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Santander Holdings USA, Inc. - Annual Report: 2022 (Form 10-K)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2022
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     .
Commission File Number: 001-16581
SANTANDER HOLDINGS USA, INC.
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of
incorporation or organization)
23-2453088
(I.R.S. Employer
Identification No.)
75 State Street, Boston, Massachusetts
(Address of principal executive offices)
02109
(Zip Code)
Registrant’s telephone number including area code (800) 493-8219
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of each exchange on which registered
Not ApplicableNot ApplicableNot Applicable
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ☐.   No ☑.
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 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). Yes ☑. No ☐.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated Filer ☑
Emerging growth company ☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑. No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by checkmark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐. No ☑.
The registrant did not have a public float on the last business day of its most recently completed second fiscal quarter because there was no public market for the registrant's common equity as of such date. The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and has therefore omitted certain items from this report in accordance with the reduced disclosure format under General Instruction I.
Number of shares of common stock outstanding at February 28, 2023: 530,391,043 shares

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INDEX
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Since all of the registrant’s common stock is owned by Banco Santander, S.A., a reporting company under the Securities Exchange Act of 1934, and as of December 31, 2022, the registrant does not have publicly held equity securities, it has determined that it meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is omitting certain items (Items 10-13 and Exhibit 21) from this Annual Report on Form 10-K as permitted under General Instruction I of Form 10-K
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
SANTANDER HOLDINGS USA, INC., AND SUBSIDIARIES

This Annual Report on Form 10-K 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,” “will,” “would,” “believes,” “expects,” “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, as well as the impact of changes in and interpretations of GAAP, 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. 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 discontinuation of LIBOR as an interest rate benchmark, may, among other things, reduce net interest margins and impact funding sources, revenue and expenses, the value of assets and obligations, and the ability to originate and distribute financial products in the primary and secondary markets;
•the pursuit of protectionist trade or other related policies, including tariffs and sanctions 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, successfully complete and integrate mergers and acquisitions, and raise capital necessary to achieve its business goals and comply with regulatory requirements;
•SHUSA’s ability to effectively manage its capital and liquidity, including 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;
•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 tax laws and regulations, which may include tax rates changes, that could materially adversely affect our business, including changes to tax laws and regulations and the outcome of ongoing tax audits by federal, state and local income tax authorities that may require SHUSA to pay additional taxes or recover fewer overpayments compared to what has been accrued or paid as of period-end;
•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;
•SHUSA’s ability to implement its ESG strategy and appropriately address social, environmental and sustainability matters that may arise from its activities;
•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 or escalations of hostilities or effects of climate change, and SHUSA's ability to deal with disruptions caused by such disasters and emergencies;
•acts of terrorism or domestic or foreign military conflicts; and
•the other factors that are described in Part I, Item IA - Risk Factors of the Company's Annual Report on Form 10-K for 2022.

If one or more of the factors affecting the Company’s forward-looking information and statements renders forward-looking information or statements incorrect, the Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking information and statements. Therefore, the Company cautions the reader not to place undue reliance on any forward-looking information or statements herein. The effect of these factors is difficult to predict. Factors other than these also could adversely affect the Company’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties as new factors emerge from time to time. Management cannot assess the impact of any such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements reflect the current beliefs and expectations of the Company's management and only speak as of the date of this document, and the Company undertakes no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.
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GLOSSARY OF ABBREVIATIONS AND ACRONYMS
SHUSA provides the following list of abbreviations and acronyms as a tool for the readers that are used in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Consolidated Financial Statements and the Notes to Consolidated Financial Statements.
2022 Resolution Plan: the Section 165(d) Resolution Plan most recently filed by Santander in June 2022.CRA: Community Reinvestment Act
401-K Plan: SBNA's 401-K PlanCRD IV: Capital Requirements Directive IV
ABS: Asset-backed securitiesCRE: Commercial Real Estate
ACL: Allowance for credit lossesDCF: Discounted cash flow
ADRs: American Depositary ReceiptsDE&I: Diversity, equity & inclusion
AFS: Available-for-saleDFA: Dodd-Frank Wall Street Reform and Consumer Protection Act
ALLL: Allowance for loan and lease lossesDOJ: Department of Justice
AOCI: Accumulated other comprehensive income
DPD: days past due
APS: Amherst Pierpont Securities LLC, now known as Santander US Capital Markets LLCDRIVE: Drive Auto Receivables Trust, a securitization platform
ASC: Accounting Standards CodificationDTI: Debt-to-income
ASU: Accounting Standards UpdateEAD: Exposure at default
ATM: Automated teller machineEFG: Enterprise Financial Group
BHC: Bank holding companyEIR: Effective interest rate
BHCA: Bank Holding Company Act of 1956, as amendedESG: Environmental, Social, and Governance
BOLI: Bank-owned life insuranceETR: Effective tax rate
Brokers: Independent partiesEU: European Union
Broker-Dealers: At December 31, 2022, SIS, APS, and SSLLCEvaluation Date: December 31, 2022
BSI: Banco Santander InternationalExchange Act: Securities Exchange Act of 1934, as amended
C&I: Commercial and Industrial BankingFASB: Financial Accounting Standards Board
CARES Act: Coronavirus Aid CBB, Relief, and Economic Security ActFBO: Foreign banking organization
CBB: Consumer and Business BankingFDIA: Federal Deposit Insurance Corporation Improvement Act
CBP: Citizens Bank of PhiladelphiaFDIC: Federal Deposit Insurance Corporation
CCAP: Chrysler Capital; trade name used in providing services under the MPLFAFederal Reserve: Board of Governors of the Federal Reserve System
CCAR: Comprehensive Capital Analysis and ReviewFHLB: Federal Home Loan Bank
CD: Certificate of depositFHLMC: Federal Home Loan Mortgage Corporation
CDO: Chief Diversity OfficerFICO®: Fair Isaac Corporation credit scoring model
CECL: Current expected credit losses as defined by ASU 2016-13, ASU 2019-04, and ASU 2019-11, Financial Instruments - Credit LossesFINRA: Financial Industrial Regulatory Authority
CEO: Chief Executive OfficerFNMA: Federal National Mortgage Association
CET1: Common equity Tier 1FOMC: Federal Open Market Committee
CEVF: Commercial Equipment Vehicle FinancingFRB: Federal Reserve Bank
CFPB: Consumer Financial Protection BureauFVO: Fair value option
CFO: Chief Financial OfficerGAAP: Accounting principles generally accepted in the United States of America
CFTC: Commodity Futures Trading CommissionGAP: Guaranteed Auto Protection
CHRO: Chief Human Resources OfficerGDP: Gross domestic product
CIB: Corporate and Investment BankingGLBA: Gramm-Leach-Bliley Act
CLTV: Combined loan-to-valueGNMA: Government National Mortgage Association
CME: Chicago Mercantile ExchangeGSIB: globally systemically important bank
Company: Santander Holdings USA, Inc.HFI: Held for investment
COSO: Committee of Sponsoring OrganizationsHFS: Held for sale
Covered Fund: a hedge fund or a private equity fundHPI: Housing price index
COVID-19: a novel strain of coronavirus declared a pandemic by the World Health Organization in March 2020
CPR: constant prepayment rate
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IBOR: Inter-bank offered ratePD: Probability of default
HTM: Held to maturityREIT: Real estate investment trust
IDI: insured depository institutionRIC: Retail installment contract
IFRS: International Financial Reporting StandardsROU: Right-of-use
IHC: U.S. intermediate holding companyRV: Recreational vehicle
Interim Policy: Policy issued by the Federal Policy for the third quarter of 2020 and since extended that prohibits share repurchases and limiting dividends by CCAR institutionsRWA: Risk-weighted asset
IRC: Internal Revenue CodeS&P: Standard & Poor's
IRS: Internal Revenue ServiceSanCap: Santander US Capital Markets, LLC
ISDA: International Swaps and Derivatives Association, Inc.San Mexico: Grupo Financiero Santander Mexico
IT: Information technologySantander: Banco Santander, S.A.
LCR: liquidity coverage ratioSantander Global Technology: Santander Global Technology S.L.
LGD: Loss given defaultSantander UK: Santander UK plc
LHFI: Loans held for investmentSBNA or the Bank: Santander Bank, National Association
LHFS: Loans held for saleSBC: Santander BanCorp and its subsidiaries
LIBOR: London Interbank Offered RateSC: Santander Consumer USA Holdings Inc. and its subsidiaries
LIHTC: Low income housing tax creditSCB: stress capital buffer
LTD: Long-term debtSC Common Stock: Common shares of SC
LTV: Loan-to-valueSCARF: Santander Consumer Auto Receivables Funding
MBS: Mortgage-backed securitiesSCART: Santander Consumer Auto Receivables Trust
MD&A: Management's Discussion and Analysis of Financial Condition and Results of OperationsSCF: Statements of cash flows
MMNA: Mitsubishi Motors North America, Inc.SDART: Santander Drive Auto Receivables Trust
ME: Material entitySDGT: Specially Designated Global Terrorist
Moody’s: Moody's Investors Service, Inc.SEC: Securities and Exchange Commission
MPLFA: Ten-year master private-label financing agreement with StellantisSecurities Act: Securities Act of 1933, as amended
MSPA: Master Securities Purchase AgreementSecurities Financing Activities: Resale, repurchase securities borrowed and securities lending agreements
MSR: Mortgage servicing rightSeries E Preferred Stock: the Company’s 8.410% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, without par value and with a liquidation preference of $1,0000 per share
MVE: Market value of equitySHUSA: Santander Holdings USA, Inc.
NCI: Non-controlling interestSOFR: Secured Overnight Financing Rate
NFA: National Futures AssociationSPAIN: Santander Private Auto Issuing Note
NMDs: non-maturity depositsSPE: Special purpose entity
NMTC: New market tax creditsSSLLC: Santander Securities LLC
NPL: Non-performing loanStellantis: Fiat Chrysler Automobiles U.S. LLC parent Stellantis N.V. and/or any affiliates
SHUSA/U.S. Risk Committee: Joint SHUSA and Combined U.S. Operations of Santander Risk CommitteeSubvention: 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.
SIS: Santander Investment Securities Inc.TBV: tangible book value
NPR: notice of proposed rule-makingTCJA: Tax Cut and Jobs Act of 2017
NYSE: New York Stock ExchangeTDR: Troubled debt restructuring
OCC: Office of the Comptroller of the CurrencyTLAC: Total loss-absorbing capacity
OCI: Other comprehensive incomeTLAC Rule: The Federal Reserve’s total loss-absorbing capacity rule
OEM: Original equipment manufacturerTrusts: Securitization trusts
OIS: Overnight indexed swapU.K.: United Kingdom
OREO: Other real estate ownedUPB: Unpaid principal balance
OTC: Over-the-counterUSD: United States dollar
Parent Company: the parent holding company of SBNA and other consolidated subsidiariesU.S. MEs: U.S. material entities of Santander
PCH: Pierpont Capital Holdings LLC, now known as Santander Capital Holdings LLCVIE: Variable interest entity
PCD: purchased credit-deterioratedVOE: Voting rights entity
YTD: Year-to-date
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PART I
ITEM 1 - BUSINESS

General

SHUSA is the parent holding company of SBNA, a national banking association; SC, a consumer finance company headquartered in Dallas, Texas; 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 on Latin American and European equity and fixed income securities; APS, an institutional fixed-income broker-dealer headquartered in New York providing institutional and middle market clients with access to a broad range of fixed income products including mortgage products, investment grade credit, U.S. Government and federal agency securities, fixed-income structured products banking and advisory services; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC is a registered investment adviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.

The Company specializes in consumer financing focused on vehicle finance, servicing of third-party vehicle financing, and delivering service to dealers and customers across the full credit spectrum. This includes indirect origination and servicing of vehicle loans and leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers, origination of vehicle loans through a web-based direct lending program, purchases of vehicle loans from other lenders, and servicing of automobile and recreational and marine vehicle portfolios for other lenders. The Company sells consumer vehicle loans and leases through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer vehicle loans and leases.

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. In the second quarter of 2022, the Company announced it had reached an agreement with Stellantis to amend and extend the MPLFA through December 2025. In June 2022, the Company launched a preferred lender, full spectrum financing program in partnership with MMNA to provide customer and dealer financing programs that will help MMNA achieve its goal of improving the car-buying experience.

In addition to specialized consumer finance, the Company also attracts deposits and provides other retail banking services through its network of retail branches principally located in Massachusetts, New Hampshire, Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and Delaware; and originates small business, middle market, large and global commercial loans, multifamily loans, and other consumer loans and leases throughout the Mid-Atlantic and Northeastern areas of the United States. For large institutional investors, the Company provides structured products, emerging markets credit and U.S. investment grade credit, U.S. rates, short-term fixed-income, debt capital markets, investment banking, exchange traded derivatives, and cash equities, benefiting from a combination of Santander’s global reach and access to financial hubs together with extensive local market knowledge and regional expertise.

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

Acquisition of SC Common Stock

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. 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 did not already own at a price of $41.50 per share in cash. The transaction was completed on January 31, 2022, at which time SHUSA acquired the remaining 19.8% NCI in SC for approximately $2.5 billion and SC became a wholly-owned subsidiary of SHUSA. As a result of the acquisition, Additional paid in capital decreased by $591.3 million for the difference between the carrying value of the NCI and the amount paid to acquire it.


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Acquisition of PCH

On April 11, 2022, SHUSA acquired 100% ownership of PCH, parent company of APS, an institutional fixed-income broker dealer and a designated primary dealer by the Federal Reserve Bank of New York, for approximately $448 million. With the addition of PCH, the Company significantly enhances its infrastructure and capabilities as a market maker of U.S. fixed-income capital markets. The transaction provides the Company a platform for self-clearing of fixed income securities, growing its institutional client footprint, and expanding its structuring and advisory capabilities for asset originators. PCH 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 acquisition was accounted for as a business combination, with the assets and liabilities of PCH recorded at fair value. Fair value measurements are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair value becomes available. No material adjustments to the fair values disclosed below are expected. Goodwill of approximately $172 million was recorded and assigned to the CIB reporting unit. In addition to goodwill, the Company recorded $39 million of amortizing intangible assets, primarily related to customer relationships and acquired technology. Intangibles will be amortized over their estimated useful lives of nine and three years for customer relationships and technology, respectively. Immediately prior to the acquisition, SHUSA lent ASG Holdings, a subsidiary of PCH, $163 million (on an unsecured basis), which PCH used to pay off certain existing third-party debt.

In February 2023, the Company completed the merger of SIS into APS, with the resulting company renamed Santander US Capital Markets LLC. Following the merger, SanCap, along with SSLLC, now comprise the Broker-Dealers.

Segments

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

•The Auto segment includes the Company's consumer and commercial auto loans and leases and the Company's commercial loans to dealers and dealer floorplan financing products. This includes the Company's specialized consumer finance subsidiary focused on vehicle finance and third-party servicing. The specialized consumer finance primary business is the indirect origination of RICs, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. The Company offers a full spectrum of auto financing products and services to captive financing companies. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. The Company also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders. All intercompany revenue and fees between consolidated affiliates are eliminated in the consolidated results of the Company.
•The CBB segment includes the products and services provided to consumer and small business banking customers, including consumer deposit, small business banking, 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 unsecured personal loans, credit cards, and small business loans such as business lines of credit. In addition, the Company makes investment services available to its retail customers, including products such as annuities, mutual funds, managed accounts and insurance products through a networking agreement with a consolidated affiliate.
•The C&I segment currently provides commercial lines, loans, letters of credit, receivables financing, commercial credit cards, and cash management and deposit services 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 segment offers CRE loans, CEVF, and multifamily loans, as well as cash management and deposit services to customers. This category also includes community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.
•The CIB segment serves the needs of global corporate 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 the Company's institutional broker-dealers that provide services in investment banking, sales, trading and equity research reports. CIB's offerings and strategy are based on Santander's local and global capabilities in wholesale banking.
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•The Wealth Management segment consists of the Company's international private banking and financial operations Services include the full range of banking and asset management services to foreign individuals and corporations based primarily in Latin America

ESG

Our responsible growth strategy includes a focus on addressing global sustainability challenges. We contribute to the effective transition towards a more just and sustainable economy by supporting the sustainable transition, reducing our environmental footprint, and identifying, assessing, and managing climate-change-related risks and opportunities to build a comprehensive sustainable and green finance proposition.

Our ESG strategy includes:
•Empowering people and business by expanding access to capital, financial education, and training opportunities
•Supporting the green economy by supporting the sustainable transition for customers and achieving our sustainability goals; and
•Fostering inclusive communities by meeting the needs of underserved individuals and communities and by championing diversity, equity, and inclusion.

In 2022, Santander U.S. released its first Environmental, Social, and Governance report, entitled Building Paths to Prosperity, available on the Company's website.

Our three most significant climate-related opportunities are:
•Continued financing of renewable energy sources, including wind and solar power;
•Development of diverse products and services that provide climate solutions that assist our clients as they transition to a low-carbon economy, and that result in greater diversification, competitive advantage, and increased revenue; and
•Resource efficiencies to reduce environmental impact, operational costs, and increase the value of fixed assets.

We are committed to a more sustainable economy by addressing climate change and sustainable business practices. We continue to make progress towards meeting our goals which include, but are not limited to:

•Becoming carbon neutral in operations. This goal was first achieved in 2020 and will continue to be achieved through purchase of offsets, while reducing our carbon footprint.
•Becoming single-use plastic-free at all facilities, where feasible. The goal was first achieved in 2021 and the Company continues to work with suppliers to reduce plastic usage.
•100% purchasing of renewable electricity for facilities, where possible, by 2025.
•Filling 30% of senior positions with women by 2025.
•Eliminating any equal pay gap by 2025.

The goals discussed above are ambitious; as such, no guarantees or promises are made that these goals will be met or continued. Furthermore, statistics and metrics included in these disclosures are estimates; they may also be based on assumptions.

Human Capital Management

Our employees are central to our Company’s success. Our Company invests significant resources to maintain a company culture that is Simple, Personal and Fair and to attract, develop and retain the high-caliber workforce needed to meet our corporate goals. We invest in our employees by seeking to create a diverse and inclusive work environment, providing competitive compensation and benefits, quality training and development opportunities, and ensuring a safe and healthy workplace.

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Human Resources and Communications Teams

Our HR and Communications teams are responsible for:

•Communications – leads and manages employee communications and supports employee and customer events across the organization, as well as leads and manages proactive communications for issue resolution and overall media relations management.
•Culture, Engagement and Employer Branding--activates and promotes Santander’s employer value proposition in the U.S., fostering a unified, “One Santander” organization, elevating employee engagement and attracting top talent.
•Compensation, Payroll and Benefits and HR Technology – responsible for compensation and benefits strategy and consulting with the business on compensation matters and compensation governance, as well as payroll, benefits and human capital management support.
•Talent Acquisition – sources, hires, and onboards the best-qualified candidates, from within or outside of the organization.
•Talent Management – develops, engages, and retains the right talent to ensure the Company operates as a high-performing organization and achieves business objectives.
•Learning & Development – partners with business areas to design, develop, and implement learning solutions that provide employees with the knowledge, skills, and abilities to meet and exceed the organization’s goals and objectives.
•Employee Relations – supports the Company to assist with conflict resolution, internal investigations, and questions on HR policies and procedures for all employees.
•DE&I - focuses on supporting workforce diversity and encourages an inclusive culture.

DE&I

Our focus on diversity, equity, and inclusion starts with inclusion, diversity is the outcome, while equity is how we get there. Diversity is defined beyond gender, race, and ethnicity to capture our employees' multiple intersectionalities. Since diversity is defined so broadly, DE&I focuses on influencing a more inclusive culture and developing programming that positively impacts employees at multiple organizational levels. We believe that a diverse, equitable, and inclusive environment helps create prosperity for our employees, customers, and communities. Our culture is underpinned by our core values and includes an unwavering commitment to serving the underserved among us.

In 2020, the Company established the Office of Diversity, Equity, and Inclusion with a CDO who has dual reporting relationships to the Santander U.S. Diversity Champion and the SHUSA and SBNA CHRO. The CDO serves as a senior executive leading the Company's cultural change initiatives, with a focus on comprehensive and results-driven program management.

The Office of DE&I implemented several initiatives including an inclusive culture campaign; deep level people data analytics; leadership development programs; mentorship and sponsorship for employees; DE&I best practices, standards, and audits; and the re-launch of the Company’s DE&I webpage. The Company continues to be committed to advancing diversity, equity, and inclusion, not only for ourselves, but also for those we serve.

Compensation and Benefits

We provide competitive compensation, benefits, and services that help attract, retain and incentivize our employees. Our compensation and benefits package includes competitive pay, healthcare, retirement benefits, as well as paid time off and holidays, parental leave, disability benefits, military leave, and paid development and volunteer time off, along with other benefits and employee resources. We design our incentive compensation to reward pay for performance while appropriately mitigating risk in line with our corporate behaviors and ethical principles.

Our workforce across all of Santander U.S. was approximately 13,700 employees at December 31, 2022. None of our employees is represented by a collective bargaining agreement. At December 31, 2022, the Company's 12-month rolling voluntary attrition rate was 18.6%.

Learning and Development & Talent Management

The Company invests significant resources to train and develop our employees. Our programs provide employees with the resources they need to help achieve their career goals, build management skills, and lead their organization. We deliver numerous learning opportunities to aid in employee development, ensure compliance, and improve business acumen including quarterly compliance curriculums, workplace safety awareness, specialized job role training, and information security training.

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Health and Wellness

The Company is committed to the health and safety of our employees. As such, we invest in programs designed to improve physical, mental, and financial well-being, including a comprehensive well-being platform. During 2022, the Company sponsored two medical plans that provide comprehensive medical coverage, telemedicine and wellness tools, and condition management and support. For January 2023, to help ensure that healthcare is accessible for all employees, the Company introduced a new lower cost medical plan that is entirely co-pay based, has no deductible and includes inclusive family planning benefits.

In 2022, the pandemic continued to have an impact on our human capital management. We continued to allow our non-location dependent staff to work remotely during various times of the year, while maintaining protocols and procedures for the safety of our employees, including an onsite vaccination requirement. We recently ended our COVID-19 protocols effective as of January 17, 2023, and will continue to monitor the ongoing pandemic.

Competition

The Company’s primary competitors are:
•national and regional banks, credit unions, and independent financial institutions;
•digital and virtual banks;
•the affiliated finance companies of automotive manufacturers; and
•trust companies, full service banks, asset managers, investment advisors, securities dealers, and mutual fund companies.

The Company is subject to substantial competition in attracting and retaining deposits and in lending funds. The primary factors in competing for deposits include the ability to offer attractive rates, the convenience of office locations, the availability of alternate channels of distribution, and servicing capabilities. Direct competition for deposits comes primarily from other national, regional, and state banks, digital banks, thrift institutions, and broker-dealers. Competition for deposits also comes from money market mutual funds, corporate and government securities dealers and credit unions.

The primary factors driving competition for commercial and consumer loans are interest rates, loan origination fees, service levels and the range of products and services offered. Competition for originating loans normally comes from thrift institutions, national and state banks, mortgage bankers, mortgage brokers, finance companies, and insurance companies.

The automotive finance industry is highly competitive. While the used car financing market is fragmented with no single lender accounting for more than 10% of the market, there are a number of competitors in both the new and used car markets that have substantial positions nationally or in the markets in which they operate. The Company competes on the pricing offered on loans and leases as well as the customer service provided to automotive dealer customers. Pricing for these loans and leases is transparent because the Company, like its industry competitors, posts pricing for loans and leases on web-based credit application aggregation platforms. When dealers submit applications for consumers acquiring vehicles, they can compare the Company's pricing against its competitors’ pricing. Dealer relationships are important in the automotive finance industry. Vehicle finance providers tailor product offerings to meet each individual dealer's needs.

The Company seeks to compete effectively through its proprietary credit-scoring system and industry experience, which are used to establish appropriate risk pricing. The Company has built and seeks to develop strong dealer relationships through a nationwide sales force and a long history in the automotive finance space. Further, the Company expects to continue deepening dealer relationships through the captive financing product offerings and believes it can compete effectively by continuing to expand those relationships.

Supervision and Regulation

The U.S. lending industry is highly regulated under various federal laws, including the Truth-in-Lending Act, Equal Credit Opportunity Act, Electronic Fund Transfer Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Consumer Leasing Act, Servicemembers Civil Relief Act, Telephone Consumer Protection Act, Financial Institutions Reform, Recovery, and Enforcement Act, the DFA and the GLBA, as well as various state laws. The Company is subject to inspections, examinations, supervision, and regulation by the SEC, the CFPB, the Federal Trade Commission, and the DOJ and by regulatory agencies in each state in which the Company and its subsidiaries transact business.


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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. SHUSA is a BHC pursuant to the BHC Act. As a BHC, the Company is subject to consolidated supervision by the Federal Reserve, including the FRB of Boston.

SBNA is a national bank chartered under the National Bank Act and subject to supervision by the OCC, which has the ability to limit certain of its activities, such as the timing and amount of dividends and certain transactions that it might otherwise desire to enter into, such as merger and acquisition opportunities, or to impose other limitations on the Bank’s growth and is insured by the FDIC.

The Broker Dealers are subject to regulation under FINRA as well as state regulatory authorities.

In addition, the Company is directly and indirectly, through its relationship with Santander, subject to certain banking and financial services regulations, including oversight by the European Central Bank.

Refer to the "Regulatory Matters" section within Item 7- MD&A for discussion of current regulatory matters impacting the Company. Additional legal and regulatory matters affecting the Company’s activities are further discussed in Part I, Item 1A-Risk Factors of this Annual Report on Form 10-K.

BHC Activity and Acquisition Restrictions

Federal laws restrict the types of activities in which BHCs may engage, and subject them to a range of supervisory requirements, including regulatory enforcement actions for violations of laws and policies. BHCs may engage in the business of banking and managing and controlling banks, as well as closely related activities.

The Company would be required to obtain approval from the Federal Reserve if the Company were to acquire 5% or more of any class of voting shares of any depository institution or any holding company of a depository institution.

Control of the Company or the Bank

Under the Change in Bank Control Act, individuals, corporations or other entities acquiring SHUSA's common stock may, alone or together with other investors, be deemed to control the Company and thereby the Bank. Ownership of more than 10% of SHUSA’s capital stock may be deemed to constitute “control” if certain other control factors are present. If deemed to control the Company, those persons or groups would be required to obtain the Federal Reserve's approval to acquire the Company’s common stock and could be subject to certain ongoing reporting procedures and restrictions under federal law and regulations.
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Standards for Safety and Soundness

The federal banking agencies adopted certain operational and managerial standards for depository institutions, including internal audit system components, loan documentation requirements, asset growth parameters, IT and data security practices, and compensation standards for officers, directors and employees.

Insurance of Accounts and Regulation by the FDIC

SBNA is a member of the Deposit Insurance Fund, which is administered by the FDIC. SBNA's deposits are insured up to applicable limits by the FDIC. The FDIC assesses deposit insurance premiums and is authorized to conduct examinations of, and require reporting by, FDIC-insured institutions like SBNA. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the Deposit Insurance Fund. The FDIC also has the authority to initiate enforcement actions against banking institutions and may terminate an institution’s deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The FDIC charges financial institutions deposit premium assessments to ensure it has reserves to cover deposits that are under FDIC-insured limits, which is currently $250,000 per depositor per ownership category for each ownership deposit account category.

FDIC insurance premium expenses were $44.0 million for the year ended December 31, 2022.

Restrictions on Dividends and Subsidiary Banking Institution Capital Distributions

Under the FDIA, IDIs must be classified in one of five defined tiers (well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized). Under OCC regulations, an institution is considered “well-capitalized” if it (i) has a total risk-based capital ratio of 10% or greater, (ii) has a Tier 1 risk-based capital ratio of 8% or greater, (iii) has a CET1 capital ratio of 6.5% or greater, (iv) has a Tier 1 leverage ratio of 5% or greater and (v) is not subject to any order or written directive to meet and maintain a specific capital level. As of December 31, 2022, SBNA met the criteria to be classified as “well capitalized.”

If capital levels fall to significantly or critically undercapitalized levels, further material restrictions can be imposed, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver or conservator. Critically undercapitalized institutions generally may not, beginning 60 days after becoming critically undercapitalized, make any payment of principal or interest on their subordinated debt. All but well-capitalized institutions are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to FDIC 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 and repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the institution’s capital account.

Federal banking laws, regulations and policies 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 the Company within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years; (2) the Bank would not meet capital levels imposed by the OCC in connection with any order, (3) the Bank has negative retained earnings, or (4) the Bank is not adequately capitalized at the time. In addition, the OCC's prior approval is required if the OCC deems the Bank to be in troubled condition or a problem institution.

Any dividends declared and paid have the effect of reducing SBNA’s Tier 1 capital to average consolidated assets and risk-based capital ratios. During 2022, 2021, and 2020, SBNA did not pay dividends to SHUSA.


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Federal Reserve Regulation

Under Federal Reserve regulations, the Bank generally has been required to maintain a reserve against its transaction accounts (primarily interest-bearing and non-interest-bearing checking accounts). Because reserves must generally be maintained in cash or in low-interest-bearing accounts, the effect of the reserve requirements is to reduce an institution’s asset yields.

FHLB System

The FHLB system was created in 1932 and consists of 11 regional FHLBs. FHLBs are federally-chartered but privately owned institutions created by Congress. The Federal Housing Finance Agency is an agency of the federal government that is charged with overseeing the FHLBs. Each FHLB is owned by its member institutions. As a member, the Bank is required to make minimum investments in FHLB stock based on its level of borrowings from the FHLB. The Bank is a member of and held investments in the FHLB of Pittsburgh which totaled $184.5 million as of December 31, 2022, compared to $37.0 million at December 31, 2021. The Bank utilizes advances from the FHLB to fund balance sheet growth, provide liquidity and for asset and liability management purposes. The Bank had access to advances with the FHLB of up to $11.1 billion at December 31, 2022, and had outstanding advances of $4.0 billion. The level of borrowing capacity the Bank has with the FHLB of Pittsburgh is contingent upon the level of qualified collateral the Bank holds at a given time.

The Bank received $4.6 million and $3.0 million in dividends on its stock in the FHLB of Pittsburgh in 2022 and 2021, respectively.

Anti-Money Laundering and the USA Patriot Act

Several federal laws, including the Bank Secrecy Act, the Money Laundering Control Act, and the USA Patriot Act require all financial institutions to, among other things, implement policies and procedures relating to anti-money laundering, compliance, suspicious activities, currency transaction reporting and due diligence on customers. The USA Patriot Act substantially broadened existing anti-money laundering legislation and the extraterritorial jurisdiction of the U.S., imposed compliance and due diligence obligations, created criminal penalties, compelled the production of documents located both inside and outside the U.S., including those of non-U.S. institutions that have a correspondent relationship in the U.S., and clarified the safe harbor from civil liability to clients. The U.S. Treasury has issued a number of regulations that further clarify the USA Patriot Act’s requirements and provide more specific guidance on their application.
Financial Privacy and Cyber Security

U.S. banking agencies and other federal and state government agencies have increased their attention on cybersecurity and data privacy risks, and have proposed enhanced risk management standards that would apply to us. Under the GLBA, financial institutions are required to disclose to their retail customers their policies and practices with respect to sharing nonpublic customer information with their affiliates and non-affiliates, how they maintain customer confidentiality, and how they secure customer information. Customers are required under the GLBA to be provided with the opportunity to “opt out” of information sharing with non-affiliates, subject to certain exceptions.

The Company and its subsidiaries use credit bureau data in their underwriting activities. Use of such data is regulated under the Fair Credit Reporting Act which regulates reporting information to credit bureaus, prescreening individuals for credit offers, sharing of information between affiliates, and using affiliate data for marketing purposes.

In 2020, the California Consumer Privacy Act took effect, requiring for-profit businesses which conduct business in California, among other things, to notify affected individuals when there has been a security breach of their personal data, and imposes increased privacy and security obligations of entities handling certain personal information of individuals. Other states are considering analogous legislation.

Effective in April 2022, federal banking regulators imposed a new rule which requires a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after it has been determined that a cyber incident has occurred. That rule defines a significant computer-security incident as an incident that has materially affected or is reasonably likely to materially affect, the viability of a banking organization’s key operations or its ability to deliver banking products and services, or the stability of the financial sector.
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Environmental Laws

Environmentally-related hazards are a source of high risk and potentially significant liability for financial institutions related to their loans. Environmentally contaminated properties owned by an institution’s borrowers may result in a drastic reduction in the value of the collateral securing the institution’s loans to such borrowers, high environmental cleanup costs to the borrower affecting its ability to repay its loans, the subordination of any lien in favor of the institution to a state or federal lien securing clean-up costs, and liability to the institution for cleanup costs if it forecloses on the contaminated property or becomes involved in the management of the borrower. In addition to property examinations, the Company performs environmental reviews of its clients in oil & gas, metals, mining, and other industries with an environmental impact. To minimize this risk, SBNA may require an environmental examination of, and reports with respect to, the property of any borrower or prospective borrower if circumstances affecting the property indicate a potential for contamination, taking into consideration the potential loss to the institution in relation to the burdens to the borrower. Such examination must be performed by an engineering firm experienced in environmental risk studies and acceptable to the institution, and the costs of such examinations and reports are the responsibility of the borrower. These costs may be substantial and may deter a prospective borrower from entering into a loan transaction with SBNA. The Company is not aware of any borrower which is currently subject to any environmental investigation or clean-up proceeding or any other environmental matter that is likely to have a material adverse effect on the financial condition or results of operations of SHUSA or its subsidiaries.

Securities and Investment Regulation

The Company conducts its securities and investment business activities through its subsidiaries APS, SIS and SSLLC. APS, SIS and SSLLC are registered broker-dealers with the SEC and members of FINRA. APS’s activities include investment banking, acting as a market maker of U.S. fixed-income securities and self-clearing fixed-income securities. SIS’s activities include investment banking, institutional sales, trading and offering research reports of Latin American and European equity and fixed income securities. SSLLC is also a registered investment adviser with the SEC, and BSI conducts certain securities transactions exempt from SEC registration on behalf of its clients.

Written Agreements and Regulatory Actions

See the “Regulatory Matters” section of the MD&A and Note 22 of the Consolidated Financial Statements in this Annual Report on Form 10-K for a description of current regulatory actions.

Corporate Information

All reports filed electronically by the Company with the SEC, including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those reports, are accessible on the SEC’s website at www.sec.gov. Our filings are also accessible through our website at: https://www.santanderus.com/us/investorshareholderrelations. The information contained on our website is not being incorporated herein and is provided for the information of the reader.

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ITEM 1A - RISK FACTORS

Summary Risk Factors

The Company is subject to a number of risks that if realized could affect its business, financial condition, results of operations, cash flows and access to liquidity materially. As a financial services organization, certain elements of risk are inherent in our businesses. Accordingly, the Company encounters risk as part of the normal course of its businesses. Some of the Company’s more significant challenges and risks include the following:

•We are vulnerable to disruptions and volatility in the global financial markets. Disruptions and volatility in financial markets can have a material adverse effect on our ability to access capital and liquidity on acceptable financial terms. Negative and fluctuating economic conditions, such as a changing interest rate environment, may cause our lending margins to decrease and reduce customer demand for our higher margin products and services.

•Uncertainty regarding LIBOR may affect our business adversely. We have established an enterprise-wide initiative to identify, asses and monitor risks associated with the anticipated discontinuation of LIBOR. However, there can be no assurance that we and other market participants will be adequately prepared for the potential disruption to financial markets and potential adverse effects to interest rates on our loans, deposits, derivatives and other financial instruments currently tied to LIBOR.

•The COVID-19 pandemic continues to affect our business. Closures and disruptions to businesses in the U.S. due to the COVID-19 pandemic have led to negative effects on our customers, in some situations, reducing demand for certain of our products and services.

•We are subject to substantial regulation. As a financial institution, we are subject to extensive regulation by government agencies, including limitations on permissible activities, required financial stress tests, required non-objection to certain actions, investigations and other regulatory proceedings. If we are unable to meet the expectations of our regulators fully, we may need to divert significant resources to remedial actions, be unable to take planned capital actions, and/or be subject to fines or other enforcement actions, among other things. These circumstances could affect our revenues and expenses and other aspects of our business and operations adversely.

•We may not be able to detect money laundering or other illegal or improper activities fully or on a timely basis. We work regularly to improve our policies, procedures and capabilities to detect and prevent financial crimes. However, such crimes are evolving continually, and there will be instances in which we may be used by other parties to engage in money laundering or other illegal or improper activities. These instances may result in regulatory fines, sanctions and/or legal enforcement, which could have a material adverse effect on our operating results, financial condition and prospects.

•Credit risk is inherent in our business. Our customers’ and counterparties’ financial condition, repayment abilities, repayment intentions, the value of their collateral, and government economic policies, market interest rates and other factors affect the quality of our loan portfolio. Many of these factors are beyond our control, and there can be no assurance that our current or future loan and lease loss reserves will be sufficient to cover actual losses.

•Liquidity and funding risks are inherent in our business. Changes in market interest rates and our credit spreads occur continuously, may be unpredictable and highly volatile and can significantly increase our cost of funding. We rely primarily on deposits to fund lending activities. However, our ability to maintain or grow deposits depends on factors outside our control, such as general economic conditions and confidence of depositors in the economy and the financial services industry. If deposit withdrawals increase significantly in a short period of time, it could have a material adverse effect on our operating results, financial condition and prospects.

•We are subject to fluctuations in interest rates. Interest rates are highly sensitive to factors beyond our control, such as increased regulation of the financial sector, monetary policies, economic and political conditions, and other factors. Variations in interest rates could impact net interest income, which comprises the majority of our revenue, reducing our growth and potentially resulting in losses.
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•We are subject to significant competition. We compete with banks that are larger than us and non-traditional providers of banking services who may not be subject to the same regulatory or legislative requirements to which we are subject. If we are unable to compete successfully with current and new competitors and anticipate changing banking industry trends, our business may be affected adversely.

•Risks relating to data collection, processing, storage systems and data security. Proper functioning of financial controls, accounting and other data collection and processing systems is critical to our businesses and our ability to compete effectively. Inadequate personnel, inadequate or failed internal control processes or systems, or external events that interrupt normal business operations could each impair our data collection, processing, storage systems and data security and result in losses.

•We and others in our industry face cybersecurity risks. We take protective measures and monitor and develop our systems continuously to protect our technology infrastructure and data from cyberattacks. However, cybersecurity risks continue to increase for our industry, and the proliferation of new technologies and the increased sophistication and activities of parties behind such attacks present risks for compromised data, theft of funds or theft or destruction of corporate information and assets.

•SC’s financial results could impact our results. SC’s earnings have historically been a significant source of funding for the Company. Factors that could negatively affect SC’s financial results could consequently affect SHUSA’s financial results.

The above list is not exhaustive, and we face additional challenges and risks. Please carefully consider all of the information in this Form-K including matters set forth in this "Risk Factors" section.

Risk Factors

Risk management and mitigation are important parts of the Company's business model and integrated into the Company's day-to-day operations. The success of the Company's business is dependent on management's ability to identify, understand, manage and mitigate the risks presented by business activities in light of the Company's strategic and financial objectives. These risks include credit risk, market risk, capital risk, liquidity risk, operational risk, model risk, investment risk, compliance and legal risk, and strategic and reputational risk. We discuss our principal risk management processes in the Risk Management section included in Item 7 of this Annual Report on Form 10-K.

The following are the most significant risk factors that affect the Company. Any one or more of these could have a material adverse impact on the Company's business, financial condition, results of operations, or cash flows, in addition to presenting other possible adverse consequences, many of which are described below. These risk factors and other risks we may face are also discussed further in other sections of this Annual Report on Form 10-K.

Macro-Economic and Political Risks

Given that our loan portfolios are concentrated in the United States, adverse changes affecting the economy of the United States could adversely affect our financial condition.

Our loan portfolios are concentrated in the United States. Accordingly, the recoverability of our loan portfolios and our ability to increase the amount of loans outstanding and our results of operations and financial condition in general are dependent to a significant extent on the level of economic activity in the United States. Recessionary conditions in the United States economy would likely have a significant adverse impact on our business, financial condition, and results of operations.

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We are vulnerable to disruptions and volatility in the global financial markets.

We face, among others, the following risks in the event of an economic downturn or another recession:

•Increased regulation of our industry. Compliance with such regulation has increased our costs and may affect the pricing of our products and services and limit our ability to pursue business opportunities.
•Reduced demand for our products and services.
•Inability of our borrowers to timely or fully comply with their existing obligations.
•The process we use to estimate losses inherent in our credit exposure requires complex judgments, including forecasts of economic conditions and how those economic conditions might impair the ability of our borrowers to repay their loans.
•The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the sufficiency of our ALLL.
•The value and liquidity of the portfolio of investment securities that we hold may be adversely affected.
•Any worsening of economic conditions may delay the recovery of the financial industry and impact our financial condition and results of operations.
•Macroeconomic shocks may impact the household income of our retail customers negatively and adversely affect the recoverability of our retail loans, resulting in increased loan and lease losses. 

Despite the long-term expansion of the U.S. economy, some uncertainty remains regarding U.S. monetary policy and the future economic environment. There can be no assurance that economic conditions will continue to improve. Such economic uncertainty could have an adverse effect on our business and results of operations. A downturn of the economic expansion or failure to sustain the economic recovery would likely aggravate the adverse effects of these difficult economic and market conditions on us and on others in the financial services industry. In addition, dislocations in international trade such as interruptions in international supply chains or implementation of tariffs may impact prices and demand for goods and services and lead to lower levels of business and possible declining creditworthiness of customers.

In addition, these concerns continue even as the global economy recovers. If countries with significant economies default on their debt or experience a significant widening of credit spreads, it may delay or weaken economic recovery, adversely affect financial institutions and bank systems related to that region, result in the exit of member states from organizations such as the Eurozone, or contribute to other more severe economic and financial conditions. If realized, these risk scenarios could contribute to severe stress and adverse consequences for global financial markets, likely affecting the economy and capital markets in the United States as well.

Increased disruption and volatility in the financial markets could have a material adverse effect on us, including our ability to access capital and liquidity on financial terms acceptable to us, if at all. If capital markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits to attract more customers and become unable to maintain certain liability maturities. Any such decrease in capital markets funding availability or increased costs or in deposit rates could have a material adverse effect on our net interest margins and liquidity.

If some or all of the foregoing risks were to materialize, they could have a material adverse effect on our business, financial condition and results of operations.

Our growth, asset quality and profitability may be adversely affected by volatile macroeconomic and political conditions.

While the United States economy has performed well overall, it has experienced volatility in recent periods, characterized by slow or regressive growth. This volatility has resulted in fluctuations in the levels of deposits at depository institutions and in the relative economic strength of various segments of the economy to which we lend.

Negative and fluctuating economic conditions, such as a changing interest rate environment, impact our profitability by causing lending margins to decrease and leading to decreased demand for higher margin products and services. Negative and fluctuating economic conditions could also result in government defaults on public debt. This could affect us in two ways: directly, through portfolio losses, and indirectly, through instabilities that a default on public debt could cause to the banking system as a whole, particularly since commercial banks' exposure to government debt is high in certain Latin American and European regions or countries.

In addition, our revenues are subject to risk of loss from unfavorable political and diplomatic developments, social instability, and changes in governmental policies, international ownership legislation, interest rate caps and tax policies. Growth, asset quality and profitability may be affected by volatile macroeconomic and political conditions.

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Uncertainty regarding LIBOR may adversely affect our business

The UK Financial Conduct Authority, which regulates LIBOR, announced in July 2017 that it will no longer persuade or require banks to submit rates for the calculation of LIBOR after 2021. In December 2020, ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease publication of LIBOR settings and proceeded. The administrator indicated that it intends to cease publication of the one week and two month USD LIBOR setting immediately following the LIBOR publication on December 31, 2021. The remaining USD LIBOR settings will cease immediately following the LIBOR publication on June 30, 2023.

Several international working groups are focused on transition plans and alternative contract language seeking to address potential market disruption that could arise from the replacement of LIBOR with a new reference rate. For example, in the U.S., the Alternative Reference Rates Committee, a group convened by the Federal Reserve and the FRB of New York and comprised of private sector entities, banking regulators and other financial regulators, including the SEC, has identified SOFR as its preferred alternative for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on observable U.S. Treasury-backed repurchase transactions. In addition, ISDA launched the IBOR Fallbacks Supplement and IBOR Fallbacks Protocol, which amend ISDA’s standard definitions for interest rate derivatives to incorporate fallbacks for derivatives linked to certain IBORs, with the changes coming into effect on January 25, 2021. From that date, all new cleared and non-cleared derivatives that reference the definitions include the fallbacks. As a result of signing on to the IBOR Fallbacks Protocol, we will be able to incorporate those revisions into our legacy non-cleared derivatives trades with other counterparties that choose to adhere to the Protocol.

Even with the market progression away from LIBOR, there is no assurance that a replacement rate will be accepted or widely used by market participants, or that the characteristics of a new rate will be similar to, or produce the economic equivalent of LIBOR. If LIBOR were to be discontinued and an alternative rate has not been successfully introduced to replace that benchmark, it could result in widespread dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities, all of which could have adverse effects on the Company’s business, financial condition and results of operations.

The Company, in collaboration with its subsidiaries and affiliates, has engaged in an enterprise-wide initiative to identify, assess, monitor and remediate risks associated with the potential discontinuation or unavailability of LIBOR and the transition to use of alternative reference rates such as SOFR. As part of these efforts, the Company established a LIBOR Transition Steering Committee that includes the Company’s Chief Accounting Officer and Treasurer and representatives of the Company’s significant subsidiaries and business lines. Among other matters, the Company has identified assets and liabilities tied to LIBOR, the exposure of its subsidiaries to LIBOR, the degree to which fallback language exists in the Company’s contracts that references LIBOR, and is monitoring relevant industry developments and publications by market associations and clearing houses.

While we continue address existing contracts that extend beyond June 30, 2023 to determine their exposure to LIBOR, there can be no assurance that we and other market participants will be adequately prepared for an actual discontinuation of LIBOR, or of the timing of the adoption and degree of integration of alternative reference rates in financial markets relevant to us. If LIBOR ceases to exist, or if new methods of calculating LIBOR are established, interest rates on our loans, derivatives and other financial instruments tied to LIBOR, as well as revenue and expenses associated with those financial instruments, may be adversely affected, and financial markets relevant to us could be disrupted. As of December 31, 2022, the Company had approximately $10 billion of loans with LIBOR exposure. We also had approximately $42 billion in notional amounts of derivative contracts with LIBOR exposure.

Even if financial instruments are transitioned to alternative reference rates successfully, the new reference rates are likely to differ from the previous reference rates, and the value and return on those instruments could be impacted adversely. We could also be subject to increased costs and pricing risk due to paying higher interest rates on our existing financial instruments and how changes to benchmark indices could impact pricing mechanisms on some instruments. We could incur legal risks in the event of such changes, as re-negotiation and changes to documentation for new and existing transactions may be required, especially if parties to an instrument cannot agree on how to effect the transition. We could incur conduct risks arising from the potential impact of communication with customers and engagement during the transition period. We could also incur further operational risks due to the potential need to adapt IT systems, trade reporting infrastructure, and operational processes and controls, including models and hedging strategies, or due to the large volume of contracts that will require transition and the possibility that the period during which the transition will need to take place may have a short duration.

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In addition, it is possible that LIBOR quotes will become unavailable prior to LIBOR's expected discontinuation. This could result, for example, if a sufficient number of banks decline to make submissions to the LIBOR administrator. In that scenario, risks associated with the transition away from LIBOR would be accelerated for us and the rest of the financial industry.

Risks Related to COVID-19

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

COVID-19 was first reported in China in December 2019 and has now spread throughout the world, including the United States. The outbreak has been declared a public health emergency of international concern and a pandemic by the World Health Organization. The actions taken by authorities have not always been implemented on a consistent basis, contributing to the continued spread of COVID-19. Further, these actions were not always coordinated across jurisdictions and, at times, led to economic hardship in the jurisdictions in which they have been implemented. For example, in many jurisdictions, businesses have been required to temporarily close or restrict their operations. Further, even for businesses that have remained open, in-person interactions have been limited and consumer demand has deteriorated rapidly. As a result, we experienced a significant decline in our origination of loans and leases during 2020.

Governmental and regulatory authorities implemented fiscal and monetary policies and initiatives to mitigate the effects of the pandemic on the economy and individual businesses and households, such as the reduction of the Federal Reserve’s benchmark interest rate to near zero in March 2020 and the Federal Reserve’s announcement of capital preservation measures applicable to banking organizations in June and September 2020, such as suspending share repurchases, capping dividend payments, requiring banking organizations to re-evaluate their longer-term capital plans and requiring resubmission of capital plans to reflect more recent macroeconomic developments. In addition, the Coronavirus Aid, Relief, and Economic Security Act provided financial institutions with the option to suspend certain GAAP requirements for coronavirus-related loan modifications that would otherwise constitute troubled debt restructurings and further required the U.S. federal banking agencies to defer to financial institutions’ determinations in making such suspensions.

The scenarios described in the preceding paragraphs required the Company to quickly adapt to novel circumstances, adversely affected our business, financial condition and results of operations and increased the likelihood of experiencing other risks described in our Risk Factors.

Risks Relating to Our Business

Legal, Regulatory and Compliance Risks

We are subject to substantial regulation which could adversely affect our business and operations.

As a financial institution, the Company is subject to extensive regulation, which materially affects our businesses. The statutes, regulations, and policies to which the Company is subject may change at any time. In addition, regulators' interpretation and application of the laws and regulations to which the Company is subject may change from time to time. Extensive legislation affecting the financial services industry has been adopted in the United States, and regulations have been and are in the process of being implemented. The manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. Any legislative or regulatory actions and any required or other changes to our business operations resulting from such legislation and regulations could result in significant loss of revenue, limit our ability to pursue business opportunities or provide certain products and services, affect the value of assets we hold, compel us to increase our prices and therefore reduce demand for our products, impose additional compliance and other costs on us or otherwise adversely affect our businesses. Accordingly, there can be no assurance that future changes in regulations or their interpretation or application will not affect us adversely.

Regulation of the Company as a BHC includes limitations on permissible activities. Moreover, the Company and SBNA are required to perform stress tests and submit capital plans to the Federal Reserve and the OCC. The Federal Reserve may also impose substantial fines and other penalties and enforcement actions for violations we may commit, and has the authority to disallow acquisitions we or our subsidiaries may contemplate, which may limit our future growth plans. Such constraints currently applicable to the Company and its subsidiaries and/or regulatory actions could have an adverse effect on our business, financial condition and results of operations.

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Other regulations that significantly affect the Company, or that could significantly affect the Company in the future, relate to capital requirements, liquidity and funding, taxation of the financial sector, and development of regulatory reforms in the United States.

In addition, the volume, granularity, frequency and scale of regulatory and other reporting requirements necessitate a clear data strategy to enable consistent data aggregation, reporting and management. Inadequate management information systems or processes, including those relating to risk data aggregation and risk reporting, could lead to a failure to meet regulatory reporting requirements or other internal or external information demands that may result in supervisory measures.

Significant United States Regulation

From time to time, we are or may become subject to or involved in formal and informal reviews, investigations, examinations, proceedings, and information gathering requests by federal and state government agencies, including, among others, the FRB, the OCC, the CFPB, the FDIC, the DOJ, the SEC, FINRA, the Federal Trade Commission and various state regulatory and enforcement agencies.

The DFA resulted in significant structural reforms affecting the financial services industry. This legislation provided for, among other things, the establishment of the CFPB with broad authority to regulate the credit, savings, payment and other consumer financial products and services we offer, the creation of a structure to regulate systemically important financial companies, more comprehensive regulation of the OTC derivatives market, prohibitions on engaging in certain proprietary trading activities, restrictions on ownership of, investment in or sponsorship of hedge funds and private equity funds and restrictions on interchange fees earned through debit card transactions.

Our resolution in a bankruptcy proceeding could result in losses for holders of our debt and equity securities.

Under regulations issued by the Federal Reserve and the FDIC, and as required by Section 165(d) of the DFA, we and Santander must provide to the Federal Reserve and the FDIC a Section 165(d) Resolution Plan that requires substantial effort, time, and cost to prepare. The purpose of this DFA provision is to provide regulators with plans that would enable them to resolve failing financial companies that pose a significant risk to the financial stability of the United States in a manner that mitigates such risk. The most recently filed Section 165(d) Resolution Plan by Santander, dated as of June 30, 2022, provides a roadmap for the orderly resolution of the material U.S. operations of Santander under hypothetical stress scenarios and the failure of one or more of its U.S. MEs. MEs are defined as subsidiaries or foreign offices of Santander that are significant to the activities of a critical operation or core business line. The U.S. MEs identified in the 2022 Resolution Plan include, among other entities, the Company, SBNA and SC.

The 2022 Resolution Plan describes a strategy for resolving Santander’s U.S. operations, including its U.S. MEs and the core business lines that operate within those U.S. MEs, in a manner that would substantially mitigate the risk that the resolutions would have serious adverse effects on U.S. or global financial stability. Under the 2022 Resolution Plan’s hypothetical resolutions of the U.S. MEs, SBNA would be placed into FDIC receivership and the Company and SC would be placed into bankruptcy under Chapter 7 and Chapter 11 of the U.S. Bankruptcy Code, respectively. In such a scenario, holders of our LTD and other debt securities would be junior to the claims of priority (as determined by statute) and secured creditors of the Company.

If after reviewing our Section 165(d) Resolution Plan and any related submissions, the Federal Reserve and the FDIC jointly determine that we failed to cure identified deficiencies, they may jointly impose more stringent capital, leverage or liquidity requirements, restrictions on our growth, activities or operations, or even divestitures, which could have an adverse effect on our business.

