Santander Holdings USA, Inc. - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2022


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

Commission File Number: 001-16581

SANTANDER HOLDINGS USA, INC.

(Exact name of registrant as specified in its charter)


Virginia (State or other jurisdiction of incorporation or organization)						23-2453088 (I.R.S. Employer Identification No.)

75 State Street, Boston, Massachusetts (Address of principal executive offices)						02109 (Zip Code)

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

Not applicable

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

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

Title of each class

Trading Symbols

Name of each exchange on which registered

Not Applicable

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑. No ☐.

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

Large accelerated filer ☐

Accelerated filer ☐

Emerging growth company ☐

Non-accelerated Filer ☑

Smaller reporting company ☐

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

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

Number of shares of common stock outstanding at April 30, 2022: 530,391,043 shares

Table of Contents

INDEX



			Page

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021			4

Condensed Consolidated Statements of Operations for the quarters ended March 31, 2022 and 2021			5

Condensed Consolidated Statements of Comprehensive Income for the quarters ended March 31, 2022 and 2021			6

Condensed Consolidated Statements of Stockholder's Equity for the quarters ended March 31, 2022 and 2021			7

Condensed Consolidated Statements of Cash Flows for the quarters ended March 31, 2022 and 2021			8

Notes to Condensed Consolidated Financial Statements			9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			69

Item 3. Quantitative and Qualitative Disclosures About Market Risk			101

Item 4. Controls and Procedures			101

PART II. OTHER INFORMATION			102

Item 1. Legal Proceedings			102

Item 1A. Risk Factors			102

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			102

Item 3. Defaults upon Senior Securities			102

Item 4. Mine Safety Disclosures			102

Item 5. Other Information			102

Item 6. Exhibits			104

SIGNATURES			106


Ex-31.1 Certification
Ex-31.2 Certification
Ex-32.1 Certification
Ex-32.2 Certification
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

SANTANDER HOLDINGS USA, INC., AND SUBSIDIARIES

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements about the Company’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words and phrases such as “may,” “could,” “should,” “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. related to COVID-19 and the strength of the U.S. economy in general and regional and local economies in which SHUSA conducts operations in particular, which may affect, among other things, the level of non-performing assets, charge-offs, and credit loss expense;

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

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

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

•the pursuit of protectionist trade or other related policies, including tariffs 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 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;

•acts of terrorism or domestic or foreign military conflicts. In this regard, during the first quarter SHUSA assessed its exposure to clients in Russia and Belarus and does not believe it has any significant risk with respect to these clients; and

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

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

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


ABS: Asset-backed securities						DOJ: Department of Justice
ACL: Allowance for credit losses						DPD: Days past due
AFS: Available-for-sale						DRIVE: Drive Auto Receivables Trust, a securitization platform
ALLL: Allowance for loan and lease losses						DTI: Debt-to-income
AOCI: Accumulated other comprehensive income						EAD: Exposure at default
APS: Amherst Pierpont Securities LLC						EIP: Economic impact payments
ASC: Accounting Standards Codification						EIR: Effective interest rate
ASU: Accounting Standards Update						ETR: Effective tax rate
ATM: Automated teller machine						Evaluation Date: March 31, 2022
BHC: Bank holding company						Exchange Act: Securities Exchange Act of 1934, as amended
BHCA: Bank Holding Company Act of 1956, as amended						FASB: Financial Accounting Standards Board
BOLI: Bank-owned life insurance						FBO: Foreign banking organization
BSI: Banco Santander International						FDIC: Federal Deposit Insurance Corporation
BSPR: Banco Santander Puerto Rico						Federal Reserve: Board of Governors of the Federal Reserve System
C&I: Commercial & industrial						FHLB: Federal Home Loan Bank
CARES Act: Coronavirus Aid, Relief, and Economic Security Act						FHLMC: Federal Home Loan Mortgage Corporation
CBB: Consumer and Business Banking						FICO®: Fair Isaac Corporation credit scoring model
CBP: Citizens Bank of Pennsylvania						FINRA: Financial Industrial Regulatory Authority
CCAP: Chrysler Capital; trade name used in providing services under the MPLFA						FNMA: Federal National Mortgage Association
CCAR: Comprehensive Capital Analysis and Review						FRB: Federal Reserve Bank
CD: Certificate of deposit						FVO: Fair value option
CECL: Current expected credit losses as defined by ASU 2016-13, ASU 2019-04, and ASU 2019-11, Financial Instruments - Credit Losses						GAAP: Accounting principles generally accepted in the United States of America
CEF: Closed-end fund						GDP: Gross domestic product
CEO: Chief Executive Officer						GNMA: Government National Mortgage Association
CET1: Common equity Tier 1						GSIB: Global systemically important bank
CEVF: Commercial equipment vehicle financing						HFI: Held for investment
CFPB: Consumer Financial Protection Bureau						HFS: Held for sale
CFO: Chief Financial Officer						HPI: Housing Price Index
CIB: Corporate and Investment Banking						HTM: Held to maturity
CID: Civil investigative demand						IBOR: Inter-bank offered rate
CLTV: Combined loan-to-value						IDI: Insured depository institution
Company: Santander Holdings USA, Inc.						IHC: U.S. intermediate holding company
Covered Fund: a hedge fund or private equity fund						IRS: Internal Revenue Service
COVID-19: a novel strain of coronavirus, declared a pandemic by the World Health Organization in March 2020						ISDA: International Swaps and Derivatives Association, Inc.
CPR: Constant prepayment rate						IT: Information technology
CRA: Community Reinvestment Act						LCR: Liquidity coverage ratio
CRE: Commercial Real Estate						LGD: Loss given default
DCF: Discounted cash flow						LHFI: Loans held for investment
DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act

