $220.1 million. This was the result of an overall lower interest rate environment along with the repayment of debt.

CREDIT LOSS EXPENSE (BENEFIT)

The Company had a Credit loss expense / (benefit) of $19.5 million and $(221.7) million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to Credit loss expense $405.8 million and $2.6 billion for the comparable periods in 2020. The change year-over-year was primarily driven by the additional reserve in prior year to address credit risk associated with the COVID-19 outbreak and associated economic recession during 2020.

NON-INTEREST INCOME

						Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,												QTD Change												YTD Change
(dollars in thousands)						2021						2020						2021						2020						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Consumer fees						$	75,264					$	88,239					$	231,939					$	254,953					$	(12,975)					(14.7)		%				$	(23,014)					(9.0)		%
Commercial fees						34,211						35,595						103,681						101,954						(1,384)						(3.9)		%				1,727						1.7		%
Lease income						708,814						742,946						2,214,598						2,269,613						(34,132)						(4.6)		%				(55,015)						(2.4)		%
Miscellaneous income, net						249,381						308,222						868,991						330,165						(58,841)						(19.1)		%				538,826						163.2		%
Net gains recognized in earnings						(106)						(148)						15,138						31,646						42						28.4		%				(16,508)						(52.2)		%
Total non-interest income						$	1,067,564					$	1,174,854					$	3,434,347					$	2,988,331					$	(107,290)					(9.1)		%				$	446,016					14.9		%

Total non-interest income decreased $107.3 million and increased $446.0 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to the corresponding periods in 2020. The changes for the three-month and nine-month periods ended September 30, 2021 were primarily due to an increase in miscellaneous income, net discussed further below.

85

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

Miscellaneous income

						Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,												QTD Change												YTD Change
(dollars in thousands)						2021						2020						2021						2020						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Mortgage banking income, net						$	13,024					$	14,115					$	34,437					$	47,243					$	(1,091)					(7.7)		%				$	(12,806)					(27.1)		%
BOLI						15,051						14,855						45,984						43,764						196						1.3		%				2,220						5.1		%
Capital market revenue						47,082						56,949						189,016						179,417						(9,867)						(17.3)		%				9,599						5.4		%
Net gain on sale of operating leases						103,172						120,387						389,979						170,484						(17,215)						(14.3)		%				219,495						128.7		%
Asset and wealth management fees						60,251						52,984						177,722						156,575						7,267						13.7		%				21,147						13.5		%
Loss on sale of non-mortgage loans						3,420						(56,684)						(19,766)						(241,324)						60,104						106.0		%				221,558						91.8		%
Other miscellaneous income / (loss), net						7,381						105,616						51,619						(25,994)						(98,235)						(93.0)		%				77,613						298.6		%
Total miscellaneous income						$	249,381					$	308,222					$	868,991					$	330,165					$	(58,841)					(19.1)		%				$	538,826					163.2		%

Miscellaneous income decreased $58.8 million and increased $538.8 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to the corresponding periods in 2020. This increase was primarily related to:

•Gain on sale of operating leases increased for the nine-month period ended September 30, 2021 compared to 2020, driven by an increase in liquidated units.

•Loss on the sale of non-mortgage loans increased for the three-month and nine-month periods ended September 30, 2021 compared to 2020, primarily attributable to the consumer RIC portfolio.

•Other miscellaneous income / (loss), net increased for the nine-month period ended September 30, 2021, compared to the corresponding period in 2020, primarily due to $387.9 million in market value adjustments, which netted down prior year income related to the Bluestem portfolio which was sold in Q1 2021.

GENERAL, ADMINISTRATIVE AND OTHER EXPENSES

			Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,												QTD Change												YTD Change
(dollars in thousands)			2021						2020						2021						2020						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Compensation and benefits			$	478,577					$	461,992					$	1,432,036					$	1,391,786					$	16,585					3.6		%				$	40,250					2.9		%
Occupancy and equipment expenses			164,119						152,998						504,609						464,784						11,121						7.3		%				39,825						8.6		%
Technology, outside services, and marketing expense			149,610						124,211						423,980						386,192						25,399						20.4		%				37,788						9.8		%
Loan expense			66,356						67,139						248,441						219,483						(783)						(1.2)		%				28,958						13.2		%
Lease expense			468,340						612,639						1,546,325						1,844,270						(144,299)						(23.6)		%				(297,945)						(16.2)		%
Impairment of goodwill			—						—						—						1,848,228						—						0%						(1,848,228)						(100.0)		%
Other expenses			171,201						150,249						384,123						427,978						20,952						13.9		%				(43,855)						(10.2)		%
Total general, administrative and other expenses			$	1,498,203					$	1,569,228					$	4,539,514					$	6,582,721					$	(71,025)					(4.5)		%				$	(2,043,207)					(31.0)		%

Total general, administrative and other expenses decreased $71.0 million and $2.0 billion for the three-month and nine-month periods ended September 30, 2021, respectively, compared to 2020. The most significant contributing factors were as follows:

•Lease expense decreased for the three-month and nine-month periods ended September 30, 2021 due to a shortage in car supply and receipt of lease subvention payments, which reduce lease expense related to depreciation.

•The Company recorded no goodwill impairment in the three-month and nine-month periods ended September 30, 2021, compared to $1.8 billion during 2020.

•Other expenses decreased $43.9 million for the nine-month period ended September 30, 2021 compared to 2020 mainly due to lower operational risk expense and legal fees, offset by a slight increase in employee expenses such as travel during the three-month period ended September 30, 2021.

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

INCOME TAX PROVISION

An income tax expense of $227.3 million and a benefit of $53.3 million were recorded for the three-month periods ended September 30, 2021 and 2020, respectively. An income tax expense of $885.8 million and a benefit of $272.9 million were recorded for the nine-month periods ended September 30, 2021 and 2020, respectively. This resulted in an ETR of 21.0% and (6.5)% for the three-month periods ended September 30, 2021 and 2020, respectively, and 23.3% and 19.3% for the nine-month periods ended September 30, 2021 and 2020, respectively.