The Company, the Federal Reserve and the FDIC are not obligated to follow the Company’s preferred resolution strategy for resolving its U.S. operations under its resolution plan. In addition, Santander could in the future change its resolution strategy for resolving its U.S. operations. In an alternative scenario, the Company alone could enter bankruptcy under the U.S. Bankruptcy Code, and the Company’s subsidiaries would be recapitalized as needed, using assets of the Company, so that they could continue normal operations as going concerns or subsequently be wound down in an orderly manner. As a result, the losses incurred by the Company and its subsidiaries would be imposed first on the holders of the Company’s equity securities and thereafter on unsecured creditors, including holders of our LTD and other debt securities. Holders of our LTD and other debt securities would be junior to the claims of creditors of the Company’s subsidiaries and to the claims of priority (as determined by statute) and secured creditors of the Company. Under either of these scenarios, in a resolution of the Company under the U.S. Bankruptcy Code, holders of our LTD and other debt securities would realize value only to the extent available to the Company as a shareholder of SBNA, SC and its other subsidiaries, and only after any claims of priority and secured creditors of the Company have been fully repaid.
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The resolution of the Company under the orderly liquidation authority could result in greater losses for holders of our equity and debt securities.

The ability of holders of our LTD and other debt securities to recover the full amount that would otherwise be payable on those securities in a resolution proceeding under Chapter 11 of the U.S. Bankruptcy Code may be impaired by the exercise of the FDIC’s powers under the “orderly liquidation authority” under Title II of the DFA.

The DFA created a new resolution regime known as the “orderly liquidation authority” to which financial companies, including the Company, can be subjected. Under the orderly liquidation authority, the FDIC may be appointed as receiver to liquidate a financial company if, upon the recommendation of applicable regulators, the United States Secretary of the Treasury determines that the entity is in severe financial distress, the entity’s failure would have serious adverse effects on the U.S. financial system, and resolution under the orderly liquidation authority would avoid or mitigate those effects, among other things.

If the FDIC were appointed as receiver under the orderly liquidation authority, then the orderly liquidation authority, rather than the U.S. Bankruptcy Code, would determine the powers of the receiver and the rights and obligations of creditors and other parties who have transacted with the Company. There are substantial differences between the rights available to creditors under the orderly liquidation authority and under the U.S. Bankruptcy Code. The FDIC may disregard the strict priority of creditor claims in some circumstances, and an administrative claims procedure rather than a judicial procedure is used to determine creditors’ claims. Furthermore, the FDIC has the right to transfer assets or liabilities of the failed company to a third party or “bridge” entity under the orderly liquidation authority.

Regardless of what resolution strategy Santander might prefer for resolving its U.S. operations, the FDIC could resolve the Company in a manner that would impose losses on the Company’s shareholder, unsecured debtholders (including holders of our LTD) and other creditors, while permitting the Company’s subsidiaries to continue to operate. The application of such an entry strategy in which the Company would be the only legal entity in the U.S. to enter resolution proceedings could result in greater losses to holders of our LTD and other debt securities than the losses that would result from the application of a bankruptcy proceeding or a different resolution strategy for the Company. Assuming the Company entered resolution proceedings and support from the Company to its subsidiaries was sufficient to enable the subsidiaries to remain solvent, losses at the subsidiary level could be transferred to the Company and ultimately borne by the Company’s securityholders (including holders of our LTD and other debt securities), with the result that third-party creditors of the Company’s subsidiaries would receive full recoveries on their claims, while the Company’s securityholders (including holders of our LTD) and other unsecured creditors could face significant losses. In addition, in a resolution under the orderly liquidation authority, holders of our LTD and other debt securities of the Company could face losses ahead of other similarly situated creditors if the FDIC exercised its right, to disregard the strict priority of creditor claims.

The orderly liquidation authority also requires that creditors and shareholders of the financial company in receivership must bear all losses before taxpayers are exposed to any losses, and amounts owed by the financial company or the receivership to the U.S. government would generally receive a statutory payment priority over the claims of private creditors, including holders of our LTD and other debt securities. In addition, under the orderly liquidation authority, claims of creditors (including holders of our LTD and other debt securities) could be satisfied through the issuance of equity or other securities in a bridge entity to which the Company’s assets are transferred. If securities were to be delivered in satisfaction of claims, there can be no assurance that the value of the securities of the bridge entity would be sufficient to repay all or any part of the creditor claims for which the securities were exchanged.

United States stress testing, capital planning, and related supervisory actions

The Company is subject to stress testing and capital planning requirements under regulations implementing the DFA and other banking laws and policies. Under such rules, the Federal Reserve expects BHCs such as the Company to have sufficient capital to withstand a highly adverse operating environment and to be able to continue operations, maintain ready access to funding, meet obligations to creditors and counterparties, and serve as credit intermediaries. In addition, the Federal Reserve evaluates the planned capital actions of BHCs, including capital distributions such as dividend payments or stock repurchases. Effective January 2017, the Federal Reserve finalized a rule adjusting its capital plan and stress testing rules, exempting from the qualitative portion of the CCAR certain BHCs and U.S. IHCs of FBOs with total consolidated assets between $50 billion and $250 billion and total nonbank assets of less than $75 billion, and that are not identified as GSIBs. Such firms, including the Company, are still required to meet CCAR’s quantitative requirements, are subject to regular supervisory assessments that examine their capital planning processes and are subject to the limitations and requirements set forth in the Federal Reserve's SCB rules.

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The Federal Reserve has the authority to limit the capital distributions of BHCs, including the Company. For example, in June 2020, the Federal Reserve announced that it would bar share repurchases and limit common stock dividend payments in the third quarter of 2020 for all large BHCs, and subsequently extended those restrictions into the first half of 2021 with certain modifications to permit resumptions of share repurchases. Although the temporary capital action supervisory restrictions previously applicable to the Company ended on June 30, 2021, it is possible that the Federal Reserve could impose similar restrictions in the future.

In March 2020, the Federal Reserve finalized the SCB rule, under which the Federal Reserve uses the results of its supervisory stress tests to establish the size of a firm’s SCB requirement, subject to a floor of 2.5 percent. The Company must maintain capital ratios above the sum of the minimum capital requirements and any applicable capital buffers, including the SCB, in order to avoid restrictions on the distribution of capital, including in the form of dividends and share repurchases.

The Company is subject to the Federal Reserve’s rule implementing the Financial Stability Board's TLAC standard, which established certain TLAC long-term debt and clean holding company requirements for U.S. BHCs. Compliance with the TLAC rule has resulted in increased funding expense for the Company.

Other supervisory actions and restrictions on U.S. activities

In addition to the foregoing, U.S. bank regulatory agencies from time to time take supervisory actions under certain circumstances that restrict or limit a financial institution’s activities. In many instances, we are subject to significant legal restrictions on our ability to disclose these actions or the full details of these actions publicly. In addition, as part of the regular examination process, certain U.S. subsidiaries’ regulators may advise the subsidiary to operate under various restrictions as a prudential matter. Under the BHC Act, the Federal Reserve has the authority to disallow us and certain of our U.S. subsidiaries from engaging in certain categories of new activities in the United States or acquiring shares or control of other companies in the United States. Such actions and restrictions currently applicable to us or certain of our U.S. subsidiaries could adversely affect our costs and revenues. Moreover, efforts to comply with nonpublic supervisory actions or restrictions could require material investments in additional resources and systems, as well as a significant commitment of managerial time and attention. As a result, such supervisory actions or restrictions could have a material adverse effect on our business and results of operations, and we may be subject to significant legal restrictions on our ability to publicly disclose these matters or the full details of these actions.

We are subject to potential intervention by any of our regulators or supervisors, particularly in response to customer complaints.

As noted above, our business and operations are subject to significant rules and regulations relating to the banking and financial services business. These apply to business operations, affect financial returns, include reserve and reporting requirements, and the conduct of our business. These requirements are established by the relevant central banks and regulatory authorities that authorize, regulate and supervise us in the jurisdictions in which we operate. The relationship between the Company and its customers is also regulated extensively under federal and state consumer protection laws. Among other things, these laws prohibit unfair, deceptive and abusive trading practices, require disclosures of the cost of credit, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, and restrict our ability to raise interest rates.

In their supervisory roles, regulators seek to maintain the safety and soundness of financial institutions with the aim of strengthening, but not guaranteeing, the protection of customers and the financial system. Supervisors' continuing supervision of financial institutions is conducted through a variety of regulatory tools, including the collection of information by way of reports obtained from skilled persons, visits to firms and regular meetings with management to discuss issues such as performance, risk management and strategy. In general, regulators have an outcome-focused regulatory approach that involves proactive enforcement and penalties for infringement. As a result, we face increased supervisory intrusion and scrutiny (resulting in increasing internal compliance costs and supervision fees), and in the event of a breach of our regulatory obligations we are likely to face more stringent regulatory fines.


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Some of the regulators focus strongly on consumer protection and on conduct risk. This has included a focus on the design and operation of products, the behavior of customers and the operation of markets. Some of the laws in the relevant jurisdictions in which we operate give regulators the power to make temporary product intervention rules either to improve a company's systems and controls in relation to product design, product management and implementation, or address problems identified with financial products. These problems may potentially cause significant detriment to consumers because of certain product features, governance flaws or distribution strategies. Such rules may prevent institutions from entering into product agreements with customers until such problems have been solved. Some regulators in the jurisdictions in which we operate also require us to be in compliance with training, authorization and supervision of personnel, systems, processes and documentation requirements. Sales practices with retail customers, including incentive compensation structures related to such practices, have recently been a focus of various regulatory and governmental agencies. If we fail to be compliant with such regulations, there would be a risk of an adverse impact on our business from sanctions, fines or other actions imposed by regulatory authorities.

Customers may seek redress if they consider that they have suffered loss as a result of mis-selling of a particular product, or through incorrect application of the terms and conditions of a particular product. In light of the inherent unpredictability of litigation and the evolution of judgments by the relevant authorities, it is possible that an adverse outcome in some matters could harm our reputation or have a material adverse effect on our operating results, financial condition and prospects arising from any penalties imposed or compensation awarded, together with the costs of defending such actions, reducing our profitability.

We are exposed to risk of loss from legal and regulatory proceedings.

As noted above, we face risk of loss from legal and regulatory proceedings, including tax proceedings that could subject us to monetary judgments, regulatory enforcement actions, fines and penalties. The current regulatory environment reflects an increased supervisory focus on enforcement, combined with uncertainty about the evolution of the regulatory regime, and may lead to material operational and compliance costs. In general, amounts financial institutions pay in settlements of regulatory proceedings or investigations and the severity of terms of regulatory settlements have been increasing. In certain cases, regulatory authorities have required criminal pleas, admissions of wrongdoing, limitations on asset growth, managerial changes, and other extraordinary terms as part of such settlements, all of which could have significant economic consequences for a financial institution.

We are subject to civil and tax claims and party to certain legal proceedings incidental to the normal course of our business from time to time, including in connection with lending activities, relationships with our employees and other commercial, data protection, or tax matters. In view of the inherent difficulty of predicting the outcome of legal matters, particularly when the claimants seek very large or indeterminate damages, or when the cases present novel legal theories, involve a large number of parties or are in the early stages of investigation or discovery, we cannot state with confidence what the eventual outcome of these pending matters will be or what the eventual loss, fines or penalties related to each pending matter may be. We believe that we have established adequate reserves related to the costs anticipated to be incurred in connection with these various claims and legal proceedings. However, the amount of these provisions is substantially less than the total amount of the claims asserted against us and, in light of the uncertainties involved in such claims and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves we have currently accrued. As a result, the outcome of a particular matter may materially and adversely affect our business, financial condition and results of operations for a particular period, depending upon, among other factors, the size of the loss or liability imposed and our level of income for that period.

In addition, from time to time, the Company is, or may become, the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations and proceedings and other forms of regulatory inquiry, including by the SEC and law enforcement authorities.

Often, the announcement or other publication of claims or actions that may arise from such litigation and regulatory proceedings or of any related settlement may spur the initiation of similar claims by other customers, clients or governmental entities. In any such claim or action, demands for substantial monetary damages may be asserted against us and may result in financial liability, changes in our business practices or an adverse effect on our reputation or client demand for our products and services. In regulatory settlements since the financial crisis, fines imposed by regulators have increased substantially and may in some cases exceed the profit earned or harm caused by the breach.


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Regular and ongoing inspection by our banking and other regulators may result in the need to enhance our regulatory compliance or risk management practices. Such remedial actions may entail significant costs, management attention, and systems development, and such efforts may affect our ability to expand our business until those remedial actions are completed. In some instances, we are subjected to significant legal restrictions on our ability to disclose these types of actions or the full detail of these actions publicly. Our failure to implement enhanced compliance and risk management procedures in a manner and timeframe deemed to be responsive by the applicable regulatory authority could adversely impact our relationship with that regulatory authority and lead to restrictions on our activities or other sanctions.

The magnitude and complexity of projects required to address the Company’s regulatory and legal proceedings, in addition to the challenging macroeconomic environment and pace of regulatory change, may result in execution risk and adversely affect the successful execution of such regulatory or legal priorities.

In many cases, we are required to self-report inappropriate or non-compliant conduct to regulatory authorities, and our failure to do so may represent an independent regulatory violation. Even when we promptly bring matters to the attention of appropriate authorities, we may nonetheless experience regulatory fines, liabilities to clients, harm to our reputation or other adverse effects in connection with self-reported matters.

We may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis, which could expose us to additional liability and have a material adverse effect on us.

We are required to comply with anti-money laundering, anti-terrorism and other laws and regulations in the jurisdictions in which we operate. These laws and regulations require us, among other things, to adopt and enforce “know-your-customer” policies and procedures and to report suspicious and large transactions to applicable regulatory authorities. These laws and regulations have become increasingly complex and detailed, require improved systems and sophisticated monitoring and compliance personnel, and have become the subject of enhanced government supervision.

While we have adopted policies and procedures aimed at detecting and preventing the use of our banking network for money laundering and related activities, those policies and procedures may not completely eliminate instances in which we may be used by other parties to engage in money laundering and other illegal or improper activities. Emerging technologies, such as cryptocurrencies and other innovative payment methodologies, could limit our ability to track the movement of funds. Our ability to comply with legal requirements depends on our ability to improve detection and reporting capabilities and reduce variation in control processes and oversight accountability.

These require implementing and embedding effective controls and monitoring within our business and on-going changes to systems and operations. Financial crime is continually evolving and subject to increasingly stringent regulatory oversight and focus. Even known threats can never be fully eliminated, and there will be instances in which we may be used by other parties to engage in money laundering or other illegal or improper activities. To the extent we fail to fully comply with applicable laws and regulations, the relevant government agencies to which we report have the authority to impose fines and other penalties on us. Further, U.S. bank regulators are required, when reviewing bank and BHC acquisition or merger applications, to take into account the effectiveness of our compliance with anti-money laundering regulations. In addition, our business and reputation could suffer if customers use our banking network for money laundering or other illegal or improper purposes.

While we review our relevant counterparties’ internal policies and procedures with respect to such matters, to a large degree we rely on our counterparties to maintain and properly apply their own appropriate anti-money laundering procedures. Such measures, procedures and compliance may not be completely effective in preventing third parties from using our and our counterparties’ services as conduits for money laundering (including illegal cash operations) or other illegal activities without our and our counterparties’ knowledge. If we are associated with, or even accused of being associated with, or become a party to, money laundering or other illegal activities, our reputation could suffer and/or we could become subject to fines, sanctions and/or legal enforcement (including being added to any “watch lists” that would prohibit certain parties from engaging in transactions with us), any one of which could have a material adverse effect on our business, financial condition and results of operations.


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An incorrect interpretation of tax laws and regulations may adversely affect us.

The preparation of our tax returns requires the use of estimates and interpretations of complex tax laws and regulations, and is subject to review by taxing authorities. We are subject to the income tax laws of the United States and certain foreign countries. These tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxing authorities, which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense and filing returns, we must make judgments and interpretations about the application of these inherently complex tax laws. If the judgments, estimates, and assumptions we use in preparing our tax returns are subsequently found to be incorrect, there could be a material effect on our results of operations.

Changes in taxes and other assessments may adversely affect us.

The legislatures and tax authorities in the jurisdictions in which we operate regularly enact reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in the rate of assessments and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. The effects of these changes and any other changes that result from enactment of additional tax reforms cannot be quantified and there can be no assurance that such reforms would not have an adverse effect upon our business. Aspects of recent U.S. federal income tax reform such as the Tax Cuts and Jobs Act of 2017 limit or eliminate certain income tax deductions, including the home mortgage interest deduction, the deduction of interest on home equity loans and a limitation on the deductibility of property taxes. These limitations and eliminations could affect demand for some of our retail banking products and the valuation of assets securing certain of our loans adversely, increasing our credit loss expense and reducing profitability.

Credit Risks

If the level of our NPLs increases or our credit quality deteriorates in the future, or if our loan and lease loss reserves are insufficient to cover loan and lease losses, this could have a material adverse effect on us.

Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of our businesses. Non-performing or low credit quality loans have in the past negatively impacted and can continue to
negatively impact our results of operations. In particular, the amount of our reported NPLs may increase in the future as a result of growth in our total loan portfolio, including as a result of loan portfolios we may acquire in the future, or factors beyond our control, such as adverse changes in the credit quality of our borrowers and counterparties or a general deterioration in economic conditions in the United States, the impact of political events, events affecting certain industries or events affecting financial markets. There can be no assurance that we will be able to effectively control the level of the NPLs in our loan portfolio.

Our loan and lease loss reserves are based on our current assessment of and expectations concerning various factors affecting the quality of our loan portfolio. These factors include, among other things, our borrowers’ financial condition, repayment abilities and repayment intentions, the realizable value of any collateral, the prospects for support from any guarantor, government macroeconomic policies, interest rates and the legal and regulatory environment. Our loan and lease loss reserves may also be influenced by other factors such as the degree that our loan portfolios are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral. Such concentrations could increase the possibility that similarly situated borrowers and their collateral may collectively be affected by certain economic or market conditions or events such as, for example, natural or man-made disasters. Many of these factors are beyond our control. As a result, there is no precise method for predicting loan and credit losses, and there can be no assurance that our current or future loan and lease loss reserves will be sufficient to cover actual losses. If our assessment of and expectations concerning the above-mentioned factors differ from actual developments, if the quality of our total loan portfolio deteriorates for any reason, including an increase in lending to individuals and small and medium enterprises, a volume increase in our credit card portfolio or the introduction of new products, or if future actual losses exceed our estimates of expected losses, we may be required to increase our loan and lease loss reserves, which may adversely affect us. If we were unable to control or reduce the level of our non-performing or poor credit quality loans, this also could have a material adverse effect on us.

In addition, the FASB’s ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments was adopted by the Company on January 1, 2020 and increased our ACL by approximately $2.5 billion. This standard replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost. As a result of the adoption of this standard, companies must recognize credit losses on these assets equal to management’s estimate of credit losses over the assets’ remaining expected lives. It is possible that our ongoing reported earnings and lending activity will be impacted negatively as a result of the application of this ASU. See “Changes in accounting standards could impact reported earnings” below.
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Our loan and investment portfolios are subject to risk of prepayment, which could have a material adverse effect on us.

Our fixed-rate loan and investment portfolios are subject to prepayment risk, which results from the ability of a borrower or issuer to pay a debt obligation prior to maturity. Generally, in a low interest rate environment, prepayment activity increases, and this reduces the weighted average life of our earning assets and could have a material adverse effect on us. We would also be required to amortize net premiums into income over a shorter period of time, thereby reducing the corresponding asset yield and net interest income. Prepayment risk also has a significant adverse impact on credit card and collateralized mortgage loans, since prepayments could shorten the weighted average life of these assets, which may result in a mismatch in our funding obligations and reinvestment at lower yields. Prepayment risk is inherent in our commercial activity, and an increase in prepayments could have a material adverse effect on us.

The value of the collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.

The value of the collateral securing our loan portfolio may fluctuate or decline due to factors beyond our control, including as a result of a weaker than expected economic recovery after the COVID-19 pandemic and macroeconomic factors affecting the United States. The value of the collateral securing our loan portfolio may be adversely affected by force majeure events such as natural disasters (including as a result of climate change), particularly in locations in which a significant portion of our loan portfolio is composed of real estate loans. Natural disasters such as earthquakes and floods may cause widespread damage, which could impair the asset quality of our loan portfolio and have an adverse impact on the economy of the affected region. We also may not have sufficiently recent information on the value of collateral, which may result in an inaccurate assessment of impairment losses of our loans secured by such collateral. If any of the above were to occur, we may need to make additional provisions to cover actual impairment losses on our loans, which may materially and adversely affect our results of operations and financial condition.

In addition, auto industry technology changes, accelerated by environmental rules, could affect our auto consumer business, particularly the residual values of leased vehicles, which could have a material adverse effect on our operating results, financial condition and prospects.

We are subject to counterparty risk in our banking business.

We are exposed to counterparty risk in addition to credit risks associated with lending activities. Counterparty risk may arise from, for example, investing in securities of third parties, entering into derivatives contracts under which counterparties have obligations to make payments to us or executing securities, futures, currency or commodity trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, clearinghouses or other financial intermediaries.

We routinely transact with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual funds, hedge funds and other institutional clients. We rely on information provided by or on behalf of counterparties, such as financial statements, and we may rely on representations of our counterparties as to the accuracy and completeness of that information. Defaults by, and even rumors or questions about the solvency of, certain financial institutions and the financial services industry generally have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. Many routine transactions we enter into expose us to significant credit risk in the event of default by one of our significant counterparties.

Liquidity and Financing Risks

Liquidity and funding risks are inherent in our business and could have a material adverse effect on us.

Liquidity risk is the risk that we either do not have sufficient financial resources available to meet our obligations as they become due or we can secure them only at excessive cost. This risk is inherent in any banking business and can be heightened by a number of enterprise-specific factors, including over-reliance on a particular source of funding, changes in credit ratings or market-wide phenomena such as market dislocation. While we implement liquidity management processes to mitigate and control these risks, unforeseen systemic market factors in particular make it difficult to eliminate these risks completely. Adverse and continued constraints in the supply of liquidity, including inter-bank lending, may materially and adversely affect the cost of funding our business, and extreme liquidity constraints may affect our current operations and our ability to fulfill regulatory liquidity requirements as well as limit growth possibilities.

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Our cost of obtaining funding is directly related to prevailing market interest rates and our credit spreads. Increases in interest rates and our credit spreads can significantly increase the cost of our funding. Changes in our credit spreads are market-driven, and may be influenced by market perceptions of our creditworthiness. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile.

If wholesale markets financing ceases to be available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits, with a view to attracting more customers, and/or to sell assets, potentially at depressed prices. The persistence or worsening of these adverse market conditions or an increase in base interest rates could have a material adverse effect on our ability to access liquidity and cost of funding.

We rely, and will continue to rely, primarily on deposits to fund lending activities. The ongoing availability of this type of funding is sensitive to a variety of factors outside our control, such as general economic conditions and the confidence of depositors in the economy in general, and the financial services industry in particular, as well as competition among banks for deposits. Any of these factors could significantly increase the amount of deposit withdrawals in a short period of time, thereby reducing our ability to access deposit funding in the future on appropriate terms, or at all. If these circumstances were to arise, they could have a material adverse effect on our operating results, financial condition and prospects.

We anticipate that our customers will continue to make deposits (particularly demand deposits and short-term time deposits) in the near future, and we intend to maintain our emphasis on the use of banking deposits as a source of funds. The short-term nature of some deposits could cause liquidity problems for us in the future if deposits are not made in the volumes we expect or are not renewed. If a substantial number of our depositors withdraw their demand deposits, or do not roll over their time deposits upon maturity, we may be materially and adversely affected.

There can be no assurance that, in the event of a sudden or unexpected shortage of funds in the banking system, we will be able to maintain levels of funding without incurring high funding costs, a reduction in the term of funding instruments, or the liquidation of certain assets. If this were to happen, we could be materially adversely affected.

Credit, market and liquidity risk may have an adverse effect on our credit ratings and our cost of funds. Any downgrading in our credit rating would likely increase our cost of funding, require us to post additional collateral or take other actions under some of our derivative contracts and adversely affect our interest margins and results of operations.

Credit ratings affect the cost and other terms upon which we are able to obtain funding. Rating agencies regularly evaluate us, and their ratings of our debt are based on a number of factors, including our financial strength and conditions affecting the financial services industry generally.

Any downgrade in our or Santander's debt credit ratings would likely increase our borrowing costs and require us to post additional collateral or take other actions under some of our derivatives contracts, and could limit our access to capital markets and adversely affect our commercial business. For example, a ratings downgrade could adversely affect our ability to sell or market certain of our products, engage in certain longer-term and derivatives transactions and retain customers, particularly customers who need a minimum rating threshold in order to invest. In addition, under the terms of certain of our derivatives contracts, we may be required to maintain a minimum credit rating or terminate the contracts. Any of these results of a ratings downgrade, in turn, could reduce our liquidity and have an adverse effect on us, including our operating results and financial condition.

We conduct a significant number of our material derivatives activities through Santander and Santander UK. We estimate that, as of December 31, 2022, if all of the rating agencies were to downgrade Santander’s or Santander UK’s long-term senior debt ratings, we would be required to post additional collateral pursuant to derivatives and other financial contracts. Refer to further discussion in Note 14 of the Notes to the Consolidated Financial Statements.


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While certain potential impacts of these downgrades are contractual and quantifiable, the full consequences of a credit rating downgrade are inherently uncertain, as they depend on numerous dynamic, complex and inter-related factors and assumptions, including market conditions at the time of any downgrade, whether any downgrade of a company's long-term credit rating precipitates downgrades to its short-term credit rating, and assumptions about the potential behaviors of various customers, investors and counterparties. Actual outflows could be higher or lower than this hypothetical example depending on certain factors, including which credit rating agency downgrades our credit rating, any management or restructuring actions that could be taken to reduce cash outflows and the potential liquidity impact from loss of unsecured funding (such as from money market funds) or loss of secured funding capacity. Although unsecured and secured funding stresses are included in our stress testing scenarios and a portion of our total liquid assets is held against these risks, it is still the case that a credit rating downgrade could have a material adverse effect on the Company, SB, and SC.

In addition, if we were required to cancel our derivatives contracts with certain counterparties and were unable to replace those contracts, our market risk profile could be altered.

There can be no assurance that the rating agencies will maintain their current ratings or outlooks. In general, the future evolution of our ratings will be linked, to a large extent, to the macroeconomic outlook and to the impact of the COVID-19 pandemic on our asset quality, profitability and capital. Failure to maintain favorable ratings and outlooks could increase the cost of funding and adversely affect interest margins, which could have a material adverse effect on us.

Market Risks

We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect us.

Market risk refers to the probability of variations in our net interest income or in the market value of our assets and liabilities due to volatility of interest rates, exchange rates or equity prices. Economic activities exposed to market risk include (i) transactions where risk is assumed as a consequence of potential changes in interest rates, inflation rates, exchange rates, stock prices, credit spreads, commodity prices, volatility and other market factors; (ii) the liquidity risk from our products and markets; and (iii) the balance sheet liquidity risk. Market risk affects (i) our interest income / (charges); (ii) the market value of our assets and liabilities, in particular of our securities holdings, loans and deposits, and derivatives transactions; and (iii) other areas of our business such as the volume of loans originated or credit spreads.

Interest rates are highly sensitive to many factors beyond our control, including increased regulation of the financial sector, monetary policies, domestic and international economic and political conditions, and other factors. Variations in interest rates could affect our net interest income, which comprises the majority of our revenue, reducing our growth rate and potentially resulting in losses. This is a result of the different effect a change in interest rates may have on the interest earned on our assets and the interest paid on our borrowings. In addition, we may incur costs (which, in turn, will impact our results) as we implement strategies to reduce future interest rate exposure.

Increases in interest rates may reduce the volume of loans we originate. Sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets. Increases in interest rates may also reduce the propensity of our customers to prepay or refinance fixed-rate loans. Increases in interest rates may reduce the value of our financial assets and the collateral used to secure our loans, and may reduce gains or require us to record losses on sales of our loans or securities.

In addition, we may experience increased delinquencies in a low interest rate environment when such an environment is accompanied by high unemployment and recessionary conditions.

Some of our investment management services fees are based on financial market valuations of assets certain of our subsidiaries manage or hold in custody for clients. Changes in these valuations can affect noninterest income positively or negatively, and ultimately affect our financial results. Significant changes in the volume of activity in the capital markets, and in the number of assignments we are awarded, could also affect our financial results.

To the extent any of these risks materialize, our net interest income and the market value of our assets and liabilities could be materially adversely affected.

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Market conditions have resulted, and could result, in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our business, financial condition and results of operations.

In recent years, financial markets have been subject to volatility and the resulting widening of credit spreads. We have material exposures to securities and other investments that are recorded at fair value and are therefore exposed to potential negative fair value adjustments. Asset valuations in future periods, reflecting then-prevailing market conditions, may result in negative changes in the fair values of our financial assets, and also may translate into increased impairments. In addition, the value we ultimately realize on disposal of the asset may be lower than its current fair value. Any of these factors could require us to record negative fair value adjustments, which may have a material adverse effect on our business, financial condition and results of operations.

In addition, to the extent fair values are determined using financial valuation models, such values may be inaccurate or subject to change, as the data used by such models may not be available or may become unavailable due to changes in market conditions, particularly for illiquid assets and in times of economic instability. In such circumstances, our valuation methodologies require us to make assumptions, judgments and estimates in order to establish fair value, and reliable assumptions are difficult to make and are inherently uncertain. In addition, valuation models are complex, making them inherently imperfect predictors of actual results. Any resulting impairments or write-downs could have a material adverse effect on our operating results, financial condition and prospects.

We are subject to market, operational and other related risks associated with our derivatives transactions that could have a material adverse effect on us.

We enter into derivatives transactions for trading purposes as well as for hedging purposes. We are subject to market, credit and operational risks associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its obligations thereunder, including providing sufficient collateral).

The execution and performance of derivatives transactions depend on our ability to maintain adequate control and administration systems and to hire and retain qualified personnel. Moreover, our ability to adequately monitor, analyze and report derivatives transactions continues to depend, to a great extent, on our IT systems. These factors further increase the risks associated with these transactions and could have a material adverse effect on us.

In addition, disputes with counterparties may arise regarding the terms or the settlement procedures of derivatives contracts, including with respect to the value of underlying collateral, which could cause us to incur unexpected costs, including transaction, operational, legal and litigation costs, or result in credit losses, all of which may impair our ability to manage our risk exposure from these products.

Risk Management

Failure to successfully implement and continue to improve our risk management policies, procedures and methods, including our credit risk management system, could materially and adversely affect us, and we may be exposed to unidentified or unanticipated risks.

Risk management is an integral part of our activities. We seek to monitor and manage our risk exposure through a variety of separate but complementary financial, credit, market, operational, compliance and legal reporting systems. We must also maintain a culture of risk management among our employees. Although we employ a broad and diversified set of risk monitoring and risk mitigation techniques, such techniques and strategies may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we fail to identify or anticipate.

Some of our tools and metrics for managing risk are based on our use of observed historical market behavior. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. These tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses therefore could be significantly greater than the historical measures indicate. In addition, our statistical models do not take all risks into account. Our approach to managing risks could prove insufficient, exposing us to material unanticipated losses. We could face adverse consequences as a result of decisions based on models that are poorly developed, implemented, or used, or as a result of a modeled outcome being misunderstood or used of for purposes for which it was not designed. In addition, if existing or potential customers believe our risk management is inadequate, they could take their business elsewhere or seek to limit transactions with us. This could have a material adverse effect on our reputation, operating results, financial condition, and prospects.
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As a commercial bank, one of the main types of risks inherent in our business is credit risk. For example, an important feature of our credit risk management is to employ an internal credit rating to assess the particular risk profile of a customer. Since this process involves detailed analyses of the customer, taking into account both quantitative and qualitative factors, it is subject to human and IT systems errors. In exercising their judgment on the current and future credit risk of our customers, our employees may not always assign an accurate credit rating, which may result in a higher exposure to credit risks than indicated by our risk rating system.

We have been refining our credit policies and guidelines to address potential risks associated with particular industries or types of customers. However, we may not be able to timely detect all possible risks before they occur or, due to limited tools available to us, our employees may not be able to implement them effectively, which may increase our credit risk. Failure to effectively implement, consistently follow or continuously refine our credit risk management system may result in an increase in the level of NPLs and a higher risk exposure for us, which could have a material adverse effect on our business, financial condition and results of operations.

Model Risk

We rely on models for many of our decisions. Their inaccurate or incorrect use could have a material adverse effect on us.

We use models for approval (scoring/rating), capital calculation, behavior, provisions, market, operational risk, compliance and liquidity. A model is a system, approach or quantitative method that applies statistical, economic, financial or mathematical theories, techniques or hypotheses to transform input data into quantitative estimates. It involves simplified representations of real-world relationships between characteristics, values and observed assumptions that allows us to focus on specific aspects. Model risk is the negative consequence of decisions based on their inaccurate, improper or incorrect use. Sources of model risk include (1i) incorrect or incomplete data in the model itself or the modelling method used in systems; and (2ii) incorrect use or implementation of the model.

Model risk can cause financial loss, erroneous commercial and strategic decision-making andor damage to our transactions. In addition, the fair value of our financial assets, determined using financial valuation models, may be inaccurate or subject to change and, as a consequence, we may have to register impairments or write-downs that could have a material adverse effect on our operating results, financial condition and prospects. Market conditions have resulted and could result in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our operating results, financial condition and prospects.

Business and Industry Risks

The financial problems our customers face could adversely affect us.

Market turmoil and economic recession could materially and adversely affect the liquidity, businesses and/or financial condition of our borrowers, which could in turn increase our NPL ratios, impair our loan and other financial assets and result in decreased demand for borrowings in general. Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations.

Increased competition and industry consolidation may adversely affect our results of operations.

We face substantial competition in all parts of our business from numerous banks and non-bank providers of financial services, including in originating loans and attracting deposits, providing customer service, the quality and range of products and services, technology, interest rates and overall reputation, and we expect competitive conditions to continue to intensify. Our competition comes principally from other domestic and foreign banks, mortgage banking companies, consumer finance companies, insurance companies and other lenders and purchasers of loans.


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There has been a trend towards consolidation in the banking industry, which has created larger banks with which we must now compete. Some of our competitors are substantially larger than we are, which may give those competitors advantages such as a more diversified product and customer base, the ability to reach more customers and potential customers, operational efficiencies, lower-cost funding and larger branch networks. Many competitors are also focused on cross-selling their products, which could affect our ability to maintain or grow existing customer relationships or require us to offer lower interest rates or fees on our lending products or higher interest rates on deposits. There can be no assurance that increased competition will not adversely affect our growth prospects and therefore our operations. We also face competition from non-bank competitors such as brokerage companies, department stores (for some credit products), leasing and factoring companies, mutual fund and pension fund management companies and insurance companies.

Non-traditional providers of banking services, such as financial technology companies, internet based e-commerce providers, mobile telephone companies and internet search engines, may offer and/or increase their offerings of financial products and services directly to customers. These non-traditional providers of banking services currently have an advantage over traditional providers because they are not subject to the same regulatory or legislative requirements to which we are subject. Several of these competitors may have long operating histories, large customer bases, strong brand recognition and significant financial, marketing and other resources. They may adopt more aggressive pricing and rates and devote more resources to technology, infrastructure and marketing.

New competitors may enter the market or existing competitors may adjust their services with unique product or service offerings or approaches to providing banking services. If we are unable to compete successfully with current and new competitors, or if we are unable to anticipate and adapt our offerings to changing banking industry trends, including technological changes, our business may be adversely affected. In addition, our failure to anticipate or adapt to emerging technologies or changes in customer behavior effectively, including among younger customers, could delay or prevent our access to new digital-based markets, which would in turn have an adverse effect on our competitive position and business. Furthermore, the widespread adoption of new technologies, including distributed ledger, artificial intelligence, and/or biometrics, to provide services such as cryptocurrencies and payments, could require substantial expenditures to modify or adapt our existing products and services as we continue to grow our internet and mobile banking capabilities. Our customers may choose to conduct business or offer products in areas that may be considered speculative or risky. Such new technologies and the rise in customer use of internet and mobile banking platforms in recent years could negatively impact the value of our investments in bank premises, equipment and personnel for our branch network. The persistence or acceleration of this shift in demand towards internet and mobile banking may necessitate changes to our retail distribution strategy, which may include closing and/or selling certain branches and restructuring our remaining branches and workforce. These actions could lead to losses on these assets and increased expenditures to renovate, reconfigure or close a number of our remaining branches or otherwise reform our retail distribution channel. Furthermore, our failure to keep pace with innovation or to swiftly and effectively implement such changes to our distribution strategy could have an adverse effect on our competitive position.

Increasing competition could also require that we increase the rates we offer on deposits or lower the rates we charge on loans, which could also have a material adverse effect on our business, financial condition and results of operations. It may also negatively affect our business results and prospects by, among other things, limiting our ability to increase our customer base and expand our operations and increasing competition for investment opportunities.

If our customer service levels were perceived by the market to be materially below those of our competitors, we could lose existing and potential business. If we are not successful in retaining and strengthening customer relationships, we may lose market share, incur losses on some or all of our activities or fail to attract new deposits or retain existing deposits, which could have a material adverse effect on our business, financial condition and results of operations.


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Inability to manage the growth of our operations or to integrate our inorganic growth successfully could adversely impact profitability

We allocate management and planning resources to develop strategic plans for organic growth, and to identify possible acquisitions and disposals and areas for restructuring our businesses. From time to time, we evaluate acquisition and partnership opportunities that we believe offer additional value to our shareholders and are consistent with our business strategy. However, we may not be able to identify suitable acquisition or partnership candidates, and our ability to benefit from any such acquisitions or partnerships depend in part on our successful integration of those businesses. Any such integration entails significant risks, such as unforeseen difficulties in integrating operations and systems, unexpected liabilities or contingencies relating to the acquired businesses, and delivery and execution risks. We can give no assurances that our expectations with regards to integration and synergies of these businesses will materialize. We also cannot provide assurance that we will, in all cases, be able to manage our growth effectively or deliver our strategic growth objectives. Challenges that may result from our strategic growth decisions include our ability to:

•manage the operations and employees of expanding businesses efficiently;
•maintain or grow our existing customer base;
•assess the value, strengths and weaknesses of investment or acquisition candidates, including local regulation that can reduce or eliminate expected synergies;
•finance strategic investments or acquisitions;
•align our current IT systems adequately with those of an enlarged group;
•apply our risk management policies effectively to an enlarged group; and
•manage a growing number of entities without over-committing management or losing key personnel.

Any failure to manage growth effectively could have a material adverse effect on our financial condition and results of operations.

Goodwill impairments may be required in relation to acquired businesses.

We have made business acquisitions for which it is possible that the goodwill which has been attributed to those businesses may have to be written down if our valuation assumptions are required to be reassessed as a result of any deterioration in the business’ underlying profitability, asset quality or other relevant matters. Impairment testing with respect to goodwill is performed annually, more frequently if impairment indicators are present, and includes a comparison of the carrying amount of the reporting unit with its fair value. If the carrying value of the reporting unit is higher than the fair value, the impairment is measured as this excess of carrying value over fair value. We did not recognize any impairments of goodwill in 2022 or 2021, but did record a goodwill impairment of $1.8 billion in 2020. Based on future market conditions and the Company's financial performance, it is possible we may be required to record additional impairment of goodwill up to $2.8 billion attributable to one or more of the Company's reporting units in the future. There can be no assurance that we will not have to write down the value attributed to goodwill further in the future, which would not impact risk-based capital ratios adversely, but would adversely affect our results of operations and stockholder's equity.

We rely on recruiting, retaining and developing appropriate senior management and skilled personnel.

Our continued success depends in part on the continued service of key members of our management team. The ability to continue to attract, train, motivate and retain highly qualified professionals is a key element of our strategy. The successful implementation of our growth strategy depends on the availability of skilled management and employees, both at our head office and at each of our business units. Changes to the labor market as a result of the COVID-19 pandemic such as increased employee attrition, labor availability, and increased wages may make it more challenging to attract and retain talented personnel. If we or one of our business units or other functions fails to staff its operations appropriately or loses one or more of its key senior executives and fails to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including control and operational risks, may be adversely affected.

The financial industry in the United States has experienced and may continue to experience more stringent regulation of employee compensation, which could have an adverse effect on our ability to hire or retain the most qualified employees. In addition, due to our relationship with Santander, we are subject to indirect regulation by the European Central Bank, which has recently imposed compensation restrictions that may apply to certain of our executive officers and other employees under the CRD IV prudential rules. These restrictions may impact our ability to retain our experienced management team and key employees and our ability to attract appropriately qualified personnel, which could have a material adverse impact on our business, financial condition, and results of operations.

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Damage to our reputation could cause harm to our business prospects.

Maintaining a positive reputation is critical to our attracting and maintaining customers, investors and employees and conducting business transactions with our counterparties. Damage to our reputation can therefore cause significant harm to our business and prospects. Harm to our reputation can arise from numerous sources including, among others, employee misconduct, litigation or regulatory outcomes, failure to deliver minimum standards of service and quality, dealing with sectors that are not well perceived by the public (e.g., weapons industries), dealing with customers on sanctions lists, ratings downgrades, compliance failures, unethical behavior, press speculation, perception of our environmental, social and governmental practices and disclosures, and the activities of customers and counterparties, including activities that affect the environment negatively. Further, adverse publicity, regulatory actions or fines, litigation, operational failures or the failure to meet client expectations or other obligations could materially and adversely affect our reputation, our ability to attract and retain clients or our sources of funding for the same or other businesses.

Actions by the financial services industry generally or by certain members of, or individuals in, the industry can also affect our reputation. Since we are part of the global Santander family and conduct business under the “Santander” brand, negative public opinion about the actions or activities of other Santander businesses around the world could affect our reputation adversely. Additionally, the role played by financial services firms in the financial crisis and increased regulatory supervision and enforcement have caused public perception of us and others in the financial services industry to decline. Activists increasingly target financial services firms with criticism for relationships with clients engaged in businesses whose products are perceived to be harmful to the health of customers, or whose activities are perceived to affect public safety, the environment, climate or workers’ rights negatively, even when such businesses are legal. Such criticism could take many forms, including protests at our locations, and could increase dissatisfaction among customers, investors and employees of the Company and damage the Company’s reputation. Alternatively, yielding to such activism could damage the Company’s reputation with groups whose views are not aligned with those of the activists. In either case, certain clients and customers may cease to do business with the Company, and the Company’s ability to attract new clients and customers may be diminished. Activist pressure can also be a factor when we consider pursuing new business opportunities, potentially resulting in our not pursuing otherwise profitable opportunities.

Preserving and enhancing our reputation also depends on maintaining systems, procedures and controls that address known risks and regulatory requirements, as well as our ability to timely identify, understand and mitigate additional risks that arise due to changes in our businesses and the markets in which we operate, the regulatory environment and customer expectations.

We could suffer significant reputational harm if we fail to identify and manage potential conflicts of interest properly. The failure to adequately address, or the perceived failure to adequately address, conflicts of interest could affect the willingness of clients to deal with us, or give rise to litigation or enforcement actions against us. Therefore, there can be no assurance that conflicts of interest will not arise in the future that could cause material harm to us.

While negative public opinion once was primarily a response to adverse coverage in traditional news media, increased use of social media platforms has resulted in rapid dissemination of information and misinformation, which can magnify potential harm to the Company’s reputation. We may be the subject of misinformation and misrepresentations propagated deliberately to harm our reputation or for other deceitful purposes, including by others seeking to gain an illegal market advantage by spreading false information about us. There can be no assurance that we will be able to neutralize or contain false information that may be propagated regarding the Company, which could have an adverse effect on our operating results, financial condition and prospects effectively.

Fraudulent activity associated with our products or networks could cause us to suffer reputational damage, the use of our products to decrease and our fraud losses to be materially adversely affected. We are subject to the risk of fraudulent activity associated with merchants, customers and other third parties handling customer information. The risk of fraud continues to increase for the financial services industry in general. Credit and debit card fraud, identity theft and related crimes are prevalent, and perpetrators are growing more sophisticated. Our resources, customer authentication methods and fraud prevention tools may not be sufficient to accurately predict or prevent fraud. Additionally, our fraud risk continues to increase as third parties that handle confidential consumer information suffer security breaches and we expand our direct banking business and introduce new products and features. Our financial condition, the level of our fraud charge-offs and other results of operations could be materially adversely affected if fraudulent activity were to increase significantly. High-profile fraudulent activity could negatively impact our brand and reputation. In addition, significant increases in fraudulent activity could lead to regulatory intervention and reputational and financial damage to our brands, which could negatively impact the use of our products and services and have a material adverse effect on our business, financial condition and results of operations.

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SBNA engages in transactions with its subsidiaries or affiliates that others may not consider to be on an arm’s-length basis.

SBNA and its subsidiaries have entered into a number of services agreements pursuant to which we render services, such as administrative, accounting, finance, treasury, legal services and others.

United States law applicable to certain financial institutions, including SBNA and other Santander entities and offices in the U.S., establish several procedures designed to ensure that the transactions entered into with or among our subsidiaries and/or affiliates do not deviate from prevailing market conditions for those types of transactions.

SBNA and its affiliates are likely to continue to engage in transactions with their respective affiliates. Future conflicts of interests among our affiliates may arise, which conflicts are not required to be and may not be resolved in SHUSA's favor.

Technology and Cybersecurity Risks

Any failure to effectively maintain, secure, improve or upgrade our IT infrastructure and management information systems in a timely manner could have a material adverse effect on us.

Our ability to remain competitive depends in part on our ability to maintain, protect and upgrade our IT on a timely and cost-effective basis. We must continually make significant investments and improvements in our IT infrastructure in order to meet the needs of our customers. There can be no assurance that we will be able to maintain the level of capital expenditures necessary to support the continuous improvement and upgrading of our IT infrastructure in the future. To the extent we are dependent on any particular technology or technological solution, we may be harmed if that technology or technological solution becomes non-compliant with existing industry standards, fails to meet or exceed the capabilities of our competitors’ comparable technologies or technological solutions, becomes increasingly expensive to service, retain and update, becomes subject to third-party claims of intellectual property infringement, misappropriation or other violation, or malfunctions or functions in a way we did not anticipate. Additionally, new technologies and technological solutions are continually being released. Accordingly, it is difficult to predict the problems we may encounter in improving our technologies’ functionality. There is no assurance that we will be able to successfully adopt new technology as critical systems and applications become obsolete and better ones become available. Any failure to improve or upgrade our IT infrastructure and management information systems effectively and in a timely and cost-efficient manner could have a material adverse effect on us.

Risks relating to data collection, processing, storage systems and security are inherent in our business.

Like other financial institutions with a large customer base, we have been subject to and are likely to continue to be the subject of attempted cyberattacks in light of the fact that we receive, manage, process, hold and transmit proprietary and sensitive or confidential information, including that of our customers and employees, in the conduct of our banking operations, as well as a large number of assets. Our business depends on the ability to process a large number of transactions efficiently and accurately, and on our ability to rely on our digital technologies, computer and e-mail services, spreadsheets, software and networks, as well as on the secure processing, storage and transmission of confidential and other information in our computer systems and networks and those of our third party vendors. The proper and secure functioning of financial controls, accounting and other data collection and processing systems is critical to our businesses and our ability to compete effectively. Cybersecurity incidents and data losses can result from inadequate personnel, inadequate or failed internal control processes and systems, or external events or actors that interrupt normal business operations. We also face the risk that the design of our cybersecurity controls and procedures proves to be inadequate or is circumvented. Although we work with our clients, vendors, service providers, counterparties and other third parties to develop secure transmission capabilities and prevent information security risk, we routinely exchange personal, confidential and proprietary information by electronic means, which may be a target for attempted cyberattacks. This is especially applicable in the current environment, which is still being affected by COVID-19, and the shift to work-from-home policies for a significant portion of the workforce, as they access our secure networks remotely. If we cannot maintain effective and secure electronic data and information, management and processing systems or if we fail to maintain complete physical and electronic records, this could result in disruptions to our operations, claims from customers, regulators, employees and other parties, violations of applicable privacy and other laws, regulatory sanctions and serious reputational and financial harm to us.

Many companies across the country and in the financial services industry have reported significant breaches in the security of their websites or other systems. Cybersecurity risks have increased significantly in recent years due to the development and proliferation of new technologies, increased use of the internet and telecommunications technology to conduct financial transactions, and increased sophistication and activities of organized crime groups, state-sponsored and individual hackers, terrorist organizations, disgruntled employees and vendors, activists and other third parties. Financial institutions, the government and retailers have in recent years reported cyber incidents that compromised data, resulted in the theft of funds or the theft or destruction of corporate information and other assets.
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We take protective measures and continuously monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption. We have policies, practices and controls designed to prevent or limit disruptions to our systems and enhance the security of our infrastructure. These include performing risk management for information systems that store, transmit or process information assets identifying and managing risks to information assets managed by third-party service providers through on-going oversight and auditing of the service providers’ operations and controls. We develop controls regarding user access to software on the principle that access is forbidden to a system unless expressly permitted, limited to the minimum amount necessary for business purposes, and terminated promptly when access is no longer required. We seek to educate and make our employees aware of information security and privacy controls and their specific responsibilities on an ongoing basis.

Nevertheless, while we have not experienced material losses or other material consequences relating to cyberattacks or other information or security breaches, whether directed at us or third parties, our systems, software and networks, as well as those of our clients, vendors, service providers, counterparties and other third parties, may be vulnerable to unauthorized access, misuse, computer viruses or other malicious code, phishing attacks, cyberattacks such as denial of service, malware, ransomware, phishing, and other events that could result in security breaches or give rise to the manipulation or loss of significant amounts of personal, proprietary or confidential information of our customers, employees, suppliers, counterparties and other third parties, disrupt, sabotage or degrade service on our systems, or result in the theft or loss of significant levels of liquid assets, including cash. We may also be impacted by cyberattacks against national critical infrastructure in the geographic locations in which we operate, such as telecommunications networks. Our IT systems are dependent on such national critical infrastructure, and cyberattacks against such infrastructure could affect our ability to service our customers negatively.

As cybersecurity threats continue to evolve and increase in sophistication, we cannot guarantee the effectiveness of our policies, practices and controls to protect against all such circumstances that could result in disruptions to our systems. This is because, among other reasons, the techniques used in cyberattacks change frequently and cyberattacks can originate from a wide variety of sources, including not only cyber-criminals but also activists and states by international community to be rogue states. Third parties may seek to gain access to our systems either directly or by using equipment or passwords belonging to employees, customers, third-party service providers or other authorized users of our systems. In the event of a cyberattack or security breach affecting a vendor or other third party entity on whom we rely, our ability to conduct business, and the security of our customer information, could be impaired in a manner to that of a cyberattack or security breach affecting us directly. We also may not receive information or notice of the breach in a timely manner, or we may have limited options to influence how and when the cyberattack or security breach is addressed.

As financial institutions are becoming increasingly interconnected with central agents, exchanges and clearinghouses, they may be increasingly susceptible to negative consequences of cyberattacks and security breaches affecting the systems of such third parties. It could take a significant amount of time for a cyberattack to be investigated, during which time we may not be in a position to fully understand and remediate the attack, and certain errors or actions could be repeated or compounded before they are discovered and remediated, any or all of which could further increase the costs and consequences associated with a particular cyberattack. The perception of a security breach affecting us or any part of the financial services industry, whether correct or not, could result in a loss of confidence in our cybersecurity measures or otherwise damage our reputation with customers and third parties with whom we do business. Should such adverse events occur, we may not have indemnification or other protection from the third party sufficient to compensate or protect us from the consequences.

As attempted cyberattacks continue to evolve, we may incur significant costs in our attempts to modify or enhance our protective measures against such attacks to investigate or remediate any vulnerability or resulting breach, or in communicating cyberattacks to our customers. An interception, misuse or mishandling of personal, confidential or proprietary information sent to or received from a client, vendor, service provider, counterparty or third party or a cyberattack could result in our inability to recover or restore data that has been stolen, manipulated or destroyed, damage to our systems and those of our clients, customers and counterparties, violations of applicable privacy and other laws, or other significant disruption of operations, including disruptions in our ability to use our accounting, deposit, loan and other systems and our ability to communicate with and perform transactions with customers, vendors and other parties. These effects could be exacerbated if we would need to shut down portions of our technology infrastructure temporarily to address a cyberattack, if our technology infrastructure is not sufficiently redundant to meet our business needs while an aspect of our technology is compromised, or if a technological or other solution to a cyberattack is slow to be developed. Even if we timely resolve the technological issues in a cyberattack, a temporary disruption in our operations could adversely affect customer satisfaction and behavior, expose us to reputational damage, contractual claims, regulatory, supervisory or enforcement actions, or litigation.


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U.S. banking agencies and other federal and state government agencies have increased their attention on cybersecurity and data privacy risks, and have proposed enhanced risk management standards that would apply to us. For example, the California Consumer Privacy Act, which took effect on January 1, 2020, requires, among other things, notification to affected individuals when there has been a security breach of their personal data, and imposes increased privacy and security obligations of entities handling certain personal information of individuals, and other states in which we do business or may in the future do business, or from which we collect personal information of residents, have adopted or are considering adopting similar laws. Such legislation and regulations relating to cybersecurity and data privacy may require that we modify systems, change service providers, or alter business practices or policies regarding information security, handling of data and privacy. Changes such as these could subject us to heightened compliance complexity and operational costs. We may be required to report events related to data privacy or cybersecurity issues, events where customer information may be compromised, unauthorized access to our systems and other security breaches to affected individuals or the relevant regulatory authorities. To the extent we do not successfully meet supervisory standards pertaining to cybersecurity, we could be subject to supervisory actions, substantial fines, civil or criminal penalties, significant litigation and reputational damage or ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.

Risks Associated with our Auto Lending Business

The financial results of the auto lending business could have a negative impact on the Company's operating results and financial condition.

The auto lending business historically has provided a significant source of funding to the Company through earnings. The auto lending business involves risk, including the possibility that poor operating results could negatively affect the operating results of SHUSA.