Table of Contents


LHFS: Loans held for sale						SBC: Santander BanCorp and its subsidiaries
LIBOR: London Interbank Offered Rate						SC: Santander Consumer USA Holdings Inc. and its subsidiaries
LIHTC: Low income housing tax credit						SCB: Stress capital buffer
LTD: Long-term debt						SC Common Stock: Common shares of SC
LTV: Loan-to-value						SCART: Santander Consumer Auto Receivables Trust
MBS: Mortgage-backed securities						SCF: Statement of cash flows
MD&A: Management's Discussion and Analysis of Financial Condition and Results of Operations						SDART: Santander Drive Auto Receivables Trust
Moody's: Moody's Investor Service, Inc.						SDGT: Specially Designated Global Terrorist
MPLFA: Ten-year master private-label financing agreement with Stellantis signed in May 2013						SEC: Securities and Exchange Commission
MSPA: Master Securities Purchase Agreement						Securities Act: Securities Act of 1933, as amended
MSR: Mortgage servicing right						Securities Financing Activities: Resale, repurchase securities borrowed and securities lending agreements
MVE: Market value of equity						SFS: Santander Financial Services, Inc.
NCI: Non-controlling interest						SHUSA: Santander Holdings USA, Inc.
NMDs: Non-maturity deposits						SIS: Santander Investment Securities Inc.
NMTC: New market tax credits						SOFR: Secured overnight financing rate
NPL: Non-performing loan						SPAIN: Santander Private Auto Issuing Note
NPR: Notice of proposed rule-making						SPE: Special purpose entity
OCC: Office of the Comptroller of the Currency						SRT: Santander Retail Auto Lease Trust
OCI: Other comprehensive income						SSLLC: Santander Securities LLC
OIS: Overnight indexed swap						Stellantis: Fiat Chrysler Automobiles US LLC parent Stellantis N.V. and/or any affiliates
OREO: Other real estate owned						Subvention: Reimbursement of the finance provider by a manufacturer for the difference between a market loan or lease rate and the below-market rate given to a customer.
Parent Company: The parent holding company of SBNA and other consolidated subsidiaries						TDR: Troubled debt restructuring
PCH: Pierpont Capital Holdings LLC						TLAC Rule: The Federal Reserve's total loss-absorbing capacity rule
PD: Probability of default						TLAC: Total loss-absorbing capacity
RIC: Retail installment contract						Trusts: Securitization trusts
ROU: Right-of-use						UPB: Unpaid principal balance
RV: Recreational vehicle						USD: United States dollar
RWA: Risk-weighted asset						VIE: Variable interest entity
S&P: Standard & Poor's						VOE: Voting rights entity
SAF: Santander Auto Finance						YTD: Year-to-date
SAM: Santander Asset Management, LLC
Santander: Banco Santander, S.A.
Santander UK: Santander UK plc
SBNA: Santander Bank, National Association

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PART I. FINANCIAL INFORMATION

ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

unaudited (In thousands)


	March 31, 2022		December 31, 2021

ASSETS
Cash and cash equivalents	$	13,519,278	$	19,305,530
Federal funds sold and securities purchased under resale agreements or similar arrangements	4,904,070		5,346,468
Investment securities:
AFS at fair value (amortized cost of $8,794,749 and $11,409,953 as of March 31, 2022 and December 31, 2021, respectively)	8,443,756		11,313,937