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 15 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, 2021 and 2020 consisted of CBB, C&I, CRE & VF, CIB and SC.

Results Summary

CBB

			Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,												QTD Change												YTD Change
(dollars in thousands)			2021						2020						2021						2020						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Net interest income			$	367,414					$	352,604					$	1,087,118					$	1,021,721					$	14,810					4.2		%				$	65,397					6.4		%
Total non-interest income			79,955						71,175						227,746						220,052						8,780						12.3		%				7,694						3.5		%
Credit loss expense / (benefit)			(14,248)						31,755						(50,839)						363,363						(46,003)						(144.9)		%				(414,202)						(114.0)		%
Total expenses			373,697						381,824						1,113,128						2,682,735						(8,127)						(2.1)		%				(1,569,607)						(58.5)		%
Income / (Loss) before income taxes			87,920						10,200						252,575						(1,804,325)						77,720						762.0		%				2,056,900						114.0		%
Intersegment revenue / (expense)			(194)						(342)						(665)						(735)						148						43.3		%				70						9.5		%
Total assets			23,633,610						22,311,101						23,633,610						22,311,101						1,322,509						5.9		%				1,322,509						5.9		%

CBB reported income before income taxes of $87.9 million and $252.6 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to income before income taxes of $10.2 million and a loss before income taxes of $1.8 billion for the three-month and nine-month periods ended September 30, 2020. Factors contributing to these changes were:

•Credit loss expense decreased $46.0 million and $414.2 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to the corresponding periods of 2020. These decreases were due to an improved credit outlook, higher quality of originations and lower realized loan losses than were projected due to the COVID-19 pandemic.

•Total expenses decreased $1.6 billion for the nine-month period ended September 30, 2021 compared to the corresponding period of 2020. These decreases were mainly due to goodwill impairment recorded during the second quarter of 2020.

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

C&I Banking

			Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,												QTD Change												YTD Change
(dollars in thousands)			2021						2020						2021						2020						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Net interest income			$	70,511					$	82,926					$	215,573					$	250,603					$	(12,415)					(15.0)		%				$	(35,030)					(14.0)		%
Total non-interest income			16,480						16,214						52,197						48,318						266						1.6		%				3,879						8.0		%
Credit loss expense / (benefit)			6,826						40,897						(45,236)						132,951						(34,071)						(83.3)		%				(178,187)						(134.0)		%
Total expenses			63,244						66,453						190,759						491,436						(3,209)						(4.8)		%				(300,677)						(61.2)		%
Income / (Loss) before income taxes			16,921						(8,210)						122,247						(325,466)						25,131						306.1		%				447,713						137.6		%
Intersegment revenue / (expense)			2,853						3,462						9,077						9,759						(609)						(17.6)		%				(682)						(7.0)		%
Total assets			7,133,308						7,871,856						7,133,308						7,871,856						(738,548)						(9.4)		%				(738,548)						(9.4)		%

C&I reported income before income taxes of $16.9 million and $122.2 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to a loss before income taxes of $8.2 million and $325.5 million for the corresponding periods in 2020. Factors contributing to these changes were:

•Credit loss expense decreased $34.1 million and $178.2 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to the corresponding periods of 2020. These decreases were due to an improved credit outlook and lower realized loan losses than were projected due to the COVID-19 pandemic.

•Total expenses decreased $300.7 million for the nine-month period ended September 30, 2021,, compared to the corresponding period of 2020. This decrease was mainly due to the goodwill impairment recorded during the second quarter of 2020.

•Total assets decreased $738.5 million from the third quarter of 2020 to the third quarter of 2021. This decrease was due to the payback of lines of credit that were drawn down in the first quarter of 2020 in response to COVID-19 economic uncertainty as well as the forgiveness of Paycheck Protection Program loans.

CRE & VF

			Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,												QTD Change												YTD Change
(dollars in thousands)			2021						2020						2021						2020						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Net interest income			$	93,061					$	94,532					$	281,023					$	286,639					$	(1,471)					(1.6)		%				$	(5,616)					(2.0)		%
Total non-interest income			7,354						4,606						28,364						8,971						2,748						59.7		%				19,393						216.2		%
Credit loss expense / (benefit)			(5,087)						11,963						(4,167)						78,800						(17,050)						(142.5)		%				(82,967)						(105.3)		%
Total expenses			35,478						36,454						108,287						106,689						(976)						(2.7)		%				1,598						1.5		%
Income / (Loss) before income taxes			70,024						50,721						205,267						110,121						19,303						38.1		%				95,146						86.4		%
Intersegment revenue / (expense)			757						1,232						1,879						3,985						(475)						(38.6)		%				(2,106)						(52.8)		%
Total assets			18,870,996						20,454,646						18,870,996						20,454,646						(1,583,650)						(7.7)		%				(1,583,650)						(7.7)		%

CRE & VF reported income before income taxes of $70.0 million and $205.3 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to income before income taxes of $50.7 million and $110.1 million for the corresponding periods in 2020. Factors contributing to these changes were:

•Credit loss expense decreased $17.1 million and $83.0 million for the nine-month period ended September 30, 2021, respectively, compared to the corresponding periods of 2020. These decreases were due to an improved credit outlook and lower realized loan losses than were projected due to the COVID-19 pandemic.