Factors that affect the financial results of the auto lending business in addition to those which have been previously addressed include, but are not limited to:
•Our relationship with Stellantis is a significant source of our loan and lease originations. Loss of our relationship with Stellantis, including as a result of termination of our agreement with Stellantis, could materially and adversely affect our business, financial condition and results of operations.
•The auto lending business may be negatively impacted if it is unsuccessful in developing and maintaining relationships with automobile dealerships that correlate to the ability to acquire loans and automotive leases. In addition, economic downturns may result in the closure of dealerships and corresponding decreases in sales and loan volumes.
•The auto lending business could be negatively impacted if it is unsuccessful in developing and maintaining its serviced for others portfolio. As this is a significant and growing portion of the auto lending business strategy, if an institution for which we currently service assets chooses to terminate rights as a servicer or if we fail to add additional institutions or portfolios to its servicing platform, the auto lending business may not achieve the desired revenue or income from this platform.
•We have repurchase obligations in our capacity as a servicer in securitizations and whole loan sales. If significant repurchases of assets or other payments are required under our responsibility as a servicer, this could have a material adverse effect on the auto lending business' financial condition, results of operations, and liquidity.

The MPLFA may not result in currently anticipated levels of growth and is subject to certain performance conditions that could result in termination of the agreement. If we fail to meet certain of these performance conditions, Stellantis may seek to terminate the agreement. In addition, Stellantis has the option to acquire an equity participation in the CCAP portion of the auto lending business.

We are a party to the MPLFA with Stellantis through which the CCAP brand was launched in May 2013. Through the CCAP brand, we originate private-label loans and leases to facilitate the purchase of Stellantis vehicles by consumers and Stellantis-franchised automotive dealers.

As part of the MPLFA, we received limited exclusivity rights to participate in specified minimum percentages of certain of Stellantis financing incentive programs, which include loan rate Subvention and automotive lease residual support Subvention. Among other covenants, we have committed to certain revenue-sharing arrangements. The auto lending business bears the risk of loss on loans originated pursuant to the MPLFA, while Stellantis shares in any residual gains and losses in respect of automotive leases, subject to specific provisions in the MPLFA, including limitations on our participation in such gains and losses.


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The MPLFA is subject to early termination in certain circumstances, including failure to meet certain key performance metrics, provided Stellantis treats SC in a manner consistent with other comparable OEMs. Stellantis may also terminate the agreement if, among other circumstances, (i) a person other than Santander and its affiliates or SC's other stockholders owns 20% or more of SC Common Stock and Santander and its affiliates own fewer shares of common stock than such person, (ii) SC controls, or becomes controlled by, an OEM that competes with Stellantis or (iii) certain of our credit facilities become impaired. In addition, under the MPLFA, Stellantis has the option to acquire, for fair market value, an equity participation in the business offering and providing the financial services contemplated by the MPLFA. There is no maximum limit on the size of Stellantis’s potential equity participation. Although the MPLFA contains provisions that are designed to address a situation in which the parties disagree on the fair market value of the equity participation interest, there is a risk that we ultimately receive less than what it believes to be the fair market value for such interest, and the loss of its associated revenue and profits may not be offset fully by the immediate proceeds for such interest. There can be no assurance that we would be able to re-deploy the immediate proceeds for such interest in other businesses or investments that would provide comparable returns, thereby reducing profitability.

If Stellantis exercises its equity option, if the MPLFA (or Stellantis' limited exclusivity obligations thereunder) were to terminate, or if we were otherwise unable to realize the expected benefits of its relationship with Stellantis, including as a result of Stellantis's bankruptcy or loss of business, there could be a materially adverse impact to our business, financial condition, results of operations, profitability, loan and lease volume, the credit quality of our portfolio, liquidity, reputation, funding costs and growth, and our ability to obtain or find other OEM relationships or to otherwise implement our business strategy could be materially adversely affected.

General Risk Factors

Climate Change Risks

There is increasing concern over the risks of climate change and related environmental risks that could adversely affect us, including:

•Transition risks associated with the move to a low-carbon economy, both at idiosyncratic and systemic levels, such as through policy, regulatory and technological changes, which could increase our expenses and impact our strategies.
•Physical risks related to discreet events such as flooding and wildfires, and extreme weather impacts and longer-term shifts in climate patterns, such as extreme heat, sea level rise and more frequent and prolonged droughts, which could impair our or our customers’ property and/or result in financial losses that could impair asset values and the creditworthiness of our customers. Such events could disrupt our operations or those of our customers, including through direct damage to assets, reduced availability of insurance, unemployment and indirect impacts from supply chain disruption and market volatility.
•Liability risks derived from parties who may suffer losses from the effects of climate change and may seek compensation from those they hold responsible such as state entities, regulators, investors and lenders.

These primary drivers could lead to the following financial risks, among others:

•Credit risks: physical climate change could lead to increased credit exposure, and companies with business models not aligned with the transition to a low-carbon economy may face a higher risk of reduced corporate earnings, lower asset values, and business disruption due to new regulations or market shifts. We may face regulatory restrictions or costs associated with providing products or services to certain companies or sectors.
•Market risks: Market changes in the most carbon-intensive sectors could affect energy and commodity prices, corporate bonds, equities and certain derivatives contracts. Increasing frequency of severe weather events could affect macroeconomic conditions, weakening fundamental factors such as economic growth, employment and inflation.
•Operational risks: Our reputation and client relationships may be damaged as a result of our practices and decisions related to climate change and the environment, or to the practices or involvement of our clients in certain industries or projects associated with causing or exacerbating climate change.
•Reputational risk could also arise from shifting sentiment among customers and increasing attention and scrutiny from other stakeholders (investors, regulators, etc.) on our response to climate change. We may also face pressure from individuals or groups to cease or increase business with certain companies or sectors.
•Regulatory risk: Banking regulators have increased focus on climate-related risks and the threats posed to financial institutions, including us, as well as systemic financial stability. Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.

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Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations.

Macro-Economic and Political Risks

Business and Industry Risks

We depend in part upon dividends and other funds from subsidiaries.

Most of our operations are conducted through our subsidiaries. As a result, our ability to pay dividends, to the extent we decide to do so, depends in part on the ability of our subsidiaries to generate earnings and pay dividends to us. Payment of dividends, distributions and advances by our subsidiaries will be contingent on our subsidiaries’ earnings and business considerations, and are limited by legal and regulatory restrictions. Additionally, our right to receive any assets of our subsidiaries as an equity holder of such subsidiaries upon their liquidation or reorganization will be effectively subordinated to the claims of our subsidiaries’ creditors, including trade creditors.

Our ability to maintain our competitive position depends, in part, on the success of new products and services we offer our clients and our ability to continue offering products and services from third parties, and we may not be able to manage various risks we face as we expand our range of products and services that could have a material adverse effect on us.

The success of our operations and our profitability depend, in part, on the success of new products and services we offer our clients and our ability to continue offering products and services from third parties. However, we cannot guarantee that our new products and services will be responsive to client demands or successful once they are offered to our clients, or that they will be successful in the future. In addition, our clients’ needs or desires may change over time, and such changes may render our products and services obsolete, outdated or unattractive, and we may not be able to develop new products that meet our clients’ changing needs. Our success is also dependent on our ability to anticipate and leverage new and existing technologies that may have an impact on products and services in the banking industry. Technological changes may further intensify and complicate the competitive landscape and influence client behavior. If we cannot respond in a timely fashion to the changing needs of our clients, we may lose clients, which could in turn materially and adversely affect us.

The introduction of new products and services can entail significant time and resources, including regulatory approvals. Substantial risks and uncertainties are associated with the introduction of new products and services, including technical and control requirements that may need to be developed and implemented, rapid technological change in the industry, our ability to access technical and other information from our clients and the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices. Our failure to manage these risks and uncertainties also exposes us to the enhanced risk of operational lapses, which may result in the recognition of financial statement liabilities. Regulatory and internal control requirements, capital requirements, competitive alternatives, vendor relationships and shifting market preferences may also determine whether initiatives can be brought to market in a manner that is timely and attractive to our clients. Failure to manage these risks in the development and implementation of new products or services successfully could have a material adverse effect on our business and reputation, as well as on our consolidated results of operations and financial condition. In addition, the cost of developing products that are not launched is likely to affect our business, financial condition and results of operations. Any or all of these factors, individually or collectively, could have a material adverse effect on our business, financial condition and results of operations.

We rely on third parties for important products and services.

Third-party vendors provide key components of our business infrastructure such as loan and deposit servicing systems, back office and business process support and software, information technology, internet connections and network access, including cloud-based services. Third parties can be sources of operational risk to us, including with respect to security breaches affecting those parties. We also are subject to risk with respect to security breaches affecting the vendors and other parties that interact with those service providers. We may be required to take steps to protect the integrity of our operational systems, thereby increasing our operational costs and potentially decreasing customer satisfaction. In addition, any problems caused by these third parties, including as a result of their not providing us their services for any reason, their performing their services poorly, or employee misconduct could adversely affect our ability to deliver products and services to customers and otherwise to conduct business, which could lead to reputational damage and regulatory investigations and intervention. Replacing these third-party vendors could also entail significant delays and expense. Further, the operational and regulatory risk we face as a result of these arrangements may be increased to the extent that we restructure them. Any restructuring could involve significant expense to us and entail significant delivery and execution risk, which could have a material adverse effect on our business, financial condition and results of operations.
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If a third party obtains access to our customer information and that third party experiences a cyberattack or breach of its systems, this could result in several negative outcomes for us, including losses from fraudulent transactions, potential legal and regulatory liability and associated damages, penalties and restitution, increased operational costs to remediate the consequences of the third party’s security breach, and harm to our reputation from the perception that our systems or third-party systems or services that we rely on may not be secure.

Our business and financial performance could be adversely affected, directly or indirectly, by disasters, natural or otherwise, terrorist activities or international hostilities.

Neither the occurrence nor potential impact of disasters (such as earthquakes, hurricanes, tornadoes, floods and other severe weather conditions, pandemics, and other significant public health emergencies, dislocations, fires, explosions, or other catastrophic accidents or events), terrorist activities or international hostilities can be predicted. However, these occurrences could impact us directly (for example, by causing significant damage to our facilities, preventing a subset of our employees from working for a prolonged period and otherwise preventing us from conducting our business in the ordinary course), or indirectly as a result of their impact on our borrowers, depositors, other customers, suppliers or other counterparties. We could also suffer adverse consequences to the extent that disasters, terrorist activities or international hostilities affect the financial markets or the economy in general or in any particular region. These types of impacts could lead, for example, to an increase in delinquencies, bankruptcies and defaults that could result in our experiencing higher levels of nonperforming assets, net charge-offs and provisions for credit losses.

Our ability to mitigate the adverse consequences of such occurrences is in part dependent on the quality of our resiliency planning and our ability to anticipate the nature of any such event that may occur. The adverse impact of disasters, terrorist activities or international hostilities also could be increased to the extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other organizations and businesses with which we deal.

Financial Reporting and Control Risks

Changes in accounting standards could impact reported earnings.

The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our Consolidated Financial Statements. These changes can materially impact how we record and report our financial condition and results of operations, as well as affect the calculation of our capital ratios. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.

For example, in June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The adoption of this standard resulted in the increase in the ACL of approximately $2.5 billion and a decrease to opening retained earnings, net of income taxes, at January 1, 2020. The estimated increase is based on forecasts of expected future economic conditions and is primarily driven by the fact that the allowance will cover expected credit losses over the full expected life of the loan portfolios. The standard did not have a material impact on the Company’s other financial instruments. Additionally, we elected to utilize regulatory relief which permitted us to phase in 25 percent of the capital impact of CECL in our calculation of regulatory capital amounts and ratios in 2020, and will permit us to phase in an additional 25 percent each subsequent year until fully phased-in by the first quarter of 2023.

Our financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement of the results of our operations and financial position.

The preparation of consolidated financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect our Consolidated Financial Statements and accompanying notes. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates. Estimates, judgments and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. The accounting policies deemed critical to our results and financial position, based upon materiality and significant judgments and estimates, include impairment of loans and advances, goodwill impairment, valuation of financial instruments, impairment of available-for-sale financial assets, deferred tax assets and provisions for liabilities.

The ACL is a significant critical estimate. Due to the inherent nature of this estimate, we cannot provide assurance that the Company will not significantly increase the ACL or sustain credit losses that are significantly higher than the provided allowance.
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The valuation of financial instruments measured at fair value can be subjective, in particular when models are used which include unobservable inputs. Given the uncertainty and subjectivity associated with valuing such instruments it is possible that the results of our operations and financial position could be materially misstated if the estimates and assumptions used prove inaccurate.

If the judgments, estimates and assumptions we use in preparing our Consolidated Financial Statements are subsequently found to be incorrect, there could be a material effect on our results of operations and a corresponding effect on our funding requirements and capital ratios.

Disclosure controls and procedures over financial reporting and internal controls over financial reporting may not prevent or detect all errors or acts of fraud, and lapses in these controls could materially and adversely affect our operations, liquidity and/or reputation.

Disclosure controls and procedures over financial reporting are designed to provide reasonable assurance that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We also maintain a system of internal controls over financial reporting. However, these controls may not achieve their intended objectives. Control processes that involve human diligence and compliance, such as our disclosure controls and procedures and internal controls over financial reporting, are subject to lapses in judgement and breakdowns resulting from human failures. Controls can be circumvented by collusion or improper management override. Because of these limitations, there are risks that material misstatements due to error or fraud may not be prevented or detected, and that information may not be reported on a timely basis.

Further, there can be no assurance that we will not suffer from material weaknesses in disclosure controls and processes over financial reporting in the future. If we fail to remediate any future material weaknesses or fail to otherwise maintain effective internal controls over financial reporting in the future, such failure could result in a material misstatement of our annual or quarterly financial statements that would not be prevented or detected on a timely basis and which could cause investors and other users to lose confidence in our financial statements and limit our ability to raise capital. Additionally, failure to remediate the material weaknesses or otherwise failing to maintain effective internal controls over financial reporting may negatively impact our operating results and financial condition, impair our ability to timely file our periodic reports with the SEC, subject us to additional litigation and regulatory actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial measures.

Failure to satisfy obligations associated with public securities filings may have adverse regulatory, economic, and reputational consequences.

If we are not able to file our periodic reports within the time periods prescribed by the SEC, among other consequences, we would be unable to use Form S-3 registration statements until we have timely filed our SEC periodic reports for a period of 12 consecutive months. Our inability to use Form S-3 registration statements would increase the time and resources we need to spend if we choose to access the public capital markets.
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ITEM 1B - UNRESOLVED STAFF COMMENTS

None.

ITEM 2 - PROPERTIES

As of December 31, 2022, the Company utilized 581 buildings that occupy a total of 5.0 million square feet, including 125 owned properties with 1.1 million square feet, and 456 leased properties with 4.0 million square feet. The executive and primary administrative offices for SHUSA and SBNA are located at 75 State Street, Boston, Massachusetts. The Company leases this location. SC's corporate headquarters are located at 1601 Elm Street, Dallas, Texas. SC leases this location.

Eight major buildings serve as the headquarters or house significant operational and administrative functions, and are:

Operations Center - 2 Morrissey Boulevard, Dorchester, Massachusetts - Leased
SHUSA/SBNA Administrative Offices - 75 State Street, Boston, Massachusetts - Leased
Call Center and Operations and Loan Processing Center - Santander Way; 95 Amaral Street, Riverside, Rhode Island - Leased
Call Center and Operations and Loan Processing Center - 450 Penn Street, Reading; Pennsylvania - Leased
Operations and Administrative Offices - 1130 Berkshire Boulevard, Wyomissing, Pennsylvania - Owned
SC Administrative Offices - 1601 Elm Street, Dallas, Texas - Leased
BSI Operations and Administrative Offices -1401 Brickell Avenue, Miami, Florida - Owned
SanCap Headquarters and Administrative offices - 437 Madison Ave, New York, New York - Leased

The majority of these eight Company properties identified above are utilized for general corporate purposes. The remaining 573 properties consist primarily of bank branches and lending offices. Of the total number of buildings, SBNA has 480 retail branches.

For additional information regarding the Company's properties refer to Note 5 - "Premises and Equipment" and Note 7 - "Other Assets" in the Notes to Consolidated Financial Statements in Item 8 of this Report.

ITEM 3 - LEGAL PROCEEDINGS

Refer to Note 20 to the Consolidated Financial Statements for SHUSA’s litigation disclosures, which are incorporated herein by reference.

ITEM 4 - MINE SAFETY DISCLOSURES

None.
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PART II

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company has one class of common stock. The Company’s common stock was traded on the NYSE under the symbol “SOV” through January 29, 2009. On January 30, 2009, all shares of the Company's common stock were acquired by Santander and de-listed from the NYSE. Following this de-listing, there has not been, nor is there currently, an established public trading market in shares of the Company’s common stock. As of the date of this filing, Santander was the sole holder of the Company’s common stock.

At February 28, 2023, 530,391,043 shares of common stock were outstanding. There were no issuances of common stock during 2022, 2021, or 2020.

During the years ended December 31, 2022, 2021, and 2020 the Company declared and paid cash dividends of $4.8 billion, $0.0 million, and $125.0 million respectively, to its shareholder.

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

ITEM 6 - SELECTED FINANCIAL DATA

Omitted.

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ITEM 7 - 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; 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 on Latin American and European equity and fixed income securities; APS, an institutional fixed-income broker-dealer headquartered in New York providing institutional and middle market clients with access to a broad range of fixed income products including mortgage products, investment grade credit, U.S. Government and federal agency securities, fixed-income structured products banking and advisory services; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC is a registered investment adviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.

The Company specializes in consumer financing focused on vehicle finance, servicing of third-party vehicle financing, and delivering service to dealers and customers across the full credit spectrum. This includes indirect origination and servicing of vehicle loans and leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers, origination of vehicle loans through a web-based direct lending program, purchases of vehicle loans from other lenders, and servicing of automobile and recreational and marine vehicle portfolios for other lenders. The Company sells consumer vehicle loans and leases through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer vehicle loans and leases.

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. In the second quarter of 2022, the Company announced it had reached an agreement with Stellantis to amend and extend the MPLFA through December 2025. In June 2022, the Company launched a preferred lender, full spectrum financing program in partnership with MMNA to provide customer and dealer financing programs that will help MMNA achieve its goal of improving the car-buying experience.

In addition to specialized consumer finance, the Company also attracts deposits and provides other retail banking services through its network of retail branches principally located in Massachusetts, New Hampshire, Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and Delaware; and originates small business, middle market, large and global commercial loans, multifamily loans, and other consumer loans and leases throughout the Mid-Atlantic and Northeastern areas of the United States. For large institutional investors, the Company provides structured products, emerging markets credit and U.S. investment grade credit, U.S. rates, short-term fixed-income, debt capital markets, investment banking, exchange traded derivatives, and cash equities, benefiting from a combination of Santander’s global reach and access to financial hubs together with extensive local market knowledge and regional expertise.

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

Refer to Note 1 of the Consolidated Financial Statements for additional information on SHUSA's January 31, 2022 acquisition of the remainder of SC's Common Stock and its April 2022 acquisition of PCH.

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ECONOMIC AND BUSINESS ENVIRONMENT

Overview

The unemployment rate at December 31, 2022 was 3.5% compared to 3.5% at September 30, 2022 and 3.9% one year ago. According to the U.S. Bureau of Labor Statistics, notable job gains occurred in leisure and hospitality, healthcare, construction, and social assistance.

Market year-to-date returns for the following indices based on closing prices for the period indicated were:
December 31, 2022December 31, 2021
Dow Jones Industrial Average(8.8)%18.7%
S&P 500(19.4)%26.9%
NASDAQ Composite(33.1)%21.4%

At its December 2022 meeting, the Federal Open Market Committee raised the federal funds rate target range 50 basis points to a range of 4.25% - 4.50% and subsequently, in February 2023, raised it an additional 25 basis points to a range of 4.50% - 4.75%. These target rate increases are in response to persistently high inflation above the 2.0% inflation target rate. The FOMC anticipates ongoing increases in the target range. This action is expected to help return inflation to the 2.0% committee objective, while allowing the labor market to remain strong.

The ten-year Treasury bond rate at December 31, 2022 was 3.88%, up from 1.51% at December 31, 2021.

One of the primary metrics used by the market to monitor the strength of the used car market is the Manheim Used Vehicle Index. The Manheim Used Vehicle Value Index, based on the 1995 Manheim- based index decreased from 238 at December 31, 2021 to 198 at December 31, 2022. The decrease is reflective of the normalization of supply of used cars following two years of limited supply and historically high used car prices.

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.

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
FitchA / A-BBB+BBB+Stable
Moody'sA2 / Baa1Baa3Baa1Stable
S&PA+ / A-BBB+A-Stable
(1) Senior preferred debt / Senior non-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.


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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 New York Department of Financial Services.

The Federal Reserve tailors its supervisory programs and regulatory requirements by category based on firm-specific characteristics such as total assets, cross-jurisdictional activity, and nonbank asset or off-balance sheet exposure. As of December 30, 2022, SHUSA was designated a Category IV institution. Institutions that change to a higher category would become subject to the requirements of the new category, as outlined by the Federal Reserve, generally within two quarters of the change in category.

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. 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.

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 is required for banking institutions to make capital distributions, including paying dividends.

As described in Note 1 to these Consolidated Financial Statements, on January 1, 2020, we adopted the CECL standard, which upon adoption resulted in a reduction to our opening retained earnings balance, net of income tax, and an increase to the allowance for loan losses of approximately $2.5 billion. The U.S. banking agencies in December 2018 approved a final rule to address the impact of CECL on regulatory capital by allowing banking organizations, including the Company, the option to phase in the day-one impact of CECL until the first quarter of 2023. On March 26, 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. SHUSA remains in the three-year transition period. This interim rule was subsequently updated with technical amendments in a final rule dated September 30, 2020. 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 under-capitalized situations, appointment of a receiver or conservator. Critically under-capitalized 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 December 31, 2022, SBNA met the criteria to be classified as “well-capitalized.”

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On March 4, 2020, the Federal Reserve adopted a final rule to simplify capital rules for large banks. Under the final rule, firms' supervisory stress test results are now used to establish the size of the SCB requirement. The SCB is calculated as the maximum decline in CET1 in the severely adverse scenario (subject to a 2.5% floor) plus four quarters of dividends. The rule results in new firm-specific regulatory capital expectations which are equal to 4.5% of CET1 plus the SCB, any GSIB surcharge, and any countercyclical capital buffer. The GSIB buffer is applicable only to the largest and most complex firms and does not apply to SHUSA. In the event a firm falls below its new minimums, the rule imposes restrictions on capital distributions and discretionary bonuses. Firms continue to submit a capital plan annually. Supervisory expectations for capital planning processes do not change under the final rule. As of October 1, 2022, SHUSA's CET1 minimum requirement was 8.2%.

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 (but with more than $50 billion in assets) such as the Company are required to calculate the LCR monthly.

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 June 2022. 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.

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.

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, and testing and auditing for compliance.

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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.

A bank is subject to the market risk capital rules if its consolidated trading activity, defined as the sum of trading assets and liabilities as reported in its FFIEC 031 and FR Y-9C for the previous quarter, equals the lesser of: (1) 10 percent or more of the bank's total assets as reported in its Call Report and FR Y-9C for the previous quarter, or (2) $1 billion or more. the Bank and the Company are required to comply with the market risk component within RWAs of the risk-based capital ratios, and submit the FFIEC 102 - Market Risk Regulatory Report.

SHUSA is integrating APS's products, models and infrastructure into SHUSA’s U.S. market risk rule program which is scheduled to be completed in 2023. Until the integration is completed, and APS's models are in compliance with the U.S. market risk rule, SHUSA is required to include and report market risk RWAs as of December 31, 2022 utilizing the approaches available in the U.S. market risk rule.

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, like SBNA, 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.


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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.

We hold loans, derivatives, and other financial instruments that use LIBOR as a reference rate and that will be moved to alternative rates. 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 December 31, 2022, the Company had approximately $10 billion of loans with LIBOR exposure. We also had approximately $42 billion in notional amounts of derivative contracts with LIBOR exposure.

As of December 31, 2022, the Company has completed workstreams related to business/product launch, communication, systems remediation, and model remediation. We are largely complete with the accounting, tax, and reporting workstreams, which remain open to monitor and respond to changing rules or market conditions. We continue to monitor and respond accordingly to the Company’s LIBOR exposures, alternative reference rate originations, and legacy contract renegotiation. Contracts for many of our financial instruments contain fallback language that prescribes the transition to alternative rates at the appropriate time. For others, we are working closely with customers and counterparties to insert conforming changes necessary for the implementation and operation of alternative reference rates prior to LIBOR cessation. The Company expects additional amendments to be sent in 2023 in certain situations, e.g., to address loan-to-hedge matching, or for loan amendments created before the availability of current reference rates or without specific fallback rates.

Under the guidance of our cross-functional LIBOR transition program, the Company began offering products linked to alternative reference rates and has progressed on remediating existing contracts that use the LIBOR reference rate. We substantially limited originations of new LIBOR-referenced products as of December 1, 2021. On January 1, 2022, we ceased originations of new LIBOR-referenced products that do not fall under 'approved use' categories.

Broker Dealer Regulation

The Broker-Dealers are registered with the SEC and subject to the regulation of the SEC, FINRA, CFTC, CME, and the NFA. These entities are subject to the SEC’s uniform net capital rule, which requires the maintenance of minimum net capital levels. In addition, these entities are subject to the SEC's Rule 15c3-3, which requires them to maintain proper controls over customer funds and securities and ensure. that customer assets are not used for the benefit of the broker-dealer. These requirements also restrict the broker-dealer’s ability to withdraw capital. Prior written notification to and approval from the applicable regulators is required for withdrawals exceeding 30 percent of the broker-dealer’s excess net capital and also where the broker-dealer’s net capital would be less than 25 percent of deductions from its net worth in computing net capital.


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Edge Act Corporation Requirements

Edge Act corporations, such as BSI, are chartered under Section 25A of the Federal Reserve Act. These entities are subject to specific regulatory requirements under Regulation K of the Federal Reserve Act. Permissible activities of Edge and Agreement corporations include those incidental to international or foreign business. Deposit-taking, credit, and fiduciary and investment advisor services are subject to applicable Federal Reserve regulations. Edge Corporations are also subject to the USA Patriot Act as well as all applicable laws and regulations designed to combat money laundering and the financing of terrorist activities.

CRITICAL ACCOUNTING ESTIMATES

This MD&A is based on the Consolidated Financial Statements and accompanying notes that have been prepared in accordance with GAAP. The significant accounting policies of the Company are described in Note 1 to the Consolidated Financial Statements. The preparation of financial statements in accordance with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and accordingly, have a greater possibility of producing results that could be materially different than originally reported. However, the Company is not currently aware of any likely events or circumstances that would result in materially different results. Management identified accounting for ACL, estimates of expected residual values of leased vehicles subject to operating leases, and goodwill as the Company's most critical accounting estimates, in that they are important to the portrayal of the Company's financial condition and results and require management’s most difficult, subjective and complex judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain.

ACL

The Company maintains an ALLL for the Company’s HFI portfolio, excluding those loans measured at fair value in accordance with applicable accounting standards, and a reserve for off-balance sheet commitments representing the expected credit losses for unfunded lending commitments and financial guarantees. The reserve for off-balance sheet commitments, together with the ALLL, are generally referred to collectively as the ACL.

As described in Note 1 and Note 3 to the Consolidated Financial Statements, the ACL is measured using the current expected credit loss model, which is based on information derived from historical experience, current conditions, and prospective information that requires the use of significant judgment by management. The model includes both quantitative and qualitative factors with key inputs from unemployment data, the Housing Price Index, GDP growth rates, and used vehicle index growth rates, along with certain loan level characteristics all used to predict the likelihood of borrower default. Management applies qualitative factors to capture risks not addressed by the key inputs such as temporary or recent unique market disruptions impacting trends in delinquencies and used vehicle prices. While management uses the best information available to make such evaluations, future adjustments to the ACL may be necessary if conditions differ substantially from these assumptions used in making the evaluations.

The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustments for macroeconomic uncertainty, and considers adjustments to macroeconomic inputs and outputs based on market volatility. The baseline scenario was based on the latest consensus forecasts available which showed a deterioration in key variables in the fourth quarter of 2022, including an expected increase in unemployment rates (which is a key driver to losses) and a decline in the GDP growth rate. The unemployment rate and used vehicle price index, which is a measure of wholesale used car price trends, are considered the most significant variables. Using the weighted-average of a range of economic forecast scenarios, we estimated at December 31, 2022 that the unemployment rate is expected to be approximately 5.13% at the end of 2023, as the labor market is expected to contract due to the risk of recession. In comparison, at December 31, 2021, management previously estimated the unemployment rate using the weighted-average of our economic forecast scenarios to be 4.27% at the end of 2023. Additionally, the weighted used vehicle index, where a higher number corresponds to a higher used car price at auction, is estimated at December 31, 2022 to be approximately 183 at the end of 2023 compared to our estimate at December 31, 2021 of approximately 185 at the end of 2023. While the economy has seen significant recovery in 2022, there is still considerable uncertainty regarding overall lifetime loss estimates due to inflation and rising interest rates, which are slowing the economy. The scenarios used by the Company are periodically updated over a reasonable and supportable time horizon with weightings assigned by management and approved through the established governance process.

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Under the range of economic forecast scenarios considered, based on applying a 100% weighting to the most negative scenario used, and without considering the impact of corresponding or offsetting qualitative factors that could have a significant impact on the overall ACL, the ACL would have been higher by approximately $1.1 billion. This range reflects the sensitivity of the allowance for credit losses specifically related to the scenarios and weights considered as of December 31, 2022 and does not consider other potential adjustments that could increase or decrease loss estimates calculated using alternative economic scenarios.

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.

Valuation of Automotive Lease Assets and Residuals

The Company has significant investments in vehicles in its operating lease portfolio. In accounting for operating leases, management must make a determination at the beginning of the lease contract of the estimated realizable value (i.e., residual value) of the vehicle at the end of the lease. Residual value represents an estimate of the market value of the vehicle at the end of the lease term, which typically ranges from two to four years. At contract inception, the Company determines the projected residual value based on an internal evaluation of the expected future value. This evaluation is based on a proprietary model using internally-generated data that is compared against third-party, independent data for reasonableness. The customer is obligated to make payments during the term of the lease for the difference between the purchase price and the contract residual value plus a finance charge. However, since the customer is not obligated to purchase the vehicle at the end of the contract, the Company is exposed to a risk of loss to the extent the value of the vehicle is below the residual value estimated at contract inception. Management periodically performs a detailed review of the estimated realizable value of leased vehicles to assess the appropriateness of the carrying value of leased assets.

To account for residual risk, the Company depreciates automobile operating lease assets to estimated realizable value on a straight-line basis over the lease term. The estimated realizable value is initially based on the residual value established at contract inception. If the estimated realizable value of a leased vehicle subsequently declines below the residual value at contract inception, additional depreciation expense is recorded. Periodically, the Company revises the estimated realizable value of the leased vehicle at termination based on current market conditions and other relevant data points, and adjusts depreciation expense appropriately over the remaining term of the lease.

The Company periodically evaluates its investment in operating leases for impairment if circumstances, such as a systemic and material decline in used vehicle values occurs. These circumstances could include, for example, a decline in the residual value of our lease portfolio due to an event caused by shocks to oil and gas prices (which may have a pronounced impact on certain models of vehicles) or pervasive manufacturer defects (which may systemically affect the value of a particular brand or model). Impairment is determined to exist if the fair value of the leased asset is less than its carrying value and it is determined that the net carrying value is not recoverable. If a material decline in the used vehicle price were to occur rapidly near the end of the lease term, there may not be adequate time for the remaining adjusted depreciation to account for such decline, and an impairment charge could be necessary. The net carrying value of a leased asset is not recoverable if it exceeds the sum of the undiscounted expected future cash flows expected to result from the lease payments and the estimated residual value upon eventual disposition. If our operating lease assets are considered to be impaired, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value as estimated by DCF. No such impairment was recognized in 2022, 2021, or 2020.

The Company's depreciation methodology for operating lease assets considers management's expectation of the value of the vehicles upon lease termination, which is based on numerous assumptions and factors influencing used vehicle values. The critical assumptions underlying the estimated carrying value of automobile lease assets include: (1) estimated market value information obtained and used by management in estimating residual values, (2) proper identification and estimation of business conditions, (3) our remarketing abilities, and (4) automobile manufacturer vehicle and marketing programs. Changes in these assumptions could have a significant impact on the value of the lease residuals. Expected residual values include estimates of payments from automobile manufacturers related to residual support and risk-sharing agreements, if any. To the extent an automotive manufacturer is not able to fully honor its obligation relative to these agreements, the Company's depreciation expense would be negatively impacted.

If the estimated realizable values of our leased vehicles were to decline 1% below contractual residual values, depreciation expense would increase by approximately $113 million over the remaining life of the current lease portfolio.
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Goodwill

The acquisition method of accounting for business combinations requires the Company to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets acquired and liabilities assumed. The excess of the purchase price of an acquired business over the fair value of the identifiable assets and liabilities represents goodwill. Goodwill is not amortized on a recurring basis, but rather is subject to periodic impairment testing.

The Company conducts its evaluation of goodwill impairment at the reporting unit level on an annual basis on October 1, and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. As more fully described in Note 6 to the Company's Consolidated Financial Statements, a reporting unit is an operating segment or one level below. As of December 31, 2022, the reporting units with assigned goodwill were Auto, CBB, C&I, CRE, and CIB. The evaluation of goodwill impairment requires a comparison of the fair value of each reporting unit to its carrying amount, including allocated goodwill. Determining the fair value of reporting units requires significant valuation inputs, assumptions, and estimates.

The Company determines the carrying value of each reporting unit using a risk-based capital approach. Certain of the Company's assets are assigned to a Corporate/Other category. These assets are related to the Company's corporate-only programs, such as BOLI, and are not employed in or related to the operations of a reporting unit or considered in determining the fair value of a reporting unit.

Goodwill impairment testing involves management's judgment, requiring an assessment of whether the carrying value of the reporting unit can be supported by its fair value. This is performed using widely-accepted valuation techniques, such as the guideline public company market approach ("market approach") 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. The market approach includes earnings and price-to-tangible book value multiples of comparable public companies which were applied to the earnings and equity for all of the Company's reporting units. The projected Tangible Book Value (TBV) multiple is an indicator of whether the price or perceived value of the company's tangible assets is greater than its book value.

The DCF method of the income approach incorporates the reporting units' forecasted cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of the forecasts. The discount rates utilized to obtain the net present value of the reporting units' cash flows were estimated using a capital asset pricing model. Significant inputs to this model include a risk-free rate of return, beta (which is a measure of the level of non-diversifiable risk associated with comparable companies for each specific reporting unit), market equity risk premium, and, in certain cases, additional premium for size and/or unsystematic company-specific risk factors. The Company utilized discount rates that it believes adequately reflect the risk and uncertainty in the financial markets. The Company estimated expected rates of equity returns based on historical market returns and risk/return rates for similar industries of the reporting unit. The Company uses its internal forecasts to estimate future cash flows, so actual results may differ from forecasted results. When calculating the fair value of our reporting units under the income approach, short and medium-term forecasts incorporated current economic conditions. Long-term cash flow projections reflected normalized rate and credit environments, as well as a long-term rate of return for each reporting unit.

No goodwill impairment was recorded in 2022 or 2021. At the conclusion of the annual assessment, it was determined that the estimated fair value of each reporting unit substantially exceeded its carrying value primarily due to an improvement in the short and medium term economic forecasts. For the Auto, CBB, C&I, CRE and CIB reporting units, the Company applied an equal weighting of the income and market approaches. Additionally, for all reporting units the Company selected a long-term growth rate of 3.5% for use in the income approach DCF analysis and a 25% control premium for the market approach based on the Company’s review of transactions observable in the marketplace that were determined to be comparable.

In 2020, primarily due to the ongoing economic impacts of the COVID-19 pandemic, the Company recorded a goodwill impairment charge of $1.6 billion and $0.3 billion in the CBB and C&I reporting units, respectively. The CRE reporting unit’s estimated fair value exceeded its carrying value by less than 5%. The goodwill allocated to these reporting units is sensitive to impairment as the valuation is highly correlated with forecasted interest rates, credit costs, and other factors. In light of the significant market volatility in 2020 arising from the impacts of the COVID-19 pandemic, which may not have been a fair representation of changes in the value of the business, and the responses to the pandemic from multiple government agencies, the Company determined to give only a 25% weighting to the market approach in estimating the second quarter fair value of the CBB, C&I, and CRE reporting units. The Company continued to analyze implied market multiples to support the valuation under the market approach.
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All of the preceding fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be accurate predictions in the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the reporting units include such items as:
•a prolonged downturn in the business environment in which the reporting units operate;
•an economic recovery that significantly differs from our assumptions in timing or degree;
•volatility in equity and debt markets resulting in higher discount rates and unexpected regulatory changes;

Refer to the Financial Condition, Goodwill section of this MD&A for further details on the Company's goodwill, including the results of management's goodwill impairment analyses.


RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in Item 8. “Financial Statements and Supplementary Data.” This section of the Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons of 2022 to 2021. Discussions of 2020 items and year-to-year comparisons of 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 7, 2022. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
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CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
TWELVE-MONTH PERIODS ENDED DECEMBER 31, 2022 and 2021
2022 (1)
2021 (1)
Change due to
(dollars in thousands)Average
Balance		Interest
Yield/
Rate(2)
Average
Balance		Interest
Yield/
Rate(2)
Increase/(Decrease)VolumeRate
Interest-earning deposits$10,735,077 $223,787 2.08 %$13,311,422 $25,894 0.19 %$197,893 $(3,918)$201,811 
Fed funds sold and securities purchased under resale or similar agreements14,960,255 682,198 4.56 %1,098,291 1,164 0.11 %681,034 161,950 519,084 
AFS8,556,278 167,922 1.96 %11,155,963 107,659 0.97 %60,263 (17,832)78,095 
HTM8,746,622 160,690 1.84 %6,124,756 103,911 1.70 %56,779 47,621 9,158 
Trading securities5,148,461 138,913 2.70 %11,296 — — %138,913 — 138,913 
Other investments990,206 19,935 2.01 %1,398,072 8,643 0.62 %11,292 (1,689)12,981 
TOTAL SECURITIES FINANCING ACTIVITIES, INVESTMENTS AND INTEREST-EARNING DEPOSITS$49,136,899 $1,393,445 2.84 %$33,099,800 $247,271 0.75 %$1,146,174 $186,132 $960,042 
LOANS (3):
      
C&I14,523,190 461,783 3.18 %15,678,551 534,060 3.41 %(72,277)(37,736)(34,541)
CRE7,545,610 327,155 4.34 %7,473,870 219,887 2.94 %107,268 2,124 105,144 
Other commercial loans7,926,838 235,837 2.98 %7,805,304 188,095 2.41 %47,742 2,950 44,792 
Multifamily8,293,261 303,310 3.66 %7,813,702 267,855 3.43 %35,455 16,944 18,511 
Total commercial loans38,288,899 1,328,085 3.47 %38,771,427 1,209,897 3.12 %118,188 (15,718)133,906 
Consumer loans:  
Residential mortgages5,411,962 178,559 3.30 %6,210,124 194,266 3.13 %(15,707)(27,203)11,496 
Home equity loans and lines of credit3,264,483 137,321 4.21 %3,773,878 115,741 3.07 %21,580 (12,324)33,904 
Total consumer loans secured by real estate8,676,445 315,880 3.64 %9,984,002 310,007 3.11 %5,873 (39,527)45,400 
RICs and auto loans43,990,477 5,060,062 11.50 %42,586,936 5,270,380 12.38 %(210,318)181,799 (392,117)
Personal unsecured3,104,720 320,032 10.31 %1,315,028 243,321 18.50 %76,711 (202,908)279,619 
Other consumer114,777 3,689 3.21 %180,208 12,053 6.69 %(8,364)(3,438)(4,926)
Total consumer55,886,419 5,699,663 10.20 %54,066,174 5,835,761 10.79 %(136,098)(64,074)(72,024)
Total loans94,175,318 7,027,748 7.46 %92,837,601 7,045,658 7.59 %(17,910)(79,792)61,882 
TOTAL EARNING ASSETS143,312,217 8,421,193 5.88 %125,937,401 7,292,929 5.79 %1,128,264 106,340 1,021,924 
Allowance for loan losses(6,545,530)(7,011,103)
Other assets(4)
32,939,630 32,892,995 
TOTAL ASSETS$169,706,317 $151,819,293 
INTEREST-BEARING FUNDING LIABILITIES      
Deposits and other customer related accounts:      
Interest-bearing demand deposits$14,100,097 $28,550 0.20 %$13,040,765 $6,237 0.05 %$22,313 $589 $21,724 
Savings5,540,695 2,421 0.04 %5,364,498 2,021 0.04 %400 400 — 
Money market32,252,931 172,317 0.53 %34,307,244 55,463 0.16 %116,854 (3,108)119,962 
CDs4,586,444 101,246 2.21 %3,005,113 23,382 0.78 %77,864 17,364 60,500 
TOTAL INTEREST-BEARING DEPOSITS56,480,167 304,534 0.54 %55,717,620 87,103 0.16 %217,431 15,245 202,186 
Fed funds purchased and securities sold under agreements to repurchase16,968,592 720,800 4.25 %1,089,300 415 0.04 %720,385 87,671 632,714 
Trading liabilities 2,741,436 64,686 2.36 %5,583 940 16.84 %63,746 63,861 (115)
FHLB advances2,280,164 67,429 2.96 %779,732 4,195 0.54 %63,234 18,995 44,239 
Other borrowings40,110,159 1,089,281 2.72 %42,848,623 1,010,755 2.36 %78,526 (56,625)135,151 
TOTAL SECURITIES FINANCING ACTIVITIES AND BORROWED FUNDS62,100,351 1,942,196 3.13 %44,723,238 1,016,305 2.27 %925,891 113,902 811,989 
TOTAL INTEREST-BEARING FUNDING LIABILITIES118,580,518 2,246,730 1.89 %100,440,858 1,103,408 1.10 %1,143,322 129,147 1,014,175 
Noninterest bearing demand deposits20,133,214 20,502,430 
Other liabilities(5)
9,633,826 7,712,628 
TOTAL LIABILITIES148,347,558 128,655,916 
MEZZANINE EQUITY13,699 — 
STOCKHOLDER’S EQUITY21,345,060 23,163,377 
TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDER’S EQUITY$169,706,317 $151,819,293 
NET INTEREST SPREAD (6)
  3.99 %4.69 %
NET INTEREST MARGIN (7)
  4.31 %4.91 %
NET INTEREST INCOME$6,174,463 $6,189,521 
(1)Average balances are based on daily averages when available. When daily averages are unavailable, mid-month averages are substituted.
(2)Yields calculated using taxable equivalent net interest income.
(3)Interest on loans includes amortization of premiums and discounts on purchased loan portfolios and amortization of deferred loan fees, net of origination costs. Average loan balances includes non-accrual loans and LHFS.
(4)Other 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 7 to the Consolidated Financial Statements for further discussion.
(5)Other liabilities primarily includes accounts payable and accrued expenses, derivative liabilities, net deferred tax liabilities and the unfunded lending commitments liability.
(6)Represents the difference between the yield on total earning assets and the cost of total funding liabilities.
(7)Represents annualized, taxable equivalent net interest income divided by average interest-earning assets.
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YEARS ENDED DECEMBER 31, 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)VolumeRate
EARNING ASSETS      
Interest-earning deposits$13,311,422 $25,894 0.19 %$9,370,858 $53,403 0.57 %$(27,509)$46,994 $(74,503)
Federal funds sold1,098,2911,1640.11 %— — — %$1,164 1,164 —
Investments
Available for Sale11,155,963 107,659 0.97 %11,809,338 191,451 1.62 %(83,792)(10,156)(73,636)
Held to maturity6,124,756 103,911 1.70 %4,759,565 96,763 2.03 %7,148 16,498 (9,350)
Investment Trading Securities11,296 — — %12,747 3 0.02 %(3)— (3)
Other1,398,072 8,643 0.62 %996,483 21,574 2.17 %(12,931)16,742 (29,673)
TOTAL SECURITIES FINANCING ACTIVITIES, INVESTMENTS AND INTEREST-EARNING DEPOSITS33,099,800 247,271 0.75 %26,948,991 363,194 1.35 %(115,923)71,242 (187,165)
LOANS (3):
C&I15,678,551 534,060 3.41 %17,057,974 656,615 3.85 %(122,555)(50,787)(71,768)
CRE7,473,870 219,887 2.94 %7,441,701 253,191 3.40 %(33,304)1,099 (34,403)
Other7,805,304 188,095 2.41 %8,336,894 222,045 2.66 %(33,950)(13,723)(20,227)
Multi-family7,813,702 267,855 3.43 %8,499,746 304,098 3.58 %(36,243)(23,859)(12,384)
Total commercial38,771,427 1,209,897 3.12 %41,336,315 1,435,949 3.47 %(226,052)(87,270)(138,782)
Consumer loans:  
Residential mortgages6,210,124 194,266 3.13 %8,186,116 293,830 3.59 %(99,564)(65,035)(34,529)
Home equity loans and lines of credit3,773,878 115,741 3.07 %4,442,712 155,981 3.51 %(40,240)(21,959)(18,281)
Total consumer loans secured by real estate9,984,002 310,007 3.11 %12,628,828 449,811 3.56 %(139,804)(86,994)(52,810)
RICs and auto loans42,586,936 5,270,380 12.38 %39,022,741 5,178,166 13.27 %92,214 347,066 (254,852)
Personal unsecured1,315,028 243,321 18.50 %2,035,356 574,251 28.21 %(330,930)(167,748)(163,182)
Other consumer180,208 12,053 6.69 %269,050 18,913 7.03 %(6,860)(5,983)(877)
Total consumer54,066,174 5,835,761 10.79 %53,955,975 6,221,141 11.53 %(385,380)86,341 (471,721)
Total loans92,837,601 7,045,658 7.59 %95,292,290 7,657,090 8.04 %(611,432)(929)(610,503)
TOTAL EARNING ASSETS125,937,401 7,292,929 5.79 %122,241,281 8,020,284 6.56 %(727,355)70,313 (797,668)
Allowance for loan losses(7,011,103)(6,883,161)
Other assets(4)
32,892,995 34,287,746 
TOTAL ASSETS$151,819,293 $149,645,866 
INTEREST-BEARING FUNDING LIABILITIES      
Deposits and other customer related accounts:      
Interest-bearing demand deposits$13,040,765 $6,237 0.05 %$11,234,908 $23,525 0.21 %$(17,288)$4,623 $(21,911)
Savings5,364,498 2,021 0.04 %5,595,609 7,806 0.14 %(5,785)(316)(5,469)
Money market34,307,244 55,463 0.16 %30,074,345 164,730 0.55 %(109,267)27,055 (136,322)
CDs3,005,113 23,382 0.78 %6,091,246 94,344 1.55 %(70,962)(35,829)(35,133)
TOTAL INTEREST-BEARING DEPOSITS55,717,620 87,103 0.16 %52,996,108 290,405 0.55 %(203,302)(4,467)(198,835)
BORROWED FUNDS:         
Federal funds purchased1,089,300 415 0.04 %— 9 — %406 406 — 
Trading Liabilities5,583 940 16.84 %95,409 1,204 1.26 %(264)22 (286)
FHLB advances779,732 4,195 0.54 %4,745,004 67,199 1.42 %(63,004)(36,177)(26,827)
Other borrowings42,848,623 1,010,755 2.36 %44,864,694 1,301,986 2.90 %(291,231)(56,615)(234,616)
TOTAL SECURITIES FINANCING ACTIVITIES AND BORROWED FUNDS44,723,238 1,016,305 2.27 %49,705,107 1,370,398 2.76 %(354,093)(92,364)(261,729)
TOTAL INTEREST-BEARING FUNDING LIABILITIES100,440,858 1,103,408 1.10 %102,701,215 1,660,803 1.62 %(557,395)(96,831)(460,564)
Noninterest bearing demand deposits20,502,430 17,815,420 
Other liabilities(5)
7,712,628 7,409,555 
TOTAL LIABILITIES128,655,916 127,926,190 
STOCKHOLDER’S EQUITY23,163,377 21,719,676 
TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDER’S EQUITY$151,819,293 $149,645,866 
NET INTEREST SPREAD (6)
  4.69 %4.94 %
NET INTEREST MARGIN (7)
  4.91 %5.20 %
NET INTEREST INCOME$6,189,521 $6,359,481 
(1)- (7) Refer to corresponding notes above.
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NET INTEREST INCOME

Net interest income decreased $15.1 million for the year ended December 31, 2022 compared to the corresponding period in 2021. The most significant factors contributing to these changes were as follows:

•Interest income on loans decreased $17.9 million for the year ended December 31, 2022 compared to the corresponding period in 2021. The change is attributed to an decrease in average loan balances of $79.8 million and a increase in average rates of $61.9 million. Refer to the discussion of changes in loan balances in the "Loan Portfolio" section of this MD&A. The increase is attributed to interest rate increases.
•Interest income on interest-earning deposits increased $197.9 million for the year ended December 31, 2022 compared to the corresponding period in 2021. The change is primarily driven by the changing interest rate environment.
•Interest and fees on federal funds sold and securities purchased under resale agreements or similar arrangements increased $681.0 million for the year ended December 31, 2022 compared to the corresponding period in 2021. The change is primarily due to increased Securities Financing Activities following the acquisition of PCH during 2022.
•Interest income on investment securities increased $267.2 million for the year ended December 31, 2022 compared to the corresponding period in 2021. The change is primarily driven by an increase in interest rates during the year.
•Interest expense on deposits and related customer accounts increased $217.4 million for the year ended December 31, 2022 compared to the corresponding period in 2021. The change is attributed to an increase in average interest-bearing deposit balances of $15.2 million and an increase in average rates of $202.2 million. The increase on average rates is primarily attributed to money market and CD products.
•Interest expense on Securities Financing Activities and borrowed funds increased $925.9 million for the year ended December 31, 2022 compared to the corresponding period in 2021. The change is attributed to an increase in average balances of $113.9 million and an increase in average rates of $812.0 million. Both changes were mostly attributed to an increase in Securities Financing Activities.


CREDIT LOSS EXPENSE (BENEFIT)

The Company had credit loss expense of $2.0 billion for the year ended December 31, 2022, compared to a credit loss benefit of $207.3 million for the corresponding period in 2021. The credit loss expense during the year ended December 31, 2022 was due to the build of the ACL in response to market deterioration, increased charge-offs in the RIC portfolio, and new originations in the personal unsecured portfolios. The credit loss benefit in the prior year was due to an improved credit outlook and lower realized loan losses due to the government support programs during the COVID-19 pandemic.

Credit loss expense on commercial loans increased $187.3 million for the year ended December 31, 2022, compared to the corresponding period in 2021, primarily driven by deterioration in macroeconomic outlook uncertainty in office, hospitality, and retail segments impacting the CRE portfolio, and the release of reserves added during the COVID-19 pandemic in 2021 that resulted in a credit loss benefit in the prior year. Deterioration in macroeconomic outlook included factors such as rising interest rates and a persistent inflation.

Credit loss expense on consumer loans increased $2.0 billion for the year ended December 31, 2022, compared to the corresponding period in 2021, primarily driven by an increase in RIC charge-offs and ACL build in response to macroeconomic outlook deterioration. Net charge-offs on the consumer loan portfolios increased $999.1 million, for the year ended December 31, 2022, compared to 2021 as prior year activity partially reflected the effects of stimulus payments received by customers while current year activity reflects the normalization in credit performance as delinquencies have returned to pre COVID-19 pandemic levels.

The credit loss (benefit) on unfunded credit losses for the year ended December 31, 2022 decreased $23.8 million, compared to the corresponding period in 2021.


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NON-INTEREST INCOME
Years Ended December 31,YTD Change
(dollars in thousands)20222021Dollar increase/(decrease)Percentage
Consumer fees$252,142 $297,452 $(45,310)(15.2)%
Commercial fees147,306 139,589 7,717 5.5 %
Lease income2,650,668 2,899,816 (249,148)(8.6)%
Capital market revenue179,843 250,268 (70,425)(28.1)%
Miscellaneous income, net480,762 850,581 (369,819)(43.5)%
Net gains recognized in earnings18,542 14,481 4,061 28.0 %
Total non-interest income $3,729,263 $4,452,187 $(722,924)(16.2)%

Total non-interest income decreased $722.9 million for the year ended December 31, 2022, compared to the corresponding period in 2021. The change in the year ended December 31, 2022 was primarily due to:
•a decrease in consumer fees of $45.3 million that is attributed to lower consumer loan and deposit fees due to volume offset by higher insurance and investment fees resulting from the acquisition of PCH;
•a decrease in lease income of $249.1 million from lower lease originations;
•a decrease in capital market revenue of $70.4 million from changes to the market during the second half of 2022; and,
•a decrease in miscellaneous income of $369.8 million, net discussed further below.

Miscellaneous income
Years Ended December 31,YTD Change
(dollars in thousands)20222021Dollar increase/(decrease)Percentage
Mortgage banking income, net$27,134 $50,656 $(23,522)(46.4)%
BOLI61,151 60,091 1,060 1.8 %
Net gain on sale of operating leases84,774 443,809 (359,035)(80.9)%
Asset and wealth management fees252,900 235,561 17,339 7.4 %
Gain on sale of non-mortgage loans(19,687)(19,228)(459)(2.4)%
Other miscellaneous income / (loss), net74,490 79,692 (5,202)(6.5)%
Total miscellaneous income$480,762 $850,581 $(369,819)(43.5)%

Miscellaneous income decreased $369.8 million for the year ended December 31, 2022, compared to the corresponding periods in 2021.

•Gain on sale of operating leases decreased $359.0 million for the year ended December 31, 2022, compared to the corresponding period in 2021, primarily driven by less lease terminations and lower gains on sale upon lease termination.