HTM (fair value of $8,968,074 and $6,629,206 as of March 31, 2022 and December 31, 2021, respectively)	9,388,092		6,702,471
Other investments (includes trading securities of $33,319 and $35,791 as of March 31, 2022 and December 31, 2021, respectively)	1,311,863		1,096,138
LHFI(1) (5)	91,775,567		92,075,812
ALLL (5)	(6,405,231)		(6,461,410)
Net LHFI	85,370,336		85,614,402
LHFS (2)(5)	328,164		255,023
Premises and equipment, net (3)	834,587		856,393
Operating lease assets, net (5)(6)	15,205,615		15,406,402


Goodwill	2,596,161		2,596,161
Intangible assets, net	327,859		339,079
BOLI	1,948,755		1,942,099
Restricted cash (5)	5,944,767		5,711,705

Other assets (4) (5)	3,662,875		3,335,423
TOTAL ASSETS	$	153,786,178	$	159,821,231
LIABILITIES
Accounts payables and accrued expenses	$	5,697,065	$	5,329,755
Deposits and other customer accounts	78,589,116		81,598,172
Federal funds purchased and securities loaned or sold under repurchase agreements	4,820,950		5,258,875
Borrowings and other debt obligations (5)	40,239,594		41,133,187
Advance payments by borrowers for taxes and insurance	179,442		142,592
Deferred tax liabilities, net	714,561		771,341
Other liabilities (5)	1,600,744		1,119,959
TOTAL LIABILITIES	131,841,472		135,353,881
Commitments and contingencies (Note 16)
STOCKHOLDER'S EQUITY

Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both March 31, 2022 and December 31, 2021)	17,291,775		17,875,938
AOCI/(loss), net of taxes	(789,291)		(188,110)
Retained earnings	5,442,222		4,826,127
TOTAL SHUSA STOCKHOLDER'S EQUITY	21,944,706		22,513,955
NCI	—		1,953,395
TOTAL STOCKHOLDER'S EQUITY	21,944,706		24,467,350
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	153,786,178	$	159,821,231

(1) LHFI includes $29.5 million and $33.5 million of loans recorded at fair value at March 31, 2022 and December 31, 2021, respectively.

(2) Includes $81.1 million and $166.8 million of loans recorded at the FVO at March 31, 2022 and December 31, 2021, respectively.

(3) Net of accumulated depreciation of $1.9 billion and $1.8 billion at March 31, 2022 and December 31, 2021, respectively.

(4) Includes MSRs of $99.5 million and $79.1 million at March 31, 2022 and December 31, 2021, respectively, for which the Company has elected the FVO. See Note 13 to these Condensed Consolidated Financial Statements for additional information.

(5) The Company has interests in certain Trusts that are considered VIEs for accounting purposes. At March 31, 2022 and December 31, 2021, LHFI included $21.5 billion and $20.6 billion, LHFS included zero and zero , Operating leases assets, net included $13.6 billion and $14.7 billion, restricted cash included $1.6 billion and $1.6 billion, Other assets included $638.9 million and $629.4 million, Borrowings and other debt obligations included $28.9 billion and $29.2 billion, and Other liabilities included $101.5 million and $81.1 million of assets or liabilities that were included within VIEs, respectively. See Note 7 to these Condensed Consolidated Financial Statements for additional information.

(6) Net of accumulated depreciation of $3.7 billion and $3.8 billion at March 31, 2022 and December 31, 2021, respectively.

See accompanying notes to unaudited Condensed Consolidated Financial Statements

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

unaudited (In thousands)


	Year-to-Date Ended March 31
		2022		2021

INTEREST INCOME:
Loans		$	1,645,084	$	1,865,711
Interest-earning deposits		10,026		5,183

Investment securities:
AFS		33,684		26,054
HTM		31,157		25,435
Other investments		2,238		2,524
TOTAL INTEREST INCOME		1,722,189		1,924,907
INTEREST EXPENSE:
Deposits and other customer accounts		16,945		29,786

Borrowings and other debt obligations		225,238		275,789
TOTAL INTEREST EXPENSE		242,183		305,575
NET INTEREST INCOME		1,480,006		1,619,332
Credit loss expense		216,809		76,067
NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE		1,263,197		1,543,265

NON-INTEREST INCOME:
Consumer and commercial fees		97,490		119,220



Capital market revenue		64,759		81,788
Lease income		671,204		772,892
Miscellaneous income, net(1)		133,848		200,722
TOTAL FEES AND OTHER INCOME		967,301		1,174,622


Net gain on sale of investment securities		13,955		9,874

TOTAL NON-INTEREST INCOME		981,256		1,184,496
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES:
Compensation and benefits		495,325		465,258
Occupancy and equipment expenses		151,550		172,076
Technology, outside service, and marketing expense		137,684		134,752