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

CIB

			Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,												QTD Change												YTD Change
(dollars in thousands)			2021						2020						2021						2020						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Net interest income			$	25,514					$	34,125					$	83,170					$	101,642					$	(8,611)					(25.2)		%				$	(18,472)					(18.2)		%
Total non-interest income			48,352						71,931						179,627						212,440						(23,579)						(32.8)		%				(32,813)						(15.4)		%
Credit loss expense / (benefit)			(9,775)						(15,384)						(32,102)						18,071						5,609						36.5		%				(50,173)						(277.6)		%
Total expenses			68,592						63,762						199,551						189,961						4,830						7.6		%				9,590						5.0		%
Income / (Loss) before income taxes			15,049						57,678						95,348						106,050						(42,629)						(73.9)		%				(10,702)						(10.1)		%
Intersegment expense			(3,415)						(4,351)						(10,291)						(13,009)						936						21.5		%				2,718						20.9		%
Total assets			12,560,907						11,532,762						12,560,907						11,532,762						1,028,145						8.9		%				1,028,145						8.9		%

CIB reported income before income taxes of $15.0 million and $95.3 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to income before income taxes of $57.7 million and $106.1 million for 2020. Factors contributing to these changes were:

•Credit loss expense decreased $50.2 million for the nine-month period ended September 30, 2021 compared to the corresponding period of 2020. This decrease was due to an improved credit outlook and lower realized loan losses than were projected due to the COVID-19 pandemic.

•Total non-interest income decreased $32.8 million for the nine-month period ended September 30, 2021 compared to the corresponding period in 2020, mainly as a result of valuation adjustments on CIB's equity method portfolio.

Other

			Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,												QTD Change												YTD Change
(dollars in thousands)			2021						2020						2021						2020						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Net interest income			$	(48,074)					$	(9,090)					$	(146,536)					$	16,974					$	(38,984)					(428.9)		%				$	(163,510)					(963.3)		%
Total non-interest income			105,497						186,863						319,613						253,029						(81,366)						(43.5)		%				66,584						26.3		%
Credit loss expense / (benefit)			(281)						(4,181)						(3,896)						(135,366)						3,900						93.3		%				131,470						97.1		%
Total expenses			129,693						127,743						366,573						408,065						1,950						1.5		%				(41,492)						(10.2)		%
Income / (Loss) before income taxes			(71,989)						54,211						(189,600)						(2,696)						(126,200)						(232.8)		%				(186,904)						(6,932.6)		%
Intersegment (expense)/revenue			(1)						(1)						—						—						—						—		%				—						0%
Total assets			44,587,236						35,120,309						44,587,236						35,120,309						9,466,927						27.0		%				9,466,927						27.0		%

The Other category reported a loss before income taxes of $72.0 million and $189.6 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to income before income taxes of $54.2 million and a loss before income taxes of $2.7 million for the comparable periods in 2020. Factors contributing to these changes were:

•Net interest income decreased $39.0 million and $163.5 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to the corresponding periods of 2020, due to lower rates and the sale of SBC in 2020.

•Total non-interest income increased $66.6 million for the nine-month period ended September 30, 2021 compared to the corresponding periods of 2020, due to the transfer of SBC loans to HFS at fair value in the second quarter of 2020.

•Release of credit loss expense was lower for the nine-month period ended September 30, 2021, compared to the corresponding period of 2020, due to the release of provision on loans moved to HFS during the second quarter of 2020.

•Total expenses decreased $41.5 million for the nine-month period ended September 30, 2021, compared to the corresponding period of 2020, due to lower operational risk expenses and the sale of SBC.

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

SC

			Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,												QTD Change												YTD Change
(dollars in thousands)			2021						2020						2021						2020						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Net interest income			$	1,019,999					$	1,061,986					$	3,149,027					$	3,058,137					$	(41,987)					(4.0)		%				$	90,890					3.0		%
Total non-interest income			821,398						830,126						2,666,681						2,271,200						(8,728)						(1.1)		%				395,481						17.4		%
Credit loss expense / (benefit)			42,058						340,548						(85,484)						2,110,330						(298,490)						(87.6)		%				(2,195,814)						(104.1)		%
Total expenses			827,408						888,973						2,562,527						2,692,396						(61,565)						(6.9)		%				(129,869)						(4.8)		%
Income / (Loss) before income taxes			971,931						662,591						3,338,665						526,611						309,340						46.7		%				2,812,054						534.0		%
Total assets			49,074,450						48,448,921						49,074,450						48,448,921						625,529						1.3		%				625,529						1.3		%

SC reported income before income taxes of $971.9 million and $3.3 billion for the three-month and nine-month periods ended September 30, 2021, respectively, compared to income before income taxes of $662.6 million and $526.6 million for the comparable periods in 2020. Contributing to these changes were:

•Non-interest income increased $395.5 million for the nine-month period ended September 30, 2021 compared to the corresponding period of 2020, primarily driven by an increase in residual value of liquidated leased vehicles and SC's sale of the personal lending portfolio.

•Credit loss expense decreased $2.2 billion for the nine-month period ended September 30, 2021 compared to the corresponding period of 2020, primarily driven by the additional reserve to address credit risk associated with the COVID-19 outbreak during the first and second quarters of 2020, and an increase in recoveries, and a decrease in charge-offs due to the increase in used car prices in 2021.

90

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

FINANCIAL CONDITION

LOAN PORTFOLIO

The Company's LHFI portfolio consisted of the following at the dates indicated:

    