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GENERAL, ADMINISTRATIVE AND OTHER EXPENSES
Years Ended December 31,YTD Change
(dollars in thousands)20222021Dollar increase/(decrease)Percentage
Compensation and benefits$2,001,243 $1,975,292 $25,951 1.3 %
Occupancy and equipment expenses653,820 663,660 (9,840)(1.5)%
Technology, outside services, and marketing expense656,038 605,464 50,574 8.4 %
Loan expense287,419 319,287 (31,868)(10.0)%
Lease expense2,036,715 2,032,206 4,509 0.2 %
Other expenses501,544 548,258 (46,714)(8.5)%
Total general, administrative and other expenses$6,136,779 $6,144,167 $(7,388)(0.1)%

Total general, administrative and other expenses decreased $7.4 million for the year ended December 31, 2022, compared to corresponding period in 2021. The most significant contributing factors were as follows:

•Technology, outside services, and marketing expense increased $50.6 million for the year ended December 31, 2022, compared to the corresponding period in 2021 due to consulting and other expenses related to the acquisition of PCH.
•Loan expense decreased $31.9 million for the year ended December 31, 2022, compared to the corresponding period in 2021, due to decreases in loan servicing expense driven by a decrease in volume.
•Other expense decreased $46.7 million for the year ended December 31, 2022, compared to the corresponding period in 2021. This change was due to decreased legal expense and miscellaneous expense.

INCOME TAX PROVISION

An income tax expense of $343.1 million and $1.1 billion were recorded for the years ended December 31, 2022 and 2021, respectively. This resulted in an ETR of 19.6% and 23.0% for years ended December 31, 2022 and 2021, respectively. The decrease in the Company’s ETR from December 31, 2021 to December 31, 2022 is primarily attributable to an increase in electric vehicle and other general business tax credits in 2022 which reduce the ETR. The ETR increased from 14.4% at December 31, 2020 to 23.0% at December 31, 2021. The lower ETR in 2020 was driven by the 2020 goodwill impairment.

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.

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LINE OF BUSINESS RESULTS

The Company manages its business activities by it six reportable segments, Auto, CBB, C&I, CRE, CIB, and Wealth Management. The tables below reflect certain information by reportable segment and includes additional supplementary information related to consumer activities and commercial activities. The supplementary information is deemed to be useful as it represents a view in how we manage the business and also aligns with how our parent, Santander, manages its business from a global perspective.

Consumer Activities

Consumer activities consist of the Company's Auto and CBB reportable segments.

Twelve-month period endedDecember 31, 2022December 31, 2021Total Consumer Activities
AutoCBBTotal Consumer activitiesAutoCBBTotal Consumer ActivitiesDollar increase/(decrease)Percentage
Net interest income$4,041,002 $1,403,871 $5,444,873 $4,335,818 $1,300,240 $5,636,058 $(191,185)(3.4)%
Non-interest income2,779,138 300,983 $3,080,121 3,412,388 325,103 $3,737,491 $(657,370)(17.6)%
Credit loss expense / (benefit)1,730,062 216,600 $1,946,662 (118,670)29,339 $(89,331)$2,035,993 2,279.2 %
Total expenses3,294,863 1,548,098 $4,842,961 3,464,615 1,590,148 $5,054,763 $(211,802)(4.2)%
Income/(loss) before income taxes1,795,215 (59,844)$1,735,371 4,402,261 5,856 $4,408,117 $(2,672,746)(60.6)%
Total assets62,645,083 13,107,982 $75,753,065 63,061,949 12,561,672 $75,623,621 $129,444 0.2 %

The Company reported total income before income taxes related to its Consumer activities of $1.7 billion for the year ended December 31, 2022 compared to income before income taxes of $4.4 billion for the corresponding period in 2021. The most significant drivers of these changes were:

•Net interest income for Auto decreased $294.8 million for the year ended December 31, 2022 compared to the corresponding period of 2021. This change was primarily due to an increase in the cost of funds rates on the Company's warehouse lines and secured structured financing.
•Non-interest income for Auto decreased $633.3 million for the year ended December 31, 2022 compared to the corresponding period of 2021. This change was primarily due to reduction of the lease portfolio of $1.1 billion, less lease terminations and vehicles turned over to the Company for sale at auction, and a reduction in subvention dollars from manufacturers.
•Credit loss expense in Auto increased $1.8 billion or the year ended December 31, 2022 compared to the corresponding period in 2021. The increase is due to a normalization of credit losses from 2021, loan volume growth, and deterioration of macroeconomic scenarios.
•Total expense in CBB decreased $42.1 million for the year ended December 31, 2022 compared to the corresponding period in 2021. The decrease is driven by the Bank’s transformation initiative to refine the branch network across its footprint and the Bank’s exit from the residential lending line of business.
•Total expenses for Auto decreased $169.8 million for the year ended December 31, 2022 compared to the corresponding period of 2021. This change was primarily due to one-time expenditures in the prior year, and lower lease depreciation expense in the current year.

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Commercial Activities

Commercial activities consists of the Company's C&I reportable segment and CRE reportable segment.

Twelve-Month Period EndedDecember 31, 2022December 31, 2021Total Commercial Activities
C&ICRETotal Commercial ActivitiesC&ICRETotal Commercial ActivitiesDollar increase/(decrease)Percentage
Net interest income$311,808 $357,676 $669,484 $291,550 $341,362 $632,912 $36,572 5.8 %
Non-interest income69,328 38,190 $107,518 69,742 42,933 $112,675 $(5,157)(4.6)%
Credit loss expense / (benefit)47,821 7,321 $55,142 (78,402)(7,186)$(85,588)$140,730 164.4 %
Total expenses258,178 120,752 $378,930 252,769 113,474 $366,243 $12,687 3.5 %
Income/(loss) before income taxes75,137 267,793 $342,930 186,925 278,007 $464,932 $(122,002)(26.2)%
Total assets6,345,307 20,546,103 $26,891,410 6,915,480 17,379,967 $24,295,447 $2,595,963 10.7 %

The Company reported total income before income taxes related to its Commercial activities of $342.9 million, for the year ended December 31, 2022 compared to income before income taxes of $464.9 million for the corresponding period in 2021. The most significant drivers of this change was:

•Credit loss expense in C&I increased $126.2 million for the year ended December 31, 2022 compared to the corresponding period of 2021. This increase is due to higher net charge-offs and deterioration of macroeconomics scenarios.
•Total assets in CRE increased $3.2 billion for the year ended December 31, 2022 compared to the corresponding period of 2021. This increase was driven by our strategy to grow our higher-return financing projects in the Multifamily and CRE lines of business. Multifamily loans increased $2.1 billion from December 31, 2021 to December 31, 2022.
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CIB
 Years Ended December 31,YTD Change
(dollars in thousands)20222021Dollar increase/(decrease)Percentage
Net interest income$178,435 $107,568 $70,867 65.9 %
Total non-interest income237,000 246,141 (9,141)(3.7)%
Credit loss expense / (benefit)19,652 (27,641)47,293 171.1 %
Total expenses459,145 278,733 180,412 64.7 %
Income / (Loss) before income taxes(63,362)102,617 (165,979)(161.7)%
Total assets30,478,602 16,016,527 14,462,075 90.3 %

CIB reported losses before income taxes of $63.4 million for the year ended December 31, 2022 compared to income before income taxes of $102.6 million for the corresponding period in 2021. Factors contributing to this change were:

•Net interest income increased $70.9 million for the year ended December 31, 2022 compared to the corresponding period in 2021. This increase is due to the acquisition of PCH in the second quarter of 2022 which contributed to approximately $29.4 million of additional net interest income in the current year, The remainder of the increase was due to growth in the CIB loan portfolio accompanied by higher interest yields.
•Credit loss expense increased $47.3 million for the year ended December 31, 2022 compared to the corresponding period of 2021. This increase is due to volume growth in the CIB loan portfolio and deterioration in macroeconomic scenarios.
•Total expenses increased $180.4 million for the years ended December 31, 2022, compared to the corresponding period in 2021. The increase is primarily driven by the additional operating costs of APS.
•Total assets increased $14.5 billion for the year ended December 31, 2022 compared to the corresponding period in 2021. The increase is primarily driven by the acquisition of PCH, which contributed $15.7 billion of assets as of December 31, 2022.

Wealth Management

 Years Ended December 31,YTD Change
(dollars in thousands)20222021Dollar increase/(decrease)Percentage
Net interest income$177,627 $95,014 $82,613 86.9 %
Total non-interest income258,939 255,200 3,739 1.5 %
Credit loss expense / (benefit)— (351)351 100.0 %
Total expenses244,863 223,831 21,032 9.4 %
Income / (Loss) before income taxes191,703 126,734 64,969 51.3 %
Total assets7,854,953 8,051,489 (196,536)(2.4)%

Wealth Management reported income before income taxes of $191.7 million for the year ended December 31, 2022, compared to income before income taxes of $126.7 million for the corresponding period in 2021. The primary factor contributing to this change was:

•Net interest income increased $82.6 million for the year ended December 31, 2022 compared to the corresponding period in 2021. The increase is primarily the result of higher interest rates earned on the Company's investment and loan portfolios, offset by an increase in the cost of term deposits due to higher rates offered and an increase in customer deposit volume.

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Other
 Years Ended December 31,YTD Change
(dollars in thousands)20222021Dollar increase/(decrease)Percentage
Net interest income$(295,956)$(282,031)$(13,925)(4.9)%
Total non-interest income45,685 100,680 (54,995)(54.6)%
Credit loss expense / (benefit)(2,639)(4,438)1,799 40.5 %
Total expenses210,880 220,597 (9,717)(4.4)%
Income / (Loss) before income taxes(458,512)(397,510)(61,002)(15.3)%
Total assets27,216,290 35,834,147 (8,617,857)(24.0)%

The Other category reported a loss before income taxes of $458.5 million for the years ended December 31, 2022 respectively, compared to a loss before income taxes of $397.5 million for the corresponding period in 2021. The primary factor contributing to the change was:

•Total non-interest income decreased $55.0 million for the year ended December 31, 2022 compared to the corresponding period of 2021. This decline is mainly due to the treasury activity related to the loss on the sale of investment portfolio in 2022, compared to gains on the sale of investment portfolio in 2021.


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FINANCIAL CONDITION

LOAN PORTFOLIO

The Company's LHFI portfolio consisted of the following at the dates indicated:
    
December 31, 2022December 31, 2021December 31, 2020December 31, 2019December 31, 2018
(dollars in thousands)AmountPercentAmountPercentAmountPercentAmountPercentAmountPercent
Commercial LHFI:
CRE$7,971,299 8.2 %$7,227,003 7.8 %$7,327,853 8.0 %$8,468,023 9.1 %$8,704,481 10.0 %
C&I14,811,074 15.2 %14,710,864 16.0 %16,537,899 17.9 %16,534,694 17.8 %15,738,158 18.1 %
Multifamily9,629,423 9.9 %7,547,382 8.2 %8,367,147 9.1 %8,641,204 9.3 %8,309,115 9.5 %
Other commercial7,982,107 8.2 %8,170,031 8.9 %7,455,504 8.1 %7,390,795 8.2 %7,630,004 8.8 %
Total commercial loans (1)
40,393,903 41.5 %37,655,280 40.9 %39,688,403 43.1 %41,034,716 44.4 %40,381,758 46.4 %
Consumer loans secured by real estate:
Residential mortgages5,202,862 5.3 %5,598,560 6.1 %6,590,168 7.2 %8,835,702 9.5 %9,884,462 11.4 %
Home equity loans and lines of credit3,002,804 3.1 %3,487,234 3.8 %4,108,505 4.5 %4,770,344 5.1 %5,465,670 6.3 %
Total consumer loans secured by real estate8,205,666 8.4 %9,085,794 9.9 %10,698,673 11.7 %13,606,046 14.6 %15,350,132 17.7 %
Consumer loans not secured by real estate:
RICs and auto loans44,577,186 45.8 %43,183,098 46.9 %40,698,642 44.1 %36,456,747 39.3 %29,335,220 33.7 %
Personal unsecured loans4,068,848 4.2 %2,009,654 2.2 %824,430 0.9 %1,291,547 1.4 %1,531,708 1.8 %
Other consumer92,726 0.1 %141,986 0.1 %223,034 0.2 %316,384 0.3 %447,050 0.4 %
Total consumer loans56,944,426 58.5 %54,420,532 59.1 %52,444,779 56.9 %51,670,724 55.6 %46,664,110 53.6 %
Total LHFI$97,338,329 100.0 %$92,075,812 100.0 %$92,133,182 100.0 %$92,705,440 100.0 %$87,045,868 100.0 %
Total LHFI with:
Fixed$67,693,444 69.5 %$64,774,941 70.3 %$64,036,154 69.5 %$61,775,942 66.6 %$56,696,491 65.1 %
Variable29,644,885 30.5 %27,300,871 29.7 %28,097,028 30.5 %30,929,498 33.4 %30,349,377 34.9 %
Total LHFI$97,338,329 100.0 %$92,075,812 100.0 %$92,133,182 100.0 %$92,705,440 100.0 %$87,045,868 100.0 %
(1) As of December 31, 2022, the Company had $446.3 million of commercial loans that were denominated in a currency other than the U.S. dollar.


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Loans by Maturity and Interest Rate Sensitivity
At December 31, 2022, Maturing
(in thousands)In One Year
Or Less		One to Five
Years		Five to 15 YearsAfter 15
Years
Total (1)
Fixed Rates:
CRE loans$71,190 $256,693 $157,951 $9,883 $495,717 
C&I 693,010 1,066,993 590,569 305 2,350,877 
Multifamily loans324,467 2,966,622 3,454,711 5,151 6,750,951 
Other commercial1,522,887 2,559,232 1,022,741 — 5,104,860 
Total Commercial$2,611,554 $6,849,540 $5,225,972 $15,339 $14,702,405 
Residential mortgages1,172 27,164 640,572 3,682,193 4,351,101 
Home equity loans and lines of credit12,402 8,498 46,286 25,862 93,048 
RICs and auto loans518,472 24,586,105 19,472,386 220 44,577,183 
Personal unsecured loans48,534 3,502,263 329,360 38 3,880,195 
Other consumer1,300 63,995 19,185 5,580 90,060 
Total Fixed Rates$3,193,434 $35,037,565 $25,733,761 $3,729,232 $67,693,992 
Variable Rates:
CRE loans$1,986,518 $4,705,611 $655,331 $139,752 $7,487,212 
C&I2,781,500 8,045,500 1,683,303 37,273 12,547,576 
Multifamily loans412,832 1,369,058 1,093,792 2,790 2,878,472 
Other commercial2,666,031 210,112 1,103 — 2,877,246 
Total Commercial$7,846,881 $14,330,281 $3,433,529 $179,815 $25,790,506 
Residential mortgages217 6,246 162,037 683,810 852,310 
Home equity loans and lines of credit6,351 3,088 499,735 2,400,583 2,909,757 
RICs and auto loans— — — — — 
Personal unsecured loans1,795 125,497 60,898 463 188,653 
Other consumer— — 2,666 — 2,666 
Total Variable Rates$7,855,244 $14,465,112 $4,158,865 $3,264,671 $29,743,892 
Total$11,048,678 $49,502,677 $29,892,626 $6,993,903 $97,437,884 

Commercial

Commercial loans increased approximately $2.7 billion, or 7.3% from December 31, 2021 to December 31, 2022. This increase was primarily attributed to an increase in Multifamily loans of $2.1 billion, an increase in CRE loans of $744.3 million and an increase in C&I loans of $100.2 million. The increase in Multifamily loans was driven by new offices in Florida and Texas, resulting in increased originations.

Consumer Loans Secured By Real Estate

Consumer loans secured by real estate decreased $880.1 million, from December 31, 2021 to December 31, 2022. This decrease primarily resulted from the Company’s decision to stop the origination of new residential mortgage and home equity loans in the first quarter of 2022.

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Consumer Loans Not Secured By Real Estate

RICs and auto loans

RICs and auto loans increased $1.4 billion, from December 31, 2021 to December 31, 2022. The increase in the RIC and auto loan portfolio was primarily due to increases in originations, net of securitizations. RICs are collateralized by vehicle titles, and the lender has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. Most of the Company's RICs HFI are pledged against warehouse lines or securitization bonds. Refer to further discussion of these in Note 10 to the Consolidated Financial Statements.

As of December 31, 2022, 59.1% 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 6.7% 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 of the historical focus for such credit has been predominantly on nonprime consumers, the actual rates of delinquencies, defaults, repossessions, and losses on these loans could be more dramatically affected by a general economic downturn.

The Company's automated originations process for these credits reflects a disciplined approach to credit risk management to mitigate the risks of nonprime customers. The Company's robust historical data on both organically originated and acquired loans provides it with the ability to perform advanced loss forecasting. Each applicant is automatically assigned a proprietary custom score using information such as FICO scores, 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.

Personal unsecured and other consumer loans

During the year ended December 31, 2022, the Company approved and completed purchases of performing personal unsecured loans from third parties with a UPB of approximately $720.0 million. Servicing was retained by the sellers with no future minimum amounts required to be purchased.

Personal unsecured and other consumer loans HFI increased $2.0 billion from December 31, 2021 to December 31, 2022. The increase is comprised of $720.0 million of loan purchases and $1.4 billion increase in new loan originations, offset by payoffs and paydowns.




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NON-PERFORMING ASSETS

The following table presents the composition of non-performing assets at the dates indicated:    
Period EndedChange
(dollars in thousands)December 31, 2022December 31, 2021DollarPercentage
Non-accrual loans:  
Commercial:  
CRE$62,093 $31,752 $30,341 95.6 %
C&I 94,299 69,754 24,545 35.2 %
Multifamily18,476 103,299 (84,823)(82.1)%
Other commercial5,180 9,036 (3,856)(42.7)%
Total commercial loans180,048 213,841 (33,793)(15.8)%
Consumer loans secured by real estate:  
Residential mortgages75,666 123,548 (47,882)(38.8)%
Home equity loans and lines of credit82,664 88,310 (5,646)(6.4)%
Consumer loans not secured by real estate:
RICs and auto loans1,986,748 1,467,928 518,820 35.3 %
Personal unsecured loans10,397 2,892 7,505 259.5 %
Other consumer5,332 1,047 4,285 409.3 %
Total consumer loans2,160,807 1,683,725 477,082 28.3 %
Total non-accrual loans2,340,855 1,897,566 443,289 23.4 %
OREO4,437 3,724 713 19.1 %
Repossessed vehicles229,531 247,757 (18,226)(7.4)%
Other repossessed assets1,128 294 834 283.7 %
Total OREO and other repossessed assets235,096 251,775 (16,679)(6.6)%
Total non-performing assets$2,575,951 $2,149,341 $426,610 19.8 %
Past due 90 days or more as to interest or principal and accruing interest$3,719 $2,314 $1,405 60.7%
Non-performing assets as a percentage of total assets1.5 %1.3 %   n/a   n/a




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CREDIT RATIOS

As of and for the year ended
(dollars in thousands)December 31, 2022December 31, 2021December 31, 2020
ACL to total loan outstanding7.05 %7.11 %7.93 %
ACL$6,865,581 $6,565,504 $7,484,948 
Total loans outstanding97,437,884 92,330,835 94,359,378 
NPL to total loans outstanding2.4 %2.1 %1.8 %
NPL$2,340,855 $1,897,566 $1,738,635 
Total loans outstanding97,437,884 92,330,835 94,359,378 
ACL to NPL293.3 %346.0 %430.5 %
ACL$6,865,581 $6,565,504 $7,484,948 
NPL2,340,855 1,897,566 1,738,635 
NCO during the period to average loans outstanding:
Commercial0.20 %0.18 %0.35 %
Net charge-offs / (recoveries) during the period (1)
$76,469 $68,949 $145,332 
Average amount outstanding38,288,899 38,771,427 41,336,315 
Consumer2.94 %1.19 %2.82 %
Net charge-offs / (recoveries) during the period (1)
$1,642,271 $643,146 $1,522,211 
Average amount outstanding55,886,419 54,066,174 53,955,975 
(1) Annualized net loan charge-offs are based on year to date charge-offs.

Commercial net charge-offs during the period to average loans increased from December 31, 2021 to December 31, 2022. The increase in net charge-offs is primarily due to deterioration of the C&I portfolio. Consumer net Charge-offs during the period to average loans increased from December 31, 2021 to December 31, 2022. The increase is primarily due to the residual effects of COVID modification programs that lasted into 2021and charge-offs normalizing to pre-COVID periods.

Commercial

Commercial NPLs decreased $33.8 million from December 31, 2021 to December 31, 2022. Commercial NPLs accounted for less than 1% of commercial LHFI at December 31, 2022. The change in commercial NPLs was primarily comprised of a decrease of $84.8 million in the Multifamily portfolio, partially offset by an increase of $30.3 million in the CRE portfolio and an increase of $24.5 million in the C&I portfolio, comprised primarily of one commercial customer impacted by supply chain issues.

Consumer Loans Secured by Real Estate

NPLs in the Residential mortgage portfolio decreased year-over-year primarily resulting from the Company’s decision to stop the origination of new residential mortgage and home equity loans in the first quarter of 2022. Foreclosures on consumer loans secured by real estate were $75.2 million or 47.5% of non-performing consumer loans secured by real estate at December 31, 2022, compared to $41.1 million or 19.4% of consumer loans secured by real estate at December 31, 2021.

Consumer Loans Not Secured by Real Estate

RICs

RICs 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. NPLs in the RIC and auto loan portfolio increased by $518.8 million from December 31, 2021 to December 31, 2022. Non-performing RICs and auto loans accounted for 4.5% and 3.4% of total RICs and auto loans at December 31, 2022 and December 31, 2021, respectively.


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Personal unsecured loans

The accrual of interest on revolving personal loans continues until the loan is charged off. Credit cards are charged off when they are 180 days delinquent or within 60 days after the receipt of notification of the cardholder’s death or bankruptcy. NPLs in the personal unsecured portfolio increased by $7.5 million from December 31, 2021 to December 31, 2022. Non-performing personal unsecured loans accounted for 0.3% and 0.1% of total personal unsecured loans at December 31, 2022 and December 31, 2021, respectively.
Delinquencies

Early stage delinquency in commercial loans totaled approximately $111.2 million and $113.9 million at December 31, 2022 and December 31, 2021, respectively. Early stage delinquency consumer loans amounted to $4.7 billion and $3.7 billion at December 31, 2022 and December 31, 2021, respectively. The increase in consumer loan delinquencies is primarily due to higher loan balances, pressures from the economic factors, as well as stimulated by the ending of government support programs utilized during COVID-19 and credit performance normalization post-COVID-19. Management has included these loans in its evaluation of the Company's ACL and reserved for them during the respective periods.

The Company generally considers 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 increased by $1.1 billion from December 31, 2021 to December 31, 2022, primarily due to past due auto loans due to credit performance normalization as delinquencies have returned to pre COVID-19 pandemic levels.

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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 December 31, 2022
(in thousands)Commercial%Consumer Loans Secured by Real Estate%RICs and Auto Loans%Other Consumer%Total TDRs
Performing$71,785 76.4 %$195,256 73.9 %$2,410,845 86.2 %$16,121 98.2 %$2,694,007 
Non-performing22,152 23.6 %68,876 26.1 %387,108 13.8 %295 1.8 %478,431 
Total$93,937 100.0 %$264,132 100.0 %$2,797,953 100.0 %$16,416 100.0 %$3,172,438 
% of loan portfolio0.2 %n/a3.2 %n/a6.3 %n/a0.4 %n/a3.3 %
(1) Excludes LHFS.
As of December 31, 2021
(in thousands)Commercial%Consumer Loans Secured by Real Estate%RICs and Auto Loans%Other Consumer%Total TDRs
Performing$103,582 51.2 %$171,991 60.7 %$3,341,939 89.4 %$24,081 97.7 %$3,641,593 
Non-performing98,620 48.8 %111,511 39.3 %397,122 10.6 %571 2.3 %607,824 
Total$202,202 100.0 %$283,502 100.0 %$3,739,061 100.0 %$24,652 100.0 %$4,249,417 
% of loan portfolio0.5 %n/a3.1 %n/a8.7 %n/a1.1 %n/a4.6 %
(1) Excludes LHFS.

The following table provides a summary of TDR activity:
Year Ended December 31, 2022Year Ended December 31, 2021
(in thousands)RICs and Auto Loans
All Other Loans(1)
RICs and Auto Loans
All Other Loans(1)
TDRs, beginning of period$3,739,061 $510,356 $3,987,845 $336,284 
New TDRs(1)
832,665 106,947 2,208,968 450,748 
TDRs charged-off / repossessed(494,002)(15,859)(828,557)(15,621)
Repurchased/(Sold) TDRs12,595 — (1,193,146)— 
Payments on TDRs(1,292,366)(226,959)(436,049)(261,055)
TDRs, end of period$2,797,953 $374,485 $3,739,061 $510,356 
(1) New TDRs includes drawdowns on lines of credit that have previously been classified as TDRs.

The decrease in RIC and auto loan TDRs from December 31, 2021 to December 31, 2022 was attributed to TDR loan payoffs which outpaced new TDRs and increased efforts to work with customers prior to entering into loan modifications. All other loans decreased primarily due to loan payoffs, principal reductions, and amortization in the C&I, CEVF, CRE, and SREC portfolios, as well as a decrease in residential mortgage and home equity modifications resulting from the Company's decision to stop originating mortgages and home equity loans.

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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.
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 factors such as changes in unemployment, GDP, HPI, CRE price index, used vehicle index, and other factors. In general, there is an inverse relationship between credit quality of transactions and projections of impairment losses so that transactions with better credit quality require a lower expected loss. The Company manages this risk through its underwriting, pricing and credit approval guidelines and servicing policies and practices, as well as geographic and other concentration limits.
The Company's ACL is principally based on various models subject to the Company's Model Risk Management Framework. New models are 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.


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ACL levels are collectively reviewed for adequacy and approved quarterly. Required actions resulting from the Company's analysis, if necessary, are governed by its ACL Committee. The ACL levels are approved by the Board-level committees quarterly.

ACL

The Company's ACL was $6.9 billion at December 31, 2022, including an increase of $318.6 million from December 31, 2021. The increase in the ACL was primarily driven by a deterioration in the macroeconomic outlook and higher loan volume in the RIC and personal unsecured lending portfolios. The ACL for the consumer segment increased $318.7 million, offset by a decrease of $18.6 million in the ACL for the commercial segment. Refer to the rollforward of the ACL in Note 3 to the Consolidated Financial Statements.

Reserve for Unfunded Lending Commitments

The reserve for unfunded lending commitments decreased from $104.1 million at December 31, 2021 to $85.6 million at December 31, 2022. The decrease included a credit loss benefit of $13.5 million on commercial commitments and a credit loss benefit of $5.0 million on consumer commitments.

INVESTMENT SECURITIES

The following table presents the Company's investment portfolio at the dates indicated:
(in thousands)December 31, 2022December 31, 2021
Investment securities AFS:
U.S. Treasury securities and government agencies$3,879,518 $6,172,652 
FNMA and FHLMC securities2,276,192 4,327,556 
Other securities (1)
874,509 813,729 
Total investment securities AFS7,030,219 11,313,937 
Investment securities HTM:
U.S. government agencies8,009,802 6,702,471 
FNMA and FHLMC securities1,539,416 — 
Total investment securities HTM9,549,218 6,702,471 
Trading securities5,864,324 35,791 
Other investments1,116,161 1,060,347 
Total investment portfolio$23,559,922 $19,112,546 
(1) Other securities primarily include corporate debt securities and ABS.


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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:

 December 31, 2022December 31, 2021ChangePercent
(in thousands)Fair ValueFair Value
U.S. Treasury securities$218,439 $73,618 $144,821 196.7 %
Corporate debt securities370,491 276,007 94,484 34.2 %
ABS504,018 537,722 (33,704)(6.3)%
MBS:
GNMA - Residential3,081,022 4,066,195 (985,173)(24.2)%
GNMA - Commercial580,057 2,032,839 (1,452,782)(71.5)%
FHLMC and FNMA - Residential2,180,201 4,219,641 (2,039,440)(48.3)%
FHLMC and FNMA - Commercial95,991 107,915 (11,924)(11.0)%
Total investments in debt securities AFS$7,030,219 $11,313,937 $(4,283,718)(37.9)%
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 following represents the weighed average yield by maturity for the Company's HTM debt securities portfolio.
Due After 1 Within 5 YearsDue After 5 Within 10 YearsDue After 10 Years/No MaturityTotal
ABS1.53 %2.05 %— %1.81 %
MBS:
GNMA - Residential— %0.51 %2.41 %2.41 %
GNMA - Commercial— %— %2.15 %2.15 %
FHLMC and FNMA - Residential— %— %2.50 %2.50 %
Total Weighted Average Yield1.53 %2.04 %2.29 %2.28 %

The average life of the AFS investment portfolio (excluding certain ABS) at December 31, 2022 was approximately 6.99 years. The average effective duration of the investment portfolio (excluding certain ABS) at December 31, 2022 was approximately 4.00 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 370 investment securities classified as HTM as of December 31, 2022.
(in thousands)December 31, 2022December 31, 2021Change in unrealized gain/(loss)
Total unrealized loss$(884,941)$(138,703)$(746,238)
Total unrealized gain328 42,687 (42,359)
Total unrealized gain/(loss) position$(884,613)$(96,016)$(788,597)

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 December 31, 2022:
December 31, 2022
(in thousands)Amortized CostFair Value
FNMA$1,935,654 $1,705,184 
FHLMC2,278,376 1,982,660 
GNMA (1)
12,126,720 10,471,479 
Total$16,340,750 $14,159,323 
(1) Includes U.S. government agency MBS.

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GOODWILL

At December 31, 2022, goodwill totaled $2.8 billion and represented 1.6% of total assets and 15.9% of total stockholder's equity. The Company conducted its most recent annual goodwill impairment tests as of October 1, 2022 using generally accepted valuation methods and noted no impairment.

For the Auto, CBB, C&I, CRE, and CIB reporting unit fair valuation analyses, the Company applied an equal weighting to the market and income approach. Additionally, for all reporting units, the Company selected a long-term growth rate of 3.5% for use in the income approach DCF analysis and a 25.0% control premium for the market approach based on the Company's review of transactions observable in the marketplace that were determined to be comparable. Other key assumptions by reporting unit included:

AutoCBBC&ICRECIB
Projected TBV 1.1x  1.0x  1.1x  1.3x  1.2x
Discount Rate12.3%13.1%13.6%12.9%11.6%

The results of the fair value analyses for each of the reporting units exceeded carrying value by more than 10%.

Management continues to monitor changes in financial position and results of operations that would impact each of the reporting units estimated fair value or carrying value on a regular basis. Through the date of this filing, there have been no indicators which would change management's assessment as of October 1, 2022.

DEPOSITS

Uninsured deposits were $27.9 billion at December 31, 2022. The portion of U.S. time deposits in excess of insurance limit(1) were as follows:

(in thousands)December 31, 2022
Time deposits otherwise uninsured with a maturity of:
3 Months or less$88,684 
Over 3 months through 6 months133,812 
Over 6 months through 12 months298,765 
Over 12 Months326,485 
Total U.S time deposits in excess of insurance limit$847,746 
(1) Uninsured deposits as defined by FDIC 370.
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BORROWINGS AND OTHER DEBT OBLIGATIONS

The Company has term loans and lines of credit with Santander and other lenders. The Company utilizes borrowings and other debt obligations as a source of funds for its asset growth and asset/liability management. In addition, The Company has warehouse lines of credit and securitizes some of its RICs and operating leases, which are structured secured financings. Total borrowings and other debt obligations at December 31, 2022 were $43.6 billion, compared to $41.1 billion at December 31, 2021. Total borrowings increased $2.5 billion, primarily due to a decrease in private securitizations offset by increases in FHLB advances and issuances of Credit-Linked Notes. Refer to Note 10 to the Consolidated Financial Statements for the detail of Borrowings and other debt obligations.

(Dollars in thousands)Year Ended December 31,
Parent Company & other subsidiary borrowings and other debt obligations20222021
Parent Company senior notes and short-term borrowings:
Balance$8,245,892$9,122,233
Weighted average interest rate at year-end3.86 %3.48 %
Maximum amount outstanding at any month-end during the year$10,119,149$10,777,880
Average amount outstanding during the year$9,374,860$10,217,692
Weighted average interest rate during the year3.61 %3.59 %
Parent Company and Subsidiary subordinated notes:
Balance$1,000,000$500,011
Weighted average interest rate at year-end5.03 %2.88 %
Maximum amount outstanding at any month-end during the year$1,000,000$500,011
Average amount outstanding during the year$513,701$78,093
Weighted average interest rate during the year2.98 %2.87 %
Subsidiary short-term and overnight borrowings:
Balance$234,581$57,365
Weighted average interest rate at year-end3.05 %0.05 %
Maximum amount outstanding at any month-end during the year$234,581$57,365
Average amount outstanding during the year$60,435$31,461
Weighted average interest rate during the year1.52 %0.15 %


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(Dollars in thousands)Year Ended December 31,
20222021
Credit Linked Notes:
Balance$1,269,101$293,749
Weighted average interest rate at year-end7.20 %2.53 %
Maximum amount outstanding at any month-end during the year$1,269,101$293,749
Average amount outstanding during the year$588,537$9,657
Weighted average interest rate during the year5.76 %2.35 %
FHLB advances:
Balance$4,000,000$250,000
Weighted average interest rate at year-end4.65 %0.93 %
Maximum amount outstanding at any month-end during the year$6,750,000$1,150,000
Average amount outstanding during the year$2,280,137$785,315
Weighted average interest rate during the year2.96 %0.65 %
Revolving credit facilities:
Balance$3,953,800$0
Weighted average interest rate at year-end5.88 %— %
Maximum amount outstanding at any month-end during the year$3,953,800$4,659,988
Average amount outstanding during the year$1,768,566$1,220,838
Weighted average interest rate during the year6.68 %5.10 %
Revolving credit facilities with Santander:
Balance$0$4,000,000
Weighted average interest rate at year-end— %1.52 %
Maximum amount outstanding at any month-end during the year$4,000,000$4,000,000
Average amount outstanding during the year$1,833,333$4,000,000
Weighted average interest rate during the year1.58 %1.23 %
Public securitizations:
Balance$20,238,243$23,531,904
Weighted average interest rate range at year-end 0.48% - 5.72% 0.48% - 3.42%
Maximum amount outstanding at any month-end during the year$23,244,911$25,196,457
Average amount outstanding during the year$22,363,176$22,251,209
Weighted average interest rate during the year1.93 %2.10 %
Privately issued amortizing notes:
Balance$4,646,656$3,377,925
Weighted average interest rate range at year-end 1.28% - 4.53% 1.28% - 3.90%
Maximum amount outstanding at any month-end during the year$4,877,131$6,847,058
Average amount outstanding during the year$3,177,040$4,949,942
Weighted average interest rate during the year3.12 %1.53 %


DEFERRED TAXES AND OTHER TAX ACTIVITY

The Company had a net deferred tax liability balance of $167.4 million at December 31, 2022 (consisting of a deferred tax asset balance of $221.6 million and a deferred tax liability balance of $389.0 million with respect to jurisdictional netting), compared to a net deferred tax liability balance of $683.4 million at December 31, 2021 (consisting of a deferred tax asset balance of $87.9 million and a deferred tax liability balance of $771.3 million). Refer to Note 17 to the Consolidated Financial Statements for further discussion of the change in deferred tax balances.
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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 U.S. 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 December 31, 2022 and 2021, 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 December 31, 2022 and 2021, based on the Company’s capital calculations, exceeded the required capital ratios for BHCs.

For a discussion of U.S. 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, (3) the Bank has negative retained earnings, or (4) 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. Refer to the section captioned "Liquidity and Capital Resources" for discussion of the Company's dividends.

The following schedule summarizes the actual capital balances of SHUSA and SBNA at December 31, 2022:

SHUSA
December 31, 2022
Well-capitalized Requirement(1)
Minimum Requirement(1)
CET1 capital ratio13.21 %6.50 %4.50 %
Tier 1 capital ratio13.90 %8.00 %6.00 %
Total capital ratio15.94 %10.00 %8.00 %
Leverage ratio10.20 %5.00 %4.00 %

SBNA
December 31, 2022
Well-capitalized Requirement(1)
Minimum Requirement(1)
CET1 capital ratio14.61 %6.50 %4.50 %
Tier 1 capital ratio14.61 %8.00 %6.00 %
Total capital ratio15.86 %10.00 %8.00 %
Leverage ratio11.35 %5.00 %4.00 %
(1)    Capital ratios starting in the first quarter of 2020 calculated under CECL transition provisions permitted by the CARES Act.
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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

The Company has several sources of funding to meet liquidity requirements, including the 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.

The specialized consumer financing of RICs requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. The Company funds these operations through its lending relationships with third-party banks, Santander and affiliates, and through securitizations in the ABS market. The Company seeks to issue debt that appropriately matches the cash flows of the assets that it originates. The Company uses liquidity for debt service and repayment of borrowings, as well as for funding loan commitments.

During the year ended December 31, 2022, the Company's subsidiaries completed on-balance sheet funding transactions totaling approximately $13.2 billion, including:

•securitizations on its SDART platform for approximately $8.0 billion;
•lease securitizations on its SRT platform, for approximately $2.0 billion; and
•lease securitizations on its SCARF platform for approximately $3.3 billion.

In addition, during the year ended December 31, 2022, the Company's subsidiaries issued credit-linked notes in the amount of $1.3 billion. The notes contain a financial guarantee on a reference pool of RICs owned by the Company. For information regarding the Company's and its subsidiaries debt, see Note 10 to the Consolidated Financial Statements.


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Intercompany Borrowings with SHUSA affiliates

SIS has entered into a revolving subordinated loan agreement with SHUSA 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. In November 2021, the liquidity line was increased to $4.0 billion. At December 31, 2022, there were no outstanding balances on the subordinated loan or the liquidity line. In addition, APS entered into a loan agreement with SHUSA following the acquisition to provide APS with an additional liquidity buffer.

Available Liquidity

As of December 31, 2022, the Company and its subsidiaries, had approximately $14.6 billion in committed liquidity from the FHLB and the FRB. Of this amount, $10.5 billion was unused and therefore provides additional borrowing capacity and liquidity for the Company. At December 31, 2022, unencumbered highly liquid assets (cash and cash equivalents and securities AFS exclusive of securities pledged as collateral) totaled approximately $20.7 billion. This amount represented 26.1% of total deposits at December 31, 2022. As of December 31, 2022, the Company's subsidiaries had $8.8 billion in cash held at the FRB. Management believes that the Company has ample liquidity to fund its operations under business-as-usual and stress conditions.

Cash, cash equivalents, and restricted cash

years ended December 31,
(in thousands)202220212020
Net cash flows from operating activities$5,285,141 $8,539,268 $5,268,999 
Net cash flows from investing activities(4,804,049)(7,642,011)(1,549,253)
Net cash flows from financing activities(8,934,013)6,195,237 2,678,743 

Cash flows from operating activities

Net cash flow from operating activities decreased by $3.3 billion from the year ended December 31, 2021 to the year ended December 31, 2022, primarily due to a decrease in net income and a decrease in proceeds from sales of and collections on LHFS which included the sale of the Bluestem personal lending portfolio during the year December 31, 2021.

Cash flows from investing activities

Net cash flow from investing activities increased by $2.8 billion from the year ended December 31, 2021 to the year ended December 31, 2022, primarily due to an increase in federal funds sold and securities purchased under resale agreements or similar arrangements, offset by decreases in proceeds from sales, prepayments, and maturities of AFS investments and a decrease in proceeds from sales of LHFI.

Cash flows from financing activities

Net cash flow from financing activities decreased by $15.1 billion from the year ended December 31, 2021 to the year ended December 31, 2022, primarily due to a decrease in deposits and dividends paid on common stock.

See the SCF for further details on the Company's sources and uses of cash.
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Credit Facilities

Third-Party Revolving Credit Facilities

Warehouse Lines

The Company's subsidiaries have a credit facility with several banks providing an aggregate commitment of $600.0 million for the exclusive use of providing short-term liquidity needs to support preferred lessor financing. As of December 31, 2022, there was an outstanding balance of $241.2 million on this facility. The facility requires reduced advance rates in the event of delinquency, credit loss, or residual loss ratios, as well as other metrics exceeding specified thresholds.

In addition, the Company's subsidiaries have credit facilities with several banks providing an aggregate commitment of $6.8 billion for the exclusive use of providing short-term liquidity to support core and preferred lender financing. As of December 31, 2022, there was an outstanding balance of $3.7 billion on these facilities in the aggregate. These facilities reduced advance rates in the event of delinquency, credit loss, as well as various other metrics exceeding specific thresholds.

Repurchase Agreements

The Company and its subsidiaries also obtains financing through investment management or repurchase agreements under which they pledge 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 December 31, 2022, 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 $3.8 billion of term financing with maturities ranging from April 2023 to September 2025. These loans eliminate in the consolidation of SHUSA.

Secured Structured Financings

The Company's subsidiaries' 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 issue amortizing notes. As of December 31, 2022, there were on-balance sheet securitizations outstanding in the market with a cumulative ABS balance of approximately $25.0 billion.

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.


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Off-Balance Sheet Financing

SC agreed to provide SBNA with origination support services in connection with the processing, underwriting, and purchasing of retail loans and leases, all of which are serviced by SC. These loans and leases are on the balance sheet of SBNA.

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 if it qualifies as a transfer of financial assets under the accounting guidance.

Uses of Liquidity

The Company uses liquidity for debt service and repayment of borrowings. In addition, our subsidiaries use liquidity for funding loan commitments, satisfying deposit withdrawal requests, supporting underwriting transactions and meeting customer liquidity requirements.

At December 31, 2022, the Company's liquidity to meet debt payments, debt service and debt maturities was in excess of 12 months.

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 of December 31, 2022, the Company had total contractual cash obligations of $80.0 billion, which included FHLB advances, notes payable, other debt obligations, CDs, repurchase agreements, non-qualified pension and post-retirement benefits, and operating leases. Of this amount, approximately $31.9 billion of the total contractual cash obligations is due within one year. In addition, the Company had other commitments of $30.4 billion which consisted of commitments to extend credit and letters of credit. Of this amount, approximately $9.1 billion of the other commitments is due within one year.

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 14 and Note 20 to the Consolidated Financial Statements.

Dividends, Contributions and Stock Issuances

As of December 31, 2022, the Company had 530,391,043 shares of common stock outstanding. During the years December 31, 2022 and 2021, the Company paid cash dividends of $4.8 billion and zero, respectively to its common stock shareholder, Santander.

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

During the year ended December 31, 2022, SHUSA's subsidiaries had the following capital activity which eliminates in consolidation:
•SC declared and paid $4.5 billion in dividends to SHUSA.
•BSI declared and paid $40.0 million in dividends to SHUSA.
•SSLLC returned $20.0 million of capital to SHUSA.
•SFS returned $20.5 million of capital to SHUSA.
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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 term SOFR. Repricing risk stems from the different timing of contractual repricing, such as one-month versus three-month reset dates, as well as the related maturities. Yield curve risk stems from the impact on earnings and market value resulting from different shapes and levels of yield curves. Option risk stems from prepayment or early withdrawal risk embedded in various products. These four elements of risk are analyzed through a combination of net interest income and balance sheet valuation simulations, shocks to those simulations, and scenario and market value analyses, and the subsequent results are reviewed by management. 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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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 December 31, 2022 and December 31, 2021:
The following estimated percentage increase/(decrease) to
net interest income would result
If interest rates changed in parallel by the amounts belowDecember 31, 2022December 31, 2021
Down 100 basis points(2.38)%(2.63)%
Up 100 basis points2.32 %4.33 %
Up 200 basis points4.60 %8.17 %

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 December 31, 2022 and December 31, 2021.
The following estimated percentage
increase/(decrease) to MVE would result
If interest rates changed in parallel by the amounts belowDecember 31, 2022December 31, 2021
Down 100 basis points3.09 %(3.18)%
Up 100 basis points(3.70)%(0.91)%
Up 200 basis points(7.40)%(3.71)%

As of December 31, 2022, the Company’s profile reflected an increase of MVE of 3.09% for downward parallel interest rate shocks of 100 basis points and a decrease of 3.70% for upward parallel interest rate shocks of 100 basis points. The asymmetrical sensitivity between a 100 basis point increase and a 100 basis point decrease is due to the negative convexity as a result of the prepayment option embedded in mortgage-related products, the impact of which is not fully offset by the behavior of the funding base (largely 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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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.

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

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

The Company's derivatives portfolio includes mortgage banking interest rate lock commitments, forward sale commitments and interest rate swaps.

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 15 to the 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.

For additional information on foreign exchange contracts, derivatives and hedging activities, see Note 14 to the Consolidated Financial Statements.

NON-GAAP FINANCIAL MEASURES

The Company's non-GAAP information has limitations as an analytical tool and, therefore, should not be considered in isolation or as a substitute for analysis of our results or any performance measures under GAAP as set forth in the Company's financial statements. These limitations should be compensated for by relying primarily on the Company's GAAP results and using this non-GAAP information only as a supplement to evaluate the Company's performance.

The Company considers various measures when evaluating capital utilization and adequacy. These calculations are intended to complement the capital ratios defined by banking regulators for both absolute and comparative purposes. Because GAAP does not include capital ratio measures, the Company believes that there are no comparable GAAP financial measures to these ratios. These ratios are not formally defined by GAAP and are considered to be non-GAAP financial measures. Since analysts and banking regulators may assess the Company's capital adequacy using these ratios, the Company believes they are useful to provide investors the ability to assess its capital adequacy on the same basis. The Company believes these non-GAAP measures are important because they reflect the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures may allow readers to compare certain aspects of the Company's capitalization to other organizations. However, because there are no standardized definitions for these ratios, the Company's calculations may not be directly comparable with those of other organizations, and the usefulness of these measures to investors may be limited. As a result, the Company encourages readers to consider its Consolidated Financial Statements in their entirety and not to rely on any single financial measure.
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The following table includes the related GAAP measures included in our non-GAAP financial measures.
Year Ended December 31,
(Dollars in thousands)20222021
2020(1)
20192018
Return on Average Assets:
Net income/(loss)$1,405,007 $3,621,307 $(656,303)$1,041,817 $991,035 
Average assets169,706,317 151,819,293 149,645,866 142,308,583 131,232,021 
Return on average assets0.83%2.39%(0.44)%0.73%0.76%
Return on Average Equity:
Net income/(loss)$1,405,007 $3,621,307 $(656,303)$1,041,817 $991,035 
Average equity21,345,060 23,163,377 21,719,676 24,639,561 24,103,584 
Return on average equity6.58%15.63%(3.02)%4.23%4.11%
Average Equity to Average Assets:
Average equity$21,345,060 $23,163,377 $21,719,676 $24,639,561 $24,103,584 
Average assets169,706,317 151,819,293 149,645,866 142,308,583 131,232,021 
Average equity to average assets12.58%15.26%14.51%17.31%18.37%
Efficiency Ratio:
General, administrative, and other expenses
(numerator)		$6,136,779 $6,144,167 $8,208,234 $6,365,852 $5,832,325 
Net interest income$6,174,463 $6,189,521 $6,359,481 $6,442,768 $6,344,850 
Non-interest income3,729,263 4,452,187 3,949,988 3,729,117 3,244,308 
   Total net interest income and non-interest income (denominator)9,903,726 10,641,708 10,309,469 10,171,885 9,589,158 
Efficiency ratio61.96%57.74%79.62%62.58%60.82%
(1) General, administrative, and other expenses includes $1.8 billion goodwill impairment charge on SBNA
Transitional
Fully Phased In(4)
SBNASHUSASBNASHUSA
December 31, 2022December 31, 2021December 31, 2022December 31, 2021December 31, 2022December 31, 2022
CET 1(1)
CET 1(1)
CET 1(1)
CET 1(1)
CET 1(1)
CET 1(1)
Total stockholder's equity (GAAP)$11,186,420 $12,051,039 $17,429,722 $22,513,955 $11,186,420 $17,429,722 
Goodwill(1,554,410)(1,554,410)(2,767,732)(2,596,161)(1,554,410)(2,767,732)
Intangible assets(1,045)(1,234)(326,633)(339,079)(1,045)(326,633)
Deferred taxes on goodwill and intangible assets111,023 111,739 20,710 125,509 111,023 20,710 
Other adjustments to CET1(3)
(87,799)31,990 568,077 1,182,727 (307,793)(449,332)
Disallowed deferred tax assets(93,819)(113,288)(4,487)(6,998)(93,819)(4,487)
Accumulated other comprehensive loss1,328,317 168,536 1,336,023 188,110 1,328,317 1,336,023 
CET1 capital (numerator)$10,888,687 $10,694,372 $16,255,680 $21,068,063 $10,668,693 $15,238,271 
RWAs (denominator)(2)
74,548,852 65,386,093 123,030,839 111,819,655 74,442,363 121,356,628 
Ratio14.61 %16.36 %13.21 %18.84 %14.33 %12.56 %
(1)    CET1 is calculated under U.S. Basel III regulations.
(2)    Under the banking agencies' risk-based capital guidelines, assets and credit equivalent amounts of derivatives and off-balance sheet exposures are assigned to broad risk categories. The aggregate dollar amount in each risk category is multiplied by the associated risk weight of the category. The resulting weighted values are added together with the measure for market risk, resulting in the Company's and SBNA's total RWAs.
(3)    Represent the impact of NCI, and CECL transition adjustments for regulatory capital.
(4)    Represents non-GAAP measures.
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2022 FOURTH QUARTER RESULTS

SHUSA reported net income for the fourth quarter of 2022 of $122.5 million compared to net income of $227.8 million for the third quarter of 2022. The most significant contributors to the decrease for the fourth quarter compared to third quarter were: a decrease in the Net interest income after credit loss provision / (benefit) of $162.3 million due to the build of the ACL in response to market deterioration, increased charge-offs in the RIC portfolio, and new originations in the personal unsecured portfolios, offset by a lower income tax expense provision due to lower net income.



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ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Incorporated by reference from Part II, Item 7, MD&A — "Asset and Liability Management" above.

ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements and Supplementary DataPage

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of Santander Holdings USA, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Santander Holdings USA, Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income (loss), of stockholder's equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to the Company not designing and maintaining effective controls to verify the proper classification of loan and lease transfer activities within the consolidated statements of cash flows.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on financial instruments in 2020.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded Pierpont Capital Holdings LLC (PCH) from its assessment of internal control over financial reporting as of December 31, 2022, because it was acquired by the Company in a purchase business combination during 2022. We have also excluded PCH from our audit of internal control over financial reporting. PCH is a wholly-owned subsidiary whose total assets and total interest and non-interest income excluded from management’s assessment and our audit of internal control over financial reporting represent 9.3% and 6.7%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.
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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan and Lease Losses on Loans Held for Investment – Certain Qualitative Adjustments

As described in Notes 1 and 3 to the consolidated financial statements, management’s estimate of expected credit losses is based on an evaluation of relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of the reported amounts. As of December 31, 2022, the allowance for loan and lease losses was $6.8 billion on total loans held for investment of $97.3 billion. Management estimates current expected credit losses based on prospective information as well as account-level models based on historical data. Unemployment, housing price index (HPI), commercial real estate (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 and the loss in the event of default. Gross domestic product (GDP) is also a key input used in the models for prediction of the likelihood that the borrower will default. Management also utilizes qualitative adjustments to capture any additional risks that may not be captured in either the economic forecasts or in the historical data, including consideration of several factors such as the interpretation of economic trends and uncertainties, changes in the nature and volume of loan portfolios, trends in delinquency and collateral values, and concentration risk. Management 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. Weightings are assigned to the macroeconomic scenarios and are approved quarterly by management through established committee governance.

The principal considerations for our determination that performing procedures relating to certain qualitative adjustments to the allowance for loan and lease losses on loans held for investment is a critical audit matter are (i) the significant judgment by management in determining the allowance for loan and lease losses; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the macroeconomic scenario weighting for the interpretation of economic trends; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s allowance for loan and lease losses on loans held for investment estimation process, including controls over certain qualitative adjustments. These procedures also included, among others, (i) testing the completeness and accuracy of the data used in the estimate and (ii) the involvement of professionals with specialized skill and knowledge to assist in (a) testing management’s process for determining the allowance for loan and lease losses, (b) evaluating the appropriateness of the methodology and models, (c) testing certain of the data used in the estimate, and (d) evaluating the reasonableness of the qualitative adjustments related to macroeconomic scenario weighting for the interpretation of economic trends.


/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 3, 2023

We have served as the Company’s auditor since 2016.