Loan expense		65,592		111,580
Lease expense		481,302		560,340

Other expenses		135,237		104,423
TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES		1,466,690		1,548,429







INCOME BEFORE INCOME TAX PROVISION		777,763		1,179,332
Income tax provision		161,668		286,829
NET INCOME INCLUDING NCI		616,095		892,503
LESS: NET INCOME ATTRIBUTABLE TO NCI		—		145,456
NET INCOME ATTRIBUTABLE TO SHUSA		$	616,095	$	747,047

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

See accompanying notes to unaudited Condensed Consolidated Financial Statements

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

unaudited (In thousands)


	Year-to-Date Ended March 31
		2022		2021

NET INCOME INCLUDING NCI		$	616,095	$	892,503
OCI, NET OF TAX
Net unrealized changes in cash flow hedge derivative financial instruments, net of tax (1)		(246,416)		(62,676)
Net unrealized (losses) / gains on AFS investment securities, net of tax(1)		(355,325)		(122,156)
Pension and post-retirement actuarial gains, net of tax		560		938
TOTAL OCI, NET OF TAX		(601,181)		(183,894)
COMPREHENSIVE INCOME		14,914		708,609
NET INCOME INCLUDING NCI		—		145,456
COMPREHENSIVE INCOME ATTRIBUTABLE TO SHUSA		$	14,914	$	563,153

(1) Excludes zero, and $1.8 million, of OCI/(loss) attributable to NCI for the quarters ended March 31, 2022, and 2021, respectively.

See accompanying notes to unaudited Condensed Consolidated Financial Statements

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATMENTS OF STOCKHOLDER'S EQUITY

unaudited (In thousands)



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














Balance, January 1, 2021	530,391	17,876,818		166,295		1,843,765		1,375,834		21,262,712

Comprehensive income/(loss) attributable to SHUSA	—	—		(183,894)		747,047		—		563,153
Other comprehensive income/(loss) attributable to NCI	—	—		—		—		1,792		1,792
Net income attributable to NCI	—	—		—		—		145,456		145,456
Impact of SC stock option activity	—	—		—		—		3,621		3,621




Dividends paid to NCI	—	—		—		—		(26,594)		(26,594)
Stock repurchase	—	(880)		—		—		(8,594)		(9,474)


Balance, March 31, 2021	530,391	$	17,875,938	$	(17,599)	$	2,590,812	$	1,491,515	$	21,940,666

Balance, January 1, 2022	530,391	17,875,938		(188,110)		4,826,127		1,953,395		24,467,350

Comprehensive income/(loss) attributable to SHUSA	—	—		(601,181)		616,095		—		14,914












Stock repurchase	—	(584,163)		—		—		(1,953,395)		(2,537,558)


Balance, March 31, 2022	530,391	$	17,291,775	$	(789,291)	$	5,442,222	$	—	$	21,944,706

See accompanying notes to unaudited Condensed Consolidated Financial Statements

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

unaudited (in thousands)


	Year-to-Date Ended March 31
	2022		2021

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including NCI	$	616,095	$	892,503
Adjustments to reconcile net income to net cash provided by operating activities:


Credit loss expense	216,809		76,067
Deferred tax expense	96,896		253,814
Depreciation, amortization and accretion	985,526		643,477
Net gain on sale of loans	(6,196)		(4,626)
Net gain on sale of investment securities	(13,955)		(9,874)




Net gain on real estate owned, premises and equipment, and other	(1,739)		(470)

Equity loss on equity method investments	2,359		15,419
Originations of LHFS	(180,910)		(411,185)

Proceeds from sales of and collections on LHFS (1)	269,312		1,753,942


Net change in:
Revolving personal loans	—		34,246
Other assets, BOLI and trading securities	(180,901)		478,807
Other liabilities	346,350		(218,207)

NET CASH PROVIDED BY OPERATING ACTIVITIES	2,149,646		3,503,913

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS investment securities	—		507,090
Proceeds from prepayments and maturities of AFS investment securities	776,554		1,408,899
Purchases of AFS investment securities	(1,158,020)		(2,216,074)
Proceeds from prepayments and maturities of HTM investment securities	412,652		553,091
Purchases of HTM investment securities	(354,522)		(677,416)
Proceeds from sales of other investments	2,959		32,360
Proceeds from maturities of other investments	250,000		—
Purchases of other investments	(470,548)		(254,697)
Net change in federal funds sold and securities purchased under resale agreements	442,398		—