						September 30, 2021												December 31, 2020												Dollar Increase / (Decrease)			Percent Increase (Decrease)
(dollars in thousands)						Amount						Percent						Amount						Percent
Commercial LHFI:
CRE						$	7,453,398					8.1		%				$	7,327,853					8.0		%				$	125,545		1.7		%
C&I						14,950,498						16.3		%				16,537,899						17.9		%				(1,587,401)			(9.6)		%
Multifamily						7,325,464						8.0		%				8,367,147						9.1		%				(1,041,683)			(12.4)		%
Other commercial						8,082,374						8.8		%				7,455,504						8.1		%				626,870			8.4		%
Total commercial loans (1)						37,811,734						41.2		%				39,688,403						43.1		%				(1,876,669)			(4.7)		%
Consumer loans secured by real estate:
Residential mortgages						5,741,848						6.3		%				6,590,168						7.2		%				(848,320)			(12.9)		%
Home equity loans and lines of credit						3,614,472						3.9		%				4,108,505						4.5		%				(494,033)			(12.0)		%
Total consumer loans secured by real estate						9,356,320						10.2		%				10,698,673						11.7		%				(1,342,353)			(12.5)		%
Consumer loans not secured by real estate:
RICs and auto loans						42,952,453						46.8		%				40,698,642						44.1		%				2,253,811			5.5		%
Personal unsecured loans						1,542,315						1.7		%				824,430						0.9		%				717,885			87.1		%
Other consumer						158,883						0.1		%				223,034						0.2		%				(64,151)			(28.8)		%
Total consumer loans						54,009,971						58.8		%				52,444,779						56.9		%				1,565,192			3.0		%
Total LHFI						$	91,821,705					100.0		%				$	92,133,182					100.0		%				$	(311,477)		(0.3)		%
Total LHFI with:
Fixed						$	64,095,444					69.8		%				$	64,036,154					69.5		%				$	59,290		0.1		%
Variable						27,726,261						30.2		%				28,097,028						30.5		%				(370,767)			(1.3)		%
Total LHFI						$	91,821,705					100.0		%				$	92,133,182					100.0		%				$	(311,477)		(0.3)		%

(1) As of September 30, 2021, the Company had $249.9 million of commercial loans that were denominated in a currency other than the U.S. dollar.

Commercial

Commercial loans decreased approximately $1.9 billion, or 4.7%, from December 31, 2020 to September 30, 2021. This decrease was comprised of increases in Other commercial of $626.9 million which includes BSI's acquisition of Crédit Agricole and an increase in CRE of $125.5 million. These increases were offset by a decrease in C&I loans of $1.6 billion due to the forgiveness of Paycheck Protection Program loans and a decrease in multifamily loans of $1.0 billion.

						At September 30, 2021, Maturing
(in thousands)						In One Year Or Less						One to Five Years						After Five Years						Total (1)
CRE loans						$	1,977,144					$	4,871,045					$	618,853					$	7,467,042
C&I and other commercial						9,941,837						11,772,072						1,419,039						23,132,948
Multifamily loans						906,428						4,198,186						2,244,058						7,348,672
Total						$	12,825,409					$	20,841,303					$	4,281,950					$	37,948,662
Loans with:
Fixed rates						$	3,910,141					$	6,637,783					$	2,404,046					$	12,951,970
Variable rates						8,915,268						14,203,520						1,877,904						24,996,692
Total						$	12,825,409					$	20,841,303					$	4,281,950					$	37,948,662

(1) Includes LHFS.

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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 $1.3 billion, or 12.5%, from December 31, 2020 to September 30, 2021. This decrease was comprised of a decrease in the residential mortgage portfolio of $848.3 million, and a decrease in the home equity loans and lines of credit portfolio of $494.0 million.

Consumer Loans Not Secured By Real Estate

RICs and auto loans

RICs and auto loans increased $2.3 billion, or 5.5%, from December 31, 2020 to September 30, 2021. The increase in the RIC and auto loan portfolio was primarily due to increases in originations, net of securitizations, due to the Company's initiatives to improve our pricing, as well as, our dealer and customer experience, which have increased our competitive position in the market. 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, 2021, 62.1% 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 7.6% of loans for which no FICO score was available. 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, 2021, a typical RIC was originated with an average annual percentage rate of 15.0% and was purchased from the dealer at a premium of 2.1%. All of the Company's RICs and auto loans are fixed-rate loans.

Personal unsecured and other consumer loans

Personal unsecured and other consumer loans HFI increased from December 31, 2020 to September 30, 2021 by $653.7 million.

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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, 2021						December 31, 2020						Dollar						Percentage
Non-accrual loans:
Commercial:
CRE						$	110,376					$	106,751					$	3,625					3.4		%
C&I						85,597						107,053						(21,456)						(20.0)		%
Multifamily						116,605						72,392						44,213						61.1		%
Other commercial						10,598						20,019						(9,421)						(47.1)		%
Total commercial loans						323,176						306,215						16,961						5.5		%
Consumer loans secured by real estate:
Residential mortgages						98,952						160,172						(61,220)						(38.2)		%
Home equity loans and lines of credit						92,998						91,606						1,392						1.5		%
Consumer loans not secured by real estate:
RICs and auto loans						1,242,960						1,174,317						68,643						5.8		%
Other consumer						4,848						6,325						(1,477)						(23.4)		%
Total consumer loans						1,439,758						1,432,420						7,338						0.5		%
Total non-accrual loans						1,762,934						1,738,635						24,299						1.4		%
OREO						3,960						29,799						(25,839)						(86.7)		%
Repossessed vehicles						232,614						204,653						27,961						13.7		%
Other repossessed assets						944						3,247						(2,303)						(70.9)		%
Total OREO and other repossessed assets						237,518						237,699						(181)						(0.1)		%
Total non-performing assets						$	2,000,452					$	1,976,334					$	24,118					1.2		%
Past due 90 days or more as to interest or principal and accruing interest						$	2,214					$	52,863					$	(50,649)					(95.8)%
Annualized net loan charge-offs to average loans (1)						0.6		%				1.7		%				n/a						n/a
Non-performing assets as a percentage of total assets						1.3		%				1.3		%				n/a						n/a
NPLs as a percentage of total loans						1.9		%				1.8		%				n/a						n/a
ALLL as a percentage of total NPLs						380.9		%				422.1		%				n/a						n/a

(1) Annualized net loan charge-offs are based on year-to-date charge-offs.

Potential problem loans are loans not currently classified as NPLs for which management has doubts about the borrower's 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 $268.4 million and $229.2 million at September 30, 2021 and December 31, 2020, respectively.