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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, 2022December 31, 2021
ASSETS  
Cash and cash equivalents$10,218,066 $19,305,530 
Federal funds sold and securities purchased under resale agreements or similar arrangements12,424,079 5,346,468 
Investment securities:  
AFS at fair value (amortized cost of $7,914,832 and $11,409,953 as of December 31, 2022 and December 31, 2021, respectively)
7,030,219 11,313,937 
Trading securities5,864,324 35,791 
HTM (fair value of $8,273,285 and $6,629,206 as of December 31, 2022 and December 31, 2021, respectively)
9,549,218 6,702,471 
Other investments 1,116,161 1,060,347 
LHFI(1) (5)
97,338,329 92,075,812 
ALLL (5)
(6,779,999)(6,461,410)
Net LHFI90,558,330 85,614,402 
LHFS (2)(5)
99,555 255,023 
Premises and equipment, net (3)
910,477 856,393 
Operating lease assets, net (5)(6)
14,267,111 15,406,402 
Goodwill2,767,732 2,596,161 
Intangible assets, net326,633 339,079 
BOLI1,969,717 1,942,099 
Restricted cash (5)
6,346,248 5,711,705 
Other assets (4) (5)
4,746,450 3,335,423 
TOTAL ASSETS$168,194,320 $159,821,231 
LIABILITIES  
Accounts payables and accrued expenses6,148,533 $5,329,755 
Deposits and other customer accounts 79,128,541 81,598,172 
Federal funds purchased and securities loaned or sold under repurchase agreements15,382,819 5,258,875 
Trading liabilities 2,871,645 62 
Borrowings and other debt obligations (5)
43,588,273 41,133,187 
Advance payments by borrowers for taxes and insurance149,133 142,592 
Deferred tax liabilities, net389,043 771,341 
Other liabilities (5)
2,606,611 1,119,897 
TOTAL LIABILITIES150,264,598 135,353,881 
Commitments and contingencies (Note 20)
MEZZANINE EQUITY
Preferred stock (no par value; 7,500,000 shares authorized; 500,000 and zero shares outstanding at December 31, 2022 and December 31, 2021)
500,000— 
STOCKHOLDER'S EQUITY  
Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both December 31, 2022 and December 31, 2021)
17,284,611 17,875,938 
Accumulated other comprehensive loss, net of taxes(1,336,023)(188,110)
Retained earnings1,481,134 4,826,127 
TOTAL SHUSA STOCKHOLDER'S EQUITY17,429,722 22,513,955 
NCI— 1,953,395 
TOTAL STOCKHOLDER'S EQUITY17,429,722 24,467,350 
TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDER'S EQUITY$168,194,320 $159,821,231 
(1) LHFI includes $20.9 million and $33.5 million of loans recorded at fair value at December 31, 2022 and December 31, 2021, respectively.
(2) Includes $549.0 thousand and $166.8 million of loans recorded at the FVO at December 31, 2022 and December 31, 2021, respectively.
(3) Net of accumulated depreciation of $2.1 billion and $1.8 billion at December 31, 2022 and December 31, 2021, respectively.
(4) Includes MSRs of $107.4 million and $79.1 million at December 31, 2022 and December 31, 2021, respectively, for which the Company has elected the FVO. See Note 15 to these Consolidated Financial Statements for additional information.
(5) The Company has interests in certain Trusts that are considered VIEs for accounting purposes. At December 31, 2022 and December 31, 2021, LHFI included $27.1 billion and $20.6 billion, LHFS included zero and zero , Operating leases assets, net included $14.3 billion and $14.7 billion, restricted cash included $923.5 million and $1.6 billion, Other assets included $716.7 million and $629.4 million, Borrowings and other debt obligations included $31.6 billion and $29.2 billion, and Other liabilities included $138.0 million and $81.1 million of assets or liabilities that were included within VIEs, respectively. See Note 8 to these Consolidated Financial Statements for additional information.
(6) Net of accumulated depreciation of $3.7 billion and $3.8 billion at December 31, 2022 and December 31, 2021, respectively.
See accompanying notes to Consolidated Financial Statements
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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
years ended December 31,
 202220212020
INTEREST INCOME:
Loans$7,027,748 $7,045,658 $7,657,090 
Interest-earning deposits223,787 25,894 53,403 
Interest and fees on federal funds sold and securities purchased under resale agreements or similar arrangements682,198 1,164 — 
Investment securities: 
AFS167,922 107,659 191,451 
HTM160,690 103,911 96,763 
Trading securities138,913 — 3 
Other investments19,935 8,643 21,574 
TOTAL INTEREST INCOME8,421,193 7,292,929 8,020,284 
INTEREST EXPENSE:
Deposits and other customer accounts304,534 87,103 290,405 
Interest expense on federal funds purchased and securities loaned or sold under repurchase agreements720,800 415 9 
Interest expense on trading liabilities64,686 941 1,204 
Borrowings and other debt obligations1,156,710 1,014,949 1,369,185 
TOTAL INTEREST EXPENSE2,246,730 1,103,408 1,660,803 
NET INTEREST INCOME6,174,463 6,189,521 6,359,481 
Credit loss expense / (benefit)2,018,817 (207,349)2,868,183 
NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE / (BENEFIT)4,155,646 6,396,870 3,491,298 
NON-INTEREST INCOME:
Consumer and commercial fees399,448 437,041 471,901 
Capital markets and Foreign Exchange Income179,843 250,268 227,421 
Lease income2,650,668 2,899,816 3,037,284 
Miscellaneous income, net(1) (2)
480,762 850,581 182,085 
TOTAL FEES AND OTHER INCOME3,710,721 4,437,706 3,918,691 
Net gain on sale of investment securities18,542 14,481 31,297 
TOTAL NON-INTEREST INCOME3,729,263 4,452,187 3,949,988 
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES:
Compensation and benefits2,001,243 1,975,292 1,896,480 
Occupancy and equipment expenses653,820 663,660 632,424 
Technology, outside service, and marketing expense656,038 605,464 548,662 
Loan expense287,419 319,287 328,549 
Lease expense2,036,715 2,032,206 2,393,339 
Impairment of goodwill— — 1,848,228 
Other expenses501,544 548,258 560,552 
TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES6,136,779 6,144,167 8,208,234 
INCOME/LOSS BEFORE INCOME TAX PROVISION1,748,130 4,704,890 (766,948)
Income tax (benefit) provision343,123 1,083,583 (110,645)
NET INCOME/LOSS INCLUDING NCI1,405,007 3,621,307 (656,303)
LESS: NET INCOME/LOSS ATTRIBUTABLE TO NCI— 638,945 184,061 
NET INCOME/LOSS ATTRIBUTABLE TO SHUSA$1,405,007 $2,982,362 $(840,364)
(1) Includes equity investment income/(expense), net.
(2) Netted down by the impact of lower of cost or market adjustments on a portion of the Company's LHFS portfolio $9.8 million, zero, and $509.2 million for the years ended December 31, 2022, 2021, and 2020 respectively. This portion of the portfolio was sold in the first quarter of 2021

See accompanying notes to Consolidated Financial Statements
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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)
(In thousands)
years ended December 31,
202220212020
NET INCOME INCLUDING NCI$1,405,007 $3,621,307 $(656,303)
OCI, NET OF TAX
Net unrealized changes in cash flow hedge derivative financial instruments, net of tax (1)
(435,647)(158,184)98,281 
Net unrealized (losses) / gains on AFS investment securities, net of tax(1)
(716,667)(197,168)140,143 
Pension and post-retirement actuarial gains, net of tax4,401 947 16,078 
TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAX(1,147,913)(354,405)254,502 
COMPREHENSIVE (LOSS)/INCOME257,094 3,266,902 (401,801)
NET INCOME INCLUDING NCI— 638,945 184,061 
COMPREHENSIVE (LOSS)/INCOME ATTRIBUTABLE TO SHUSA$257,094 $2,627,957 $(585,862)

(1) Excludes zero of OCI/(loss) attributable to NCI for the year ended December 31, 2022, $5.2 million and $7.4 million for the corresponding periods in 2021 and 2020, respectively.


See accompanying notes to Consolidated Financial Statements

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(In thousands)
Common Shares OutstandingCommon Stock and Paid-in CapitalAccumulated other comprehensive loss, net of taxesRetained EarningsNoncontrolling InterestTotal Stockholder's EquityPreferred Stock / Mezzanine
Balance, January 1, 2020530,391 $17,954,441 $(88,207)$4,155,226 $2,377,370 $24,398,830 $— 
Cumulative-effect adjustment upon adoption of new accounting standards (Note 1)— — — (1,346,097)(439,367)(1,785,464)— 
Comprehensive income/(loss) attributable to SHUSA— — 254,502 (840,364)— (585,862)— 
Other comprehensive loss attributable to NCI— — — — (7,372)(7,372)— 
Net Income Attributable to NCI— — — — 184,061 184,061 — 
Impact of SC Stock Option Activity— — — — 5,536 5,536 — 
Dividends declared and paid to common stock— — — (125,000)— (125,000)— 
Dividends paid to NCI— — — — (50,546)(50,546)— 
Stock repurchase — (77,623)— — (693,848)(771,471)— 
Balance, December 31, 2020530,391 $17,876,818 $166,295 $1,843,765 $1,375,834 $21,262,712 $— 
Comprehensive income/(loss) attributable to SHUSA— — (354,405)2,982,362 — 2,627,957 — 
Other comprehensive income/(loss) attributable to NCI— — — — 5,159 5,159 — 
Net income attributable to NCI— — — — 638,945 638,945 — 
Impact of SC stock option activity— — — — 8,576 8,576 — 
Dividends paid to NCI— — — — (66,525)(66,525)— 
Stock repurchase— (880)— — (8,594)(9,474)— 
Balance, December 31, 2021530,391 $17,875,938 $(188,110)$4,826,127 $1,953,395 $24,467,350 $— 
Comprehensive income/(loss) attributable to SHUSA— — (1,147,913)1,405,007 — 257,094 — 
Dividends declared and paid on common stock— — — (4,750,000)— (4,750,000)— 
Stock repurchase— (591,327)— — (1,953,395)(2,544,722)— 
Preferred Stock offering— — — — — — 500,000 
Balance, December 31, 2022$530,391 $17,284,611 $(1,336,023)$1,481,134 $— $17,429,722 $500,000 
See accompanying notes to Consolidated Financial Statements
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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)




Year Ended December 31,
 202220212020
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income/(loss) including NCI$1,405,007 $3,621,307 $(656,303)
Adjustments to reconcile net income to net cash provided by operating activities: 
Impairment of goodwill— — 1,848,228 
Credit loss expense/(benefit)2,018,817 (207,349)2,868,183 
Deferred tax expense/(benefit)(86,291)635,635 (276,155)
Depreciation, amortization and accretion2,788,088 2,354,705 2,766,050 
Net (gain)/loss on sale of loans(7,854)(41,881)374,734 
Net gain on sale of investment securities(18,542)(14,481)(31,297)
Net (gain)/loss on debt extinguishment(18,849)— 10,887 
Net (gain)/loss on real estate owned, premises and equipment, and other(8,680)6,332 (66,150)
Stock-based compensation— — 33 
Equity (income)/loss on equity method investments(2,188)12,785 11,538 
Originations of LHFS(195,849)(1,395,180)(3,728,842)
Proceeds from sales of and collections on LHFS (1)
364,333 2,853,517 2,085,878 
Net change in: 
Trading securities and trading liabilities, net(850,795)— — 
Revolving personal loans— 34,246 (282,371)
Other assets and BOLI(992,254)651,562 621,985 
Other liabilities890,198 28,070 (277,399)
NET CASH PROVIDED BY OPERATING ACTIVITIES5,285,141 8,539,268 5,268,999 
CASH FLOWS FROM INVESTING ACTIVITIES: 
Proceeds from sales of AFS investment securities624,353 1,326,299 2,665,593 
Proceeds from prepayments and maturities of AFS investment securities2,062,869 4,458,454 8,125,673 
Purchases of AFS investment securities(2,256,438)(6,148,828)(7,632,295)
Proceeds from prepayments and maturities of HTM investment securities1,110,339 1,924,402 1,225,093 
Purchases of HTM investment securities(1,214,305)(3,166,142)(2,707,302)
Proceeds from sales of other investments429,539 64,290 431,819 
Proceeds from maturities of other investments650,000 750,000 85 
Purchases of other investments(1,017,430)(325,493)(902,090)
Net change in federal funds sold and securities purchased under resale agreements
3,561,084 (5,346,468)— 
Proceeds from sales of LHFI (2)
596,717 3,332,062 3,489,035 
Proceeds from the sales of equity method investments79,926 8,100 — 
Distributions from equity method investments12,158 9,279 8,053 
Contributions to equity method and other investments(317,082)(183,352)(135,298)
Proceeds from settlements of BOLI policies33,532 26,799 11,023 
Purchases of LHFI(1,100,954)(1,486,001)(77,136)
Net change in loans other than purchases and sales(6,456,003)(1,878,798)(3,751,019)
Purchases and originations of operating leases(6,061,048)(7,694,192)(6,860,838)
Proceeds from the sale and termination of operating leases5,024,206 6,944,112 4,273,115 
Manufacturer and dealer incentives (paid)/received
47,052 (55,799)433,062 
Proceeds from sales of real estate owned and premises and equipment6,470 32,905 49,981 
Purchases of premises and equipment(227,103)(233,640)(195,807)
Acquisition of PCH(391,931)— — 
NET CASH USED IN INVESTING ACTIVITIES(4,804,049)(7,642,011)(1,549,253)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits and other customer accounts(2,469,631)6,294,465 7,977,001 
Net change in short-term borrowings177,205 (158,385)(36,672)
Net proceeds from long-term borrowings38,902,767 28,056,693 42,867,377 
Repayments of long-term borrowings(40,582,614)(32,280,005)(41,537,581)
Proceeds from FHLB advances (with terms greater than 3 months)4,000,000 — 2,500,000 
Repayments of FHLB advances (with terms greater than three months)(250,000)(900,000)(8,135,882)
Net change in federal funds purchased and securities loaned or sold under repurchase agreements
(1,923,559)5,258,875 — 
Net change in advance payments by borrowers for taxes and insurance6,541 (1,622)(9,206)
Dividends paid on common stock(4,750,000)— (125,000)
Dividends paid to NCI— (66,525)(50,546)
Stock repurchase(2,544,722)(9,474)(771,471)
Proceeds from the issuance of common stock— 1,215 723 
Preferred stock offering500,000 — — 
NET CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES(8,934,013)6,195,237 2,678,743 
NET (DECREASE)/INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH(8,452,921)7,092,494 6,398,489 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD25,017,235 17,924,741 11,526,252 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (3)
$16,564,314 $25,017,235 $17,924,741 
SUPPLEMENTAL DISCLOSURES
Income taxes paid/(received), net $(554,758)$240,413 $(60,703)
Interest paid2,035,904 1,129,445 1,689,643 
NON-CASH TRANSACTIONS
Loans transferred to/(from) OREO11,901 (31,121)(41,398)
Loans transferred from/(to) LHFI (from)/to LHFS, net464,460 183,601 3,009,343 
Unsettled purchases of investment securities21,242 37,589 113,537 
AFS investment securities transferred to HTM investment securities2,982,195 — — 
(1) Includes sales proceeds from Bluestem portfolio sale of $608 million for loans originated as HFS for the year ended December 31, 2021.
(2) Includes sales proceeds from Bluestem portfolio sale of $188 million for loans originated as HFI for the year ended December 31, 2021.
(3) The years ended December 31, 2022, 2021 and 2020 include cash and cash equivalents balances of $10.2 billion, $19.3 billion and $12.6 billion, respectively, and restricted cash balances of $6.3 billion, $5.7 billion and $5.3 billion, respectively.

See accompanying notes to 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; 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 on Latin American and European equity and fixed income securities; APS, an institutional fixed-income broker-dealer headquartered in New York providing institutional and middle market clients with access to a broad range of fixed income products including mortgage products, investment grade credit, U.S. Government and federal agency securities, fixed-income structured products banking and advisory services; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC is a registered investment adviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.

The Company specializes in consumer financing focused on vehicle finance, servicing of third-party vehicle financing, and delivering service to dealers and customers across the full credit spectrum. This includes indirect origination and servicing of vehicle loans and leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers, origination of vehicle loans through a web-based direct lending program, purchases of vehicle loans from other lenders, and servicing of automobile and recreational and marine vehicle portfolios for other lenders. The Company sells consumer vehicle loans and leases through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer vehicle loans and leases.

In addition to specialized consumer finance, the Company also attracts deposits and provides other retail banking services through its network of retail branches principally located in Massachusetts, New Hampshire, Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and Delaware; and originates small business, middle market, large and global commercial loans, multifamily loans, and other consumer loans and leases throughout the Mid-Atlantic and Northeastern areas of the United States. For large institutional investors, the Company provides structured products, emerging markets credit and U.S. investment grade credit, U.S. rates, short-term fixed-income, debt capital markets, investment banking, exchange traded derivatives, and cash equities, benefiting from a combination of Santander’s global reach and access to financial hubs together with extensive local market knowledge and regional expertise.

Acquisition of SC Common Stock

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. 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 did not already own at a price of $41.50 per share in cash. The transaction was completed on January 31, 2022, at which time SHUSA acquired the remaining 19.8% NCI in SC for approximately $2.5 billion and SC became a wholly-owned subsidiary of SHUSA. As a result of the acquisition, Additional paid in capital decreased by $591.3 million for the difference between the carrying value of the NCI and the amount paid to acquire it.

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 $189 million. The Company has recorded assets acquired of $566 million (including loans of $528 million and definite-lived intangible assets of approximately $38 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.


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

Acquisition of PCH

On April 11, 2022, SHUSA acquired 100% ownership of PCH, parent company of APS, an institutional fixed-income broker dealer and a designated primary dealer by the Federal Reserve Bank of New York, for approximately $448 million. With the addition of PCH, the Company significantly enhances its infrastructure and capabilities as a market maker of U.S. fixed-income capital markets. The transaction provides the Company a platform for self-clearing of fixed income securities, growing its institutional client footprint, and expanding its structuring and advisory capabilities for asset originators. PCH 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 acquisition was accounted for as a business combination, with the assets and liabilities of PCH recorded at fair value. Fair value measurements are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair value becomes available. No material adjustments to the fair values disclosed below are expected. Goodwill of approximately $172 million was recorded and assigned to the CIB reporting unit. In addition to goodwill, the Company recorded $39 million of amortizing intangible assets, primarily related to customer relationships and acquired technology. Intangibles will be amortized over their estimated useful lives of nine and three years for customer relationships and technology, respectively. Immediately prior to the acquisition, SHUSA lent ASG Holdings, a subsidiary of PCH, $163 million (on an unsecured basis), which PCH used to pay off certain existing third-party debt.

The following are fair values of the assets and liabilities of PCH on the acquisition date:

Balance at April 11, 2022
(in thousands)
Fair value of consideration transferred$447,722 
Fair value of assets acquired:
Cash and cash equivalents (includes restricted cash)$56,023 
Other investments - trading assets at fair value5,121,331 
Fed funds sold and securities purchased under resale agreements or similar arrangements10,638,695 
Other intangible assets39,520 
Other assets including premises and equipment185,830 
  Total assets acquired$16,041,399 
Fair value of liabilities acquired:
Accounts payable, accrued expenses, and other liabilities$537,701 
Fed funds purchased and securities loaned or sold under repurchase agreements12,047,503 
Trading liabilities3,013,646 
Borrowings and other debt obligations162,938 
  Total liabilities acquired$15,761,788 
Fair value of net assets acquired$279,611 
Deferred taxes on purchase accounting fair value adjustments(3,460)
Goodwill recognized$171,571 

If PCH had been acquired on January 1, 2022, SHUSA’s unaudited consolidated revenue (which includes total interest income and non-interest income) and net income through December 31, 2022 would have been $12.2 billion and $1.4 billion, respectively. In its Consolidated Statement of Income for December 31, 2022, SHUSA has included revenues of $817 million and a net loss of $61 million generated by PCH since the acquisition date. Pro forma information related to prior periods is impractical to present since retrospective application requires certain assumptions about management’s intent in those periods that cannot be substantiated.

In February 2023, the Company completed the merger of SIS into APS, with the resulting company renamed Santander US Capital Markets LLC. Following the merger, SanCap, along with SSLLC, now comprise the Broker-Dealers.
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NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)

Basis of Presentation

These 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 Consolidated Financial Statements have been prepared in accordance with GAAP and pursuant to SEC regulations. In the opinion of management, the accompanying 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 SCF for the periods indicated, and contain adequate disclosure to make the information presented not misleading.

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

Recently Adopted Accounting Standards

On July 1, 2022, the Company early adopted ASU 2022-01 Derivatives and Hedging (Topic 815) Fair Value hedging – Portfolio Layer Method to coincide with a new Company program for portfolio layer hedges. This ASU expands the current last-of-layer method for fair value hedges of interest rate risk to allow multiple hedged layers of a closed portfolio. Under this updated guidance, entities can now hedge all financial assets under the portfolio layer method and designate multiple hedged layers within a single closed portfolio. There was no impact on the opening balance sheets from this adoption.

Effective January 1, 2020, the Company adopted Topic 326 Financial Instruments - Credit Losses, resulting in an increase in the ACL of approximately $2.5 billion, a decrease in stockholder's equity of approximately $1.8 billion and a net decrease in deferred tax liabilities of approximately $0.7 billion at January 1, 2020.

Recently Issued Accounting Standards Not Yet Adopted

In March 2022, the FASB issued ASU 2022-02 Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures. This guidance removes the specific guidance for TDR designations and enhances disclosure requirements related to modifications of receivables made to borrowers experiencing financial difficulty. In addition, the standard requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases. The Company has adopted the new guidance on January 1, 2023 on a modified retrospective basis with a cumulative effect adjustment to retained earnings. The effect of the implementation is an increase in the ACL of approximately $55.2 million, a decrease in retained earnings of approximately $41.4 million and a decrease in deferred tax liabilities of approximately $13.8 million.

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

Significant Accounting Policies

Consolidation

In accordance with the applicable accounting guidance for consolidations, the Consolidated Financial Statements include any VOEs in which the Company has a controlling financial interest and any VIEs for which the Company is deemed to be the primary beneficiary. The Company consolidates its VIEs if the Company has (i) a variable interest in the entity; (ii) the power to direct activities of the VIE that most significantly impact the entity's economic performance; and (iii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE (i.e., the Company is considered to be the primary beneficiary). The Company generally consolidates its VOEs if the Company, directly or indirectly, owns more than 50% of the outstanding voting shares of the entity and the noncontrolling shareholders do not hold any substantive participating or controlling rights. Interests in VIEs and VOEs can include equity interests in corporations, partnerships and similar legal entities, subordinated debt, securitizations, derivatives contracts, leases, service agreements, guarantees, standby letters of credit, loan commitments, and other contracts, agreements and financial instruments.

Upon the occurrence of certain significant events, as required by the VIE model, the Company reassesses whether a legal entity in which the Company is involved is a VIE. The reassessment process considers whether the Company has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The reassessment also considers whether the Company has acquired or disposed of a financial interest that could be significant to the VIE, or whether an interest in the VIE has become significant or is no longer significant. The consolidation status of the entities with which the Company is involved may change as a result of such reassessments. Changes in consolidation status are applied prospectively, with assets and liabilities of a newly consolidated VIE initially recorded at fair value. A gain or loss may be recognized upon deconsolidation of a VIE, depending on the carrying amounts of deconsolidated assets and liabilities compared to the fair value of retained interests and ongoing contractual arrangements.

The Company uses the equity method to account for unconsolidated investments in VOEs if the Company has significant influence over the entity's operating and financing decisions but does not maintain a controlling financial interest. Unconsolidated investments in VOEs or VIEs in which the Company has a voting or economic interest of less than 20% generally are carried at cost less any impairment. These investments are included in Other assets on the Consolidated Balance Sheets, and the Company's proportionate share of income or loss is included in Miscellaneous income, net within the Consolidated Statements of Operations.

Sales of RICs and Leases

The Company, through SC, transfers RICs into newly formed Trusts which then issue one or more classes of notes payable backed by the RICs. The Company’s continuing involvement with the credit facilities and Trusts are in the form of servicing loans held by the SPEs and, generally, through holding a residual interest in the SPE. These transactions are structured without recourse. The Trusts are considered VIEs under GAAP and are consolidated when the Company has: (a) power over the significant activities of the entity and (b) an obligation to absorb losses or the right to receive benefits from the VIE which are potentially significant to the VIE. The Company has power over the significant activities of those Trusts as servicer of the financial assets held in the Trust. Servicing fees are not considered significant variable interests in the Trusts; however, when the Company also retains a residual interest in the Trust, either in the form of a debt security or equity interest, the Company has an obligation to absorb losses or the right to receive benefits that are potentially significant to the SPE. For all VIEs in which the Company is involved, the Company assesses whether it is the primary beneficiary of the VIE on an ongoing basis. In circumstances where the Company has both the power to direct the activities that most significantly impact the VIEs performance and the obligation to absorb losses or the right to receive benefits of the VIE that could be significant, the Company would conclude that it is the primary beneficiary of the VIE, and accordingly, these Trusts are consolidated within the Consolidated Financial Statements, and the associated RICs, borrowings under credit facilities and securitization notes payable remain on the Consolidated Balance Sheets. In situations where the Company is not deemed to be the primary beneficiary of the VIE, the Company does not consolidate the VIE and only recognizes its interests in the VIE. These securitizations involving Trusts are treated as sales of the associated RICs. While these Trusts are included in our Consolidated Financial Statements, they are separate legal entities; thus, the finance receivables and other assets sold to these Trusts are legally owned by the Trusts, are available only to satisfy the notes payable related to the securitized RICs, and are not available to the Company's creditors or other subsidiaries.


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

The Company also sells RICs and leases to VIEs or directly to third parties. The Company may determine that these transactions meet sale accounting treatment in accordance with applicable guidance. Due to the nature, purpose, and activity of these transactions, the Company either does not hold potentially significant variable interests or is not the primary beneficiary as a result of the Company's limited further involvement with the financial assets. The transferred financial assets are removed from the Company's Consolidated Balance Sheets at the time the sale is completed. The Company generally remains the servicer of the financial assets and receives servicing fees. The Company also recognizes a gain or loss for the difference between the fair value, as measured based on sales proceeds plus (or minus) the value of any servicing asset (or liability) retained and the carrying value of the assets sold.

See further discussion on the Company's securitizations in Note 8 to these Consolidated Financial Statements.

Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents include cash, amounts due from depository institutions, interest-bearing deposits in other banks, and federal funds sold. Cash and cash equivalents have original maturities of three months or less and, accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value. The Company has maintained balances in various operating and money market accounts in excess of federally insured limits.

Cash deposited to support securitization transactions, lockbox collections, and the related required reserve accounts is recorded in the Company's Consolidated Balance Sheets as restricted cash. Excess cash flows generated by Trusts are added to the restricted cash reserve account, creating additional over-collateralization until the contractual securitization requirement has been reached. Once the targeted reserve requirement is satisfied, additional excess cash flows generated by the Trusts are released to the Company as distributions from the Trusts. Lockbox collections are added to restricted cash and released when transferred to the appropriate warehouse facility or Trust. The Company also maintains restricted cash primarily related to cash posted as collateral related to derivative agreements and cash restricted for investment purposes.

Investment Securities and Other Investments

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

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

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

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

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

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

Realized gains and losses on sales of investment securities are recognized on the trade date and included in earnings within Net (losses)/gains on sale of investment securities, which is a component of non-interest income. Unamortized premiums and discounts are recognized in interest income over the estimated life of the security using the interest method.

Debt securities held for trading purposes and equity securities are carried at fair value, with changes in fair value recorded in non-interest income. Investments that are purchased principally for the purpose of economically hedging MSRs in the near term are classified as trading securities and carried at fair value, with changes in fair value recorded as a component of the Miscellaneous income, net line of the Consolidated Statements of Operations.

Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the FRB. Although FHLB and FRB stock are equity interests in the FHLB and FRB, respectively, neither has a readily determinable fair value, because ownership is restricted and they are not readily marketable. FHLB stock can be sold back only at its par value of $100 per share and only to FHLBs or to another member institution. Accordingly, FHLB stock and FRB stock are carried at cost. The Company evaluates this investment for impairment on the ultimate recoverability of the par value.

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

Securities Financing Activities

The Company may enter into Securities Financing Activities primarily to deploy the Company’s excess cash and investment positions. Securities Financing Activities are treated as collateralized financings and are included in "Federal funds sold and securities purchased under resale agreements or similar arrangements" and "Federal funds purchased and securities loaned or sold under repurchase agreements" on the Company’s Consolidated Balance Sheets. Resale and repurchase agreements are generally carried at the amount of cash collateral advanced or received. Accrued interest is classified in Other assets and Other liabilities. Where appropriate under applicable accounting guidance, Securities Financing Activities with the same counterparty are reported on a net basis.

Securities transferred to counterparties under repurchase agreements and securities lending transactions continue to be recognized on the Consolidated Balance Sheets, are measured at fair value, and are included in Investment securities AFS on the Company’s Consolidated Balance Sheets. Securities received from counterparties under reverse repurchase agreements and securities borrowed transactions are not recognized on the Consolidated Balance Sheets unless the counterparty defaults. The securities transferred under Securities Financing Activities 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 collateral 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.
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NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)

LHFI

LHFI include commercial and consumer loans (including RICs) originated by the Company as well as loans acquired by the Company, which the Company intends to hold for the foreseeable future or until maturity. RICs include nonprime automobile finance receivables that are acquired individually from dealers at a nonrefundable discount from the contractual principal amount. RICs also include receivables originated through a direct lending program and loan portfolios purchased from other lenders.

Originated LHFI

Originated LHFI are reported net of cumulative charge-offs, unamortized loan origination fees and costs, and unamortized discounts and premiums. Interest on loans is credited to income as it is earned. For most of the Company's originated LHFI, loan origination fees and certain direct loan origination costs and premiums and discounts are deferred and recognized as adjustments to interest income in the Consolidated Statements of Operations over the contractual life of the loan utilizing the effective interest method. For RICs, loan origination fees and costs, premiums and discounts are deferred and amortized over their estimated lives as adjustments to interest income utilizing the effective interest method using estimated prepayment speeds, which are updated on a monthly basis. The Company estimates future principal prepayments specific to pools of homogeneous loans, which are based on the vintage, credit quality at origination and term of the loan. Prepayments in our portfolio are sensitive to credit quality, with higher credit quality loans experiencing higher voluntary prepayment rates than lower credit quality loans. The resulting prepayment rate specific to each pool is based on historical experience and is used as an input in the calculation of the constant effective yield. The impact of defaults is not considered in the prepayment rate; the prepayment rate only considers voluntary prepayments.

The Company’s LHFI are carried at amortized cost, net of the ALLL. When a RIC is originated, certain cost basis adjustments (the net discounts) to the principal balance of the loan are recognized in accordance with the accounting guidance for loan origination fees and costs. These cost basis adjustments generally include the following:

•Origination costs.
•Dealer discounts - dealer discounts to the principal balance of the loan generally occur in circumstances in which the contractual interest rate on the loan is not sufficient to compensate for the credit risk of the borrower.
•Participation - participation fees, or premiums, paid to the dealer as a form of profit-sharing, rewarding the dealer for originating loans that perform.
•Subvention - payments received from the vehicle manufacturer as compensation (yield enhancement) for the cost of below-market interest rates offered to consumers.

Originated loans are initially recorded at the proceeds paid to fund the loan.

Collateral is generally required for loans. For commercial loans, the Company focuses on assessing the borrower’s capacity and willingness to repay and obtaining sufficient collateral. C&I loans are generally secured by the borrower’s assets and by guarantees. CRE loans are secured by real estate at specified LTV ratios and often by a guarantee. The Company purchases residential mortgage loans and home equity loans and lines that are secured by the underlying 1-4 family residential properties. RICs and auto loans are secured by the underlying vehicles.

See LHFS subsection below for accounting treatment when an HFI loan is re-designated as LHFS.

Purchased LHFI

Purchased loans are generally loans acquired in a bulk purchase or a business combination. RICs acquired directly from a dealer and loans acquired upon origination from a third party through a flow agreement are considered to be originated loans, not purchased loans.

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

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

Purchase discounts and premiums on purchased loans that are deemed performing are accreted over the contractual term of the loans, generally using the effective interest method. The purchase discounts on revolving personal unsecured loans are amortized on a straight-line basis.

For loans under the FVO, the Company recognizes the fair value adjustments as part of other non-interest income in the Company’s Consolidated Statements of Operations. Generally, the Company does not recognize interest income on non-accrual loans under the FVO. For certain loans which the Company has elected to account for at fair value that are not considered non-accrual, the Company recognizes interest income separately from the total fair value adjustment.

Allowance for Credit Losses

General

The ALLL and reserve for off-balance sheet commitments (together, the ACL) are maintained at levels that represent management’s best estimate of expected credit losses in the Company’s HFI loan portfolios, excluding those loans accounted for under the FVO. Credit loss expenses are charged in amounts sufficient to maintain the ACL at levels considered adequate to cover expected credit losses in the Company’s HFI loan portfolios. The allowance for expected credit losses is measured based on a current expected loss model, which means that it is not necessary for a loss event to occur before a credit loss is recognized. Management’s estimate of expected credit losses is based on an evaluation of relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of the reported amounts. Management's evaluation takes into consideration the risks in the portfolio, past loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic forecasts and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the ACL may be necessary if conditions differ substantially from the assumptions used in making the evaluations.

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

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

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

Methodology

The Company uses several methodologies for the measurement of ACL. The ACL is made up of a quantitative and a qualitative component. To determine the quantitative component, the Company generally uses a DCF approach for determining ALLL for TDRs and other individually assessed loans, and loss rate statistical methodology for other loans. The methodologies utilized by the Company to estimate expected credit losses vary by product type.

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

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

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

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

CECL Models

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

•In calculating the PD and payoff, the Company developed model forecasts which consider variables such as delinquency status, loan tenor and credit quality as measured by internal risk ratings assigned to individual loans and credit facilities.
•The LGD component forecasts the extent of losses given that a default has occurred and considers variables such as collateral, LTV and credit quality.
•The EAD component captures the effects of expected partial prepayments and underpayments that are expected to occur during the forecast period and considers variables such as LTV, collateral and credit quality indicators.

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

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

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

DCF Approaches

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


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Collateral-Dependent Assets

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

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

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

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

Collateral Maintenance Provisions

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

Negative Allowance

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

Qualitative Reserves

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

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

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

Governance

A comprehensive analysis of the ACL is performed by the Company on a quarterly basis. Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated considering factors such as historical loss experience, trends in delinquency and NPLs, changes in risk composition and underwriting standards, experience and ability of staff and regional and national economic conditions, trends and forecasts. Risk factors are continuously reviewed and revised by management when conditions warrant.
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The Company's reserves are principally based on various models subject to the Company's model risk management framework. New models are approved by the Company's Model Risk Management Committee. Models, inputs and documentation are further reviewed and validated periodically, 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.

Reserve levels are collectively reviewed for adequacy and approved quarterly by Board-level committees.

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

Interest Recognition and Non-accrual loans

Interest from loans is accrued when earned in accordance with the terms of the loan agreement. The accrual of interest is discontinued and uncollected interest is reversed once a loan is placed in non-accrual status. A loan is determined to be non-accrual when it is probable that scheduled payments of principal and interest will not be received when due according to the contractual terms of the loan agreement.

The Company generally places commercial loans on non-accrual status when they become 90 days or more delinquent. When the collectability of the recorded loan balance of a nonaccrual loan is in doubt, cash payments received from the borrower are generally applied first to reduce the carrying value of the loan. Otherwise, interest income may be recognized to the extent cash is received. Generally, a nonaccrual loan is returned to accrual status when, based on the Company’s judgment, the borrower’s ability to make the required principal and interest payments has resumed and collectability of remaining principal and interest is no longer doubtful. Interest income recognition resumes for nonaccrual loans that were accounted for on a cash basis method when they return to accrual status, while interest income that was previously recorded as a reduction in the carrying value of the loan would be recognized as interest income based on the effective yield to maturity on the loan. Collateral dependent loans are generally not returned to accrual status. Refer to the TDRs section below for discussion related to TDR loans placed on non-accrual status.

Consumer loans (excluding RICs and auto loans) are placed on nonaccrual status when they meet certain delinquency thresholds, or sooner if collectability of the amortized cost basis is in doubt. Residential mortgages, home equity loans and lines and unsecured loans are generally placed on nonaccrual status at 90 days delinquent, and returned to accrual status when they become less than 90 days delinquent.

Credit cards continue to accrue interest until they become 180 days delinquent, at which point they are charged-off.

For RICs and auto loans, the accrual of interest is discontinued and accrued but uncollected interest is reversed once a RIC becomes more than 60 days delinquent, (i.e., 61 or more DPD) and is resumed and reinstated if a delinquent account subsequently becomes 60 days or less past due. The Company considers RICs and auto loans delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date. The payment following the partial payment must be a full payment, or the account will move into delinquency status at that time.


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Charge-off of Uncollectible Loans

Any loan may be charged-off if a loss confirming event has occurred. Loss confirming events usually involve the receipt of specific adverse information about the borrower and may include bankruptcy, foreclosure, or receipt of an asset valuation indicating a shortfall between the value of the collateral and the book value of the loan when that collateral asset is the sole source of repayment.

The Company generally charges off commercial loans when it is determined that the specific loan or a portion thereof is uncollectible. This determination is based on facts and circumstances of the individual loans and normally includes considering the viability of the related business, the value of any collateral, the ability and willingness of any guarantors to perform and the overall financial condition of the borrower. Partially charged-off loans continue to be evaluated on not less than a quarterly basis, with additional charge-offs or loan and lease loss provisions taken on the remaining loan balance, if warranted, utilizing the same criteria. Although the ACL is established on a collective basis, actual charge-offs are recorded on a loan-by-loan basis when losses are confirmed or when established delinquency thresholds have been met.

The Company generally charges off consumer loans, or a portion thereof, as follows: residential mortgage loans and home equity loans are charged-off to the estimated fair value of their collateral (net of selling costs) when they become 180 days delinquent, and other loans (closed-end) are charged-off when they become 120 days delinquent. RICs and auto loans are charged-off to the estimated net recovery value in the month an account becomes greater than 120 days delinquent if the Company has not repossessed the related vehicle. The Company charges off accounts in repossession to estimated net recovery value when the automobile is repossessed and legally available for disposition. For RICs and auto loans, a net charge-off represents the difference between the estimated net sales proceeds and the Company's amortized cost basis of the related contract. Revolving personal unsecured loans are charged off when they become 180 days delinquent. Credit cards are charged off when they are 180 days delinquent or within 60 days after the receipt of notification of the cardholder’s death or bankruptcy.

Accounts in repossession that have been charged off and are pending liquidation are removed from loans and the related repossessed assets are included in Other assets in the Company's Consolidated Balance Sheets. For residential mortgages, foreclosed real estate is moved to Other assets when the Company has obtained legal title to the property.

Loans receiving a bankruptcy notice or for which fraud has been discovered are written down to the collateral value less costs to sell within 60 days of such notice or discovery. Charge-offs are not required when it can be clearly demonstrated that repayment will occur regardless of delinquency status. Factors that would demonstrate repayment include a loan that is secured by collateral and is in the process of collection, a loan supported by a valid guarantee or insurance, or a loan supported by a valid claim against a solvent estate.

Expected recoveries of amounts previously written off and expected to be written off are included in the ACL up to the aggregate of amounts previously written off and expected to be written off by the Company.

TDRs

TDRs are loans that have been modified for which the Company has agreed to make certain concessions to customers to both meet the needs of the customers and maximize the ultimate recovery of the loan. TDRs occur when a borrower is experiencing financial difficulties and the loan is modified involving a concession that would otherwise not be granted to the borrower. The types of concessions granted are generally payment deferrals, interest rate reductions, limitations on accrued interest charged, term extensions and deferments of principal. TDRs are generally placed on non-accrual status at the time of modification, (unless the loan was performing immediately prior to modification) and returned to accrual after a sustained period of repayment performance. Collateral dependent TDRs are generally not returned to accrual status. All costs incurred by the Company in connection with a TDR are expensed as incurred. The TDR classification remains on the loan until it is paid in full or liquidated.

Short-term modifications are generally not classified as TDRs. In response to the 2020 COVID-19 pandemic, the Company implemented loan modification programs to assist borrowers impacted by the pandemic. Under these programs, payment deferrals of up to six months to borrowers who were performing prior to the modification are considered short-term modifications and are not classified as TDRs. Additionally, certain consumer loans that are granted deferrals beyond 180 days are not classified as TDRs if they comply with the requirements of the CARES Act. During 2021 the Company reverted to its pre-pandemic TDR programs.


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Commercial Loan TDRs

All of the Company’s commercial loan modifications are based on the circumstances of the individual customer, including specific customers' complete relationship with the Company. Loan terms are modified to meet each borrower’s specific circumstances at a point in time and may allow for modifications such as term extensions and interest rate reductions. Commercial loan TDRs are generally restructured to allow for an upgraded risk rating and return to accrual status after a sustained period of payment performance has been achieved (typically 12 months for monthly payment schedules). As TDRs, they will be subject to analysis for specific reserves by either calculating the present value of expected future cash flows or, if collateral-dependent, calculating the fair value of the collateral less its estimated cost to sell.

Consumer Loan TDRs

The majority of the Company's TDR balance is comprised of RICs and auto loans. The terms of the modifications for the RIC and auto loan portfolio generally include one or a combination of a reduction of the stated interest rate of the loan or an extension of the maturity date.

In accordance with our policies and guidelines, the Company at times offers extensions (deferrals) to consumers on our RIC and auto loans under which the consumer is allowed to defer a maximum of three payments per event to the end of the loan. More than 90% of deferrals granted are for two payments. Our policies and guidelines limit the frequency of each new deferral that may be granted to one deferral every six months, regardless of the length of any prior deferral. The maximum number of months extended for the life of the loan for all automobile RICs is 8, while some marine and RV contracts have a maximum of twelve months extended to reflect their longer term. Additionally, we generally limit the granting of deferrals on new accounts until a requisite number of payments has been received. During the deferral period, we continue to accrue and collect interest on the loan in accordance with the terms of the deferral agreement. The Company considers all RICs and auto loans that have been modified at least once, deferred for a period of 90 days or more, or deferred at least twice, as TDRs. Additionally, restructurings through bankruptcy proceedings are deemed to be TDRs.

RIC and auto loan TDRs are placed on non-accrual status when the Company believes repayment under the revised terms is not reasonably assured and, at the latest, when the account becomes past due more than 60 days. For RICs and auto loans on nonaccrual status, interest income is recognized on a cash basis. The accrual of interest is resumed if a delinquent account subsequently becomes 60 days or less past due.

At the time a deferral is granted on a RIC or auto loan, all delinquent amounts may be deferred or paid, resulting in the classification of the loan as current, and therefore not considered a delinquent account. Thereafter, the account is aged based on the timely payment of future installments in the same manner as any other account.

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

Consumer TDRs in the residential mortgage and home equity portfolios are generally placed on non-accrual status until the Company believes repayment under the revised terms is reasonably assured and a sustained period of repayment performance has been achieved. In addition to those identified as TDRs above, loans discharged under Chapter 7 bankruptcy are considered TDRs and collateral-dependent, regardless of delinquency status. These loans are written down to the fair market value of collateral and classified as non-accrual/non-performing for the remaining life of the loan.


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Impact to ACL

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

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

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

Typically, commercial loans whose terms are modified in a TDR will have been identified as impaired prior to modification and accounted for generally using a present value of expected future cash flows methodology, unless the loan is considered collateral-dependent. Loans considered collateral-dependent are measured for impairment based on the fair values of their collateral less its estimated cost to sell. Accordingly, upon TDR modification or if a TDR modification subsequently defaults, the allowance methodology generally remains unchanged.

For consumer loans, prior to loans being placed in TDR status, the Company generally measures its allowance under a loss contingency methodology in which loans with similar risk characteristics are pooled and loss experience information is monitored for credit risk and deterioration with statistical tools considering factors such as delinquency, LTV and credit scores. Upon TDR modification, the Company generally measures consumer loan impairment based on a present value of expected future cash flows methodology considering all available evidence using the effective interest rate or fair value of collateral. The amount of the required valuation allowance is equal to the difference between the loan’s impaired value and the amortized cost basis.

RIC and auto loan TDRs that subsequently default continue to have impairment measured based on the difference between the amortized cost basis of the RIC or auto loan and the present value of expected cash flows. For the Company's other consumer TDR portfolios, impairment on subsequently defaulted loans is generally measured based on the fair value of the collateral, if applicable, less its estimated cost to sell.

When a DCF methodology is used, cash flows are generally discounted at the individual asset’s EIR, or an individual asset’s prepay-adjusted EIR. The Company has made the following elections:

•RICs and auto loans: When a DCF methodology is used, the Company discounts cash flows using the prepay-adjusted EIR.
•All other assets: When a DCF methodology is used, the Company discounts cash flows using the EIR.

LHFS

LHFS are recorded at either estimated fair value (if the FVO is elected) or the lower of cost or fair value. The Company has elected to account for most of its residential real estate mortgages originated with the intent to sell at fair value. Applying fair value accounting to the residential mortgage LHFS better aligns the reported results of the economic changes in the value of these loans and their related economic hedge instruments. Generally, residential loans are valued on an aggregate portfolio basis, and commercial loans are valued on an individual loan basis. Gains and losses on LHFS which are accounted for at fair value are recorded in Miscellaneous income, net. For residential mortgages for which the FVO is selected, direct loan origination fees are recorded in Miscellaneous income, net at origination.

All other LHFS which the Company does not have the intent and ability to hold for the foreseeable future or until maturity or payoff are carried at the lower of cost or fair value. When loans are transferred from HFI, the Company will recognize a charge-off to the ALLL, if warranted under the Company’s charge-off policies. Any excess ALLL for the transferred loans is reversed through provision expense. Subsequent to the initial measurement of LHFS, market declines in the recorded investment, whether due to credit or market risk, are recorded through Miscellaneous income, net as lower of cost or market adjustments.

Interest income on the Company’s LHFS is recognized when earned based on their respective contractual rates in Interest income on loans in the Consolidated Statements of Operations. The accrual of interest is discontinued and reversed once the loans become more than 90 days delinquent.


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Leases (as Lessor)

The Company provides financing for various types of equipment, aircraft, energy and power systems, and automobiles through a variety of lease arrangements.

The Company’s investments in leases that are accounted for as direct financing leases are carried at the aggregate of lease payments plus estimated residual value of the leased property less unearned income, and are reported as part of LHFI in the Company’s Consolidated Balance Sheets. Leveraged leases, a form of financing lease, are carried net of non-recourse debt. The Company recognizes income over the term of the lease using the effective interest method, which provides a constant periodic rate of return on the outstanding investment on the lease.

Leased vehicles under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges and presented as Operating lease assets, net in the Company’s Consolidated Balance Sheets. Leased assets acquired in a business combination are initially recorded at their estimated fair value. Leased vehicles purchased in connection with newly originated operating leases are recorded at amortized cost. The depreciation expense of the vehicles is recognized on a straight-line basis over the contractual term of the leases to the expected residual value. The expected residual value and, accordingly, the monthly depreciation expense may change throughout the term of the lease. The Company estimates expected residual values using independent data sources and internal statistical models that take into consideration economic conditions, current auction results, the Company’s remarketing abilities, and manufacturer vehicle and marketing programs.

Lease payments due from operating lease customers are recorded as income within Lease income in the Company’s Consolidated Statements of Operations, unless and until a customer becomes more than 60 days delinquent, at which time the accrual of revenue is discontinued. The accrual is resumed if a delinquent account subsequently becomes 60 days or less past due. Payments from the vehicle’s manufacturer under its Subvention programs are recorded as reductions to the cost of the vehicle and are recognized as an adjustment to depreciation expense on a straight-line basis over the contractual term of the lease.

The Company periodically evaluates its investment in operating leases for impairment if circumstances such as a systemic and material decline in used vehicle values occurs. This would include, for example, a decline in the residual value of our lease portfolio due to an event caused by shocks to oil and gas prices that have a pronounced impact on certain models of vehicles, pervasive manufacturer defects, or other events that could systemically affect the value of a particular brand or model of leased asset, which indicates that impairment may exist.

Under the accounting for impairment or disposal of long-lived assets, residual values of leased assets under operating leases are evaluated individually for impairment. When aggregate future cash flows from the operating lease, including the expected realizable fair value of the leased asset at the end of the lease, are less than the book value of the lease, an immediate impairment write-down is recognized if the difference is deemed not recoverable. Otherwise, reductions in the expected residual value result in additional depreciation of the leased asset over the remaining term of the lease. Upon disposition, a gain or loss is recorded for any difference between the net book value of the leased asset and the proceeds from the disposition of the asset, including any insurance proceeds. Gains or losses on the sale of leased assets are included in Miscellaneous income, net, while valuation adjustments on operating lease residuals are included in Other administrative expense in the Consolidated Statements of Operations. No impairment for leased assets was recognized during the years ended December 31, 2022, 2021, or 2020.

Leases (as Lessee)

Operating lease ROU assets and lease liabilities are recognized upon lease commencement based on the present value of lease payments over the lease term, discounted at the Company's estimated rate of interest for a collateralized borrowing for a similar term. The lease term includes options to extend or terminate a lease when the Company considers it reasonably certain that such options will be exercised. Lease expense for operating leases is recognized on a straight-line basis over the lease term.


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Premises and Equipment

Premises and equipment are carried at cost, less accumulated depreciation. Depreciation is calculated utilizing the straight-line method. Estimated useful lives are as follows:
Office buildings 
10 to 30 years
Leasehold improvements(1)
 
10 to 30 years
Software 
3 to 7 years
Furniture, fixtures and equipment 
3 to 10 years
Automobiles 5 years
(1) Leasehold improvements are depreciated over the shorter of the useful lives of the assets or the remaining term of the leases.

Expenditures for maintenance and repairs are charged to Occupancy and equipment expense in the Consolidated Statements of Operations as incurred.

Equity Method Investments

The Company uses the equity method for general and limited partnership interests, limited liability companies and other unconsolidated equity investments in which the Company is considered to have significant influence over the operations of the investee. Under the equity method, the Company records its equity ownership share of net income or loss of the investee in "Other miscellaneous expenses." Investments accounted for under the equity method of accounting above are included in the caption "Other Assets" on the Consolidated Balance Sheets.

Goodwill and Intangible Assets

Goodwill is the excess of the purchase price over the fair value of the tangible and identifiable intangible assets and liabilities of companies acquired through business combinations accounted for under the acquisition method. Goodwill and other indefinite-lived intangible assets are not amortized on a recurring basis, but rather are subject to periodic impairment testing. The Company conducts its evaluation of goodwill impairment at the reporting unit level on an annual basis at October 1, and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. A reporting unit is an operating segment or one level below.

An entity's goodwill impairment quantitative analysis is required to be completed unless the entity determines, based on certain qualitative factors, that it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is greater than its carrying amount, including goodwill, in which case no further analysis is required. An entity has an unconditional option to bypass the preceding qualitative assessment (often referred to as step 0) for any reporting unit in any period and proceed directly to the quantitative goodwill impairment test.

The quantitative test includes a comparison of the fair value of each reporting unit to its respective carrying amount, including its allocated goodwill. If the fair value of the reporting unit is in excess of the carrying value, the related goodwill is considered not to be impaired and no further analysis is necessary. If the carrying value of the reporting unit is higher than the fair value, the impairment is measured as the excess of carrying value over fair value. A recognized impairment charge cannot exceed the amount of goodwill allocated to a reporting unit and cannot subsequently be reversed even if the fair value of the reporting unit recovers.

The Company's intangible assets consist of assets purchased or acquired through business combinations, including customer relationships and dealer networks. Certain intangible assets are amortized over their useful lives. The Company evaluates identifiable intangibles for impairment when an indicator of impairment exists, but not less than annually. Separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives.

MSRs

The Company has elected to measure its residential MSRs at fair value to be consistent with the risk management strategy to hedge changes in the fair value of these assets.


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See Note 12 to these Consolidated Financial Statements for detail on MSRs.

BOLI

BOLI represents the cash surrender value of life insurance policies for certain current and former employees who have provided positive consent to allow SBNA to be the beneficiary of such policies. Increases in the net cash surrender value of the policies, as well as insurance proceeds received, are recorded in non-interest income, and are not subject to income taxes.

OREO and Other Repossessed Assets

OREO and other repossessed assets consist of properties, vehicles, and other assets acquired by, or in lieu of, foreclosure or repossession in partial or total satisfaction of NPLs, including RICs and leases. Assets obtained in satisfaction of a loan are recorded at the estimated fair value minus estimated costs to sell based upon the asset's appraisal value at the date of transfer. The excess of the carrying value of the loan over the fair value of the asset minus estimated costs to sell are charged to the ALLL at the initial measurement date. Subsequent to the acquisition date, OREO and repossessed assets are carried at the lower of cost or estimated fair value, net of estimated cost to sell. Any declines in the fair value of OREO and repossessed assets below the initial cost basis are recorded through a valuation allowance with a charge to non-interest income. Increases in the fair value of OREO and repossessed assets net of estimated selling costs will reverse the valuation allowance, but only up to the cost basis which was established at the initial measurement date. Costs of holding the assets are recorded as operating expenses, except for significant property improvements, which are capitalized to the extent that the carrying value does not exceed the estimated fair value. The Company generally begins vehicle repossession activity once a customer's account becomes 60 days delinquent. The customer has an opportunity to redeem the repossessed vehicle by paying all outstanding balances, including finance changes and fees. Any vehicles not redeemed are sold at auction. OREO and other repossessed assets are recorded within Other assets on the Consolidated Balance Sheets.

Derivative Instruments and Hedging Activities

The Company uses derivative financial instruments primarily to help manage exposure to interest rate, foreign exchange, equity, and credit risk. Derivative financial instruments are also used to reduce the effects that changes in interest rates may have on net income, the fair value of assets and liabilities, and cash flows. The Company also enters into derivatives with customers to facilitate their risk management activities, and often sells derivative products to commercial loan customers to hedge interest rate risk associated with loans made by the Company. The Company uses derivative financial instruments as risk management tools and not for speculative trading purposes for its own account. Derivative financial instruments are recognized as either assets or liabilities in the Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of each derivative financial instrument depends on whether it has been designated and qualifies as a hedge for accounting purposes, as well as the type of hedging relationship identified.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk such as interest rate risk are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows or other types of forecasted transactions are considered cash flow hedges. The Company formally documents the relationships of qualifying hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking each hedge transaction.

Fair value hedges that are highly effective are accounted for by recording the change in the fair value of the derivative instrument and the change (due to the hedged risk) in the fair value of the related hedged asset, liability or firm commitment in the corresponding income or expense line in the Consolidated Statements of Operations. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as an other asset or other liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense associated with the hedged asset or liability.


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

Cash flow hedges that are highly effective are accounted for by recording the fair value of the derivative instrument on the Consolidated Balance Sheets as an asset or liability, with a corresponding charge or credit for the change in the fair value of the derivative, net of tax, recorded in AOCI within stockholder's equity in the accompanying Consolidated Balance Sheets. Amounts are reclassified from AOCI to the Consolidated Statements of Operations in the period or periods the hedged transaction affects earnings. In the case in which certain cash flow hedging relationships have been terminated, the Company continues to defer the net gain or loss in AOCI and reclassifies it into interest expense as the hedged cash flows occur, unless it becomes probable that the hedged cash flows will not occur.

We discontinue hedge accounting when it is determined that the derivative no longer qualifies as an effective hedge; the derivative expires or is sold, terminated or exercised; the derivative is de-designated as a fair value or cash flow hedge; or, for a cash flow hedge, it is no longer probable that the forecasted transaction will occur by the end of the originally specified time period. If we determine that the derivative no longer qualifies as a fair value or cash flow hedge and hedge accounting is discontinued, the derivative will continue to be recorded on the balance sheet at its fair value, with changes in fair value included in current earnings. For a discontinued fair value hedge, the previously hedged item is no longer adjusted for changes in fair value.