Proceeds from sales of LHFI (2)	78,886		1,886,907
Proceeds from the sales of equity method investments	43,465		—
Distributions from equity method investments	3,278		1,058
Contributions to equity method and other investments	(64,023)		(29,976)
Proceeds from settlements of BOLI policies	8,961		7,390
Purchases of LHFI	(302,094)		(254,722)
Net change in loans other than purchases and sales	99,477		(560,505)
Purchases and originations of operating leases	(1,748,303)		(2,172,167)
Proceeds from the sale and termination of operating leases	1,473,063		1,498,000
Manufacturer and dealer incentives received/(paid)	(302,464)		(2,542)
Proceeds from sales of real estate owned and premises and equipment	1,676		6,828
Purchases of premises and equipment	(37,830)		(76,240)




NET CASH USED IN INVESTING ACTIVITIES	(844,435)		(342,716)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits and other customer accounts	(3,009,056)		(855,008)
Net change in short-term borrowings	(55,000)		(195,593)
Net proceeds from long-term borrowings	5,430,186		6,881,403
Repayments of long-term borrowings	(6,285,898)		(9,311,341)

Repayments of FHLB advances (with terms greater than 3 months)	—		(300,000)
Net change in federal funds purchased and securities loaned or sold under repurchase agreements	(437,925)		—
Net change in advance payments by borrowers for taxes and insurance	36,850		30,847


Dividends paid to NCI	—		(26,594)
Stock repurchase	(2,537,558)		(9,474)
Proceeds from the issuance of common stock	—		450


NET CASH USED IN FINANCING ACTIVITIES	(6,858,401)		(3,785,310)

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(5,553,190)		(624,113)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	25,017,235		17,924,741
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (3)	$	19,464,045	$	17,300,628





NON-CASH TRANSACTIONS

Loans transferred from/(to) LHFI (from)/to LHFS, net	227,903		27,184
Unsettled purchases of investment securities	35,068		239,531









AFS investment securities transferred to HTM investment securities	2,982,205		—

(1) Included in this balance is sales proceeds from Bluestem portfolio sale of $608 million for loans originated as HFS for the quarter ended March 31, 2021.

(2) Included in this balance is sales proceeds from Bluestem portfolio sale of $188 million for loans originated as HFI for the quarter ended March 31, 2021.

(3) The quarters ended March 31, 2022 and 2021 include cash and cash equivalents balances of $13.5 billion and $11.5 billion, respectively, and restricted cash balances of $5.9 billion and $5.8 billion, respectively.

See accompanying notes to unaudited Condensed Consolidated Financial Statements

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

SHUSA is the parent holding company of SBNA, a national banking association; SC, a consumer finance company headquartered in Dallas, Texas; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; BSI, a financial services company headquartered in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; SIS, a registered broker-dealer headquartered in New York providing services in investment banking, institutional sales, and trading and offering research reports of Latin American and European equity and fixed income securities; SFS, a consumer credit institution headquartered in Puerto Rico; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC 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.

Acquisitions

Acquisition of SC Shares

In August 2021, SHUSA entered into a definitive agreement whereby SHUSA agreed to acquire all of the outstanding shares of SC Common Stock not already owned by SHUSA via an all-cash tender offer and subsequent merger. 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. SHUSA agreed to acquire all remaining shares not tendered in the tender offer through a second-step merger at the same price as in the tender offer. Consummation of the tender offer was subject to various conditions, including regulatory approval by the Federal Reserve and other customary closing conditions. The transaction was completed on January 31, 2022, at which time SHUSA acquired the remaining 19.8% noncontrolling interest in SC for approximately $2.5 billion and SC became a wholly-owned subsidiary of SHUSA. As a result of the acquisition, APIC was decreased by $584.2 million for the difference between the carrying value of the noncontrolling interest 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.

Acquisition of Pierpont Capital Holdings LLC

On April 11, 2022 SHUSA acquired PCH, parent company of APS, an independent institutional fixed-income broker dealer, for approximately $450 million. With the addition of PCH, the Company will significantly enhance its infrastructure and capabilities in market making of US fixed income capital markets and will provide 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 will be accounted for as a business combination, and the assets and liabilities of PCH will be 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. Due to the timing of the acquisition, the fair value estimates of PCH's assets and liabilities were not available to be disclosed in these Consolidated Financial Statements as of and for the quarter ended March 31, 2022. On the acquisition date of April 11, 2022 PCH had a net book value of approximately $310 million. Immediately after the acquisition, SHUSA issued PCH an unsecured intercompany loan of $163 million; the proceeds were used by PCH to pay off its third-party debt.

Core Business

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

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

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

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

SC also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile and recreational and marine vehicle portfolios for other lenders. Additionally, SC has other relationships through which it provides other consumer finance products.