Potential problem consumer loans amounted to $3.3 billion and $3.2 billion at September 30, 2021 and December 31, 2020, 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 increased to $2.0 billion, or 1.3% of total assets, at September 30, 2021, compared to $2.0 billion, or 1.3% of total assets, at December 31, 2020, primarily due to government stimulus payments and tax refunds provided to customers.

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

Commercial

Commercial NPLs increased $17.0 million from December 31, 2020 to September 30, 2021. Commercial NPLs accounted for less than 1.0% of commercial LHFI at September 30, 2021 and December 31, 2020, respectively. The change in commercial NPLs was primarily comprised of an increase of $44.2 million in the Multifamily portfolio offset by a decrease of $21.5 million in the C&I 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 increased by $68.6 million from December 31, 2020 to September 30, 2021. Non-performing RICs and auto loans accounted for 2.9% and 2.9% of total RICs and auto loans at September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, respectively:

						September 30, 2021												December 31, 2020
(dollars in thousands)						Residential mortgages						Home equity loans and lines of credit						Residential mortgages						Home equity loans and lines of credit
NPLs - HFI						$	98,952					$	92,998					$	74,473					$	91,606
Total LHFI						5,741,848						3,614,472						6,590,168						4,108,505
NPLs as a percentage of total LHFI						1.7		%				2.6		%				1.1		%				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 $39.6 million or 20.6% of non-performing consumer loans secured by real estate at September 30, 2021, compared to $46.2 million or 27.8% of consumer loans secured by real estate at December 31, 2020.

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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 $196.8 million, or 4.7%, from December 31, 2020 to September 30, 2021, most significantly within the residential mortgage portfolio which decreased $172.4 million. Delinquent balances and nonaccrual balances overall were lower as of September 30, 2021, primarily due to the benefits of government stimulus payments and tax refunds provided to customers

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, 2021
(in thousands)						Commercial			%						Consumer Loans Secured by Real Estate			%						RICs and Auto Loans			%						Other Consumer			%						Total TDRs
Performing						$	105,926		46.3		%				$	188,169		68.9		%				$	3,695,258		91.1		%				$	26,580		96.8		%				$	4,015,933
Non-performing						122,753			53.7		%				85,024			31.1		%				362,033			8.9		%				869			3.2		%				570,679
Total						$	228,679		100.0		%				$	273,193		100.0		%				$	4,057,291		100.0		%				$	27,449		100.0		%				$	4,586,612
% of loan portfolio						0.6		%	n/a						2.9		%	n/a						9.4		%	n/a						1.6		%	n/a						5.0		%
(1) Excludes LHFS.
						As of December 31, 2020
(in thousands)						Commercial			%						Consumer Loans Secured by Real Estate			%						RICs and Auto Loans			%						Other Consumer			%						Total TDRs
Performing						$	73,950		43.2		%				$	87,896		66.8		%				$	3,655,681		91.7		%				$	33,095		98.0		%				$	3,850,622
Non-performing						97,054			56.8		%				43,605			33.2		%				332,164			8.3		%				684			2.0		%				473,507
Total						$	171,004		100.0		%				$	131,501		100.0		%				$	3,987,845		100.0		%				$	33,779		100.0		%				$	4,324,129
% of loan portfolio						0.4		%	n/a						1.2		%	n/a						9.8		%	n/a						3.2		%	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, 2021												Nine-Month Period Ended September 30, 2020
(in thousands)						RICs and Auto Loans						All Other Loans(1)(2)						RICs and Auto Loans						All Other Loans(1)
TDRs, beginning of period						$	3,987,845					$	336,284					$	3,847,819					$	472,312
New TDRs(1)						1,925,149						405,067						1,442,007						189,658
Charged-Off TDRs						(599,083)						(10,605)						(574,501)						(5,803)
Sold TDRs						(1,192,995)						—						(27,397)						(163,210)
Payments on TDRs						(63,625)						(201,425)						(864,311)						(77,377)
TDRs, end of period						$	4,057,291					$	529,321					$	3,823,617					$	415,580

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

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 to one deferral every six months, regardless of the length of any prior deferral. Further, the maximum number of lifetime months extended for all automobile RICs is eight, while some marine and RV contracts have 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 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.

In March 2020, the Company began actively working with its borrowers impacted by COVID-19 and provided loan modification programs in accordance with the CARES Act and interagency guidelines to mitigate the adverse effects of COVID-19 on modifications. These programs temporarily revised the practices noted above during 2020 and increased the volume of modifications provided to our customers. Effective January 1, 2021 at SC and April 1, 2021 at SBNA, the Company has generally returned to pre-pandemic servicing practices, with the exception of an increased limit on the total months of extensions allowed. As of September 30, 2021, the overall modification volumes were consistent with volumes experienced before the COVID-19 pandemic and the number and dollar amount of active COVID-19 modifications was immaterial.

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 unemployment, GDP, HPI, CRE price index, used vehicle index growth rates, 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.

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

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.

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.

Note 1 to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K describes the methodology used to determine the ACL and reserve for unfunded lending commitments in the Consolidated Balance Sheets.

ACL

There were no significant changes to the ACL during the three and six months ended September 30, 2021. Refer to the rollforward of the ACL in Note 3 to the Condensed Consolidated Financial Statements.

Reserve for Unfunded Lending Commitments

The reserve for unfunded lending commitments decreased from $146.5 million at December 31, 2020 to $135.5 million at September 30, 2021. The decrease of the reserve for unfunded lending commitments was due to the ordinary course of business.