Changes in the fair value of derivatives not designated in hedging relationships are recognized immediately in the Consolidated Statements of Operations. Derivatives are classified in the Consolidated Balance Sheets as "Other assets" or "Other liabilities," as applicable. See Note 11 to the Consolidated Financial Statements for further discussion.

Credit-Linked Notes

Credit-linked notes are classified as Borrowings and other debt obligations. The notes contain a financial guarantee that effectively transfers a portion of the credit risk on a reference pool of loans owned by the Company to the noteholders. These are considered freestanding financial guarantee contracts. The notes are recorded at the amount of the proceeds received, net of debt issuance costs and subsequently accounted for on an amortized cost basis. In the event of credit losses on the reference loan pool in excess of the contractual residual amount, the principal balance of the notes will be reduced to the extent of such loss up to the amount of notes issued and recognized as a debt extinguishment gain within Miscellaneous income, net. In addition, as the credit guarantee component of the notes is considered to be free standing, the ACL measured on the reference pool of loans in accordance with ASC 326 is not reduced by the credit guarantee. The Company has the option to redeem the notes once the unpaid principal balance of the reference pool is less than or equal to 10% of the initial principal balance.

In connection with certain of its credit linked notes, the Company is required to maintain a collateral account with a third-party financial institution, with the amount equal to at least the outstanding balances of these transactions' credit-linked notes. This is reported as restricted cash in the Consolidated Balance Sheets. In addition, the Company maintains standby letters of credit (with a third-party financial institution) in an amount approximating six months of interest due on the notes outstanding.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to reverse or be realized. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date.

A valuation allowance is established if the Company determines that it is more likely than not that a deferred tax asset will not be realized. This requires periodic analysis of the carrying amount of deferred tax assets and when the deferred tax assets will be realized in future periods. Consideration is given to all positive and negative evidence related to the realization of deferred tax assets.

In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of inherently complex tax laws of the U.S., its states and municipalities, and abroad. 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. Interest and penalties on income tax payments are included within Income tax provision on the Consolidated Statements of Operations.
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NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)

The Company recognizes tax benefits in its financial statements when it is more likely than not the related tax position will be sustained upon examination by tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the taxing authority, assuming full knowledge of the position and all relevant facts. See Note 15 to the Consolidated Financial Statements for details on the Company's income taxes.

Guarantees

Certain financial instruments of the Company meet the definition of a guarantee. They generally require the Company to perform and make future payments in the event specified triggering events or conditions were to occur over the term of the guarantee. The Company recognizes a liability at inception at the greater of the fair value of the guarantee or the Company's estimate of the contingent liability arising from the guarantee. Subsequent to initial recognition, the liability is adjusted based on the passage of time to perform under the guarantee and the changes to the probabilities of the occurrence of the specified triggering events or conditions that would require the Company to perform on the guarantee.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting, and records the identifiable assets, liabilities and any NCI of the acquired business at their acquisition date fair values. The excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill. Any changes in the estimated acquisition date fair values of the net assets recorded prior to the finalization of a more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable to goodwill. Any subsequent changes to any purchase price allocations that are material to the Company’s Consolidated Financial Statements will be adjusted retrospectively. All acquisition related costs are expensed as incurred.

The results of operations of the acquired companies are recorded in the Consolidated Statements of Operations from the date of acquisition. The application of business combination principles, including the determination of the fair value of the net assets acquired, requires the use of significant estimates and assumptions.


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

Revenue Recognition

The Company primarily earns interest and non-interest income from various sources, including:

•Lending (interest income and loan fees)
•Investment securities
•Loan sales and servicing
•Finance leases
•BOLI
•Depository services
•Commissions and trailer fees
•Interchange income, net
•Underwriting, structuring and advisory fees
•Asset and wealth management fees

Lending and Investment Securities

The principal source of revenue is interest income from loans and investment securities. Interest income is recognized on an accrual basis primarily according to non-discretionary formulas in written contracts, such as loan agreements or securities contracts. Revenue earned on interest-earning assets, including amortization of deferred loan fees and origination costs and the accretion of discounts recognized on acquired or purchased loans, is recognized based on the constant effective yield of such interest-earning assets.

Gains or losses on sales of investment securities are recognized on the trade date.

Loan Sales and Servicing

The Company recognizes revenue from servicing commercial mortgages and consumer loans as earned. Mortgage banking income, net includes fees associated with servicing loans for third parties based on the specific contractual terms and changes in the fair value of MSRs. Gains or losses on sales of residential mortgage, multifamily and home equity loans are included within mortgage banking revenues and are recognized when the sale is complete.

Finance Leases

Income from finance leases is recognized as part of interest income over the term of the lease using the constant effective yield method, while income arising from operating leases is recognized as part of other non-interest income over the term of the lease on a straight-line basis.

BOLI

Income from BOLI represents increases in the cash surrender value of the policies, as well as insurance proceeds and interest.

Depository services

Depository services are performed under an agreement with a customer, and those services include personal deposit account opening and maintenance, checking services, online banking services, debit card services, etc. Depository service fees related to customer deposits can generally be distinguished between monthly service fees and transactional fees within the single performance obligation of providing depository account services. Monthly account service and maintenance fees are provided over a period of time (usually a month), and revenue is recognized as the Company performs the service (usually at the end of the month). The services for transactional fees are performed at a point in time and revenue is recognized when the transaction occurs.


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

Commissions and trailer fees

Commission fees are earned from the selling of annuity contracts to customers on behalf of insurance companies, acting as the broker for certain equity trading, and sales of interests in mutual funds. The Company elected the expected value method for estimating commission fees due to the large number of customer contracts with similar characteristics. However, commissions and trailer fees are fully constrained as the Company cannot sufficiently estimate the consideration which it could be entitled to earn. Commissions are generally associated with point-in-time transactions or agreements that are one year or less. The performance obligation is satisfied immediately and revenue is recognized as the Company performs the service.

Interchange income, net

The Company has entered into agreements with payment networks under which the Company will issue the payment network's credit card as part of the Company's credit card portfolio. Each time a cardholder makes a purchase at a merchant and the transaction is processed, the Company receives an interchange fee in exchange for the authorization and settlement services provided to the payment networks.

The performance obligation for the Company is to provide authorization and settlement services to the payment network when the payment network submits a transaction for authorization. The Company considers the payment network to be the customer, and the Company is acting as a principal when performing the transaction authorization and settlement services. The performance obligation for authorization and settlement services is satisfied at a point in time, and revenue is recognized on the date when the Company authorizes and routes the payment to the merchant. The expenses paid to payment networks are accounted for as consideration payable to the customer and therefore reduce the transaction price. Therefore, interchange income is recorded net against the expenses paid to the payment network and the cost of rewards programs. The agreements also contain immaterial fixed consideration related to upfront sign-on bonuses and program development bonuses, which are amortized over the remainder of the agreements' life on a straight-line basis.

Underwriting structuring and advisory fees

The Broker-Dealers perform underwriting services by raising investment capital from investors on behalf of corporations that are issuing securities. Underwriting services have one performance obligation, which is satisfied on the day the Broker-Dealers purchase the securities.

Underwriting revenues also result from securitization activities related to commercial mortgage loans and mortgage-backed and other asset-backed securities. Such transfers of financial assets are accounted for as sales when the Company has relinquished control over the transferred assets. The gain or loss on sale of such financial assets is recorded as underwriting revenues and is based upon their respective fair values at the date of sale.

Underwriting services include multiple parties in delivering the performance obligation. The Company has evaluated whether it is the principal or agent when we provide underwriting services. The Company acts as the principal when performing underwriting services, and recognizes fees on a gross basis. Revenue is recorded as the difference between the price the Company pays the issuer of the securities and the public offering price, and expenses are recorded as the proportionate share of the underwriting costs incurred. The Company is the principal because we obtain control of the services provided by third-party vendors and combine them with other services as part of delivering on the underwriting service.

In addition, structuring and advisory fees may be earned by the Broker-Dealers, primarily in referring institutional clients to entities participating in financing transactions. This revenue is recognized as the performance obligations are satisfied, generally at the funding date.

Asset and wealth management fees

Asset and wealth management fees includes fee income generated from discretionary investment management and non-discretionary investment advisory contracts with customers. Discretionary investment management fees are earned for the management of the assets in the customer's account and are recognized as earned and charged to the customer on a quarterly basis. Non-discretionary investment advisory fees are earned for providing investment advisory services to customers, such as recommending the re-balancing or restructuring of the assets in the customer’s account. The investment advisory fee is recognized as earned and charged to the customer on a quarterly basis. The fee for the discretionary and nondiscretionary contracts is based on a percentage of the average assets included in the customer’s account.
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NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)

Fair Value Measurements

The Company estimates the fair value of certain assets and liabilities for both measurement and disclosure purposes. 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, 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.

When measuring the fair value of a liability, the Company assumes that the transfer will not affect the nonperformance risk associated with the liability. The Company considers the effect of the credit risk on the fair value for any period in which fair value is measured.

There are three valuation approaches for measuring fair value: the market approach, the income approach and the cost approach. When selecting the appropriate technique for valuing a particular asset or liability the Company considers the exit market for the asset or liability, the nature of the asset or liability being measured, and how a market participant would value the same asset or liability. Ultimately, selecting the appropriate valuation method requires significant judgment.

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.

The fair value hierarchy is used for disclosure purposes, with assets and liabilities classified into one of the three levels defined above, based upon the level of the most significant assumptions used in the valuation.

Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability. Inputs can be observable or unobservable. Observable inputs are assumptions based on market data obtained from an independent source. Unobservable inputs are assumptions based on the Company's own information or assessment of assumptions used by other market participants in pricing the asset or liability. The unobservable inputs are based on the best and most current information available on the measurement date. The Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs in its fair value measurements.

Subsequent Events

The Company evaluated events from the date of these Consolidated Financial Statements on December 31, 2022 through the issuance of these Consolidated Financial Statements. Except as disclosed above and in Note 10, there were no material events in that period that would require recognition or disclosure in its Consolidated Financial Statements as of December 31, 2022.

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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:
 December 31, 2022December 31, 2021
(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$220,920 $— $(2,481)$218,439 $72,860 $758 $— $73,618 
Corporate debt securities371,458 1 (968)370,491 275,963 140 (96)276,007 
ABS517,920 58 (13,960)504,018 537,835 353 (466)537,722 
MBS:        
GNMA - Residential3,484,616 — (403,594)3,081,022 4,064,718 21,169 (19,692)4,066,195 
GNMA - Commercial684,502 267 (104,712)580,057 2,086,437 2,060 (55,658)2,032,839 
FHLMC and FNMA - Residential2,574,516 2 (394,317)2,180,201 4,267,757 14,616 (62,732)4,219,641 
FHLMC and FNMA - Commercial100,099 — (4,108)95,991 104,383 3,591 (59)107,915 
Unallocated FV hedge basis adjustment(1)
(39,199)— 39,199 — — — — — 
Total investments in debt securities AFS$7,914,832 $328 $(884,941)$7,030,219 $11,409,953 $42,687 $(138,703)$11,313,937 
(1) The Company has entered into fair value hedges of portions of a closed portfolio with a book value of approximately $3.2 billion of AFS debt securities, using the portfolio layer method.

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:
 December 31, 2022December 31, 2021
(in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Loss		Fair
Value		Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Loss		Fair
Value
ABS$52,201 $— $(967)$51,234 $89,722 $319 $— $90,041 
MBS:   
GNMA - Residential2,968,753 768 (492,643)2,476,878 2,862,595 13,412 (45,102)2,830,905 
GNMA - Commercial4,988,848 1,625 (656,952)4,333,521 3,750,154 25,524 (67,418)3,708,260 
FHLMC and FNMA - Residential1,539,416 243 (128,007)1,411,652 — — — — 
Total investments in debt securities HTM$9,549,218 $2,636 $(1,278,569)$8,273,285 $6,702,471 $39,255 $(112,520)$6,629,206 

As of December 31, 2022 and December 31, 2021, the Company had investment securities with an estimated carrying value of $5.8 billion and $5.3 billion, respectively, pledged as collateral, which were comprised of the following: $2.7 billion and $1.6 billion, respectively, were pledged as collateral for the Company's borrowing capacity with the FRB; $2.7 billion and $3.2 billion, respectively, were pledged to secure public fund deposits; $51.2 million and $72.6 million, respectively, were pledged to various independent parties to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; and $418.0 million and $403.8 million, respectively, were pledged to secure the Company's customer overnight sweep product. The Company also participates in Securities Financing Activities discussed further in Note 13 to these Consolidated Financial Statements.

At December 31, 2022 and December 31, 2021, the Company had $80.4 million and $26.9 million, respectively, of accrued interest related to investment securities which is included in the Other assets line of the Company's Consolidated Balance Sheets. No accrued interest related to investment securities was written off during the periods ended December 31, 2022 or December 31, 2021.

During 2022, there were approximately $3.0 billion of transfers of debt securities from AFS to HTM.

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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 December 31, 2022 were as follows:
(in thousands)Due Within One YearDue After 1 Within 5 YearsDue After 5 Within 10 YearsDue After 10 Years/No Maturity
Total(1)
Weighted Average Yield(2)
U.S Treasuries$28,360 $190,079 $— $— $218,439 1.93 %
Corporate debt securities270,898 99,593 — — 370,491 4.80 %
ABS— 3,053 132,772 368,193 504,018 5.60 %
MBS:
GNMA - Residential— 4 29,688 3,051,330 3,081,022 3.73 %
GNMA - Commercial— — — 580,057 580,057 2.24 %
FHLMC and FNMA - Residential2 30,901 109,976 2,039,322 2,180,201 2.70 %
FHLMC and FNMA - Commercial— 17,281 68,885 9,825 95,991 3.53 %
Total fair value$299,260 $340,911 $341,321 $6,048,727 $7,030,219 3.42 %
Weighted Average Yield4.73 %2.73 %3.84 %3.37 %3.42 %
Total amortized cost(3)
$299,903 $346,048 $358,208 $6,949,872 $7,954,031 
(1)    The maturities above do not represent the effective duration of the Company's portfolio, since the amounts above are based on contractual maturities and do not contemplate anticipated prepayments.
(2)    Yields on tax-exempt securities are calculated on a tax equivalent basis and are based on the statutory federal tax rate
(3) Does not include Unallocated FV hedge basis adjustment
Contractual maturities of the Company’s investments in debt securities HTM at December 31, 2022 were as follows:
(in thousands)Due Within One YearDue After 1 Within 5 YearsDue After 5 Within 10 YearsDue After 10 Years/No Maturity
Total(1)
Weighted Average Yield(2)
ABS$— $23,308 $27,926 $— $51,234 1.81 %
MBS:
GNMA - Residential— — 5,419 2,471,459 2,476,878 2.41 %
GNMA - Commercial— — — 4,333,521 4,333,521 2.15 %
FHLMC and FNMA - Residential— — — 1,411,652 1,411,652 2.50 %
Total fair value$— $23,308 $33,345 $8,216,632 $8,273,285 2.28 %
Weighted average yield— %1.53 %2.04 %2.29 %2.28 %
Total amortized cost$— $24,178 $33,747 $9,491,293 $9,549,218 
(1) (2) See corresponding footnotes to the December 31, 2022 contractual maturity table for investments in debt securities AFS.

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 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 as of the dates indicated:
 December 31, 2022December 31, 2021
 Less than 12 months12 months or longerLess than 12 months12 months or longer
(in thousands)Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
U.S. Treasury securities$212,990 $(2,481)$— $— $— $— $— $— 
Corporate debt securities365,702 (968)— — 173,255 (96)— — 
ABS269,158 (7,551)221,508 (6,409)389,743 (205)16,265 (261)
MBS:        
GNMA - Residential1,269,413 (144,616)1,811,609 (258,978)2,283,469 (19,068)96,339 (624)
GNMA - Commercial149,717 (20,243)425,711 (84,469)1,795,619 (51,908)89,640 (3,750)
FHLMC and FNMA - Residential856,047 (82,515)1,323,972 (311,802)3,315,452 (61,103)109,769 (1,629)
FHLMC and FNMA - Commercial51,299 (3,099)44,691 (1,009)45,641 (59)— — 
Total investments in debt securities AFS(1)
$3,174,326 $(261,473)$3,827,491 $(662,667)$8,003,179 $(132,439)$312,013 $(6,264)
(1) Does not include Unallocated FV hedge basis adjustment
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NOTE 2. INVESTMENT SECURITIES (continued)

The following table presents the aggregate amount of unrealized losses 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 as of the dates indicated:
December 31, 2022December 31, 2021
Less than 12 months12 months or longerLess than 12 months12 months or longer
(in thousands)Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
ABS$37,510 $(699)$13,725 $(268)$— $— $— $— 
MBS:
GNMA - Residential$775,414 $(86,237)$1,598,422 $(406,406)$2,051,851 $(42,284)$81,034 $(2,818)
GNMA - Commercial2,208,789 (255,345)2,052,433 (401,607)2,515,603 (61,377)124,655 (6,041)
FHLMC and FNMA - Residential1,343,276 (128,007)— — — — — — 
Total investments in debt securities HTM$4,364,989 $(470,288)$3,664,580 $(808,281)$4,567,454 $(103,661)$205,689 $(8,859)

Allowance for credit-related losses on AFS and HTM securities

The Company did not record an allowance for credit-related losses on AFS or HTM securities at December 31, 2022 or December 31, 2021. As discussed in Note 1, 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 Investment Securities

Proceeds from sales of investment securities and the realized gross gains and losses from those sales were as follows for the periods indicated:
years ended December 31,
(in thousands)202220212020
Proceeds from the sales of AFS securities$530,832 $1,326,299 $2,665,593 
AFS debt and other securities:
Gross realized gains$— $18,267 $32,650 
Gross realized losses(29,343)(2,316)— 
Net realized gains/(losses) on AFS and other securities$(29,343)$15,951 $32,650 
Total trading securities gains/(losses)35,405 (1,470)(1,353)
Total equity securities gains/(losses)12,480 — — 
Total realized gains/(losses) in income from investments$18,542 $14,481 $31,297 


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

Trading Securities

The Company held $5.9 billion of trading securities as of December 31, 2022, compared to $35.8 million held at December 31, 2021. Gains and losses on trading securities are recorded within Net gain on sale of investment securities on the Company's Consolidated Statements of Operations.


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NOTE 2. INVESTMENT SECURITIES (continued)

Other Investments

Other investments consisted of the following as of the dates indicated:
(in thousands)December 31, 2022December 31, 2021
FHLB of Pittsburgh and FRB stock$519,294 $394,668 
LIHTC investments492,706 370,493 
Equity securities not held for trading (1)
104,161 45,186 
Interest-bearing deposits with an affiliate bank— 250,000 
Total$1,116,161 $1,060,347 
(1)    Includes $2.4 million and $3.0 million of equity certificates related to an off-balance sheet securitization as of December 31, 2022 and December 31, 2021, respectively.

Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the FRB. These stocks do not have readily determinable fair values because their ownership is restricted and there is no market for their sale. The stocks can be sold back only at their par value of $100 per share, and FHLB stock can be sold back only to the FHLB or to another member institution. Accordingly, these stocks are carried at cost. During the year ended December 31, 2022, the Company purchased $547.2 million of FHLB stock at par, and redeemed $399.7 million of FHLB stock at par. The Company purchased $6.3 million of FRB stock at par, and redeemed $29.2 million of FRB stock at par during the year ended December 31, 2022. 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 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 affiliates that are not consolidated.

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.


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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 $50.0 billion at December 31, 2022 and $43.2 billion at December 31, 2021.

Loans that the Company intends to sell are classified as LHFS. The LHFS portfolio balance at December 31, 2022 was $99.6 million, compared to $255.0 million at December 31, 2021. For a discussion on the valuation of LHFS at fair value, see Note 15 to these Consolidated Financial Statements.

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 Consolidated Statements of Operations generally 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 December 31, 2022 and December 31, 2021, accrued interest receivable on the Company's loans was $566.8 million and $453.0 million, respectively.

Purchased receivables

During the year ended December 31, 2022, the Company approved and completed purchases of performing personal unsecured loans with a UPB of approximately $720.0 million.

Loan and Lease Portfolio Composition

The following presents the composition of loans and leases HFI by portfolio and by rate type as of the dates indicated:
 December 31, 2022December 31, 2021
(dollars in thousands)AmountPercentAmountPercent
Commercial LHFI:    
CRE loans$7,971,299 8.2 %$7,227,003 7.8 %
C&I loans14,811,074 15.2 %14,710,864 16.0 %
Multifamily loans9,629,423 9.9 %7,547,382 8.2 %
Other commercial(2)(4)
7,982,107 8.2 %8,170,031 8.9 %
Total commercial LHFI40,393,903 41.5 %37,655,280 40.9 %
Consumer loans secured by real estate:    
Residential mortgages5,202,862 5.3 %5,598,560 6.1 %
Home equity loans and lines of credit3,002,804 3.1 %3,487,234 3.8 %
Total consumer loans secured by real estate8,205,666 8.4 %9,085,794 9.9 %
Consumer loans not secured by real estate:    
RICs and auto loans44,577,186 45.8 %43,183,098 46.9 %
Personal unsecured loans4,068,848 4.2 %2,009,654 2.2 %
Other consumer(3)
92,726 0.1 %141,986 0.1 %
Total consumer loans56,944,426 58.5 %54,420,532 59.1 %
Total LHFI(1)
$97,338,329 100.0 %$92,075,812 100.0 %
Total LHFI:    
Fixed rate$67,693,444 69.5 %$64,774,941 70.3 %
Variable rate29,644,885 30.5 %27,300,871 29.7 %
Total LHFI(1)
$97,338,329 100.0 %$92,075,812 100.0 %
(1)Total LHFI includes unamortized deferred loan fees, net of deferred origination costs; unamortized purchase premiums, net of discounts; unamortized participation fees; accretable subvention; as well as purchase accounting adjustments. These items resulted in a net adjustment to the loan balances of $286.7 million and $380.6 million as of December 31, 2022 and December 31, 2021, 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 $0.0 million and $128.8 million as of December 31, 2022 and December 31, 2021, respectively, for which a fair value hedge is recorded resulting in a fair value adjustment of $0.0 million and $1.3 million as of December 31, 2022 and December 31, 2021 respectively.


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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.

ACL Rollforward by Portfolio Segment

The ACL is comprised of the ALLL and the reserve for unfunded lending commitments. The activity in the ACL by portfolio segment was as follows for the periods indicated:
Year Ended December 31, 2022
(in thousands)CommercialConsumerTotal
ALLL, beginning of period$567,310 $5,894,100 $6,461,410 
Credit loss expense / (benefit)71,375 1,965,954 2,037,329 
Charge-offs (133,104)(4,041,349)(4,174,453)
Recoveries56,635 2,399,078 2,455,713 
Charge-offs, net of recoveries(76,469)(1,642,271)(1,718,740)
ALLL, end of period$562,216 $6,217,783 $6,779,999 
Reserve for unfunded lending commitments, beginning of period $91,191 $12,903 $104,094 
Credit loss expense / (benefit) on unfunded lending commitments(13,482)(5,030)(18,512)
Reserve for unfunded lending commitments, end of period77,709 7,873 85,582 
Total ACL, end of period$639,925 $6,225,656 $6,865,581 
Year Ended December 31, 2021
(in thousands)CommercialConsumerTotal
ALLL, beginning of period$752,196 $6,586,297 $7,338,493 
Credit loss expense / (benefit)(115,937)(49,051)(164,988)
Charge-offs(142,630)(2,868,769)(3,011,399)
Recoveries73,681 2,225,623 2,299,304 
Charge-offs, net of recoveries(68,949)(643,146)(712,095)
ALLL, end of period$567,310 $5,894,100 $6,461,410 
Reserve for unfunded lending commitments, beginning of period $119,129 $27,326 $146,455 
Credit loss expense / (benefit) on unfunded lending commitments(27,938)(14,423)(42,361)
Reserve for unfunded lending commitments, end of period91,191 12,903 104,094 
Total ACL, end of period$658,501 $5,907,003 $6,565,504 

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Year Ended December 31, 2020
(in thousands)CommercialConsumerUnallocatedTotal
ALLL, beginning of period$399,829 $3,199,612 $46,748 $3,646,189 
Day 1: Adjustment to allowance for adoption of ASU 2016-13198,919 2,383,711 (46,748)2,535,882 
Credit loss expense on loans298,780 2,525,185 — 2,823,965 
Charge-offs(180,726)(3,589,539)— (3,770,265)
Recoveries35,394 2,067,328 — 2,102,722 
Charge-offs, net of recoveries(145,332)(1,522,211)— (1,667,543)
ALLL, end of period$752,196 $6,586,297 $— $7,338,493 
Reserve for unfunded lending commitments, beginning of period$85,934 $5,892 $— $91,826 
Day 1: Adjustment to allowance for adoption of ASU 2016-1310,081 330 — 10,411 
Credit loss expense / (benefit) on unfunded lending commitments23,114 21,104 — 44,218 
Reserve for unfunded lending commitments, end of period119,129 27,326 — 146,455 
Total ACL end of period$871,325 $6,613,623 $— $7,484,948 

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

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

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

The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustments for macroeconomic uncertainty and considers adjustments to macroeconomic inputs and outputs based on market volatility. The baseline scenario was based on the latest consensus forecasts available which showed a deterioration in key variables in the fourth quarter of 2022, including an expected increase in unemployment rates (which is a key driver to losses) and a decline in the GDP growth rate. The unemployment rate and used vehicle price index, which is a measure of wholesale used car price trends, are considered the most significant variables. Using the weighted-average of a range of economic forecast scenarios, we estimated at December 31, 2022 that the unemployment rate is expected to be approximately 5.13% at the end of 2023, as the labor market is expected to contract due to the risk of recession. In comparison, at December 31, 2021, management previously estimated the unemployment rate using the weighted-average of our economic forecast scenarios to be 4.27% at the end of 2023. Additionally, the weighted used vehicle index, where a higher number corresponds to a higher used car price at auction, is estimated at December 31, 2022 to be approximately 183 at the end of 2023 compared to our estimate at December 31, 2021 of approximately 185 at the end of 2023. While the economy has seen significant recovery in 2022, there is still considerable uncertainty regarding overall lifetime loss estimates due to inflation and rising interest rates, which are slowing the economy.

The Company's ACL was $6.9 billion at December 31, 2022, including an increase of $318.6 million from December 31, 2021 in the ALLL. The increase in the ACL was primarily driven by a deterioration in the macroeconomic outlook and higher loan volume in the RIC and personal unsecured lending portfolios. The ACL for the consumer segment increased $318.7 million, offset by a decrease of $18.6 million in the ACL for the commercial segment.

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Non-accrual loans by Class of Financing Receivable

The amortized cost basis of financing receivables that are either non-accrual with related expected credit loss or non-accrual without related expected credit loss disaggregated by class of financing receivables and other non-performing assets is as follows at the dates indicated:
Non-accrual loans as of:(1)
Non-accrual loans with no allowance
(in thousands)December 31, 2022December 31, 2021December 31, 2022December 31, 2021
Non-accrual loans:  
Commercial:  
CRE$62,093 $31,752 $19,694 $24,112 
C&I94,299 69,754 11,257 35,965 
Multifamily18,476 103,299 18,214 103,138 
Other commercial5,180 9,036 674 5,472 
Total commercial loans180,048 213,841 49,839 168,687 
Consumer:  
Residential mortgages75,666 123,548 30,337 71,463 
Home equity loans and lines of credit82,664 88,310 37,755 39,693 
RICs and auto loans1,986,748 1,467,928 179,319 202,193 
Personal unsecured loans10,397 2,892 — — 
Other consumer5,332 1,047 129 16 
Total consumer loans2,160,807 1,683,725 247,540 313,365 
Total non-accrual loans2,340,855 1,897,566 297,379 482,052 
OREO4,437 3,724 — — 
Repossessed vehicles229,531 247,757 — — 
Foreclosed and other repossessed assets1,128 294 — — 
Total OREO and other repossessed assets235,096 251,775 — — 
Total non-performing assets$2,575,951 $2,149,341 $297,379 $482,052 
(1) Interest income recognized on nonaccrual loans was $165.0 million and $106.9 million for the year ended December 31, 2022 and December 31, 2021, respectively.
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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 amortized cost of past due loans and accruing loans 90 days or greater past due disaggregated by class of financing receivables is summarized as follows at the dates indicated:
As of:December 31, 2022
(in thousands)30-89
Days Past
Due		90
Days or Greater		Total
Past Due		CurrentTotal
Financing
Receivables		Amortized Cost
> 90 Days and
Accruing
Commercial:      
CRE(2)
$6,971 $3,972 $10,943 $7,971,986 $7,982,929 $— 
C&I(1)
48,763 21,884 70,647 14,827,803 14,898,450 — 
Multifamily21,423 — 21,423 9,608,000 9,629,423 — 
Other commercial34,071 2,506 36,577 7,945,530 7,982,107 — 
Consumer:      
Residential mortgages(3)
76,167 68,237 144,404 5,059,007 5,203,411 — 
Home equity loans and lines of credit37,192 64,107 101,299 2,901,505 3,002,804 — 
RICs and auto loans4,581,952 345,316 4,927,268 39,649,918 44,577,186 — 
Personal unsecured loans42,691 18,620 61,311 4,007,537 4,068,848 3,719 
Other consumer3,752 386 4,138 88,588 92,726 — 
Total$4,852,982 $525,028 $5,378,010 $92,059,874 $97,437,884 $3,719 
(1) C&I loans includes $87.4 million of LHFS at December 31, 2022.
(2) CRE loans includes $11.6 million of LHFS at December 31, 2022.
(3) Residential mortgages includes $549 thousand of LHFS at December 31, 2022.


As of:December 31, 2021
(in thousands)30-89
Days Past
Due		90
Days or Greater		Total
Past Due		CurrentTotal
Financing
Receivables		Recorded
Investment
> 90 Days and Accruing
Commercial:      
CRE$4,287 $8,775 $13,062 $7,213,941 $7,227,003 $— 
C&I (1)
31,475 19,862 51,337 14,747,739 14,799,076 — 
Multifamily336 2,574 2,910 7,544,472 7,547,382 — 
Other commercial77,842 2,674 80,516 8,089,515 8,170,031 — 
Consumer:  
Residential mortgages(2)
83,626 89,403 173,029 5,592,342 5,765,371 — 
Home equity loans and lines of credit22,871 63,306 86,177 3,401,057 3,487,234 — 
RICs and auto loans3,535,402 324,150 3,859,552 39,323,546 43,183,098 — 
Personal unsecured loans10,361 5,206 15,567 1,994,087 2,009,654 2,314 
Other consumer3,493 564 4,057 137,929 141,986 — 
Total$3,769,693 $516,514 $4,286,207 $88,044,628 $92,330,835 $2,314 
(1)C&I loans included $88.2 million of LHFS at December 31, 2021.
(2) Residential mortgages included $166.8 million of LHFS at December 31, 2021.
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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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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:
December 31, 2022
Commercial Loan Portfolio (2)
(dollars in thousands)Amortized Cost by Origination Year
Regulatory Rating:
2022(1)
2021202020192018Prior
Total (3)
CRE
Pass$1,155,364 $1,699,342 $1,607,481 $1,053,514 $678,388 $1,130,533 $7,324,622 
Special mention— — 8,898 87,698 87,446 45,745 229,787 
Substandard— 47,337 45,843 91,346 100,372 143,622 428,520 
Total CRE$1,155,364 $1,746,679 $1,662,222 $1,232,558 $866,206 $1,319,900 $7,982,929 
C&I
Pass$3,775,592 $2,350,233 $1,947,040 $1,409,378 $1,463,998 $2,032,455 $12,978,696 
Special mention96,074 16,032 65,864 46,573 8,542 77,027 310,112 
Substandard16,344 112,366 34,765 8,189 94,882 147,716 414,262 
Doubtful— — — — — — — 
N/A627,338 324,260 136,426 87,095 17,355 2,906 1,195,380 
Total C&I$4,515,348 $2,802,891 $2,184,095 $1,551,235 $1,584,777 $2,260,104 $14,898,450 
Multifamily
Pass$3,389,302 $1,491,469 $826,887 $1,520,926 $673,355 $889,352 $8,791,291 
Special mention— 70,869 25,560 52,534 42,430 113,535 304,928 
Substandard— 12,962 64,562 110,378 212,726 132,576 533,204 
Total multifamily$3,389,302 $1,575,300 $917,009 $1,683,838 $928,511 $1,135,463 $9,629,423 
Remaining commercial
Pass$3,488,006 $1,853,056 $982,849 $580,025 $248,510 $823,200 $7,975,646 
Special mention— 1,279 — — — — 1,279 
Substandard235 814 1,052 971 984 1,126 5,182 
Total remaining commercial$3,488,241 $1,855,149 $983,901 $580,996 $249,494 $824,326 $7,982,107 
Total commercial loans
Pass$11,808,264 $7,394,100 $5,364,257 $4,563,843 $3,064,251 $4,875,540 $37,070,255 
Special mention96,074 88,180 100,322 186,805 138,418 236,307 846,106 
Substandard16,579 173,479 146,222 210,884 408,964 425,040 1,381,168 
Doubtful— — — — — — — 
N/A627,338 324,260 136,426 87,095 17,355 2,906 1,195,380 
Total commercial loans$12,548,255 $7,980,019 $5,747,227 $5,048,627 $3,628,988 $5,539,793 $40,492,909 
(1)Loans originated during the year ended December 31, 2022.
(2)Includes $99.0 million of LHFS at December 31, 2022.
(3)Includes $224.2 million revolving loans converted to term loans.




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December 31, 2021
Commercial Loan Portfolio (2)
(dollars in thousands)Amortized Cost by Origination Year
Regulatory Rating:
2021(1)
2020201920182017Prior
Total (3)
CRE
Pass$986,225 $1,283,784 $1,308,729 $918,097 $446,715 $1,512,165 $6,455,715 
Special mention— 9,490 26,892 118,103 117,703 35,135 307,323 
Substandard20,291 11,896 131,169 138,652 42,965 118,992 463,965 
Doubtful— — — — — — — 
N/A— — — — — — — 
Total CRE$1,006,516 $1,305,170 $1,466,790 $1,174,852 $607,383 $1,666,292 $7,227,003 
C&I
Pass$3,828,736 $3,213,214 $2,179,598 $1,179,065 $574,141 $2,042,111 $13,016,865 
Special mention11,003 32,268 154,820 31,026 25,176 98,964 353,257 
Substandard62,742 62,305 11,859 50,384 47,020 197,121 431,431 
Doubtful— — — — — — — 
N/A511,609 258,315 176,542 39,942 5,959 5,156 997,523 
Total C&I$4,414,090 $3,566,102 $2,522,819 $1,300,417 $652,296 $2,343,352 $14,799,076 
Multifamily
Pass$1,575,287 $740,684 $1,522,367 $820,900 $729,510 $905,967 $6,294,715 
Special mention4,850 — 101,375 71,031 15,125 35,449 227,830 
Substandard3,981 83,994 233,045 345,510 135,289 223,018 1,024,837 
Doubtful— — — — — — — 
N/A— — — — — — — 
Total multifamily$1,584,118 $824,678 $1,856,787 $1,237,441 $879,924 $1,164,434 $7,547,382 
Remaining commercial
Pass$3,753,502 $1,864,509 $952,428 $446,979 $260,112 $858,640 $8,136,170 
Special mention2,959 — 3,007 5,169 625 1,741 13,501 
Substandard287 569 7,196 2,214 1,786 8,308 20,360 
Doubtful— — — — — — — 
N/A— — — — — — — 
Total remaining commercial$3,756,748 $1,865,078 $962,631 $454,362 $262,523 $868,689 $8,170,031 
Total commercial loans
Pass$10,143,750 $7,102,191 $5,963,122 $3,365,041 $2,010,478 $5,318,883 $33,903,465 
Special mention18,812 41,758 286,094 225,329 158,629 171,289 901,911 
Substandard87,301 158,764 383,269 536,760 227,060 547,439 1,940,593 
Doubtful— — — — — — — 
N/A511,609 258,315 176,542 39,942 5,959 5,156 997,523 
Total commercial loans$10,761,472 $7,561,028 $6,809,027 $4,167,072 $2,402,126 $6,042,767 $37,743,492 
(1)Loans originated during the year ended December 31, 2021.
(2)Includes $88.2 million of LHFS at December 31, 2021.
(3)Includes $362.7 million revolving loans converted to term loans.

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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 December 31, 2022
RICs and auto loans
(dollars in thousands)
Amortized Cost by Origination Year(3)
Credit Score Range
2022(1)
2021202020192018PriorTotalPercent
No FICO(2)
$1,390,093 $773,434 $385,534 $236,876 $120,243 $81,560 $2,987,740 6.7 %
<6006,427,169 4,479,653 2,120,477 1,418,891 757,190 399,144 15,602,524 35.0 %
600-6393,801,538 2,142,540 878,099 570,636 264,720 102,409 7,759,942 17.4 %
>=6408,192,528 5,633,422 2,497,563 1,445,413 356,267 101,787 18,226,980 40.9 %
Total$19,811,328 $13,029,049 $5,881,673 $3,671,816 $1,498,420 $684,900 $44,577,186 100.0 %
(1)    Loans originated during the year ended December 31, 2022.
(2)     Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.
(3)    Excludes LHFS.

As of December 31, 2021
RICs and auto loans
(dollars in thousands)
Amortized Cost by Origination Year(3)
Credit Score Range
2021(1)
2020201920182017PriorTotalPercent
No FICO(2)
$1,427,962 $733,752 $449,965 $244,829 $201,129 $108,766 $3,166,403 7.4 %
<6007,410,017 3,768,302 2,574,070 1,488,371 580,881 515,318 16,336,959 37.8 %
600-6393,574,644 1,585,530 1,056,397 537,222 165,318 141,316 7,060,427 16.3 %
>=6408,793,804 4,169,473 2,681,160 718,312 122,569 133,991 16,619,309 38.5 %
Total$21,206,427 $10,257,057 $6,761,592 $2,988,734 $1,069,897 $899,391 $43,183,098 100.0 %
(1)    Loans originated during the year ended December 31, 2021.
(2)     Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.
(3)    Excludes LHFS.
As of December 31, 2022
Personal Unsecured loans
(dollars in thousands)Amortized Cost by Origination Year
Credit Score Range
2022(1)
2021202020192018PriorTotalPercent
No FICO(2)
$9,044 $— $— $— $— $73 $9,117 0.2 %
<60033 8 22 19 43 1,605 1,730 — %
600-63918,430 1,745 629 790 383 4,164 26,141 0.6 %
>=6402,663,981 1,085,026 93,544 38,661 41,062 109,586 4,031,860 99.2 %
Total$2,691,488 $1,086,779 $94,195 $39,470 $41,488 $115,428 $4,068,848 100.0 %
(1)    Loans originated during the year ended December 31, 2022.
(2)     Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.
As of December 31, 2021
Personal Unsecured loans
(dollars in thousands)Amortized Cost by Origination Year
Credit Score Range
2021(1)
2020201920182017PriorTotalPercent
No FICO(2)
$104,318 $61 $70 $197 $136 $4,804 $109,586 5.5 %
<600— 27 17 — 9 1,446 1,499 0.1 %
600-6392,723 1,137 1,357 792 413 3,758 10,180 0.5 %
>=6401,373,395 201,040 72,672 89,980 46,776 104,526 1,888,389 93.9 %
Total$1,480,436 $202,265 $74,116 $90,969 $47,334 $114,534 $2,009,654 100.0 %
(1)    Loans originated during the year ended December 31, 2021.
(2)     Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.


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

Consumer Lending Asset Quality Indicators-FICO and LTV Ratio

For both residential and home equity loans, loss severity assumptions are incorporated in the loan and lease loss reserve models to estimate loan balances that will ultimately charge off. 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.

Residential mortgage and home equity financing receivables by LTV and FICO range are summarized as follows:
As of December 31, 2022
Amortized Cost by Origination Year (4)
(dollars in thousands)
Residential mortgages(1)
20222021202020192018PriorGrand TotalRevolving Loans
LTV Ratios (3)
No LTV available (2)
$3,643 $— $— $— $— $2,452 $6,095 $— 
<= 70%152,701 1,002,042 909,631 632,589 301,007 1,894,872 4,892,842 — 
70.01% - 110%124,348 138,416 26,284 1,109 133 12,117 302,407 — 
Greater than 110%— — — — — 1,518 1,518 — 
Total residential mortgages$280,692 $1,140,458 $935,915 $633,698 $301,140 $1,910,959 $5,202,862 $— 
FICO Scores
No FICO score available$— $— $— $— $— $3,797 $3,797 $— 
<6004,142 11,386 10,011 26,269 19,036 99,192 170,036 — 
600-67931,150 38,784 39,880 55,183 34,099 187,788 386,884 — 
680-75978,838 270,703 234,685 180,914 104,859 516,661 1,386,660 — 
>=760166,562 819,585 651,339 371,332 143,146 1,103,521 3,255,485 — 
Total residential mortgages$280,692 $1,140,458 $935,915 $633,698 $301,140 $1,910,959 $5,202,862 $— 
Home equity(1)
LTV Ratios
No LTV available (2)
$1,732 $2,761 $3,097 $3,501 $4,620 $58,329 $74,040 $46,632 
<= 70%40,187 181,790 210,585 266,668 342,939 1,826,910 2,869,079 2,786,266 
70.01% - 110%10,626 16,561 490 73 24 27,879 55,653 53,482 
Greater than 110%1,066 667 — — — 2,299 4,032 4,032 
Total home equity$53,611 $201,779 $214,172 $270,242 $347,583 $1,915,417 $3,002,804 $2,890,412 
FICO Scores
No FICO score available$686 $2,582 $2,764 $3,458 $4,497 $55,902 $69,889 $42,490 
<600150 1,900 2,384 5,037 14,119 118,276 141,866 123,744 
600-6791,715 7,591 11,629 22,646 34,051 244,795 322,427 302,644 
680-75917,796 68,756 69,834 85,248 112,138 612,141 965,913 942,837 
>=76033,264 120,950 127,561 153,853 182,778 884,303 1,502,709 1,478,697 
Total home equity$53,611 $201,779 $214,172 $270,242 $347,583 $1,915,417 $3,002,804 $2,890,412 
(1) Loans originated during the year ended December 31, 2022.
(2) Balances in the "No LTV available" or "No FICO score available" ranges 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) Excludes LHFS.


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

As of December 31, 2021
Amortized Cost by Origination Year (4)
(dollars in thousands)
Residential mortgages(1)20212020201920182017PriorGrand TotalRevolving Loans
LTV Ratios (3)
No LTV available (2)
$11,605 $907 $676 $338 $469 $3,076 $17,071 $— 
<= 70%747,090 831,112 517,103 293,784 497,556 1,812,989 4,699,634 — 
70.01% - 110%393,105 189,115 204,931 68,892 7,450 15,705 879,198 — 
Greater than 110%— — — — — 2,657 2,657 — 
Total residential mortgages$1,151,800 $1,021,134 $722,710 $363,014 $505,475 $1,834,427 $5,598,560 $— 
FICO Scores
No FICO score available$11,604 $1,621 $677 $337 $954 $5,103 $20,296 $— 
<6002,356 4,719 15,894 16,995 17,879 83,310 141,153 — 
600-67930,763 39,681 61,969 37,104 39,283 192,786 401,586 — 
680-759372,215 257,513 235,167 126,926 147,159 513,020 1,652,000 — 
>=760734,862 717,600 409,003 181,652 300,200 1,040,208 3,383,525 — 
Total residential mortgages$1,151,800 $1,021,134 $722,710 $363,014 $505,475 $1,834,427 $5,598,560 $— 
Home equity(1)
LTV Ratios
No LTV available (2)
$1,850 $3,003 $3,923 $4,911 $4,808 $69,090 $87,585 $50,651 
<= 70%127,313 231,024 297,239 378,399 359,912 1,844,786 3,238,673 3,146,199 
70.01% - 110%40,483 8,133 11,149 6,781 817 80,152 147,515 140,959 
Greater than 110%3,357 622 — — — 9,482 13,461 13,370 
Total home equity$173,003 $242,782 $312,311 $390,091 $365,537 $2,003,510 $3,487,234 $3,351,179 
FICO Scores
No FICO score available$1,908 $3,121 $4,133 $4,935 $4,879 $68,603 $87,579 $50,671 
<600146 782 3,795 10,135 12,063 111,661 138,582 121,597 
600-6793,330 8,417 22,910 35,437 32,485 257,159 359,738 338,378 
680-75964,036 80,209 103,691 129,182 132,671 626,942 1,136,731 1,111,686 
>=760103,583 150,253 177,782 210,402 183,439 939,145 1,764,604 1,728,847 
Total home equity$173,003 $242,782 $312,311 $390,091 $365,537 $2,003,510 $3,487,234 $3,351,179 
(1) Loans originated during the year ended December 31, 2021.
(2) Balances in the "No LTV available" or "No FICO score available" ranges 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) Excludes LHFS.

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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)December 31, 2022December 31, 2021
Performing$2,694,007 $3,641,593 
Non-performing478,431 607,824 
Total (1)
$3,172,438 $4,249,417 
(1) Excludes LHFS.

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 periods indicated:
Year Ended December 31, 2022
Number of
Contracts
Pre-TDR Amortized Cost(1)
Post-TDR Amortized Cost(2)
(dollars in thousands)
Commercial:
CRE46 $7,883 $7,883 
C&I320 13,718 13,734 
Multi-family17 7,168 7,168 
Other commercial15 229 229 
Consumer:
Residential mortgages(3)
24 6,503 6,501 
Home equity loans and lines of credit79 10,004 10,424 
RICs and auto loans46,904 862,061 861,701 
Personal unsecured loans1 23 23 
Other consumer1 1,250 1,250 
Total47,407 $908,839 $908,913 
(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)

Year Ended December 31, 2021
(dollars in thousands)Number of
Contracts
Pre-TDR Recorded
Investment(1)
Post-TDR Recorded Investment(2)
Commercial:
CRE16 $52,090 $52,090 
C&I457 47,711 47,770 
Multi-family3 33,351 33,351 
Other commercial194 14,906 14,906 
Consumer:
Residential mortgages(3)
395 108,859 108,607 
Home equity loans and lines of credit557 85,358 85,837 
RICs and auto loans80,590 1,602,522 1,609,358 
Personal unsecured loans141 1,887 1,870 
Other consumer24 727 717 
Total82,377 $1,947,411 $1,954,506 
(1) - (3) Refer to corresponding notes above
Year Ended December 31, 2020
(dollars in thousands)Number of
Contracts
Pre-TDR Recorded
Investment(1)
Post-TDR Recorded Investment(2)
Commercial:
CRE42 $59,989 $59,989 
C&I727 63,250 63,402 
Multi-family7 63,003 63,003 
Other commercial11 1,108 1,108 
Consumer:
Residential mortgages(3)
192 16,836 16,975 
Home equity loans and lines of credit80 7,490 7,863 
RICs and auto loans102,486 2,118,125 2,140,179 
Personal unsecured loans5 7 — 
Other consumer15 1,389 1,826 
Total103,565 $2,331,197 $2,354,345 
(1) - (3) Refer to corresponding notes above

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 years ended December 31, 2022 and 2021, respectively.

Years Ended December 31,
202220212020
(dollars in thousands)Number of
Contracts
Recorded Investment(1)
Number of
Contracts
Recorded Investment(1)
Number of
Contracts
Recorded Investment(1)
Commercial
CRE— $— 2 $1,182 35 $17,168 
C&I— — 109 11,269 57 11,043 
Multifamily— — — — 3 41,629 
Other commercial1 11 1 17 2 625 
Consumer:
Residential mortgages82 28,945 105 33,689 33 5,278 
Home equity loans and lines of credit 43 5,684 26 2,378 24 3,783 
RICs and auto loans5,406 96,671 18,659 362,157 16,016 291,050 
Personal unsecured loans14 196 17 254 — — 
Other consumer2 57 8 198 1 45 
Total5,548 $131,564 18,927 $411,144 16,171 $370,621 
(1)Represents the period-end balance.
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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 Consolidated Balance Sheets as Operating lease assets, net.

Operating lease assets, net consisted of the following as of the periods indicated:
(in thousands)December 31, 2022December 31, 2021
Leased vehicles$18,241,836 $19,662,593 
Less: accumulated depreciation(3,699,350)(3,789,882)
Depreciated net capitalized cost$14,542,486 $15,872,711 
Manufacturer subvention payments, net of accretion(447,009)(604,104)
Origination fees and other costs170,435 136,013 
Leased vehicles, net$14,265,912 $15,404,620 
Commercial equipment vehicles and aircraft, gross$2,221 $2,677 
Less: accumulated depreciation(1,022)(895)
Commercial equipment vehicles and aircraft, net
$1,199 $1,782 
Total operating lease assets, net$14,267,111 $15,406,402 

The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of December 31, 2022 (in thousands):
2023$2,224,693 
20241,229,088 
2025425,058 
202637,052 
2027— 
Thereafter— 
Total$3,915,891 

During the years ended December 31, 2022, 2021, and 2020, the Company recognized $84.8 million, $443.8 million, and $243.2 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. These amounts are recorded within Miscellaneous income, net in the Company's Consolidated Statements of Operations.


NOTE 5. PREMISES AND EQUIPMENT

A summary of premises and equipment, less accumulated depreciation, follows:
(in thousands)December 31, 2022December 31, 2021
Land$77,143 $77,310 
Office buildings159,766 156,967 
Furniture, fixtures, and equipment651,153 598,240 
Leasehold improvement621,114 585,956 
Computer software1,442,351 1,239,795 
Automobiles and other17,700 10,952 
Total premise and equipment2,969,227 2,669,220 
Less accumulated depreciation(2,058,750)(1,812,827)
Total premises and equipment, net$910,477 $856,393 

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NOTE 5. PREMISES AND EQUIPMENT (continued)

Depreciation expense for premises and equipment, included in Occupancy and equipment expenses in the Consolidated Statements of Operations, was $244.7 million, $243.6 million, and $209.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

During the year December 31, 2022 the Company sold twenty (20) properties. The Company received net proceeds of $11.9 million from the sales, with a net gain of $7.6 million. The carrying value of these properties was $4.3 million. In 2021, the Company sold seven (7) properties. The Company received net proceeds of $6.4 million from the sales, with a net gain of $3.5 million. The carrying value of these properties was $2.9 million. In 2020 the Company sold six (6) properties. The Company received net proceeds of $4.3 million from the sales, with a net gain of $2.0 million. The carrying value of these properties was $2.3 million. In addition to the six properties sold in 2020, the Company completed the sale of SBC, including its fixed assets.

During the years ended December 31, 2022, 2021, and 2020 the Company recorded impairment of capitalized assets in the amount of $25.2 million, $11.2 million, and $21.0 million, respectively. These were primarily related to capitalized software assets removed from service prior to the end of their useful life.


NOTE 6. 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 roll-forward of the Company's goodwill by its reporting units for the period indicated:
(in thousands)AutoCBBC&ICRECIBSCTotal
Goodwill at December 31, 2021
$— $297,802 $52,198 $1,095,071 $131,130 $1,019,960 $2,596,161 
Additions during the period— — — — 171,571 — 171,571 
Re-allocation of goodwill1,238,676 (138,776)— (79,940)— (1,019,960)— 
Goodwill at December 31, 2022
$1,238,676 $159,026 

$52,198 $1,015,131 

$302,701 

$— 

$2,767,732 


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NOTE 6. GOODWILL AND OTHER INTANGIBLES (continued)

During 2022, in the second quarter, the Company added $171.6 million of goodwill associated with the acquisition of PCH, attributable to the CIB reporting unit. During the first quarter, in connection with the Company's organizational changes discussed further in Note 23 to these Consolidated Financial Statements, the Company has created a new Auto reportable segment and has re-allocated a portion of its goodwill based on the relative fair value of business activities moved from the CBB and CRE reporting units and moved all of the goodwill from the SC reporting unit to the Auto reporting unit. Prior to the re-allocation, and upon completion of the re-allocation, the Company performed updated impairment tests for affected reporting units and determined that no impairment existed.

There were no additions, disposals, impairments or re-allocations of goodwill during 2021. 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 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. There was no impairment of CRE at June 30, 2020. 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. 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.

The Company evaluates goodwill for impairment at the reporting unit level. The Company completes its annual goodwill impairment test as of October 1 of each year. The Company conducted its last annual goodwill impairment tests as of October 1, 2022 using generally accepted valuation methods. As a result of that impairment test, no goodwill impairment was identified.

Other Intangible Assets

The following table details amounts related to the Company's intangible assets subject to amortization for the dates indicated.
 December 31, 2022December 31, 2021
(in thousands)Net Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount		Accumulated
Amortization
Intangibles subject to amortization:
Dealer networks$260,458 $(209,542)$283,958 $(186,042)
Stellantis relationship10,261 (128,489)20,000 (118,750)
Other intangibles55,914 (66,695)35,121 (48,541)
Total intangibles subject to amortization$326,633 $(404,726)$339,079 $(353,333)

At December 31, 2022 and December 31, 2021, the Company did not have any intangibles, other than goodwill, that were not subject to amortization. During the second quarter of 2022, the Company added intangibles of $39.0 million related to the acquisition of PCH.

Amortization expense on intangible assets was $51.4 million, $44.7 million and $58.7 million for the years ended December 31, 2022, 2021, and 2020 respectively.

The estimated aggregate amortization expense related to intangibles, excluding any impairment charges, for each of the five succeeding calendar years ending December 31 is:
YearCalendar Year Amount
(in thousands)
2023$39,110 
202437,954 
202534,693 
202632,496 
202728,650 
Thereafter153,730 
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NOTE 7. OTHER ASSETS

The following is a detail of items that comprised Other assets at the periods indicated:
(in thousands)December 31, 2022December 31, 2021
Operating lease ROU assets$532,667 $531,408 
Deferred tax assets221,602 87,931 
Accrued interest receivable685,229 482,469 
Derivative assets at fair value1,390,218 661,080 
Other repossessed assets 230,659 248,051 
Equity method investments265,392 260,010 
MSRs107,383 79,107 
OREO4,437 3,724 
Income tax receivables400,063 173,060 
Prepaid expense223,815 283,909 
Miscellaneous assets and receivables684,985 524,674 
Total Other assets$4,746,450 $3,335,423 

Operating lease ROU assets

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

For the years ended December 31, 2022, 2021, 2020, operating lease expenses were $153.8 million, $140.8 million, and $152.4 million, respectively. Sublease income was $4.0 million, $4.4 million, and $4.5 million, respectively, for the years ended December 31, 2022, 2021, 2020. These are reported within Occupancy and equipment expenses in the Company’s Consolidated Statements of Operations.