Basis of Presentation

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

These Condensed Consolidated Financial Statements have been prepared in accordance with GAAP and pursuant to SEC regulations. In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments of a normal and recurring nature necessary for a fair statement of the Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholder's Equity and Statements of Cash Flow 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, fair value measurements, 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

Since January 1, 2022, the Company has not adopted any new accounting standards that had a material impact on the Company’s financial position or results of operations.

Recently Issued Accounting Standards Not Yet Adopted

In March 2022, the FASB issued ASU 2022-01 Derivatives and Hedging (Topic 815) Fair Value hedging – Portfolio Layer Method. 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. The new standard is effective January 1, 2023, and early adoption is permitted. The Company is evaluating the potential impact on its hedge accounting program.

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

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 new standard is effective January 1, 2023, and early adoption is permitted. The Company is evaluating the changes that will result from this standard.

Subsequent Events

The Company evaluated events from the date of these Condensed Consolidated Financial Statements on March 31, 2022 through the issuance of these Condensed Consolidated Financial Statements. Refer to disclosure of these transactions above and in Note 9 to these Condensed Consolidated Financial Statements as of March 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:


	March 31, 2022								December 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	$	254,251	$	175	$	(1,276)	$	253,150	$	72,860	$	758	$	—	$	73,618
Corporate debt securities	291,902		8		(161)		291,749		275,963		140		(96)		276,007
ABS	529,517		200		(3,780)		525,937		537,835		353		(466)		537,722

MBS:
GNMA - Residential	4,054,723		108		(130,069)		3,924,762		4,064,718		21,169		(19,692)		4,066,195
GNMA - Commercial	701,575		377		(48,640)		653,312		2,086,437		2,060		(55,658)		2,032,839
FHLMC and FNMA - Residential	2,859,249		4,255		(172,318)		2,691,186		4,267,757		14,616		(62,732)		4,219,641
FHLMC and FNMA - Commercial	103,532		545		(417)		103,660		104,383		3,591		(59)		107,915
Total investments in debt securities AFS	$	8,794,749	$	5,668	$	(356,661)	$	8,443,756	$	11,409,953	$	42,687	$	(138,703)	$	11,313,937

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:


	March 31, 2022								December 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	$	78,680	$	—	$	(569)	$	78,111	$	89,722	$	319	$	—	$	90,041

MBS:
GNMA - Residential	2,950,920		1,957		(188,372)		2,764,505		2,862,595		13,412		(45,102)		2,830,905
GNMA - Commercial	4,969,849		955		(233,989)		4,736,815		3,750,154		25,524		(67,418)		3,708,260
FHLMC and FNMA - Residential	1,388,643		—		—		1,388,643		—		—		—		—

Total investments in debt securities HTM	$	9,388,092	$	2,912	$	(422,930)	$	8,968,074	$	6,702,471	$	39,255	$	(112,520)	$	6,629,206

As of March 31, 2022 and December 31, 2021, the Company had investment securities with an estimated carrying value of $4.7 billion and $5.3 billion, respectively, pledged as collateral, which were comprised of the following: $1.8 billion and $1.6 billion, respectively, were pledged as collateral for the Company's borrowing capacity with the FRB; $2.5 billion and $3.2 billion, respectively, were pledged to secure public fund deposits; $82.5 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 $355.8 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 11 to these Condensed Consolidated Financial Statements.

At March 31, 2022 and December 31, 2021, the Company had $29.2 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 Condensed Consolidated Balance Sheets. No accrued interest related to investment securities was written off during the periods ended March 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 March 31, 2022 were as follows:



(in thousands)	Amortized Cost		Fair Value
Due within one year	$	439,686	$	438,463
Due after 1 year but within 5 years	168,223		168,218
Due after 5 years but within 10 years	315,201		312,067
Due after 10 years	7,871,639		7,525,008
Total	$	8,794,749	$	8,443,756

Contractual maturities of the Company’s investments in debt securities HTM at March 31, 2022 were as follows:



(in thousands)	Amortized Cost		Fair Value
Due within one year	$	—	$	—
Due after 1 year but within 5 years	39,438		38,781
Due after 5 years but within 10 years	46,365		46,460
Due after 10 years	9,302,289		8,882,833
Total	$	9,388,092	$	8,968,074

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

Gross Unrealized Loss and Fair Value of Investments in Debt Securities AFS and HTM

The following table presents the aggregate amount of unrealized losses as of March 31, 2022 and December 31, 2021 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:


	March 31, 2022								December 31, 2021
	Less than 12 months				12 months or longer				Less than 12 months				12 months or longer
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities	$	197,589	$	(1,276)	$	—	$	—	$	—	$	—	$	—	$	—
Corporate debt securities	279,766		(161)		—		—		173,255		(96)		—		—
ABS	492,493		(3,573)		15,346		(207)		389,743		(205)		16,265		(261)

MBS:
GNMA - Residential	3,325,910		(109,867)		445,481		(20,202)		2,283,469		(19,068)		96,339		(624)
GNMA - Commercial	424,423		(29,331)		208,186		(19,309)		1,795,619		(51,908)		89,640		(3,750)
FHLMC and FNMA - Residential	1,981,806		(121,255)		406,758		(51,063)		3,315,452		(61,103)		109,769		(1,629)
FHLMC and FNMA - Commercial	64,389		(417)		—		—		45,641		(59)		—		—
Total investments in debt securities AFS	$	6,766,376	$	(265,880)	$	1,075,771	$	(90,781)	$	8,003,179	$	(132,439)	$	312,013	$	(6,264)

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NOTE 2. INVESTMENT SECURITIES (continued)

The following table presents the aggregate amount of unrealized losses as of March 31, 2022 and December 31, 2021 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:


	March 31, 2022								December 31, 2021
	Less than 12 months				12 months or longer				Less than 12 months				12 months or longer
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses


ABS	$	78,111	$	(569)	$	—	$	—	$	—	$	—	$	—	$	—

MBS:
GNMA - Residential	$	1,854,447	$	(126,703)	$	674,604	$	(61,669)	$	2,051,851	$	(42,284)	$	81,034	$	(2,818)
GNMA - Commercial	2,574,474		(150,023)		911,969		(83,966)		2,515,603		(61,377)		124,655		(6,041)


Total investments in debt securities HTM	$	4,507,032	$	(277,295)	$	1,586,573	$	(145,635)	$	4,567,454	$	(103,661)	$	205,689	$	(8,859)

Allowance for credit-related losses on AFS securities

The Company did not record an allowance for credit-related losses on AFS or HTM securities at March 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 Investments in Debt Securities

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


	Year-to-Date Ended March 31
(in thousands)		2022		2021
Proceeds from the sales of AFS securities		$	—	$	507,090

AFS debt and other securities:
Gross realized gains		$	—	$	10,072
Gross realized losses		—		—

Net realized gains/(losses) on AFS and other securities		$	—	$	10,072
Total trading securities gains/(losses)		1,475		(198)
Total equity securities gains/(losses)		12,480		—
Total realized gains/(losses) in income from investments		$	13,955	$	9,874

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

Other Investments

Other investments consisted of the following as of:


(in thousands)	March 31, 2022		December 31, 2021
FHLB of Pittsburgh and FRB stock	$	398,406	$	394,668
LIHTC investments	373,054		370,493
Equity securities not held for trading (1)	107,084		45,186
Interest-bearing deposits with an affiliate bank	400,000		250,000
Trading securities	33,319		35,791
Total	$	1,311,863	$	1,096,138

(1) Includes $2.8 million and $3.0 million of equity certificates related to an off-balance sheet securitization as of March 31, 2022 and December 31, 2021, respectively.

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NOTE 2. INVESTMENT SECURITIES (continued)

Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the FRB. These stocks do not have readily determinable fair values because their ownership is restricted and there is no market for their sale. The stocks can be sold back only at their par value of $100 per share, and FHLB stock can be sold back only to the FHLB or to another member institution. Accordingly, these stocks are carried at cost. During the quarter ended March 31, 2022, the Company purchased $0.1 million of FHLB stock at par, and redeemed $0.2 million of FHLB stock at par. The Company purchased $6.3 million of FRB stock at par, and redeemed $2.5 million of FRB stock at par during the quarter ended March 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 as of March 31, 2022, 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 $42.5 billion at March 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 March 31, 2022 was $328.2 million, compared to $255.0 million at December 31, 2021. For a discussion on the valuation of LHFS at fair value, see Note 13 to these Condensed Consolidated Financial Statements. LHFS in the residential mortgage portfolio that were originated with the intent to sell were $81.1 million as of March 31, 2022 and are reported at either estimated fair value (if the FVO is elected) or the lower of cost or fair value.

Interest on loans is credited to income as it is earned. Loan origination fees and certain direct loan origination costs are deferred and recognized as adjustments to interest income in the Condensed Consolidated Statements of Operations over the contractual life of the loan utilizing the interest method. Loan origination costs and fees and premiums and discounts on RICs are deferred and recognized in interest income over their estimated lives using estimated prepayment speeds, which are updated on a monthly basis. At March 31, 2022 and December 31, 2021, accrued interest receivable on the Company's loans was $438.4 million and $453.0 million, respectively.