INVESTMENT SECURITIES

The following table presents the Company's investment portfolio at the dates indicated:

(in thousands)						September 30, 2021						December 31, 2020
Investment securities AFS:
U.S. Treasury securities and government agencies						$	6,330,072					$	5,440,140
FNMA and FHLMC securities						4,262,450						5,608,296
Other securities (1)						784,330						265,053
Total investment securities AFS						11,376,852						11,313,489
Total investment securities HTM						6,594,046						5,504,685
Other investments						1,307,319						1,553,862
Total investment portfolio						$	19,278,217					$	18,372,036

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

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

The Company’s AFS investment strategy is to purchase liquid fixed-rate and floating-rate investments to manage the Company's liquidity position and interest rate risk adequately. The Company's AFS investment portfolio consisted of the following at the dates indicated:

						September 30, 2021						December 31, 2020						Change						Percent
(in thousands)						Fair Value						Fair Value
U.S. Treasury securities						$	90,688					$	170,653					$	(79,965)					(46.86)		%
Corporate debt securities						239,805						155,715						84,090						54.00		%
ABS						544,525						109,338						435,187						398.02		%
MBS:
GNMA - Residential						4,252,130						3,536,125						716,005						20.25		%
GNMA - Commercial						1,987,254						1,733,362						253,892						14.65		%
FHLMC and FNMA - Residential						4,197,042						5,538,283						(1,341,241)						(24.22)		%
FHLMC and FNMA - Commercial						65,408						70,013						(4,605)						(6.58)		%
Total investments in debt securities AFS						$	11,376,852					$	11,313,489					$	63,363					0.56		%

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 average life of the AFS investment portfolio (excluding certain ABS) at September 30, 2021 was approximately 5.25 years. The average effective duration of the investment portfolio (excluding certain ABS) at September 30, 2021 was approximately 3.11 years. The actual maturities of MBS AFS will differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties.

HTM securities are reported at cost and adjusted for amortization of premium and accretion of discount. The Company had 175 investment securities classified as HTM as of September 30, 2021.

(in thousands)						September 30, 2021						December 31, 2020						Change in unrealized gain/(loss)
Total unrealized loss						$	(88,103)					$	(7,183)					$	(80,920)
Total unrealized gain						72,164						184,287						(112,123)
Total unrealized gain/(loss) position						$	(15,939)					$	177,104					$	(193,043)

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, 2021:

						September 30, 2021
(in thousands)						Amortized Cost						Fair Value
FNMA						$	2,116,664					$	2,113,528
FHLMC						2,158,198						2,148,922
GNMA (1)						12,736,646						12,746,422
Total						$	17,011,508					$	17,008,872

(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, 2021, goodwill totaled $2.6 billion and represented 1.7% of total assets and 10.9% of total stockholder's equity. The following table shows goodwill by reporting units at September 30, 2021:

(in thousands)						CBB						C&I						CRE & VF						CIB						SC																		Total
Goodwill at September 30, 2021						$	297,802					$	52,198					$	1,095,071					$	131,130					$	1,019,960																	$	2,596,161

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 most recent annual goodwill impairment tests as of October 1, 2020 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 of the most recent review completed at the end of the third quarter of 2021, the Company did not identify any indicators which resulted in the Company's conclusion that an interim impairment test would be required to be completed.

DEFERRED TAXES AND OTHER TAX ACTIVITY

The Company had a net deferred tax liability balance of $602.8 million at September 30, 2021 (consisting of a deferred tax asset balance of $45.6 million and a deferred tax liability balance of $648.4 million with respect to jurisdictional netting), compared to a net deferred tax liability balance of $171.2 million at December 31, 2020 (consisting of a deferred tax asset balance of $11.1 million and a deferred tax liability balance of $182.4 million). The $431.6 million increase in net deferred liability for the nine-month period ended September 30, 2021 was primarily due to a decrease in net operating loss carryforwards.

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, 2021 and December 31, 2020, based on SBNA’s capital calculations, SBNA was considered well-capitalized under the applicable capital framework. In addition, the Company's capital levels as of September 30, 2021 and December 31, 2020, based on the Company’s capital calculations, exceeded the required capital ratios for BHCs.

For a discussion of Basel III, 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 SBNA's ability to pay dividends and make other distributions to the Company. SBNA 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 SBNA were notified by the OCC that it is a problem institution or in troubled condition.

Any dividend declared and paid or return of capital has the effect of reducing capital ratios. During the nine-month periods ended September 30, 2021 and 2020, the Company paid cash dividends of zero and $125.0 million, respectively, to its common stock shareholder.

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

The following schedule summarizes the actual capital balances of SHUSA and SBNA at September 30, 2021:

						SHUSA
						September 30, 2021						Well-capitalized Requirement(1)						Minimum Requirement(1)
CET1 capital ratio						18.36		%				6.50		%				4.50		%
Tier 1 capital ratio						20.19		%				8.00		%				6.00		%
Total capital ratio						21.59		%				10.00		%				8.00		%
Leverage ratio						14.88		%				5.00		%				4.00		%

						SBNA
						September 30, 2021						Well-capitalized Requirement(1)						Minimum Requirement(1)
CET1 capital ratio						16.55		%				6.50		%				4.50		%
Tier 1 capital ratio						16.55		%				8.00		%				6.00		%
Total capital ratio						17.70		%				10.00		%				8.00		%
Leverage ratio						11.67		%				5.00		%				4.00		%

(1)    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.

Sources of Liquidity

Company and Bank

The Company and SBNA have several sources of funding to meet liquidity requirements, including SBNA'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.

As of September 30, 2021, SBNA has borrowed $1.0 billion from SHUSA. This transaction eliminates in consolidation.

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

SC

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 third party flow agreements. SC seeks to issue debt that appropriately matches the cash flows of the assets that it originates. SC has more than $7.9 billion of stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements.

During the quarter ended September 30, 2021, SC completed on-balance sheet funding transactions totaling approximately $6.2 billion, including:

•securitization on its SDART platform for approximately $2.5 billion;

•securitizations on its DRIVE, deeper subprime platform, for approximately $1.8 billion; and

•lease securitization on its SRT platform for approximately $1.9 billion.