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NOTE 7. OTHER ASSETS (continued)

Supplemental balance sheet information related to leases was as follows:
Maturity of Lease Liabilities at December 31, 2022
Total Operating leases
(in thousands)
2023$146,597 
2024133,785 
2025110,217 
202683,323 
202770,657 
Thereafter117,502 
Total lease liabilities$662,081 
Less: Interest(54,649)
Present value of lease liabilities$607,432 

Supplemental Balance Sheet InformationDecember 31, 2022December 31, 2021
Operating lease ROU assets$532,667$531,408
Other liabilities$607,432$593,137
Weighted-average remaining lease term (years)6.06.4
Weighted-average discount rate3.0%2.8%

Year Ended December 31,
Other Information20222021
(in thousands)
Operating cash flows from operating leases(1)
$(146,133)$(144,199)
Leased assets obtained in exchange for new operating lease liabilities$135,394 $98,924 
(1) Activity is included within the net change in other liabilities on the SCF.

The Company made approximately $5.8 million and $5.9 million in payments during the years ended December 31, 2022 and 2021, respectively, to Santander for rental of certain office space. The related ROU assets and lease liabilities were approximately $0.7 million and $4.3 million at December 31, 2022 and 2021, respectively.

The remainder of Other assets is comprised of:

•Deferred tax asset, net - Refer to Note 17 of these 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 14 to these 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 15.
•Income tax receivables - Refer to Note 17 of these 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 8. VIEs

The Company transfers RICs and vehicle leases into newly-formed securitization 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 Consolidated Balance Sheets.
The collateral, borrowings under credit facilities and securitization notes payable of the Company’s consolidated VIEs remain on the Consolidated Balance Sheets. The Company recognizes finance charges, fee income, and provision for credit losses on the RICs, and leased vehicles and interest expense on the debt. Revolving credit facilities generally also utilize entities that are considered VIEs which are included on the Consolidated Balance Sheets.

The Company also uses a titling trust to originate and hold its leased vehicles and the associated leases, for administrative efficiency and also to facilitate the pledging of leases to financing facilities or the sale of leases to other parties, without incurring the costs and administrative burden of retitling the leased vehicles. In this process, the leases may be transferred to separate legal units within the titling trust to segregate them for ownership purposes, including for securitizations. This does not result in any changes to the accounting for the leases. This titling trust is considered a VIE. Refer to Note 4 to these Condensed Consolidated Financial Statements for further information on the Company's leased vehicles.

On-balance sheet VIEs

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

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

(in thousands)December 31, 2022December 31, 2021
Assets
Restricted cash$923,485 $1,637,311 
LHFI27,138,450 20,551,716 
Operating lease assets, net (1)
14,267,111 14,668,336 
Various other assets716,707 629,364 
Total Assets$43,045,753 $37,486,727 
Liabilities
Notes payable$31,582,685 $29,199,966 
Various other liabilities137,989 81,098 
Total Liabilities$31,720,674 $29,281,064 
(1) As noted above, all leased vehicles are originated through a titling trust. At December 31, 2022 and 2021, $4.8 billion and $3.2 billion of leased vehicle assets included in this amount were in a titling trust, but not in a securitization trust.

The Company retains servicing rights for 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 December 31, 2022 and December 31, 2021, the Company was servicing $31.9 billion and $24.3 billion, respectively, of gross RICs that have been transferred to consolidated Trusts. Certain amounts shown above are greater than the amounts shown in the corresponding line items in the accompanying 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.

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NOTE 8. VIEs (continued)

A summary of the cash flows received from the consolidated Trusts for the respective periods is as follows for the periods indicated:
Years Ended December 31,
(in thousands)202220212020
Assets securitized$21,141,471 $22,023,982 $18,288,882 
Net proceeds from new securitizations (1)
$14,796,827 $19,353,730 $14,319,697 
Net proceeds on retained bonds2,674,884 241,233 58,491 
Cash received for servicing fees (2)
942,993 956,291 976,307 
Net distributions from Trusts (2)
3,734,402 5,645,995 3,940,774 
Total cash received from Trusts$22,149,106 $26,197,249 $19,295,269 
(1) Includes additional advances on existing securitizations.
(2) These amounts are not reflected in the SCF because the cash flows are between the VIEs and other entities included in the consolidation.

Off-balance sheet VIEs

During the year ended December 31, 2022, the Company sold no gross RICs to third-party investors in off-balance sheet securitizations and recorded no gain or loss on securitization. During the year ended December 31, 2021, the Company sold $1.9 billion of gross RICs to third-party investors in off-balance sheet securitizations and recorded a gain of $7.2 million. During the year ended December 31, 2020, the Company sold $1.1 billion of gross RICs to third-party investors in off-balance sheet securitizations for a loss of $40.6 million. Gains and losses on securitizations are recorded in Miscellaneous income, net, in the accompanying Consolidated Statements of Operations.

The Company was servicing gross RICs that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call as follows at the dates indicated:
(in thousands)December 31, 2022December 31, 2021
Related party SPAIN securitizations$200,320 $554,040 
Third-party SCART serviced securitizations1,088,580 1,817,936 
Total serviced for other portfolio$1,288,900 $2,371,976 

Other than repurchases of sold assets due to standard representations and warranties, the Company's exposure to loss as a result of its involvement with these VIEs includes the portion of securitizations retained by the Company. The carrying value of this exposure at December 31, 2022 was $52.0 million and $2.0 million of debt and equity investments, respectively, compared to $90.0 million and $3.0 million at December 31, 2021. These amounts are reported in debt securities HTM and other investments, respectively, in Note 2 to these Consolidated Financial Statements.

A summary of cash flows received from Trusts for the respective periods were as follows for the periods indicated:

Years Ended December 31,
(in thousands)202220212020
Receivables securitized (1)
— 1,891,278 1,148,587 
Net proceeds from new securitizations— 1,779,532 1,052,541 
Cash received for servicing fees19,735 30,952 24,256 
Total cash received from Trusts$19,735 $1,810,484 $1,076,797 
(1) Represents the UPB at the time of original securitization.
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NOTE 9. DEPOSITS AND OTHER CUSTOMER ACCOUNTS

Deposits and other customer accounts are summarized as follows at the dates indicated:
December 31, 2022December 31, 2021
(dollars in thousands)BalancePercent of total depositsBalancePercent of total deposits
Interest-bearing demand deposits $12,950,737 16.4 %$16,335,499 20.0 %
Non-interest-bearing demand deposits 18,082,061 22.9 %22,443,957 27.5 %
Savings 5,282,259 6.7 %5,564,934 6.8 %
Customer repurchase accounts338,421 0.4 %338,698 0.4 %
Money market 29,369,827 37.0 %34,390,613 42.1 %
CDs 13,105,236 16.6 %2,524,471 3.2 %
Total deposits (1)
$79,128,541 100.0 %$81,598,172 100.0 %
(1) Includes foreign deposits, as defined by the FRB, of $5.9 billion and $6.4 billion at December 31, 2022 and December 31, 2021, respectively.

Public fund deposits collateralized by investment securities, loans, and other financial instruments totaled $2.7 billion and $3.2 billion at December 31, 2022 and December 31, 2021, respectively.

Demand deposit overdrafts that have been reclassified as loan balances were $150.0 million and $133.1 million at December 31, 2022 and December 31, 2021, respectively.

At December 31, 2022 and December 31, 2021, the Company had $2.9 billion and $635.0 million, respectively, of CDs greater than $250 thousand.

Interest expense on deposits and other customer accounts is summarized as follows:
Years Ended December 31,
(in thousands)202220212020
Interest-bearing demand deposits$28,303 $5,973 $22,878 
Savings2,421 2,021 7,806 
Customer repurchase accounts245 262 647 
Money market172,317 55,463 164,730 
CDs101,248 23,384 94,344 
Total deposits$304,534 $87,103 $290,405 

The following table sets forth the maturity of the Company's CDs of $100,000 or more at December 31, 2022 as scheduled to mature contractually:
(in thousands)
Three months or less$1,440,594 
Over three through six months347,242 
Over six through twelve months1,352,486 
Over twelve months1,899,809 
Total$5,040,131 

The following table sets forth the maturity of all the Company's CDs at December 31, 2022 as scheduled to mature contractually:
(in thousands)
2023$10,301,564 
20242,654,119 
202565,571 
202656,497 
202724,838 
Thereafter2,647 
Total$13,105,236 

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NOTE 10. BORROWINGS

Total borrowings and other debt obligations at December 31, 2022 were $43.6 billion, compared to $41.1 billion at December 31, 2021. The Company's debt agreements impose certain limitations on dividend payments and other transactions. The Company is currently in compliance with these limitations.

During the year ended December 31, 2022, the Company completed the public offering and sale of $1.0 billion in aggregate principal amount of its 2.49% Fixed-to-Floating Rate Senior Notes due January 2028 and $500.0 million in aggregate principal amount of its 4.26% Fixed-to-Floating Rate Senior Notes due June 2025. In September 2022, the Company completed the public offering and sale of $500.0 million in aggregate principal amount of its 5.81% Fixed-to-Floating Rate Sustainability Senior Notes due September 2026. The September 2022 issuance represents a sustainable bond issuance for which we expect to earmark an amount equal to the proceeds from this offering for assets that meet the eligibility criteria as defined in the Santander Group Green, Social & Sustainability Funding Global Framework. In addition to its public offerings, the Company issued $433.6 million of floating rate senior notes due April 2026 in a private offering and issued a $500.0 million 5-year 7.18% promissory note to Santander.

During the year, the Bank issued $521.5 million of credit-linked notes due May 2032, $374.5 million of credit-linked notes due August 2032, and $388.4 million of credit-linked notes due December 2032. Each of these notes contain a financial guarantee on a reference pool of RICs owned by the Company. 

Periodically, as part of the Company's wholesale funding management, it opportunistically repurchases outstanding borrowings in the open market and subsequently retires the obligations. During the year, the Company redeemed the following:
•3.70% Senior Notes due March 2022, of which $706.8 million aggregate principal amount was outstanding,
•3.50% Senior Notes due April 2023, of which $447.1 million aggregate principal amount was outstanding,
•senior floating rate notes due January 2023, of which $721.0 million aggregate principal amount was outstanding,
•senior floating rate notes due July 2023, of which $439.1 million aggregate principal amount was outstanding, and
•senior note due January 2023, of which $1.0 billion aggregate principal amount was outstanding.

During the year end December 31, 2022, the Company paid approximately $275.0 million to purchase some of its third-party debt related to on-balance sheet securitizations. The book value of the debt was approximately $295.0 million, resulting in a gain of $20.0 million which is reported as other miscellaneous income within miscellaneous income, net.

Subsequent to year-end, in January 2023, the Bank issued $131.6 million of credit-linked notes due February 2052. The notes contain a financial guarantee on a reference pool of mortgage loans owned by the Company. In addition, the Company completed an on-balance sheet securitization transaction of $809.8 million on its SDART platform during January 2023.


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NOTE 10. BORROWINGS (continued)

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:
 December 31, 2022December 31, 2021
(dollars in thousands)BalanceEffective
Rate		BalanceEffective
Rate
Parent Company
3.70% senior notes due March 2022
$— — %$706,819 3.67 %
Senior notes due January 2023 (1)
— — %720,947 1.28 %
3.40% senior notes due January 2023
— — %998,599 3.54 %
3.50% senior notes due April 2023
— — %447,107 3.52 %
Senior notes due July 2023 (1)
— — %439,085 1.29 %
2.88% senior notes due January 2024 (2)
750,000 2.88 %750,000 2.88 %
3.50% senior notes due June 2024
998,567 3.60 %997,610 3.60 %
3.45% senior notes due June 2025
997,135 3.58 %995,983 3.58 %
4.26% senior notes due June 2025
498,826 4.36 %— — %
4.50% senior notes due July 2025
1,098,287 4.56 %1,097,667 4.56 %
Senior notes due April 2026 (3)
433,396 3.63 %— — %
5.81% Senior notes due September 2026
498,697 5.90 %— — %
3.24% Senior notes due November 2026
924,692 3.97 %918,851 3.97 %
4.40% senior notes due July 2027
1,049,601 4.40 %1,049,565 4.40 %
2.49% senior notes due January 2028
996,691 2.56 %— — %
2.88% subordinate notes due November 2031 (2)
500,000 2.88 %500,000 2.88 %
7.18% subordinate notes due December 2032 (2)
500,000 7.18 %— — %
Total Parent Company borrowings9,245,892 9,622,233 
Subsidiaries
Short-term borrowing due within one year, maturing January 2022$— — %$57,365 0.05 %
Promissory note with Santander due June 2022 (2)
— — %2,000,000 2.03 %
Promissory note with Santander due September 2022 (2)
— — %2,000,000 1.01 %
Short-term borrowing due within one year, maturing January 2023234,581 3.05 %— — %
FHLB advances, maturing through February 2024
4,000,000 4.65 %250,000 0.93 %
Credit-linked notes due December 2031 (4)
170,563 2.84 %293,749 2.53 %
Credit-linked notes due May 2032 (5)
383,485 6.51 %— — %
Credit-linked notes due August 2032 (6)
329,774 7.93 %— — %
Credit-linked notes due December 2032 (7)
385,279 9.19 %— — %
Warehouse lines, maturing through November 2024(8) (9)
3,953,800 5.88 %— — %
2.00% subordinated debt maturing through 2040
— — %11 2.00 %
Secured structured financings maturing through March 2031
24,884,899 
0.48% -5.72%
26,909,829 
0.48% - 3.90%
Total Subsidiary borrowings and other debt obligations34,342,381 31,510,954 
Total Parent Company and subsidiaries' borrowings and other debt obligations$43,588,273 $41,133,187 
(1) These notes bear interest at a rate equal to the three-month LIBOR plus 110 basis points per annum.
(2) These notes are payable to SHUSA's parent company, Santander.
(3) These notes will bear interest at a rate equal to the SOFR index rate plus 135 basis points per year.
(4) Issued in December 2021 in the amount of $298 million. Notes are tied to the performance of a $2 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $36 million.
(5) Issued in June 2022 in the amount of $521.5 million. Notes are tied to the performance of a $3.5 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $63 million.
(6) Issued in September 2022 in the amount of $374.5 million. Notes are tied to the performance of a $3.5 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $63 million.
(7) Issued in December 2022 in the amount of $388.4 million. Notes are tied to the performance of a $3.6 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $65.3 million
(8) Refer to further information on amounts committed, pledged, and restricted below.
(9) benchmark rates used included commercial paper, daily simple SOFR, one-month term SOFR, and three-month term SOFR

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NOTE 10. BORROWINGS (continued)
Credit-Linked Notes

Credit-linked notes transfer credit risk on a reference pool of loans to the purchaser of the notes. In the event of credit losses on the reference pool in excess of the contractual residual amount, the principal balance of the notes will be reduced to the extent of such loss up to the amount of notes issued and recognized as a debt extinguishment gain within Miscellaneous income, net. The Company has the option to redeem the notes once the UPB of the reference pool is less than or equal to 10% of the initial principal balance.

In connection with certain of its credit linked notes, the Company is required to maintain a collateral account with a third-party financial institution, with the amount equal to at least the outstanding balances of this transaction’s credit-linked notes. This is reported as restricted cash in the Consolidated Financial Statements. In addition, the Company maintains standby letters of credit (with a third-party financial institution) in an amount approximating six months of interest due on the notes outstanding.

The Company's subsidiaries had outstanding irrevocable letters of credit totaling $12.0 million from the FHLB of Pittsburgh at December 31, 2022 used to secure uninsured deposits placed with the Bank by state and local governments and their political subdivisions.

Warehouse Lines

The following tables present information regarding the Company's warehouse lines at the dates indicated:
 December 31, 2022
(dollars in thousands)BalanceCommitted AmountEffective
Rate		Assets PledgedRestricted Cash Pledged
Warehouse line due June 2023$— $500,000 — %$— $— 
Warehouse line due November 2023174,900 300,000 5.21 %228,593 1,408 
Warehouse line due November 2023186,900 600,000 5.72 %246,297 4,961 
Warehouse line due January 2024947,300 1,000,000 7.45 %1,277,189 2,446 
Warehouse line due April 20241,232,100 1,250,000 5.03 %1,719,531 1 
Warehouse line due July 2024571,300 600,000 5.14 %686,798 1,102 
Warehouse line due July 2024337,600 500,000 5.47 %470,624 — 
Warehouse line due October 2024177,700 2,100,000 8.91 %274,540 66 
Warehouse line due November 2024326,000 500,000 5.00 %437,866 — 
     Total facilities with third parties$3,953,800 $7,350,000 5.88 %$5,341,438 $9,984 


 December 31, 2021
(dollars in thousands)BalanceCommitted AmountEffective
Rate		Assets PledgedRestricted Cash Pledged
Warehouse line due November 2022$— $500,000 — %$— $— 
Warehouse line due January 2023— 1,000,000 — %— — 
Warehouse line due March 2023— 1,250,000 — %— 1 
Warehouse line due June 2023— 500,000 — %— — 
Warehouse line due July 2023— 600,000 — %— — 
Warehouse line due October 2023— 500,000 — %12,428 — 
Warehouse line due October 2023— 2,100,000 — %— 64 
Warehouse line due November 2023— 1,000,000 — %— — 
Warehouse line due November 2023— 3,500,000 — %124,624 — 
Total facilities with third parties$— $10,950,000 — %$137,052 $65 

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


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NOTE 10. BORROWINGS (continued)

Secured Structured Financings

The following tables present information regarding the Company's secured structured financings at the dates indicated:
December 31, 2022
(dollars in thousands)Balance
Initial Note Amounts Issued(3)
Initial Weighted Average Interest Rate Range
Collateral(2)
Restricted Cash
Public securitizations maturing on various dates through March 2031(1)
$20,238,243 $56,585,695 
0.48% - 5.72%
$29,172,366 $903,311 
Privately issued amortizing notes maturing on various through February 2030 (3)
4,646,656 10,264,794 
 1.28% - 4.53%
6,827,315 10,191 
     Total secured structured financings$24,884,899 $66,850,489 
 0.48% - 5.72%
$35,999,681 $913,502 
(1) Securitizations executed under Rule 144A of the Securities Act are included within this balance.
(2) Secured structured financings may be collateralized by collateral overages of other issuances.
(3) Excludes securitizations which no longer have outstanding debt and excludes any incremental borrowings.

December 31, 2021
(dollars in thousands)BalanceInitial Note Amounts IssuedInitial Weighted Average Interest Rate RangeCollateralRestricted Cash
Public securitizations maturing on various dates between July 2022 and March 2029(1)
$23,531,904 $54,534,275 
0.48% - 3.42%
$30,692,331 $1,621,026 
Privately issued amortizing notes maturing on various dates between June 2022 and December 2027 (3)
3,377,925 8,761,563 
1.28% - 3.90%
5,728,292 16,220 
     Total secured structured financings$26,909,829 $63,295,838 
0.48% - 3.90%
$36,420,623 $1,637,246 
(1)-(3) Refer to corresponding notes above.

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

The following table sets forth the maturities of the Company's consolidated borrowings and debt obligations at December 31, 2022
(in thousands)
2023$3,595,740 
20248,916,418
20258,352,577
20267,502,419
20277,126,639
Thereafter8,094,480
Total$43,588,273 
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NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)
The following table presents the components of AOCI, net of related tax, for the periods indicated.
Total Other
Comprehensive Income/(Loss)		Total Accumulated
Other Comprehensive Income/(Loss)
Year Ended December 31, 2022December 31, 2021December 31, 2022
(in thousands)Pretax
Activity		Tax
Effect		Net ActivityBeginning
Balance		Net
Activity		Ending
Balance
Change in AOCI on cash flow hedge derivative financial instruments$(615,144)$162,939 $(452,205)
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)
20,601 (4,043)16,558 
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments(594,543)158,896 (435,647)$(80,017)$(435,647)$(515,664)
Change in unrealized gains/(losses) on investments in debt securities(1,009,786)278,216 (731,570)
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities (2)
18,542 (3,639)14,903 
Net unrealized gains/(losses) on investments in debt securities (991,244)274,577 (716,667)(79,905)(716,667)(796,572)
Pension and post-retirement actuarial gain / (loss)(3)
6,014 (1,613)4,401 (28,188)4,401 (23,787)
As of December 31, 2022$(1,579,773)$431,860 $(1,147,913)$(188,110)$(1,147,913)$(1,336,023)
(1)    Net gains/(losses) reclassified into Interest on borrowings and other debt obligations in the 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 Consolidated Statements of Operations for the sale of debt securities.
(3)    Included in the computation of net periodic pension costs.

Total Other
Comprehensive Income/(Loss)		Total Accumulated
Other Comprehensive Income/(Loss)
Year Ended December 31, 2021December 31, 2020December 31, 2021
(in thousands)Pretax
Activity		Tax
Effect		Net ActivityBeginning
Balance		Net
Activity		Ending
Balance
Change in AOCI on cash flow hedge derivative financial instruments$(227,528)$57,129 $(170,399)   
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)
15,870 (3,655)12,215    
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments(211,658)53,474 (158,184)$78,167 $(158,184)$(80,017)
Change in unrealized gains/(losses) on investments in debt securities(252,439)66,417 (186,022)   
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)
(14,481)3,335 (11,146)
Net unrealized gains/(losses) on investments in debt securities(266,920)69,752 (197,168)117,263 (197,168)(79,905)
Pension and post-retirement actuarial gain / (loss)(3)
1,144 (197)947 (29,135)947 (28,188)
As of December 31, 2021$(477,434)$123,029 $(354,405)$166,295 $(354,405)$(188,110)
(1)- (3) Refer to the corresponding explanations in the table above.


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NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS) (continued)
Total Other Comprehensive Income/(Loss)Total Accumulated
Other Comprehensive Income/(Loss)
Year Ended December 31, 2020December 31, 2019December 31, 2020
(in thousands)Pretax
Activity		Tax
Effect		Net ActivityBeginning
Balance		Net
Activity		Ending
Balance
Change in AOCI on cash flow hedge derivative financial instruments$155,226 $(57,416)$97,810    
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)
550 (79)471    
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments155,776 (57,495)98,281 $(20,114)$98,281 $78,167 
Change in unrealized gains/(losses) on investments in debt securities244,766 (66,663)178,103    
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)
(54,897)16,937 (37,960)
Net unrealized gains/(losses) on investments in debt securities189,869 (49,726)140,143 (22,880)140,143 117,263 
Pension and post-retirement actuarial gain / (loss)(3)
15,450 628 16,078 (45,213)16,078 (29,135)
As of December 31, 2020$361,095 $(106,593)$254,502 $(88,207)$254,502 $166,295 
(1)- (3) Refer to the corresponding explanations in the table
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NOTE 12.MEZZANINE AND STOCKHOLDER'S EQUITY

At December 31, 2022, the Company had 530,391,043 shares of common stock outstanding to its parent, Santander. The Company did not have any contributions from Santander for the years ended December 31, 2022 or 2021.

Additional transactions with Santander during 2022 that are disclosed within the Consolidated Statements of Stockholder's Equity are shown net are disclosed within the table below:
Effect on Mezzanine and Stockholders Equity
(in thousands)
Dividends to Santander $(4,750,000)
Preferred Equity Issuance to Santander500,000 
Repurchase of outstanding NCI(2,544,722)
2022 net effect on Mezzanine and Stockholders Equity$(6,794,722)

Preferred Stock Issuance

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

Share Repurchases

During the years ended December 31, 2022, 2021, and 2020, SC repurchased $2.5 billion, $9.5 million and $771.5 million of SC Common Stock. Refer to Note 1 of the Consolidated Financial Statements for additional information on SHUSA's January 31, 2022 acquisition of the remainder of SC's Common Stock.

NOTE 13. SECURITIES FINANCING ACTIVITIES

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

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

(in thousands)December 31, 2022December 31, 2021
Securities purchased under agreements to resell$10,064,717 $2,422,042 
Securities borrowed2,359,362 2,924,426 
Total$12,424,079 $5,346,468 


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NOTE 13. SECURITIES FINANCING ACTIVITIES (continued)

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

(in thousands)December 31, 2022December 31, 2021
Securities sold under agreements to repurchase$15,382,819 $5,258,875 

Securities Financing Activities 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. The amounts of securities financing assets or liabilities qualified for offset in the Consolidated Balance Sheets were as follows for the dates indicated.

December 31, 2022
(in thousands)
Gross amounts of recognized assets
Gross amounts offset on the Consolidated Balance Sheets(1)
Net amounts of assets included on the Consolidated Balance Sheets
Securities purchased under agreements to resell$32,015,292 $(21,950,575)$10,064,717 
Securities borrowed2,359,362 — 2,359,362 
Total
$34,374,654 $(21,950,575)$12,424,079 
December 31, 2022
(in thousands)
Gross amounts of recognized liabilities
Gross amounts offset on the Consolidated Balance Sheets(1)
Net amounts of liabilities included on the Consolidated Balance Sheets
Securities sold under agreements to repurchase$37,333,394 $(21,950,575)$15,382,819 
(1) Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45.


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NOTE 13. SECURITIES FINANCING ACTIVITIES (continued)

December 31, 2021
(in thousands)
Gross amounts of recognized assets
Gross amounts offset on the Consolidated Balance Sheets(1)
Net amounts of assets included on the Consolidated Balance Sheets
Securities purchased under agreements to resell$2,746,948 $(324,906)$2,422,042 
Securities borrowed2,924,426 — 2,924,426 
Total
$5,671,374 $(324,906)$5,346,468 
December 31, 2021
(in thousands)
Gross amounts of recognized liabilities
Gross amounts offset on the Consolidated Balance Sheets(1)
Net amounts of liabilities included on the Consolidated Balance Sheets
Securities sold under agreements to repurchase$5,583,781 $(324,906)$5,258,875 
(1) Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45.

The following tables present the gross amounts of liabilities associated with Securities Financing Activities by remaining contractual maturity as of the date indicated:
December 31, 2022
(in thousands)Open and overnightUp to 30 days31-90 daysGreater than 90 daysTotal
Securities sold under agreements to repurchase$18,052,380 $8,079,726 $3,479,452 $7,721,836 $37,333,394 


The following tables present the gross amounts of liabilities associated with Securities Financing Activities by class of underlying collateral as of the dates indicated:
December 31, 2022December 31, 2021
(in thousands)
Repurchase agreements
Repurchase agreements
U.S. Treasury
$22,477,916 $3,124,781 
Residential agency MBS
13,223,958 2,459,000 
Corporate and other securities1,631,520 — 
Total
$37,333,394 $5,583,781 


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NOTE 14. 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 variable is typically a referenced interest rate (commonly the OIS rate, a SOFR-based 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 15 to these 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 December 31, 2022, derivatives in this category had a fair value of $0.1 million. The credit ratings of the Company and SBNA are currently considered investment grade. As of December 31, 2022, 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 December 31, 2022 and December 31, 2021, 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 $14.6 million and $7.7 million, respectively. The Company had $7.3 million and $8.8 million in cash and securities collateral posted to cover those positions as of December 31, 2022 and December 31, 2021, 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

The Company enters into derivatives to hedge the risk of changes in fair value of a portion of its AFS debt securities 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 due to the hedged risk are reporting in the same line item in the 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 December 2026. The Company has entered into fair value hedges of portions of a closed portfolio of approximately $3.2 billion AFS debt securities, using the portfolio layer method.

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NOTE 14. DERIVATIVES (continued)

The carrying amount and fair value hedge adjustment of hedged assets at the dates indicated was:

Carrying Amount of Hedged AssetsAmount of Fair Value Hedge Adjustment Included in the Carrying Amount
December 31, 2022December 31, 2021December 31, 2022December 31, 2021
Debt securities AFS (Note 2)$2,500,000 $— $39,199 $— 
LHFI (Note 3)— 128,789 — (1,278)

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 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 December 31, 2022, the Company estimated that approximately $88.2 million of unrealized losses 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 included the following as of the dates indicated:
(dollars in thousands)Notional
Amount		AssetLiabilityWeighted Average Receive RateWeighted Average Pay
Rate		Weighted Average Life
(Years)
December 31, 2022      
Fair value hedges:
Cross-currency swaps$50,214 $534 $905 5.28 %8.37 %2.19
Interest rate swaps - debt securities AFS2,500,000 43,814 4,615 3.66 %1.85 %2.74
Cash flow hedges:     
Pay fixed — receive variable interest rate swaps$250,000 $1,361 $— 4.30 %3.92 %3
Pay variable - receive fixed interest rate swaps13,075,000 1,315 685,733 1.35 %3.56 %1.8
Interest rate floor800,000 1 — — %— %0.91
Total$16,675,214 $47,025 $691,253 1.69 %3.16 %1.92
December 31, 2021      
Fair value hedges:
Cross-currency swaps$14,743 $655 $— 1.34 %7.30 %1.84
    Interest rate swaps - LHFI128,789 1,188 — 0.05 %0.71 %3.59
Cash flow hedges:      
Pay variable - receive fixed interest rate swaps11,995,000 41,980 111,093 0.88 %0.09 %2.28
Interest rate floor925,000 150 — 0.03 %— %1.68
Total$13,063,532 $43,973 $111,093 0.81 %0.10 %2.25

During 2018, 2019, and 2020, the Company 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 against variable rate debt and had maturity dates ranging from two to five years. In 2021, the Company 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 $20.9 million previously recorded in AOCI into interest expense during the year ended December 31, 2022.

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NOTE 14. DERIVATIVES (continued)

During the year ended December 31, 2022, the Company early terminated its interest rate swaps used to hedge against change in fair value on a portfolio of its LHFI portfolio. At termination, the Company had $19.7 million of unamortized fair value adjustment which is being amortized over the remaining life of the hedged loans. During 2022, the Company also early terminated two cash flow interest rate swaps used to hedge one loan and one investment security respectively. At termination, the Company had an unrealized loss of $3.2 million reflected in Other Comprehensive Income which is being amortized over the remaining life of the hedge derivatives.

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

Mortgage Banking Derivatives

The Company's derivatives portfolio included mortgage banking interest rate lock commitments, forward sale commitments and interest rate swaps. Until the second quarter of 2022, the Company originated fixed-rate and adjustable rate residential mortgages. It sold a portion of this production to the FHLMC, the FNMA, and private investors. The Company used forward sales as a means of hedging against the economic impact of changes in interest rates on the mortgages that were 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, and a total return swap on Visa, Inc. Class B common shares.

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NOTE 14. DERIVATIVES (continued)

Derivatives Not Designated in Hedge Relationships – Notional and Fair Values

Other derivative activities included the following as of the dates indicated:
NotionalAsset derivatives
Fair value		Liability derivatives
Fair value
(in thousands)December 31, 2022December 31, 2021December 31, 2022December 31, 2021December 31, 2022December 31, 2021
Mortgage banking derivatives:
Forward commitments to sell loans$— $264,188 $— $— $— $21 
Interest rate lock commitments— 99,752 — 2,852 — — 
Mortgage servicing interest rate swaps682,000 593,000 19,479 15,841 38,408 8,111 
Total mortgage banking risk management682,000 956,940 19,479 18,693 38,408 8,132 
Customer-related derivatives:
Swaps receive fixed14,372,637 14,801,189 4,111 400,168 939,118 89,767 
Swaps pay fixed14,465,930 15,141,223 970,795 102,312 8,687 383,987 
Other7,394,081 6,384,285 91,724 25,542 89,139 26,741 
Total customer-related derivatives36,232,648 36,326,697 1,066,630 528,022 1,036,944 500,495 
Other derivative activities:
Foreign exchange contracts6,552,782 5,085,973 69,423 35,899 70,583 33,836 
Interest rate swap agreements1,100,100 — 4,454 — — — 
Interest rate cap agreements3,071,578 7,007,441 143,197 34,290 — — 
Options for interest rate cap agreements3,071,578 7,007,441 — — 143,197 34,290 
Other43,519,111 111,373 61,736 203 65,614 2,367 
Total$94,229,797 $56,495,865 $1,364,919 $617,107 $1,354,746 $579,120 


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NOTE 14. DERIVATIVES (continued)

Gains (Losses) on All Derivatives

The following Consolidated Statements of Operations line items were impacted by the Company’s derivative activities for the periods indicated:
(in thousands) years ended December 31,
Line Item2022 20212020
Fair value hedges:
Cross-currency swapsNet interest income$(1,326)$655 $— 
Interest rate swapsNet interest income18,959 1,188 — 
Cash flow hedges:  
Pay fixed-receive variable interest rate swapsInterest expense on borrowings(20,867)(31,280)(26,103)
Pay variable receive-fixed interest rate swapInterest income on loans(96,113)99,618 54,845 
Interest rate floorsInterest income on loans(752)21,355 37,057 
Other derivative activities: 
Forward commitments to sell loansMiscellaneous income, net21 3,814 (3,442)
Interest rate lock commitmentsMiscellaneous income, net(2,852)(10,351)10,160 
Mortgage servicingMiscellaneous income, net(37,031)(8,245)31,227 
Customer-related derivativesMiscellaneous income, net20,112 5,859 30,552 
Foreign exchangeMiscellaneous income, net14,744 29,547 9,237 
Interest rate swaps, caps, and optionsMiscellaneous income, net(1,848)96 (11,371)
OtherMiscellaneous income, net116,441 (369)425 
(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 $452.2 million, a loss of $170.4 million, and a gain of $97.8 million net of tax, for the years ended December 31, 2022, 2021, and 2020, respectively.

The net amount of changes reclassified from OCI into earnings for cash flow hedge derivatives was losses of $16.6 million, $12.2 million, and $0.5 million net of tax, for the years ended December 31, 2022, 2021, and 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 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 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 Consolidated Balance Sheets" section of the tables below.


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NOTE 14. DERIVATIVES (continued)

Information about financial assets and liabilities that are eligible for offset on the Consolidated Balance Sheets was as follows for the dates indicated:
Offsetting of Financial Assets
Gross Amounts Not Offset in the Consolidated Balance Sheets
(in thousands)Gross Amounts of Recognized AssetsGross Amounts Offset in the Consolidated Balance SheetsNet Amounts of Assets Presented in the Consolidated Balance Sheets
Collateral Received (2)
Net Amount
December 31, 2022
Fair value hedges$44,348 $— $44,348 $— $44,348 
Cash flow hedges2,677 — 2,677 — 2,677 
Other derivative activities(1)
1,364,919 (21,726)1,343,193 (259,734)1,083,459 
Total Derivative Assets$1,411,944 $(21,726)$1,390,218 $(259,734)$1,130,484 
December 31, 2021
Fair value hedges$1,843 $— $1,843 $— $1,843 
Cash flow hedges42,130 — 42,130 — 42,130 
Other derivative activities(1)
614,255 — 614,255 (41,899)572,356 
Total derivatives subject to a master netting arrangement or similar arrangement658,228 — 658,228 (41,899)616,329 
Total derivatives not subject to a master netting arrangement or similar arrangement2,852 — 2,852 (122)2,730 
Total Derivative Assets$661,080 $— $661,080 $(42,021)$619,059 
(1)Includes customer-related and other derivatives.
(2)Collateral received includes cash, cash equivalents, and other financial instruments. Cash collateral received is reported in Other liabilities, as applicable, in the Consolidated Balance Sheets. Financial instruments that are pledged to the Company are not reflected in the accompanying Consolidated Balance Sheets since the Company does not control or have the ability to re-hypothecate these instruments.
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NOTE 14. DERIVATIVES (continued)

Offsetting of Financial Liabilities
Gross Amounts Not Offset in the Consolidated Balance Sheets
(in thousands)Gross Amounts of Recognized LiabilitiesGross Amounts Offset in the Consolidated Balance SheetsNet Amounts of Liabilities Presented in the Consolidated Balance Sheets
Collateral Pledged (2)
Net Amount
December 31, 2022
Fair value hedges$5,520 $— $5,520 $— $5,520 
Cash flow hedges685,733 — 685,733 (302,935)382,798 
Other derivative activities(1)
1,354,746 (21,726)1,333,020 (149,381)1,183,639 
Total Derivative Liabilities $2,045,999 $(21,726)$2,024,273 $(452,316)$1,571,957 
December 31, 2021
Cash flow hedges$111,093 $— $111,093 $(59,073)$52,020 
Other derivative activities(1)
579,099 (2,058)577,041 (268,352)308,689 
Total derivatives subject to a master netting arrangement or similar arrangement690,192 (2,058)688,134 (327,425)360,709 
Total derivatives not subject to a master netting arrangement or similar arrangement21 — 21 (21)— 
Total Derivative Liabilities $690,213 $(2,058)$688,155 $(327,446)$360,709 
(1)Includes customer-related and other derivatives.
(2)Cash collateral pledged and financial instruments pledged is reported in Other assets in the 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 15. FAIR VALUE

The Company estimates the fair value of certain assets and liabilities for both measurement and disclosure purposes. The fair value hierarchy categorizes the underlying assumptions and inputs to valuation techniques that are used to measure fair value into three levels as follows:

•Level 1 inputs are quoted prices in active markets for identical assets or liabilities that can be accessed as of the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2 inputs are those other than quoted prices included in Level 1 that are observable for the assets or liabilities, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3 inputs are those that are unobservable or not readily observable for the asset or liability and are used to measure fair value to the extent relevant observable inputs are not available.

Assets and liabilities measured at fair value, by their nature, result in a higher degree of financial statement volatility. See Note 1 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 15. 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 approves the methodologies used in the estimations of 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 the dates indicated:
(in thousands)Level 1Level 2Level 3
Balance at
December 31, 2022
Level 1Level 2Level 3
Balance at December 31, 2021
Financial assets:    
U.S. Treasury securities$218,439 $— $— $218,439 $73,618 $— $— $73,618 
Corporate debt— 370,491 — 370,491 — 276,007 — 276,007 
ABS— 504,018 — 504,018 — 537,722 — 537,722 
MBS— 5,937,271 — 5,937,271 — 10,426,590 — 10,426,590 
Investment in debt securities AFS(2)
218,439 6,811,780 — 7,030,219 73,618 11,240,319 — 11,313,937 
Trading securities1,229,279 4,634,676 369 5,864,324 64 35,727 — 35,791 
Federal funds sold and securities purchased under resale agreements or similar arrangements— 234,169 — 234,169 — — — — 
RICs HFI(3)
— — 20,924 20,924 — — 33,529 33,529 
LHFS (1)(4)
— 549 — 549 — 166,811 — 166,811 
MSRs— — 107,383 107,383 — — 79,107 79,107 
Other assets - derivatives (2)
602 1,389,593 22 1,390,217 — 658,187 2,893 661,080 
Total financial assets (5)
$1,448,320 $13,070,767 $128,698 $14,647,785 $73,682 $12,101,044 $115,529 $12,290,255 
Financial liabilities:    
Federal funds purchased and securities loaned or sold under repurchase agreements— 245,149 — 245,149 — — — — 
Trading liabilities2,557,495 313,920 230 2,871,645 — 62 — 62 
Other liabilities - derivatives (2)
448 2,021,593 2,232 2,024,273 — 687,846 2,367 690,213 
Total financial liabilities$2,557,943 $2,580,662 $2,462 $5,141,067 $— $687,908 $2,367 $690,275 
(1)    LHFS disclosed on the 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 14 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 $128.7 million of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 0.9% of total assets measured at fair value on a recurring basis and approximately 0.1% of total consolidated assets.
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NOTE 15. 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 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.

LHFI

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

LHFS

The Company's LHFS portfolios that was measured at fair value on a recurring basis consisted primarily of residential mortgage LHFS. The fair values of LHFS were estimated using published forward agency prices to agency buyers such as FNMA and FHLMC. The majority of the residential mortgage LHFS portfolio was sold to these two agencies. The fair value was determined using current secondary market prices for portfolios with similar characteristics, adjusted for servicing values and market conditions. During the first quarter of 2022, the Company made the decision to stop the origination of new residential mortgages.

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. See further discussion below in the section captioned "FVO for Financial Assets and Financial Liabilities."

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NOTE 15. FAIR VALUE (continued)

MSRs

The Company maintains an MSR asset for sold residential real estate loans serviced for others. At December 31, 2022 and December 31, 2021, the balance of these loans serviced for others accounted for at fair value was $9.2 billion and $10.4 billion, respectively. Changes in fair value are recorded through Miscellaneous income, net on the Consolidated Statements of Operations.

The Company has elected to measure its residential MSRs at fair value to be consistent with the risk management strategy to hedge changes in the fair value of these assets. The fair value of residential MSRs is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates (reflective of a market participant’s return on an investment for similar assets), servicing costs, and other economic factors which are determined based on current market conditions. Historically, servicing costs and discount rates have been less volatile than prepayment rates, which are directly correlated with changes in market interest rates. Increases in prepayment rates, discount rates and servicing costs result in lower valuations of MSRs. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of MSRs. Assumptions incorporated into the residential MSR valuation model reflect management's best estimate of factors that a market participant would use in valuing the residential MSRs, as well as future expectations. Although sales of residential MSRs do occur, residential MSRs do not trade in an active market with readily observable prices. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase MBS. See further discussion on these derivative activities in Note 14 to these Consolidated Financial Statements.

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 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 $3.2 million and $6.2 million, respectively, at December 31, 2022.
•A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $4.0 million and $7.8 million, respectively, at December 31, 2022.

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.
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NOTE 15. FAIR VALUE (continued)

The Company incorporates credit valuation adjustments in the fair value measurement of its derivatives to reflect the counterparty's nonperformance risk, except for those derivative contracts with associated credit support annexes which provide credit enhancements, such as collateral postings and guarantees. The Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy. Certain of the Company's derivatives utilize Level 3 inputs, which are primarily related to mortgage banking derivatives-interest rate lock commitments and total return settlement derivative contracts.

The DCF model is utilized to determine the fair value of the mortgage banking derivatives-interest rate lock commitments and the total return settlement derivative contracts. The significant unobservable inputs for mortgage banking derivatives used in the fair value measurement of the Company's loan commitments are "pull through" percentage and the MSR value that is inherent in the underlying loan value. The pull through percentage is an estimate of loan commitments that will result in closed loans. The significant unobservable inputs for total return settlement derivative contracts used in the fair value measurement of the Company's liabilities are discount percentages, which are based on comparable financial instruments. See Note 14 to these Consolidated Financial Statements for a discussion of derivatives activity.

Trading liabilities

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

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

The tables below present the changes in Level 3 balances for those assets and liabilities measured at fair value on a recurring basis for the periods indicated.
Year Ended December 31, 2022Year Ended December 31, 2021
(in thousands)RICs HFIMSRsDerivatives, netOtherTotalInvestments
AFS		RICs HFIMSRsDerivatives, netTotal
Balances, beginning of period$33,529 $79,107 $526 $— $113,162 $50,393 $50,391 $77,545 $9,448 $187,777 
Losses in OCI— — — — — (393)— — — (393)
Gains/(losses) in earnings— 41,194 (2,736)— 38,458 — — 12,414 (8,922)3,492 
Additions/Issuances47 3,383 — 303 3,733 — 1,171 14,116 — 15,287 
Transfer from Level 2(2)
— — — — — — 3,774 — — 3,774 
Settlements(1)
(12,652)(16,301)— (164)(29,117)(50,000)(21,807)(24,968)— (96,775)
Balances, end of period$20,924 $107,383 $(2,210)$139 $126,236 $— $33,529 $79,107 $526 $113,162 
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period$— $41,194 $116 $— $41,310 $— $— $12,414 $1,428 $13,842 
(1)Settlements include charge-offs, prepayments, paydowns and maturities.
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NOTE 15. 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 at the dates indicated:
(in thousands)Level 1Level 2Level 3Balance at December 31, 2022Level 1Level 2Level 3
Balance at December 31, 2021
Impaired commercial LHFI$— $33,133 $51,794 $84,927 $— $17,180 $614 $17,794 
Foreclosed assets— 4,108 — 4,108 — 1,322 — 1,322 
Vehicle inventory— 246,970 — 246,970 — 271,396 — 271,396 
LHFS— — 99,006 99,006 — — 88,212 88,212 
Auto loans impaired due to bankruptcy— 212,866 — 212,866 — 202,448 — 202,448 
Goodwill— — 2,767,732 2,767,732 — — 2,596,161 2,596,161 

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.

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 had LHFS portfolios of $99.0 million and $88.2 million at December 31, 2022 and December 31, 2021 that are measured at fair value on a nonrecurring basis primarily consist of commercial loans and RICs. 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.

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 15. FAIR VALUE (continued)

The estimated fair value of goodwill is valued using unobservable inputs and is classified as Level 3. Goodwill is written down to fair value when, as a result of an annual or interim goodwill impairment test, an impairment is identified and recognized. Fair value is calculated using widely-accepted valuation techniques, such as the guideline public company market approach (earnings and price-to-tangible book value multiples of comparable public companies) and the income approach (the DCF method). The Company uses a combination of these accepted methodologies to determine the fair valuation of reporting units. Several factors are taken into account, including actual operating results, future business plans, economic projections, and market data. On a quarterly basis, the Company assesses whether or not impairment indicators are present. For information on the Company's goodwill impairment test and the results of the most recent goodwill impairment test, see Note 5 for a description of the Company's goodwill valuation methodology. For information on the amount of goodwill valued at fair value on a non-recurring basis as a result of the acquisition of PCH, refer to Note 1 to these Consolidated Financial Statements.

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 Consolidated Statements of Operations relating to assets held at period-end:
Year Ended December 31,
(in thousands)Statement of Operations Location2022
2021
2020
Impaired LHFI
Credit loss expense / (benefit) (1)
$8,039 $(8,807)$1,127 
Foreclosed assets
Miscellaneous income, net (1)
(78)(368)(4,980)
LHFS
Credit loss expense / (benefit) (1)
(77)— (1,607)
LHFSMiscellaneous income(9,759)— (509,223)
Auto loans impaired due to bankruptcyCredit loss expense(4,677)— — 
Goodwill impairment
Impairment of goodwill (1) (2)
— — (1,848,228)
MSRs
Miscellaneous income, net (1)
— — (138)
(1)    Gains are disclosed as positive numbers while losses are shown as a negative number regardless of the line item being affected.
(2) Refer to Note 6 for further information on the review of goodwill for impairment.

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 the dates indicated:
(dollars in thousands)
Fair Value at
December 31, 2022 (3)
Valuation TechniqueUnobservable InputsRange
(Weighted Average)
Financial Assets:
MSRs$107,383 DCF
CPR (1)
  0.00% - 100.00% (7.56%)
Discount rate (2)
9.54 %
(1)    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.
(2)    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.
(3) Excluded insignificant Level 3 assets and liabilities.

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NOTE 15. FAIR VALUE (continued)

(dollars in thousands)
Fair Value at December 31, 2021 (3)
Valuation TechniqueUnobservable InputsRange
(Weighted Average)
MSRs$79,107 DCF
CPR (2)
 7.42% - 82.71% (12.86%)
Discount rate (3)
9.35 %
(1), (2), (3) - See corresponding footnotes to the December 31, 2022 Level 3 significant inputs table above.


Fair Value of Financial Instruments

The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company's financial instruments are as follows as of the dates indicated:
 December 31, 2022December 31, 2021
(in thousands)Carrying ValueFair ValueLevel 1Level 2Level 3Carrying ValueFair ValueLevel 1Level 2Level 3
Financial assets:    
Cash and cash equivalents$10,218,066 $10,218,066 $10,218,066 $— $— $19,305,530 $19,305,530 $19,305,530 $— $— 
Federal funds sold and securities purchased under resale agreements or similar arrangements12,424,079 12,399,815 — 12,399,815 — 5,346,468 5,372,052 — 5,372,052 — 
Investments in debt securities AFS7,030,219 7,030,219 218,439 6,811,780 — 11,313,937 11,313,937 73,618 11,240,319 — 
Investments in debt securities HTM9,549,218 8,273,285 — 8,273,285 — 6,702,471 6,629,206 — 6,629,206 — 
Trading securities and other investments(2)
5,864,324 5,864,324 1,229,279 4,634,676 369 285,791 286,526 64 286,462 — 
LHFI, net90,558,330 92,466,522 — 33,133 92,433,389 85,614,402 89,039,439 — 17,180 89,022,259 
LHFS99,555 99,555 — 549 99,006 255,023 255,023 — 166,811 88,212 
Restricted cash6,346,248 6,346,248 6,346,248 — — 5,711,705 5,711,705 5,711,705 — — 
MSRs107,383 107,383 — — 107,383 79,107 79,107 — — 79,107 
Derivatives1,390,217 1,390,217 602 1,389,593 22 661,080 661,080 — 658,187 2,893 
Financial liabilities:    
Deposits (1)
13,105,236 13,095,685 — 13,095,685 — 2,524,471 2,524,707 — 2,524,707 — 
Federal funds purchased and securities loaned or sold under repurchase agreements15,382,819 15,406,457 — 15,406,457 — 5,258,875 5,258,874 — 5,258,874 — 
Trading liabilities2,871,645 2,871,645 2,557,495 313,920 230 62 62 — 62 — 
Borrowings and other debt obligations43,588,273 42,837,678 — 34,092,868 8,744,810 41,133,187 41,600,737 — 33,874,253 7,726,484 
Derivatives2,024,273 2,024,273 448 2,021,593 2,232 690,213 690,213 — 687,846 2,367 
(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.

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NOTE 15. 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 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 Activities

No quoted prices exist for Securities Financing Activities, so fair value is determined using a DCF technique. Cash flows are estimated based on the terms of the contract. These cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Securities Financing Activities are classified as Level 2. At December 31, 2022, the fair value of the underlying collateral was $37.6 billion before netting of $21.9 billion, all of which was sold or re-pledged.

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 15. 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.

FVO for Financial Assets and Financial Liabilities

LHFS

Until the second quarter of 2022, the Company originated fixed-rate and adjustable rate residential mortgages. The Company's measured residential mortgages LHFS using the FVO. The adoption of the FVO for residential mortgage loans classified as HFS allowed the Company to record the mortgage LHFS portfolio at fair market value instead of using the lower of amortized cost or market approach. The Company economically hedged its residential LHFS portfolio, and the offsetting hedge instrument was reported at fair value. As a result, both the loans and related hedges were carried at fair value, which reduced 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 NPLs acquired by the Company 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 the dates indicated:
December 31, 2022December 31, 2021
(in thousands)Fair ValueAggregate UPBDifferenceFair ValueAggregate UPBDifference
LHFS(1)
$— $— $— $166,811 $162,525 $4,286 
RICs HFI20,924 21,358 (434)33,529 33,737 (208)
Nonaccrual loans295 308 (13)435 457 (22)
(1)    LHFS disclosed on the 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 16. NON-INTEREST INCOME AND OTHER EXPENSES

The following table presents the details of the Company's Non-interest income for the following periods:
Years Ended December 31,
(in thousands)202220212020
Non-interest income:
Consumer and commercial fees$399,448 $437,041 $471,901 
Lease income2,650,668 2,899,816 3,037,284 
Capital market revenue179,843 250,268 227,421 
Miscellaneous income, net
Mortgage banking income, net27,134 50,656 49,082 
BOLI61,151 60,091 58,981 
Net gain on sale of operating leases84,774 443,809 243,189 
Asset and wealth management fees252,900 235,561 208,732 
Loss on sale of non-mortgage loans(19,687)(19,228)(366,976)
Other miscellaneous income / (loss), net74,490 79,692 (10,923)
Net gain on sale of investment securities18,542 14,481 31,297 
Total Non-interest income$3,729,263 $4,452,187 $3,949,988 
Disaggregation of Revenue from Contracts with Customers

The following table presents the Company's Non-interest income disaggregated by revenue source:
Years Ended December 31,
(in thousands)202220212020
Non-interest income:
In-scope of revenue from contracts with customers:
Depository services(1)
$160,662 $178,196 $190,011 
Commission and trailer fees(2)
227,275 209,422 192,355 
Interchange income, net(2)
71,672 73,195 64,394 
Underwriting service fees(2)
86,725 157,506 137,007 
Asset and wealth management fees(2)
151,749 143,151 127,612 
Other revenue from contracts with customers(2)
44,844 41,444 60,351 
Total in-scope of revenue from contracts with customers742,927 802,914 771,730 
Out-of-scope of revenue from contracts with customers:
Consumer and commercial fees(3)
171,249 197,228 233,699 
Lease income2,650,668 2,899,816 3,037,284 
Other miscellaneous income / (loss), net (3)
145,877 537,748 (124,022)
Net gain on sale of investment securities18,542 14,481 31,297 
Total out-of-scope of revenue from contracts with customers2,986,336 3,649,273 3,178,258 
Total non-interest income$3,729,263 $4,452,187 $3,949,988 
(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 16. NON-INTEREST INCOME AND OTHER EXPENSES (continued)

Other Expenses

The following table presents the Company's other expenses for the following periods:
Years Ended December 31,
(in thousands)202220212020
Other expenses:
Amortization of intangibles$51,370 $44,749 $58,661 
Deposit insurance premiums and other expenses44,786 34,506 50,238 
Loss on debt extinguishment235 — 10,887 
Other administrative expenses 359,454 433,738 390,573 
Other miscellaneous expenses45,699 35,265 50,193 
Total Other expenses$501,544 $548,258 $560,552 

NOTE 17. INCOME TAXES

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.

On August 16, 2022, H.R. 5376, the Inflation Reduction Act (“IRA”), was signed into law. The IRA, among other things, introduced a corporate alternative minimum tax (“CAMT”), excise tax on stock repurchases and clean vehicle credit. The Company does not expect the impact to be material and will continue to monitor the impacts of the IRA on the business to determine if any future tax impacts may result from this tax legislation.

Income Taxes from Continuing Operations

The provision for income taxes in the Consolidated Statements of Operations is comprised of the following components:
Year Ended December 31,
(in thousands)202220212020
Current:
Foreign$5,588 $311 $217 
Federal274,281 138,293 103,260 
State149,545 309,344 62,033 
Total current429,414 447,948 165,510 
Deferred:
Foreign— (7)4,797 
Federal(60,725)704,337 (213,105)
State(25,566)(68,695)(67,847)
Total deferred(86,291)635,635 (276,155)
Total income tax provision/(benefit)$343,123 $1,083,583 $(110,645)

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NOTE 17. INCOME TAXES (continued)

Reconciliation of Statutory and ETR

The following is a reconciliation of the U.S. federal statutory rate of 21.0% for the years ended December 31, 2022, 2021, and 2020 to the Company's ETR for each of the years indicated:
Year Ended December 31,
202220212020
Federal income tax at statutory rate21.0 %21.0 %21.0 %
Increase/(decrease) in taxes resulting from:
Valuation allowance— %0.1 %(1.8)%
Tax-exempt income(0.2)%(0.1)%1.3 %
Section 162(m) limitation0.3 %0.1 %(0.4)%
Non-deductible FDIC insurance premiums0.5 %0.1 %(1.2)%
BOLI(0.7)%(0.2)%1.6 %
State income taxes, net of federal tax benefit5.0 %4.1 %(2.4)%
General business tax credits(1.8)%(0.6)%2.7 %
Electric vehicle credits(4.9)%(1.4)%0.2 %
Basis difference in unconsolidated subsidiaries— %— %34.7 %
Uncertain tax position reserve0.1 %— %0.4 %
Goodwill impairment— %— %(37.8)%
Other0.3 %(0.1)%(3.9)%
ETR19.6 %23.0 %14.4 %
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NOTE 17. INCOME TAXES (continued)

Deferred Tax Assets and Liabilities

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below:
At December 31,
(in thousands)20222021
Deferred tax assets:
ALLL$341,094 $281,769 
IRC Section 475 mark-to-market adjustment469,375 663,794 
Unrealized loss on available-for-sale securities247,321 22,579 
Unrealized loss on derivatives179,934 16,556 
HTM54,590 2,294 
Net operating loss carryforwards56,868 819,831 
Lease liability163,431 151,005 
Employee benefits98,144 106,339 
General business credit & other tax credit carryforwards172,050 395,690 
Broker commissions paid on originated mortgage loans3,111 5,117 
Minimum tax credit carryforwards— 1 
Accrued expenses16,013 18,188 
Recourse reserves4,989 7,897 
Deferred interest expense269 76,060 
Depreciation and amortization902,772 813,726 
Deferred income86,945 34,124 
Other108,955 123,122 
Total gross deferred tax assets2,905,861 3,538,092 
Valuation allowance(101,142)(298,558)
Total deferred tax assets2,804,719 3,239,534 
Deferred tax liabilities:
Purchase accounting adjustments85,075 87,329 
Originated MSRs31,463 22,727 
ROU asset146,531 137,466 
Leasing transactions(1)
2,508,476 3,503,688 
Other200,615 171,733 
Total gross deferred tax liabilities2,972,160 3,922,943 
Net deferred tax (liability) $(167,441)$(683,409)
(1) The leasing transactions deferred tax liability is primarily related to accelerated tax depreciation on leasing transactions.

Due to jurisdictional netting, the net deferred tax liability of $167.4 million is classified on the balance sheet as a deferred tax liability of $389.0 million and a deferred tax asset included in Other assets of $221.6 million.


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NOTE 17. INCOME TAXES (continued)

Periodic reviews of the carrying amount of deferred tax assets are made to determine if the establishment of a valuation allowance is necessary. If, based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.

Items considered in this evaluation include historical financial performance, the expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, the length of statutory carryforward periods, experience with operating loss and tax credit carryforwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. The Company's evaluation is based on current tax laws, as well as its expectations of future performance. As of December 31, 2022, the Company maintained a valuation allowance of $101.1 million, compared to $298.6 million as of December 31, 2021, related to deferred tax assets subject to carryforward periods for which the Company has determined it is more likely than not that these deferred tax assets will remain unused after the carryforward periods have expired. The $197.4 million decrease year-over-year was primarily driven by a decrease in the valuation allowances due to the cessation of Puerto Rico business activities. The decrease in the valuation allowance was offset by a decrease in the corresponding deferred tax asset, resulting in no impact to the total income tax provision or Consolidated Statements of Operations.

The deferred tax asset realization analysis is updated at each quarter-end using the most recent forecasts. An assessment is made quarterly as to whether the forecasts and assumptions used in the deferred tax asset realization analysis should be revised in light of any changes that have occurred or are expected to occur that would significantly impact the forecasts or modeling assumptions. At December 31, 2022, the Company has recorded the following:
(in thousands)Gross Deferred Tax BalanceValuation Allowance
Final Expiration Year (1)
Net operating loss carryforwards$16,441 $16,441 N/A
State net operating loss carryforwards40,427 6,136 2041
General business credit carryforward172,050 77,091 2028
Deferred tax timing differences2,676,943 1,474 N/A
Total$2,905,861 $101,142 
(1) These will expire in varying amounts through the final expiration year.

As of December 31, 2022, the Company’s intention to permanently reinvest unremitted earnings of certain foreign subsidiaries (with the exception of one subsidiary) in accordance with ASC 740-30 (formerly Accounting Principles Board Opinion No. 23) remains unchanged. This will continue to be evaluated as the Company’s business needs and requirements evolve. While the TCJA included a transition tax, which amounts to a deemed repatriation of foreign earnings and a one-time inclusion of these earnings in U.S. taxable income, there could be additional costs of actual repatriation of the foreign earnings, such as state taxes and foreign withholding taxes, which are inherently difficult to quantify. Additionally, the sale of a foreign subsidiary could result in a gain that is subject to tax.

The Company has not provided deferred income taxes of $29.1 million on approximately $112.1 million of SBNA's existing pre-1988 tax bad debt reserve at December 31, 2022, due to the indefinite nature of the recapture provisions. Certain rules under Section 593 of the IRC govern when the Company may be subject to tax on the recapture of the existing base year tax bad debt reserve, such as distributions by SBNA in excess of certain earnings and profits, the redemption of SBNA’s stock, or a liquidation. The Company does not expect any of those events to occur. 
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NOTE 17. INCOME TAXES (continued)

Changes in Liability Related to Uncertain Tax Positions

At December 31, 2022, the Company had reserves related to tax benefits from uncertain tax positions of $40.3 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands)Unrecognized Tax BenefitsAccrued Interest and PenaltiesTotal
Gross unrecognized tax benefits at January 1, 2020$49,737 $6,558 $56,295 
Additions based on tax positions related to 2020— — — 
Additions for tax positions of prior years— 1,118 1,118 
Reductions for tax positions of prior years(3,096)(1,579)(4,675)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations(93)(52)(145)
Settlements(785)(154)(939)
Gross unrecognized tax benefits at December 31, 202045,763 5,891 51,654 
Additions based on tax positions related to 2021— — — 
Additions for tax positions of prior years— 1,015 1,015 
Reductions for tax positions of prior years(25,392)— (25,392)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations(212)(66)(278)
Settlements— — — 
Gross unrecognized tax benefits at December 31, 202120,159 6,840 26,999 
Additions based on tax positions related to the current year— — — 
Additions for tax positions of prior years19,566 1,236 20,802 
Reductions for tax positions of prior years— — — 
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations(663)(156)(819)
Settlements— — — 
Gross unrecognized tax benefits at December 31, 2022$39,062 $7,920 $46,982 
Gross net unrecognized tax benefits that if recognized would impact the ETR at December 31, 2022$39,062 $7,920 
Less: Federal, state and local income tax benefits(6,648)
Net unrecognized tax benefit reserves$40,334 

Tax positions will initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. 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 relevant governmental taxing authorities. In establishing an income tax provision, the Company must make judgments and interpretations about the application of these inherently complex tax laws. The Company recognizes penalties and interest accrued related to unrecognized tax benefits within Income tax provision on the Consolidated Statements of Operations.

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

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






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NOTE 18. STOCK-BASED COMPENSATION

Certain employees of the Company are eligible to received deferred compensation arrangements in the form of ADRs of Santander The total of these compensation arrangements issued during the year ended December 31, 2022 was not material to the Consolidated Financial Statements .

As described in Note 1 of the Consolidated Financial Statements, on January 31, 2022, SHUSA acquired all shares of SC Common Stock it did not previously own and SC became a wholly-owned subsidiary of SHUSA. As a result, each outstanding SC restricted stock unit was cancelled and replaced with an award providing the employee the right to receive ADRs of Santander. In addition, each outstanding SC stock option was cancelled and settled with the right to receive a cash payment. The changes to the stock-based compensation plans had no material impact on income or equity.


NOTE 19.OTHER EMPLOYEE BENEFIT PLANS

Defined Contribution Plans

The Company sponsors a defined contribution plan offered to qualifying employees. Employees participating in the plan may contribute up to 75% of their eligible compensation, subject to federal limitations on absolute amounts contributed. Beginning January 2020, The Company matches 100% of employee contributions up to 6% of their compensation. The Company match is immediately vested and is allocated to the employee’s various 401(k) Plan investment options in the same percentages as the employee’s own contributions. The Company recognized expense for contributions to the 401(k) Plan of $57.0 million, $62.1 million and $59.7 million during 2022, 2021 and 2020, respectively, within the Compensation and benefits line on the Consolidated Statements of Operations.

Defined Benefit Plans and Other Post Retirement Benefit Plans

The Company sponsors several defined benefit plans and other post-retirement benefit plans that cover certain employees. All of these plans are frozen and therefore closed to new entrants; all benefits are fully vested, and the plans ceased accruing benefits. The Company complies with minimum funding requirements in all countries. The Company also sponsors several supplemental executive retirement plans and other unfunded post-retirement benefit plans that provide health care to certain retired employees.

The Company recognizes the funded status of its defined benefit pension plans and other post-retirement benefit plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, within Other liabilities on the Consolidated Balance Sheets. The Company has accrued liabilities of $22.5 million and $26.9 million related to its total defined benefit pension plans and other post-retirement benefit plans at December 31, 2022 and 2021, respectively. The net unfunded status related to actuarially-valued defined benefit pension plans and other post-retirement plans was $9.5 million and $13.5 million at December 31, 2022 and 2021, respectively.

BSI and SIS are participating employers in a defined benefit pension plan sponsored by Santander's New York branch, covering certain active and former BSI and SIS employees. Effective December 31, 2012, the defined benefit pension plan was frozen. The amounts representing BSI and SIS's share of the pension liability are recorded within Other liabilities on the Consolidated Balance Sheets. This plan currently has an unfunded liability of $23.2 million, of which $10.7 million is the share of the liability assigned to BSI and SIS combined.


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NOTE 20. 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 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 14 to these Consolidated Financial Statements for discussion of all derivative contract commitments.

The following table details the amount of commitments at the dates indicated:
Other CommitmentsDecember 31, 2022December 31, 2021
 (in thousands)
Commitments to extend credit$28,964,952 $27,648,128 
Letters of credit1,448,459 1,374,081 
Commitments to sell loans— 56,725 
Recourse exposure on sold loans19,836 19,095 
Total commitments$30,433,247 $29,098,029 

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 December 31, 2022 and December 31, 2021 were $3.3 billion and $3.8 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 December 31, 2022 was 10.4 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 December 31, 2022 was $1.4 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 December 31, 2022. 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 December 31, 2022 and December 31, 2021, the liability related to unfunded lending commitments was $85.6 million and $104.1 million, respectively.

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NOTE 20. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

Unsecured Revolving Lines of Credit

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

Loans Sold with Recourse

The Company has loans sold with recourse that meet the definition of a 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.

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.

RIC Commitments

The following table summarizes significant liabilities recorded for commitments and contingencies associated with the Company's RIC origination and servicing operations, all of which are included in Accounts payable and accrued expenses in the accompanying Consolidated Balance Sheets at the dates indicated:
Agreement or Legal MatterCommitment or ContingencyDecember 31, 2022December 31, 2021
(in thousands)
MPLFARevenue-sharing and gain/(loss), net-sharing payments$14,219 $41,995 
Other contingenciesConsumer arrangements5,000 6,937 

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.

Agreements

In connection with the sale of RICs through securitizations and other sales, SC has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require SC to repurchase loans previously sold to on or off-balance sheet Trusts or other third parties. As of December 31, 2022, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for SC's ABS or other sales. In the opinion of management, the potential exposure of other recourse obligations related to SC’s RIC sale agreements is not expected to have a material adverse effect on the Company's or SC’s business, consolidated financial position, results of operations, or cash flows.

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NOTE 20. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

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

In November 2015, SC 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 December 31, 2022 and December 31, 2021 not subject to a market price check was zero and $3.0 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.

Legal and Regulatory Proceedings

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

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

As of December 31, 2022 and December 31, 2021, the Company accrued aggregate legal and regulatory liabilities of approximately $17.0 million and $44.0 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 $9.0 million as of December 31, 2022 and $12.8 million as of December 31, 2021. Set forth below are descriptions of the significant lawsuits, regulatory matters and other legal proceedings to which the Company is subject.

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. On June 9, 2022, the court preliminarily approved a settlement with SBNA pursuant to which SBNA will pay a total of $2 million to resolve the litigation. On November 14, 2022, the court granted final approval of the settlement.

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NOTE 20. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

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.

Kelly v. SC. A putative Pennsylvania-only class action pending in the United States District Court for the Eastern District of Pennsylvania, captioned Hugh and Christina Kelly v. Santander Consumer USA Holdings Inc., 2:20-cv-03698, alleges that SC violated the Uniform Commercial Code and Pennsylvania Motor Vehicle Sales Finance Act, and that repossessions were not commercially reasonable or done in good faith when the post-repossession notice included a storage fee of $25 that was less than the stated amount. Plaintiffs also allege that SC failed to inform the consumers of a required fee to retrieve their personal affects. Plaintiffs allege that any fee charged by a recovery agent or auction house was impermissible due to SC’s failure to disclose them. On December 16, 2022, the court preliminarily approved a settlement with SC pursuant to which SC will pay a total of $14 million to resolve the litigation. A final settlement approval hearing is scheduled for October 17, 2023.

Enterprise Financial Group v. SC. EFG, a former GAP products and services provider to SC, sued SC for breach of contract, alleging that SC placed non-conforming loans in the program, resulting in EFG losses. The case is pending in Texas District Court, Dallas County, and is captioned Enterprise Financial Group v. SC, Case No. 18-08119. SC asserted a counterclaim against EFG seeking approximately $10.5 million in connection with EFG’s refusal to pay claims. A jury trial concluded on November 2, 2022 and the jury awarded EFG $5 million and SC $4.2 million. Plaintiff filed a motion for entry of judgment and a motion for attorney’s fees.

Other Matters

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 alleged damages of not less than $720.0 million. In December 2021, the Puerto Rico Court of Appeals dismissed the complaint. The Puerto Rico Supreme Court denied plaintiffs permission to appeal the Court of Appeals 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, and the Puerto Rico Court of Appeals affirmed the dismissal. The Puerto Rico Supreme Court refused to hear an appeal.

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 July 9, 2021, the court granted the defendants’ motion to dismiss the complaint, and the Puerto Rico Court of Appeals affirmed the dismissal. The Puerto Rico Supreme Court refused to hear an appeal.

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

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NOTE 20. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)

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

Regulatory Investigations and Proceedings

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

NOTE 21. RELATED PARTY TRANSACTIONS

The parties related to the Company are deemed to include, in addition to its subsidiaries, jointly controlled entities, the Company’s key management personnel (the members of its Board of Directors and certain officers at the level of senior executive vice president or above, together with their close family members) and the entities over which the key management personnel may exercise significant influence or control.

Mezzanine and Stockholder's Equity

Refer to Note 12 of these Consolidated Financial Statements for activities related to the Company's common and preferred stock wholly owned by Santander. The Company did not receive any capital contributions from Santander in 2022, 2021, or 2020.

Letters of credit

In the normal course of business, SBNA provides letters of credit and standby letters of credit to affiliates. During the years ended December 31, 2022 and 2021, the average unfunded balance outstanding under these commitments was $162.4 million and $146.9 million, respectively. BSI also provides standby letters of credit to affiliates. As of December 31, 2022 and 2021, the outstanding balance under these commitments was $292.4 million and $224.6 million, respectively. Santander New York Branch has issued two standby letters of credit on behalf of the Bank in connection with the issuance of the Bank's Credit-Linked Notes. Fees paid to Santander New York Branch on these standby letters of credit are negligible.

Debt and Other Securities

The Company and its subsidiaries have various debt agreements with affiliates, including Santander. For a listing of these debt agreements, see Note 10 to these Consolidated Financial Statements.

Derivatives

As of December 31, 2022 and 2021, the Company has entered into derivative agreements with Santander, which consist primarily of swap agreements to hedge interest rate risk and foreign currency exposure with notional values of $39.2 billion and $34.5 billion, respectively.

Loans to Officers and Directors

In the ordinary course of business, we may provide loans to our executive officers and directors, also known as Regulations O insiders. Pursuant to our policy, such loans are generally issued on the same terms as those prevailing at the time for comparable loans to unrelated persons and do not involve more than the normal risk of collectability. As permitted by Regulation O, certain mortgage loans to directors and executive officers of the Company are priced at up to a 0.25% discount to market as part of a widely-available employee benefit program, but contain no other terms than terms available in comparable transactions with non-employees. The 0.25% discount is discontinued when an employee terminates his or her employment with the Company. The outstanding balance of these loans as of December 31, 2022 and 2021 was $3.1 million and $3.3 million, respectively.


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NOTE 21. RELATED PARTY TRANSACTIONS (continued)

Deposit and checking accounts

At December 31, 2022, affiliates of Santander that are not consolidated by SHUSA had deposits with SBNA of $130.4 million and $2.6 billion as of December 31, 2022 and December 31, 2021, respectively.

SHUSA and SBNA Service Agreements

The Company and its affiliates entered into or were subject to various service agreements with Santander and its affiliates. Each of the agreements was made in the ordinary course of business and on market terms. The following agreements do not eliminate in consolidation:
•NW Services Co., a Santander affiliate doing business as Aquanima, is under contract with the Company to provide procurement services, with fees paid in the amount of $11.9 million in 2022, $10.2 million in 2021 and $12.0 million in 2020. There were no payables in connection with this agreement for the years ended December 31, 2022 or 2021. The fees related to this agreement are recorded in Technology, outside service, and marketing expense in the Consolidated Statements of Operations.
•Santander Global Operations, S.A., a Santander affiliate, is under contract with the Company to provide administrative services, consulting and professional services, application support and back-office services, including debit card disputes and claims support, and consumer and mortgage loan set-up and review, with total fees paid in the amount of zero in 2022, $1.6 million in 2021 and $3.6 million in 2020. The Company had no payables in connection with this agreement in 2022 or 2021. The fees related to this agreement were recorded in Technology, outside service, and marketing expense in the Consolidated Statements of Operations.
•Santander Global Technology and Operations S.L. and Santander Global Technologies Mexico are under contract with the Company to provide professional services, IT development, support and administration, with fees for these services paid in the amount of $123.1 million in 2022, $138.2 million in 2021 and $127.2 million in 2020. In addition, as of December 31, 2022 and 2021, the Company had payables for these services in the amounts of zero and $0.1 million, respectively. The fees related to this agreement are capitalized in Premises and equipment, net on the Consolidated Balance Sheets.
•Santander Back-Offices Globales Mayoristas S.A., a Santander affiliate, is under contract with the Company to provide administrative services and back-office support for SBNA’s derivative, foreign exchange and hedging transactions and programs. Fees were paid to Santander Back-Offices Globales Mayoristas S.A. with respect to this agreement in the amounts of $8.1 million in 2022, $6.4 million in 2021 and $6.5 million in 2020. There were no payables in connection with this agreement in 2022 or 2021. The fees related to this agreement are recorded in Technology, outside service, and marketing expense in the Consolidated Statements of Operations.
•During the years ended December 31, 2022, 2021 and 2020, the Company paid $13.2 million, $14.0 million, $17.4 million to Santander for the development and implementation of global projects as part of internal expense allocation.
•During the year ended December 31, 2022, the Company paid $15.3 million to Santander's subsidiary Open Digital Services S.L in connection with projects related to digitalization and transformation.
•SBNA and SIS entered into an agreement with Santander's New York branch under which the three entities have been operating under a 'one CIB' model in the U.S. where certain risk management, project management and reporting functions are performed in centralized teams for the benefit of CIB. Further, CIB leverages cross-function reporting, resulting in certain employees providing services outside their legal entity of employment. The transactions between SBNA and SIS eliminate in consolidation. The transactions involving Santander's New York branch do not eliminate and for the years ended, December 31, 2022, 2021, and 2020, SBNA received net fee income of $8.4 million, $11.6 million, and $29.0 million, which the Company recognized within Miscellaneous income, net in the Consolidated Statements of Operations. At December 31, 2022 and 2021, SIS had a net receivable from Santander's New York Branch of $4.3 million and $6.8 million in connection with this agreement.

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NOTE 21. RELATED PARTY TRANSACTIONS (continued)

•In the fourth quarter of 2022, the Company entered into an office rental agreement for shared space at 437 Madison Ave, New York, NY for which the Company recorded straight-line rent expense of $4.2 million for the year ended December 31, 2022. A majority of this amount is eliminated within consolidated entities. Approximately $1.5 million for the year ended December 31, 2022 was assigned to Santander for space utilized by Santander's New York branch employees and receivable at December 31, 2022. There were no material receivable amounts related to this agreement at December 31, 2022.

Transactions with SC

SC has entered into or was subject to various agreements with Santander, its affiliates or the Company. Each of these agreements was done in the ordinary course of business and on market terms. Those agreements include the following:

Credit Facilities

SC has a committed revolving credit agreement with Santander that can be drawn on an unsecured basis. During the years ended December 31, 2022, December 31, 2021 and December 31, 2020, SC incurred interest expense, including unused fees of $29.0 million, $49.9 million and $20.7 million, respectively. Accrued interest on lines of credit was zero and $2.1 million at December 31, 2022 and 2021, respectively. SC also has a committed revolving credit agreement with SHUSA that can be drawn on an unsecured basis. Amounts drawn and interest incurred eliminate in consolidation.

Securitizations

SC entered into an MSPA with Santander, under which it had the option to sell a contractually determined amount of eligible prime loans to Santander under the SPAIN securitization platform, for a term that ended in December 2018. SC provides servicing on all loans originated under this arrangement. Servicing fee income recognized related to this agreement totaled $3.6 million, $8.9 million and $16.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. Other information relating to the SPAIN securitization platform for the years ended December 31, 2022 and 2021 is as follows:
(in thousands)December 31, 2022December 31, 2021
Servicing fees receivable$130 $498 
Collections due to Santander1,894 3,635 
SIS serves as joint book runner and co-manager on certain of the Company’s securitizations. Amounts paid to SIS totaled $6.5 million, $5.4 million and $2.7 million for the years ended December 31, 2022, 2021 and 2020, respectively, and eliminate in consolidation.
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NOTE 21. RELATED PARTY TRANSACTIONS (continued)

Other U.S. Auto related-party transactions
•In July 2021, SC entered into a Platform Development and License Agreement with AutoFi Inc. for the design and operation of a digital software platform for the sale and financing of automobiles. Santander owns 10.3% of the total equity of AutoFi Inc. The agreement required the Company to pay $6.0 million for the design and development of the digital software platform in its first year. After the first year, SC has agreed to pay AutoFi, Inc. between $2.4 million and $3.0 million per year plus certain transaction-related fees for software development, dealer onboarding and support, and hosting services.
•On March 2, 2022, the Company purchased an equity investment in AutoFi, a privately held corporation that provides technology solutions to the auto industry, including services to online auto marketplaces, auto dealers, and auto lenders, including SC. The investment consisted of $22.9 million of common stock purchased from existing shareholders and $41.1 million of preferred shares of a new series issuance, for a $64.0 million total resulting in the Company holding approximately 9.4% of the total equity shares of AutoFi. The Company did not obtain voting rights for its shares; however, it was granted one seat on AutoFi’s Board of Directors (now consisting of 6 voting members including SHUSA).

U.S. Auto Origination and Service Agreements

The Company's affiliates have entered into or were subject to various U.S. Auto origination and service agreements among consolidated entities. Each of the agreements was made in the ordinary course of business and on market terms. The following agreements eliminate in consolidation:

•RV Marine Contracts - The Company has agreements with SC under which SC will service recreational and marine vehicle portfolios. Servicing fee expenses recognized under these agreements totaled $0.9 million and $1.3 million and $1.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, the Company had $78.9 million of RV portfolios serviced by SC compared to $121.3 million as of December 31, 2021. Cash collections due from SC were $44.4 million and $23.3 million as of December 31, 2022 and 2021, respectively. Servicing fees payable as of December 31, 2022 and 2021 were $4.4 million and $3.2 million, respectively.
•Dealer Lending- Under SC's agreement with the Company, SC is required to permit the Bank a first right to review and assess Chrysler Capital dealer lending opportunities, and the Company is required to pay SC origination and annual renewal fees for each loan originated under the agreement. The agreement also transferred the servicing of all Chrysler Capital receivables from dealers, including receivables to the Company held by SC. Origination and renewal fee expense recognized on these loans totaled zero and zero, and $3.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. Under this agreement, SC could originate retail consumer loans in connection with sales of vehicles that were collateral held against floorplan loans by the Bank. Upon origination, SC would remit payment to the Bank to settle the transaction with the dealer. The Bank had receivables of $1.0 million and $4.0 million from SC related to such originations as of December 31, 2022 and 2021, respectively.
•Loan Origination Support Services - The Bank has an agreement with SC under which SC provides the Bank with origination support services in connection with the processing, underwriting and origination of retail loans, primarily from Stellantis dealers. In addition, SC has agreed to perform the servicing for any loans originated on the Bank's behalf. For the years ended December 31, 2022, 2021, and 2020, SC facilitated the purchase of $6.0 billion, $7.6 billion, and $5.4 billion of RICs, respectively. Under this agreement, SC recognized referral and servicing fees of $50.7 million and $52.4 million for the years ended December 31, 2022 and 2021, respectively, of which $8.2 million and $4.1 million was receivable from SC as of December 31, 2022 and 2021, respectively.
•Leased Vehicle Origination Support Services - Beginning in the third quarter of 2021, SC agreed to provide the Bank with support services in connection with the origination and servicing of vehicle leases, primarily from Stellantis dealers, that are funded and owned by the Bank. SC has also agreed to provide servicing for any leases originated by the Bank. At December 31, 2022 and 2021, SC serviced $4.6 billion and $740.5 million, respectively, of vehicle leases for the Bank. The Bank paid referral and servicing fees of $9.0 million and $0.6 million for the years ended December 31, 2022 and 2021, respectively, of which $8.7 million and $1.9 million was payable to SC as of December 31, 2022 and 2021, respectively. In addition, at December 31, 2022 and 2021, SC owed $2.0 million and $2.2 million of revenue sharing reimbursement to the Bank, respectively.


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NOTE 21. RELATED PARTY TRANSACTIONS (continued)

Employees Services Agreements

The Company has agreements with and between its consolidated entities under which certain employees provide services, including human resources, IT, legal, compliance, accounting and other services across entities. Intercompany revenues and expenses for these services eliminate in consolidation.

In addition to those noted above, other subsidiaries of the Company have entered into or were subject to various agreements with Santander or its affiliates. Each of the agreements was made in the ordinary course of business and on market terms. Those agreements include the following:

•BSI enters into transactions with affiliated entities in the ordinary course of business. During the year ended December 31, 2022, 2021, and 2020, BSI sold loan participation to Santander of $210.0 million, $618.2 million, and $618.2 million, respectively. As of December 31, 2022 and 2021, BSI had deposits with unconsolidated affiliates of zero and $250.0 million, respectively. BSI had short-term borrowings with unconsolidated affiliates of $234.6 million at December 31, 2022, compared to zero as of December 31, 2021. BSI had deposits from unconsolidated affiliates of $9.1 million and $90.2 million as of December 31, 2022 and 2021, respectively. BSI also leases space from affiliated entities that eliminate in consolidation.
•SIS enters into transactions with affiliated entities in the ordinary course of business. SIS executes, clears certain of its securities transactions through various affiliates in Latin America and Europe, participates in underwriting activities for affiliates, earns revenue from investment and other services performed for affiliates, and also pays for management, administrative support, system, and risk management services provided by affiliates. These transactions eliminate in consolidation.
•APS enters into transactions with affiliated entities in the ordinary course of business. APS pays for cost of personnel, management, administrative support, risk management, and other services provided by affiliates. These transactions eliminate in consolidation. APS has a committed operating line of credit with SHUSA of $150.0 million of which $75.0 million was drawn at December 31, 2022. The rate on this borrowing is 5.5%. The amount drawn eliminates in consolidation. During the year, APS entered into short-term intercompany securities financing activities with the Bank, the effects of which eliminated in consolidation.
•SSLLC maintains a contract with the Bank to provide integrated services and conduct broker-dealer activities and insurance services. SSLLC collects amounts due from customers on behalf of the Bank and remits the amounts net of fees. Fees recognized related to this agreement eliminate in consolidation.


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NOTE 22. REGULATORY MATTERS

The Company is subject to the regulations of certain federal, state, and foreign agencies, and undergoes periodic examinations by such regulatory authorities.

The minimum U.S. regulatory capital ratios for banks under Basel III are 4.5% for the CET1 capital ratio, 6.0% for the Tier 1 capital ratio, 8.0% for the total capital ratio, and 4.0% for the leverage ratio. To qualify as “well-capitalized,” regulators require banks to maintain capital ratios of at least 6.5% for the CET1 capital ratio, 8.0% for the Tier 1 capital ratio, 10.0% for the total capital ratio, and 5.0% for the leverage ratio. At December 31, 2022 and 2021, SBNA met the well-capitalized capital ratio requirements.

As a BHC, SHUSA is required to maintain a CET1 capital ratio of at least 4.5%, Tier 1 capital ratio of at least 6.0%, total capital ratio of at least 8.0%, and leverage ratio of at least 4.0%. The Company’s capital levels exceeded the ratios required for BHCs. The Company's ability to make capital distributions will depend on the Federal Reserve's review of the Company's capital plan, the results of the stress tests described in this Form 10-K, and the Company's capital status, as well as other supervisory factors.

The DFA mandates an enhanced supervisory framework, which, among other things, means that the Company is subject to both internal and Federal Reserve run stress tests. The Federal Reserve also has discretionary authority to establish additional prudential standards, on its own or at the Financial Stability Oversight Council's recommendation, regarding contingent capital, enhanced public disclosures, short-term debt limits, and otherwise as it deems appropriate.

For a discussion of Basel III and the standardized approach and related future changes to the minimum U.S. regulatory capital ratios, see the section of the MD&A captioned "Regulatory Matters."
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NOTE 22. REGULATORY MATTERS (continued)

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

Federal banking laws, regulations and policies also limit SBNA’s ability to pay dividends and make other distributions to the Company. The Bank must obtain prior OCC approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the Bank’s total distributions to SHUSA within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years; (2) the Bank would not meet capital levels imposed by the OCC in connection with any order, or (3) the Bank is not adequately capitalized at the time. The OCC's prior approval would be required if the Bank is 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 2022, 2021, and 2020, SBNA did not pay dividends to SHUSA.During 2022, 2021, and 2020, the Company paid cash dividends to Santander of $4.8 billion, $0.0 million and $125.0 million, respectively.

During 2022, the Company issued $500 million of Series E Preferred Stock. Refer to Note 12 of these Consolidated Financial Statements for further discussion of that transaction. The Company did not have any preferred stock outstanding in 2021 or 2020.
The following schedule summarizes the actual capital balances of SBNA and SHUSA at December 31, 2022 and 2021:
 REGULATORY CAPITAL
(Dollars in thousands)CET 1 Capital RatioTier 1 Capital
Ratio		Total Capital
Ratio		Leverage
Ratio
SBNA at December 31, 2022(1):
Regulatory capital$10,888,687 $10,888,687 $11,821,044 $10,888,687 
Capital ratio14.61 %14.61 %15.86 %11.35 %
SHUSA at December 31, 2022(1):
Regulatory capital$16,255,680 $17,100,658 $19,606,560 $17,100,658 
Capital ratio13.21 %13.90 %15.94 %10.20 %
CET 1 Capital RatioTier 1 Capital
Ratio		Total Capital
Ratio		Leverage
Ratio
SBNA at December 31, 2021(1):
Regulatory capital$10,694,372 $10,694,372 $11,413,014 $10,694,372 
Capital ratio16.36 %16.36 %17.45 %11.18 %
SHUSA at December 31, 2021(1):
Regulatory capital$21,068,063 $23,174,869 $25,332,953 $23,174,869 
Capital ratio18.84 %20.73 %22.66 %15.01 %
(1) Capital ratios calculated under CECL transition provisions permitted by the CARES Act.

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NOTE 23. BUSINESS SEGMENT INFORMATION

Business Segment Products and Services

In the first quarter of 2022, the Company announced organizational changes to meet the evolving needs of its customers and to assist management in making strategic decisions on the allocation of its resources. These changes primarily resulted in the creation of a new Auto reportable segment that includes the prior SC segment, the Bank's auto loan and lease portfolio business, previously in the CBB segment, and the dealer financing business, previously in the CRE segment. In addition, the Company has established a new reportable segment for its Wealth Management business, previously included in Other. The Company has also aligned the insurance and investment services activities to CBB previously reported in Other. These changes were effective for internal reporting on March 31, 2022. Prior period information presented below has been reclassified to reflect these changes.

The Company’s reportable segments are focused principally around the customers the Company serves. The Company has identified the following reportable segments: Auto, CBB, C&I, CRE, CIB, and Wealth Management.
•The Auto segment includes the Company's consumer and commercial auto loans and leases and the Company's commercial loans to dealers and dealer floorplan financing products. This includes the Company's specialized consumer finance subsidiary focused on vehicle finance and third-party servicing. The specialized consumer finance primary business is the indirect origination of RICs, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. The Company offers a full spectrum of auto financing products and services to captive financing companies. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. The Company also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders. All intercompany revenue and fees between consolidated affiliates are eliminated in the consolidated results of the Company.
•The CBB segment includes the products and services provided to consumer and small business banking customers, including consumer deposit, small business banking, 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 unsecured personal loans, credit cards, and small business loans such as business lines of credit. In addition, the Company makes investment services available to its retail customers, including products such as annuities, mutual funds, managed accounts and insurance products through a networking agreement with a consolidated affiliate.
•The C&I segment currently provides commercial lines, loans, letters of credit, receivables financing, commercial credit cards, and cash management and deposit services 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 segment offers CRE loans, CEVF, and multifamily loans, as well as cash management and deposit services to customers. This category also includes community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.
•The CIB segment serves the needs of global corporate 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 the Company's institutional broker-dealers that provide services in investment banking, sales, trading and equity research reports. CIB's offerings and strategy are based on Santander's local and global capabilities in wholesale banking.
•The Wealth Management segment consists of the Company's international private banking and financial operations Services include the full range of banking and asset management services to foreign individuals and corporations based primarily in Latin America

The Company also offers customer-related derivatives to hedge interest rate risk, and for C&I, CRE, commercial loans to dealers in the auto segment and CIB offers derivatives relating to foreign exchange and lending arrangements. See Note 14 to the Consolidated Financial Statements for additional details.

The Other category includes certain immaterial 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 23. BUSINESS SEGMENT INFORMATION (continued)

The Company’s segment results 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 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.


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NOTE 23. BUSINESS SEGMENT INFORMATION (continued)

Results of Segments

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

Twelve-Month Period EndedSHUSA Reportable Segments
December 31, 2022AutoCBBC&ICRECIBWealth Management
Other(1)
Total
(in thousands)
Net interest income$4,041,002 $1,403,871 $311,808 $357,676 $178,435 $177,627 $(295,956)$6,174,463 
Non-interest income2,779,138 300,983 69,328 38,190 237,000 258,939 45,685 3,729,263 
Credit loss expense / (benefit)1,730,062 216,600 47,821 7,321 19,652 — (2,639)2,018,817 
Total expenses3,294,863 1,548,098 258,178 120,752 459,145 244,863 210,880 6,136,779 
Income/(loss) before income taxes1,795,215 (59,844)75,137 267,793 (63,362)191,703 (458,512)1,748,130 
Total assets62,645,083 13,107,982 6,345,307 20,546,103 30,478,602 7,854,953 27,216,290 168,194,320 
(1) Other includes the results of the immaterial entities, earnings from non-strategic assets, the investment portfolio, interest expense on the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.

Twelve-Month Period EndedSHUSA Reportable Segments
December 31, 2021AutoCBBC&ICRE
CIB(4)
Wealth Management
Other(1)
Total
(in thousands)
Net interest income$4,335,818 $1,300,240 $291,550 $341,362 $107,568 $95,014 $(282,031)$6,189,521 
Non-interest income3,412,388 325,103 69,742 42,933 246,141 255,200 100,680 4,452,187 
Credit loss expense / (benefit)(118,670)29,339 (78,402)(7,186)(27,641)(351)(4,438)(207,349)
Total expenses3,464,615 1,590,148 252,769 113,474 278,733 223,831 220,597 6,144,167 
Income/(loss) before income taxes4,402,261 5,856 186,925 278,007 102,617 126,734 (397,510)4,704,890 
Total assets63,061,949 12,561,672 6,915,480 17,379,967 16,016,527 8,051,489 35,834,147 159,821,231 
(1) Refer to corresponding notes above.
Twelve-Month Period EndedSHUSA Reportable Segments
December 31, 2020AutoCBBC&ICRECIBWealth Management
Other(2)
Total
(in thousands)
Net interest income$3,987,193 $1,593,330 $326,387 $339,697 $130,139 $116,759 $(134,024)$6,359,481 
Total non-interest income3,298,956 44,553 65,938 11,449 263,874 230,180 35,038 3,949,988 
Provision for credit losses2,521,793 215,212 135,422 104,723 28,099 494 (137,560)2,868,183 
Total expenses3,635,133 3,141,899 565,384 112,206 259,216 187,808 306,588 8,208,234 
Income/(loss) before income taxes1,129,223 (1,719,228)(308,481)134,217 106,698 158,637 (268,014)(766,948)
Total assets60,559,803 14,778,166 7,789,729 17,814,737 10,965,616 7,419,283 30,105,342 149,432,676 
(1) Refer to corresponding notes above.
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NOTE 24. PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information of the parent company is as follows:

BALANCE SHEETS
 
AT DECEMBER 31,
20222021
(in thousands)
Assets
Cash and cash equivalents$2,643,521 $3,550,193 
Loans to bank subsidiaries— 1,000,000 
Loans to non-bank subsidiaries4,037,938 5,350,000 
Investment in subsidiaries:
Bank subsidiaries8,805,419 9,405,335 
Non-bank subsidiaries(2)
11,450,779 12,506,523 
Premises and equipment, net38,281 43,785 
Equity method investments4,689 6,049 
Restricted cash56,673 56,538 
Deferred tax assets, net72,255 208,695 
Other assets (1)
648,414 327,594 
Total assets$27,757,969 $32,454,712 
Liabilities and stockholder's equity
Borrowings and other debt obligations$9,245,892 $9,622,233 
Borrowings from non-bank subsidiaries153,859 152,026 
Deferred tax liabilities, net144,724 119,939 
Other liabilities283,811 188,421 
Total liabilities9,828,286 10,082,619 
Mezzanine equity500,000 — 
Stockholder's equity17,429,683 22,372,093 
Total liabilities, mezzanine and stockholder's equity$27,757,969 $32,454,712 
(1) The Company recorded $171.6 million of goodwill in connection with the acquisition of PCH which has been attributed to the CIB reporting unit.
(2) The Company has $945.9 million of goodwill attributable to the auto reporting unit.

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NOTE 24. PARENT COMPANY FINANCIAL INFORMATION (continued)

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
 
YEAR ENDED DECEMBER 31,
202220212020
(in thousands)
Dividends from bank subsidiary$40,000 $40,000 $35,000 
Dividends from non-bank subsidiaries4,500,000 296,153 178,092 
Interest income247,043 289,846 297,621 
(Expense)/Income from equity method investments(1,355)59 426 
Other income (1)
84,363 75,387 151,514 
Total income4,870,051 701,445 662,653 
Interest expense357,727 369,861 382,936 
Other expense297,162 279,697 261,821 
Total expense654,889 649,558 644,757 
Loss before income taxes and equity in net income/(loss) less dividends from subsidiaries4,215,162 51,887 17,896 
Income tax benefit(72,191)(38,800)(275,290)
(Loss)/Income before equity in net income/(loss) less dividends from subsidiaries4,287,353 90,687 293,186 
Equity in net income/(loss) less dividends from bank subsidiaries341,935 463,075 (1,317,781)
Equity in net income/(loss) less dividends from non-bank subsidiaries(3,224,281)2,428,600 184,231 
Net income/(loss)1,405,007 2,982,362 (840,364)
Other comprehensive income, net of tax:
Net unrealized (losses)/gains on cash flow hedge derivative financial instruments(435,647)(158,184)98,281 
Net unrealized (losses)/gains recognized on investment securities(716,667)(197,168)140,143 
Pension and post-retirement actuarial gains, net of tax4,401 947 16,078 
Total other comprehensive (loss)/gain(1,147,913)(354,405)254,502 
Comprehensive income/(loss)$257,094 $2,627,957 $(585,862)
(1) Includes $62.4 million gain on sale of SBC at December 31, 2020.
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NOTE 24. PARENT COMPANY FINANCIAL INFORMATION (continued)

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31
202220212020
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)$1,405,007 $2,982,362 $(840,364)
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax (benefit)/expense333,309 (82,394)(261,113)
Equity in net (income)/loss less dividends from subsidiaries:
Bank subsidiaries (1)
(341,935)(463,075)1,317,781 
Non-bank subsidiaries (2)
3,224,281 (2,428,600)(184,231)
Net gain on sale of investment in subsidiary and other assets— (611)(65,229)
Equity earnings from equity method investments1,355 (59)(426)
Depreciation, amortization and accretion50,981 32,976 37,350 
Loss on debt extinguishment235 — 10,260 
Net change in other assets and other liabilities(208,746)(80,927)148,679 
Net cash (used in)/provided by operating activities4,464,487 (40,328)162,707 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of other investments(64,000)— — 
Net capital returned from/(contributed to) subsidiaries11,587 250,968 (25,707)
Originations of loans to subsidiaries(25,827,535)(13,981,000)(10,245,000)
Repayments of loans by subsidiaries28,139,597 14,431,000 9,095,000 
Acquisition of PCH(447,954)— — 
Proceeds from business divestitures— — 1,277,626 
Purchases of premises and equipment(14,261)(27,855)(2,538)
Net cash provided by/(used in) investing activities1,797,434 673,113 99,381 
CASH FLOWS FROM FINANCIAL ACTIVITIES:
Repayment of Parent Company debt obligations(3,314,190)(1,421,077)(1,371,274)
Net proceeds received from Parent Company debt obligations2,926,264 501,000 1,941,003 
Net change in commercial paper— (125,000)125,000 
Net change in borrowings from subsidiary banks— (120,000)120,000 
Net change in borrowings from non-bank subsidiaries1,833 1,045 2,233 
Dividends paid on common stock(4,750,000)— (125,000)
Stock repurchase(2,532,365)— — 
Preferred stock offering500,000 — — 
Net cash (used in)/provided by financing activities(7,168,458)(1,164,032)691,962 
Net (decrease)/increase in cash, cash equivalents, and restricted cash(906,537)(531,247)954,050 
Cash, cash equivalents, and restricted cash at beginning of period3,606,731 4,137,978 3,183,928 
Cash, cash equivalents, and restricted cash at end of period (3)
$2,700,194 $3,606,731 $4,137,978 
(1) Amounts for the years ended December 31, 2022, 2021, and 2020 exclude dividends from bank subsidiaries of $40.0 million, $40.0 million, and $35.0 million, respectively.
(2) Amounts for the years ended December 31, 2022, 2021, and 2020 exclude dividends from non-bank subsidiaries of $4.5 billion, $296.2 million, and $178.1 million, respectively.
(3) Amounts for the years ended December 31, 2022, 2021, and 2020 include cash and cash equivalents balances of $2.6 billion, $3.6 billion, and $4.1 billion, respectively, and restricted cash balances of $56.7 million, $56.5 million, and $56.4 million, respectively.
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ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company has had no disagreements with its auditors on accounting principles, practices or financial statement disclosure during and through the date of the financial statements included in this report.

ITEM 9A - 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 December 31, 2022 (the “Evaluation Date”). Based on this evaluation, our CEO and CFO have concluded that as of the Evaluation Date, due to the material weakness in internal control over financial reporting described below, the Company’s disclosure controls and procedures were not effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

In light of this material weakness, management completed additional procedures and analysis to validate the accuracy and completeness of the reported financial results within the SCF. In addition, management engaged the Audit Committee directly, in detail, to discuss the procedures and analysis performed to ensure the reliability of the Company’s financial reporting. Based on the additional analysis and other procedures performed, management concluded that the Consolidated Financial Statements included in this report fairly present in all material respects our financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with GAAP.

Management's Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company's internal control over financial reporting is a process designed under the supervision of the Company's CEO and CFO and effected by the Company's Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with GAAP.

Management's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

As of December 31, 2022, management assessed the effectiveness of the Company's internal control over financial reporting based on the criteria established in "Internal Control - Integrated Framework" (the 2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis.

As permitted by SEC guidance that an assessment of internal controls over financial reporting of a recently acquired business may be excluded from management's evaluation of disclosure controls and procedures for up to a year from the date of acquisition, we have excluded PCH from management's reporting on internal control over financial reporting as of December 31, 2022. We will continue to evaluate the effectiveness of internal control over financial reporting as we complete the integration of PCH. The acquisition of PCH resulted in the exclusion from management's reporting on internal control over financial reporting of $15.7 billion of assets, or 9.3% of our total assets, at December 31, 2022 and $817.2 million of interest and non-interest income, or 6.7% of our total interest and non-interest income, for the year ended December 31, 2022.

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Based on the assessment, management determined the Company did not maintain effective internal control over financial reporting as of December 31, 2022 because of the material weakness described below.

The Company did not design and maintain effective controls to verify the proper classification of loan and lease transfer activities within the SCF.

This material weakness resulted in material misstatements to the classification of cash flows associated with LHFS and LHFI within the SCF which resulted in the restatement of the Consolidated Financial Statements as of and for the quarterly periods ending March 31, June 30 and September 30, 2021. Additionally, an immaterial error was identified related to the classification of cash flows associated with lease transfer activities for the quarterly period ending March 31, 2022. This material weakness could result in further misstatements of the classification of cash flows for loan and lease transfer activities that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

PricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, as stated in their report, which appears in Part II, Item 8 of this Annual Report on Form 10-K.

Remediation Status of Reported Material Weakness

The Company is currently working to remediate the material weakness described above, including:
•enhancing the process around identification and tracking of the classification of loans at origination;
•enhancing the review controls, and supporting documentation related to the nature and classification of LHFS and LHFI cash flows between operating activities and investing activities in the SCF;
•enhancing procedures around loan and lease transfer activities that may have an impact on reporting the operating and investing sections of the SCF; and
•enhancing the controls pertaining to manual entries as they relate to their impact on loan and lease transfer activities within the SCF.
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 Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B - 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 that are currently designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander UK on these accounts in the Twelve-month period ended December 31, 2022 were negligible relative to the overall profits of Santander.

•Santander Consumer Finance, S.A. holds through its Belgian branch seven blocked correspondent accounts for an Iranian bank that is currently designated by the U.S. under the SDGT sanctions program. The accounts have been blocked since 2008. No revenues or profits were generated by the Belgian branch on these accounts in the Twelve-month period ended December 31, 2022.

•Santander Brasil holds three blocked accounts for three customers with domicile in Brazil designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander Brasil on this account in the Twelve-month period ended December 31, 2022 were negligible relative to the overall profits of Santander.

•Santander Consumer Finance, S.A. also held through its branch in Greece an auto finance loan for a client designated by the U.S. under the SDGT sanctions program. The relationship was terminated before the year end. Revenues or profits generated by the branch in Greece on this position in the Twelve-month period ended December 31, 2022 were negligible relative to the overall profits of Santander.

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

In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the Twelve-month period ended December 31, 2022 which were negligible relative to the overall revenues and profits of Santander. Santander has undertaken significant steps to withdraw from the Iranian market, such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. Santander is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, Santander intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

ITEM 9C - DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None.
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PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Omitted.

ITEM 11 - EXECUTIVE COMPENSATION

Omitted.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDER MATTERS

Omitted.

ITEM 13 - RELATED PARTY TRANSACTIONS

Omitted.
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ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

Fees of the Independent Auditor

The following table set forth the aggregate fees for services rendered, for the fiscal year ended December 31, 2022 by our principal accounting firm, PricewaterhouseCoopers LLP. 
Fiscal Year Ended December 31, 2022(1)
Parent Company and SBNASCAll Other EntitiesTotal
(in thousands)
Audit Fees (2)
$8,466 $5,849 $2,552 $16,867 
Audit-Related Fees (3)
1,375 345 152 1,872 
Tax Fees (4)
200 250 — 450 
All Other Fees (5)
11 11 — 22 
Total Fees$10,052 $6,455 $2,704 $19,211 
(1) Represents proposed fees approved by the Audit Committee.
(2) Audit fees include fees associated with the annual audit of financial statements and the audit of internal control over financial reporting, reviews of the interim financial statements included in quarterly reports and statutory/subsidiary audits.
(3) Audit-related fees principally include attestation and agreed-upon procedures which address accounting, reporting and control matters, consent to use the Company's report in connection with various documents filed with the SEC, and comfort letters issued to underwriters for securities offerings.
(4) Tax fees include tax compliance, tax advice and tax planning.
(5) All other fees are fees for any services not included in the first three categories.

The following table set forth the aggregate fees for services rendered for the fiscal year ended December 31, 2021.
Fiscal Year Ended December 31, 2021(1)
Parent Company and SBNASCAll Other EntitiesTotal
(in thousands)
Audit Fees (2)
$9,058 $8,191 $2,657 $19,906 
Audit-Related Fees (3)
900 400 155 1,455 
Tax Fees (4)
40 235 — 275 
All Other Fees(5)
11 7 — 18 
Total Fees$10,009 $8,833 $2,812 $21,654 
(1) Audit fees for 2021 have been adjusted reflect amounts billed in 2022 related to 2021 audits.
(2) Audit fees include fees associated with the annual audit of financial statements and the audit of internal control over financial reporting, reviews of the interim financial statements included in quarterly reports and statutory/subsidiary audits.
(3) Audit-related fees principally include attestation and agreed-upon procedures which address accounting, reporting and control matters, consent to use the Company's report in connection with various documents filed with the SEC, and comfort letters issued to underwriters for securities offerings.
(4) Tax fees include tax compliance, tax advice and tax planning.
(5) All other fees are fees for any services not included in the first three categories.

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by Independent Auditor

During 2022, SHUSA’s Audit Committee pre-approved 100% of audit and non-prohibited, non-audit services provided by the independent auditor. These services may have included audit services, audit-related services, tax services and other services. Pre-approval was generally provided by the Audit Committee for up to one year and any pre-approval was detailed as to the particular service or category of services and was subject to a specific budget. In addition, the Audit Committee may also have pre-approved particular services on a case-by-case basis. For each proposed service, the Audit Committee received detailed information sufficient to enable it to pre-approve and evaluate such service. The Audit Committee may have delegated pre-approval authority to one or more of its members. Any pre-approval decision made under delegated authority was communicated to the Audit Committee at or before its next scheduled meeting. There were no waivers by the Audit Committee of the pre-approval requirement for permissible non-audit services in 2022.
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PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 

1. The following Consolidated Financial Statements as set forth in Part II, Item 8 of this Annual Report on Form 10-K are filed herein:

Consolidated Financial Statements.
  Consolidated Balance Sheets
  Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
  Consolidated Statements of Stockholder's Equity
  Consolidated Statements of Cash Flows
  Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

2. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are omitted because the required information is either not applicable, not required or is shown in the respective financial statements or in the notes thereto.

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(b)
(3.1)
(3.2)
(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 Annual Report on Form 10-K. Santander Holdings USA, Inc. agrees to furnish copies to the SEC on request.
(23.1)
(31.1)
(31.2)
(32.1)
(32.2)
(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)


ITEM 16 - FORM 10-K SUMMARY

Not applicable
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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:March 3, 2023/s/ Juan Carlos Alvarez de Soto
 Juan Carlos Alvarez de Soto
 Chief Financial Officer and Senior Executive Vice President
Date:March 3, 2023/s/ David L. Cornish
 David L. Cornish
 Chief Accounting Officer, Corporate Controller and Executive Vice President


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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureTitleDate
/s/ Timothy Wennes    
Timothy Wennes		 
Director, President
Chief Executive Officer
(Principal Executive Officer)		March 3, 2023
/s/ Juan Carlos Alvarez de Soto
Juan Carlos Alvarez de Soto		Senior Executive Vice President
Chief Financial Officer (Principal Financial Officer)		March 3, 2023
/s/ David L. Cornish
David L. Cornish		Executive Vice President
Chief Accounting Officer and Corporate Controller (Principal Accounting Officer)		March 3, 2023
/s/ T. Timothy Ryan, Jr.
T. Timothy Ryan Jr. 		Director
Chairman of the Board		March 3, 2023
/s/ Javier Maldonado
Javier Maldonado     		DirectorMarch 3, 2023
/s/ Ana Botin Ana BotinDirectorMarch 3, 2023
/s/ Alan Fishman
Alan Fishman		DirectorMarch 3, 2023
/s/ Juan Guitard
Juan Guitard		DirectorMarch 3, 2023
/s/ Edith Holiday
Edith Holiday		DirectorMarch 3, 2023
/s/ Guy Moszkowski
Guy Moszkowski		DirectorMarch 3, 2023
/s/ Henri-Paul Rousseau
Henri-Paul Rousseau		DirectorMarch 3, 2023
/s/ Jose Linares
Jose Linares		DirectorMarch 3, 2023
/s/ William Muir
William Muir		DirectorMarch 3, 2023
/s/Mark Werner
Mark Werner		DirectorMarch 3, 2023
195