SC also completed approximately $0.3 billion in asset sales to third parties.

For information regarding SC's debt, see Note 9 to the Condensed Consolidated Financial Statements.

IHC

In 2017, SIS entered into a revolving subordinated loan agreement with SHUSA, not to exceed $290.0 million. This was subsequently increased to $895.0 million in 2018 to provide additional capital to the entity for its expanding capital markets program. Given additional liquidity needs from the program that now includes billing and delivery services for debt and equity issuances, the subordinated line with SIS was renegotiated in July 2021 to $750.0 million with an additional liquidity line of $750.0 million to support the new activity.

At September 30, 2021, there were no outstanding balances on the subordinated loan or the liquidity line.

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, 2021, SBNA had approximately $16.2 billion in committed liquidity from the FHLB and the FRB. Of this amount, $15.3 billion was unused and therefore provides additional borrowing capacity and liquidity for the Company. At September 30, 2021 and December 31, 2020, liquid assets (cash and cash equivalents and LHFS) and securities AFS exclusive of securities pledged as collateral) totaled approximately $29.1 billion and $23.5 billion, respectively. These amounts represented 36.8% and 31.8% of total deposits at September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, SBNA and BSI had $2.3 billion and $1.1 billion, respectively, in cash held at the FRB. Management believes that the Company has ample liquidity to fund its operations.

Cash, cash equivalents, and restricted cash

						Nine-Month Period Ended September 30,
(in thousands)						2021						2020
Net cash flows from operating activities						$	5,961,580					$	4,894,072
Net cash flows from investing activities						(2,692,526)						(161,803)
Net cash flows from financing activities						3,024,746						(1,559,594)

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

Cash flows from operating activities

Net cash flow from operating activities increased by $1.1 billion from the nine-month period ended September 30, 2020 to the nine-month period ended September 30, 2021, primarily due to an increase in proceeds from sales of and collections on LHFS which includes the SC sale of its Bluestem personal lending portfolio.

Cash flows from investing activities

Net cash flow from investing activities decreased by $2.5 billion from the nine-month period ended September 30, 2020 to the nine-month period ended September 30, 2021, primarily due to an increase in purchases of LHFI and an increase in securities purchased under resale agreements which began in the second quarter of 2021.

Cash flows from financing activities

Net cash flow from financing activities increased by $4.6 billion from the nine-month period ended September 30, 2020 to the nine-month period ended September 30, 2021, primarily due to an increase in deposits and an increase in securities sold under repurchase agreements, offset by decreases in cash due to net borrowing activity.

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. 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.

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 CCAP loan financing. As of September 30, 2021, there was an outstanding balance of approximately zero 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, 2021, there was no outstanding balance under any repurchase agreements.

Related Party Credit Facilities

The Company provides SC with $0.5 billion of committed revolving credit and $2.5 billion of contingent liquidity that can be drawn on an unsecured basis. The Company also provides SC with $5.6 billion of term financing with maturities ranging from December 2021 to May 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 $29.0 billion.

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

Deficiency and Debt Forward Flow Agreement

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.

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 Stellantis 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 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, as well as billing and delivery services. 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, 2021, the Company's liquidity to meet debt payments, debt service and debt maturities was in excess of 12 months.

Dividends, Contributions and Stock Issuances

As of September 30, 2021, the Company had 530,391,043 shares of common stock outstanding.

On March 31, 2021, SC paid a cash dividend of $0.22 per share and a special dividend of $0.22 per share of common stock for a total of $0.44 per share to shareholders of record as of the close of business on March 29, 2021. SC also paid a dividend of $0.22 per share in May 2021 and August 2021. SHUSA has requested regulatory approval to authorize SC's Board of Directors to declare a dividend in the fourth quarter. To date, approval has not been received.

SC has paid a total of $269.3 million in dividends through September 30, 2021, of which $53.2 million has been paid to NCI and $216.1 million has been paid to the Company, which eliminates in the consolidated results of the Company.

In August 2021, SHUSA entered into a definitive agreement whereby SHUSA agreed to acquire all of the outstanding shares of SC Common Stock not already owned by SHUSA via an all-cash tender offer. Under the terms of the definitive agreement, a wholly-owned subsidiary of SHUSA commenced a tender offer to acquire all outstanding shares of SC Common Stock that SHUSA does not already own at a price of $41.50 per share in cash. SHUSA agreed to acquire all remaining shares not tendered in the tender offer through a second-step merger at the same price as in the tender offer. Consummation of the tender offer is subject to various conditions, including regulatory approval by the Federal Reserve and other customary closing conditions. Upon completion of the transaction, SC will become a wholly-owned subsidiary of SHUSA.

Share Repurchases

In June 2019, SC announced that the SC Board of Directors had authorized purchases by SC of up to $1.1 billion, excluding commissions, of its outstanding common stock effective from the third quarter of 2019 through the end of the second quarter of 2020. During the three months ended March 31, 2020, SC purchased shares of SC Common Stock through a modified Dutch auction tender offer, and extended the share repurchase program through the end of the third quarter of 2020.

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

On July 31, 2020, SC announced that the Company’s request for certain exceptions to the Interim Policy prohibiting share repurchases (other than repurchases relating to issuances of common stock under employee stock ownership plans) and limiting dividends paid by certain CCAR institutions to the average trailing four quarters' of net income, had been approved. Such exception approval permitted SC to continue its share repurchase program through the end of the third quarter of 2020. On August 10, 2020, SC announced that it had substantially exhausted the amount of shares SC was permitted to repurchase under the exception approval, and that SC expected to repurchase an immaterial number of shares remaining under the exception approval.

After substantially exhausting its share repurchase authorization on August 10, 2020 and through the end of the second quarter of 2021, SC was only permitted to repurchase a number of shares of SC Common Stock equal to the amount of share issuances related to SC’s expensed employee compensation. SC does not presently have permission to repurchase any shares of SC Common Stock.

Please find below the details of SC's tender offer and other share repurchase programs for the three-month and nine-month periods ended September 30, 2021 and 2020:

						Three-Month Period Ended September 30,												Nine-Month Period Ended September 30,
						2021						2020						2021						2020
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						357,747						15,956,561
Average price per share						$	—					$	21.91					$	26.46					$	20.00
Cost of shares purchased(2)						$	—					$	223,485					$	9,468					$	319,075
Total number of shares purchased						—						10,198,800						357,747						33,471,268
Average price per share						$	—					$	21.91					$	26.46					$	23.14
Total cost of shares purchased(2)						$	—					$	223,485					$	9,468					$	774,457

(1) During the three months ended March 31, 2020, SC purchased shares of SC Common Stock through a modified Dutch auction tender offer.

(2) Cost of shares exclude commissions

During the nine-month period ended September 30, 2021, SHUSA's subsidiaries had the following capital activity which eliminated in consolidation:

•BSI declared and paid $20.0 million in dividends to SHUSA.

•SIS declared and paid $8.0 million in dividends to SHUSA.

•SFS contributed $250.0 million to SHUSA.

OFF-BALANCE SHEET ARRANGEMENTS

See further discussion of the Company's off-balance sheet arrangements in Note 7 and Note 16 to the Condensed Consolidated Financial Statements, and the "Liquidity and Capital Resources" section of this MD&A.

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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)						$	751,938					$	751,938					$	—					$	—					$	—
Notes payable - revolving facilities						—						—						—						—						—
Notes payable - secured structured financings						28,919,270						978,330						11,918,520						11,008,316						5,014,104
Other debt obligations (1) (2)						17,273,912						6,300,353						6,389,666						2,478,257						2,105,636
CDs (1)						2,772,012						2,107,282						541,103						120,211						3,416
Repurchase agreements(1)						1,589,515						1,589,515						—						—						—
Non-qualified pension and post-retirement benefits						68,988						7,235						14,336						13,958						33,459
Operating leases(3)						646,951						141,164						234,351						145,784						125,652
Total contractual cash obligations						$	52,022,586					$	11,875,817					$	19,097,976					$	13,766,526					$	7,282,267
Other commitments:
Commitments to extend credit						$	28,118,571					$	7,576,342					$	7,463,098					$	4,984,166					$	8,094,965
Letters of credit						1,324,186						1,024,599						169,009						81,891						48,687
Total Contractual Obligations and Other Commitments						$	81,465,343					$	20,476,758					$	26,730,083					$	18,832,583					$	15,425,919

(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, 2021. 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 $52.0 million.

Excluded from the above table are deposits of $76.7 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 12 and Note 16 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, 2021 and December 31, 2020:

						The following estimated percentage increase/(decrease) to net interest income would result
If interest rates changed in parallel by the amounts below						September 30, 2021						December 31, 2020
Down 100 basis points						(1.69)		%				(1.12)		%
Up 100 basis points						4.68 %						3.18 %
Up 200 basis points						8.86 %						6.25 %

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, 2021 and December 31, 2020.

						The following estimated percentage increase/(decrease) to MVE would result
If interest rates changed in parallel by the amounts below						September 30, 2021						December 31, 2020
Down 100 basis points						(4.42)		%				(6.18)		%
Up 100 basis points						(0.45)		%				1.62 %
Up 200 basis points						(3.00)		%				0.51 %

As of September 30, 2021, the Company’s profile reflected a decrease of MVE of 4.42% for downward parallel interest rate shocks of 100 basis points and a decrease of 0.45% 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, SBNA 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 13 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 12 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, 2021 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 16 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 flows. There have been no material changes from the risk factors set forth under Part I, Item 1A, Risk Factors, in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

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

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

(Amounts presented as actuals)

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act 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 Santander and its affiliates. During the period covered by this report:

•Santander UK holds seven blocked accounts for five customers, with the first customer holding one GBP savings account and one GBP current account, the second customer holding one GBP savings account, and the third customer holding two GBP current accounts. All three 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 nine months ended September 30, 2021 were negligible relative to the overall profits of Santander.

•Santander Consumer Finance, S.A. holds through its Belgian branch seven blocked correspondent accounts for an Iranian bank that is currently designated by the US under the SDGT sanctions program. The accounts have been blocked since 2008. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the nine months ended September 30, 2021.

•Santander Brasil also held a Brazilian Real account for a customer that was owned by an individual designated by the U.S. under the SDGT sanctions program. There has been no transactional activity in this account. Santander Brasil closed the account and exited the customer relationship. No revenues or profits were generated by Santander Brasil on this account in the nine months ended September 30, 2021.

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•Santander, also has certain legacy performance guarantees for the benefit of an Iranian bank that is currently designated by the US under the SDGT sanctions program (standby letters of credit to guarantee the obligations, either under tender documents or under contracting agreements, of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.

In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the nine months ended September 30, 2021 which were negligible relative to the overall revenues and profits of Santander. Santander has undertaken significant steps to withdraw from the Iranian market, such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. Santander is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, Santander intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

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ITEM 6 - EXHIBITS

(2.1)			Agreement and Plan of Merger, dated as of August 23, 2021, by and among Santander Consumer USA Holdings Inc., Santander Holdings USA, Inc., and Max Merger Sub, Inc. (Incorporated by reference to Exhibit 2.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed August 26, 2021) (Commission File Number 001-16581)
(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)
(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 2, 2021						/s/ Juan Carlos Alvarez de Soto
									Juan Carlos Alvarez de Soto
									Chief Financial Officer and Senior Executive Vice President
Date:			November 2, 2021						/s/ David L. Cornish
									David L. Cornish
									Chief Accounting Officer, Corporate Controller and Executive Vice President

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