Purchased receivables

During the quarter ended March 31, 2022, SBNA approved and completed purchases of performing personal unsecured loans with a UPB of approximately $268.2 million.

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

Sales of receivables

Loan and Lease Portfolio Composition

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


	March 31, 2022				December 31, 2021

(dollars in thousands)	Amount		Percent		Amount		Percent
Commercial LHFI:
CRE loans	$	7,350,812	8.0	%	$	7,227,003	7.8	%
C&I loans	13,868,625		15.1	%	14,710,864		16.0	%
Multifamily loans	7,709,447		8.4	%	7,547,382		8.2	%
Other commercial(2)(4)	8,239,438		9.0	%	8,170,031		8.9	%
Total commercial LHFI	37,168,322		40.5	%	37,655,280		40.9	%
Consumer loans secured by real estate:
Residential mortgages	5,472,175		6.0	%	5,598,560		6.1	%
Home equity loans and lines of credit	3,359,342		3.7	%	3,487,234		3.8	%
Total consumer loans secured by real estate	8,831,517		9.7	%	9,085,794		9.9	%
Consumer loans not secured by real estate:
RICs and auto loans	43,086,645		46.9	%	43,183,098		46.9	%
Personal unsecured loans	2,562,022		2.8	%	2,009,654		2.2	%
Other consumer(3)	127,061		0.1	%	141,986		0.1	%
Total consumer loans	54,607,245		59.5	%	54,420,532		59.1	%
Total LHFI(1)	$	91,775,567	100.0	%	$	92,075,812	100.0	%
Total LHFI:
Fixed rate	$	64,993,477	70.8	%	$	64,774,941	70.3	%
Variable rate	26,782,090		29.2	%	27,300,871		29.7	%
Total LHFI(1)	$	91,775,567	100.0	%	$	92,075,812	100.0	%

(1)Total LHFI includes deferred loan fees, net of deferred origination costs and unamortized purchase premiums, net of discounts as well as purchase accounting adjustments. These items resulted in a net increase in the loan balances of $2.9 billion and $2.9 billion as of March 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 $204.8 million for which a fair value hedge is recorded resulting in a fair value adjustment of $26.3 million.

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

Portfolio segments and classes

The Company discloses information about the credit quality of its financing receivables at disaggregated levels, specifically defined as “portfolio segments” and “classes,” based on management’s systematic methodology for determining the ACL. The Company utilizes similar categorization compared to the financial statement categorization of loans to model and calculate the ACL and track the credit quality, delinquency and impairment status of the underlying loan populations. In disaggregating its financing receivables portfolio, the Company’s methodology begins with the commercial and consumer segments.

The commercial segmentation reflects line of business distinctions. The CRE line of business includes C&I owner-occupied real estate and specialized lending for investment real estate. C&I includes non-real estate-related commercial loans. "Multifamily" represents loans for multifamily residential housing units. “Other commercial” includes loans to global customer relationships in Latin America which are not defined as commercial or consumer for regulatory purposes. The remainder of the portfolio primarily represents the CEVF portfolio.

The Company's portfolio classes are substantially the same as its financial statement categorization of loans for consumer loan populations. “Residential mortgages” includes mortgages on residential property, including single family and 1-4 family units. "Home equity loans and lines of credit" include all organic home equity contracts and purchased home equity portfolios. "RICs and auto loans" includes the Company's direct automobile loan portfolios, but excludes RV and marine RICs. "Personal unsecured loans" includes personal revolving loans and credit cards. “Other consumer” includes an acquired portfolio of marine RICs and RV contracts.

ACL Rollforward by Portfolio Segment

The ACL is comprised of the ALLL and the reserve for unfunded lending commitments. The activity in the ACL by portfolio segment for the quarters ended March 31, 2022 and 2021 was as follows:



















	Year-To-Date Ended March 31, 2022
(in thousands)	Commercial		Consumer		Total
ALLL, beginning of period	$	567,309	$	5,894,101	$	6,461,410
Credit loss expense / (benefit)	(11,397)		240,871		229,474


Charge-offs	(16,169)		(881,036)		(897,205)
Recoveries	17,588		593,964		611,552
Charge-offs, net of recoveries	1,419		(287,072)		(285,653)
ALLL, end of period	$	557,331	$	5,847,900	$	6,405,231

Reserve for unfunded lending commitments, beginning of period	$	91,191	$	12,903	$	104,094
Credit loss expense / (benefit) on unfunded lending commitments	(10,882)		(1,783)		(12,665)
Loss on unfunded lending commitments	—		—		—
Reserve for unfunded lending commitments, end of period	80,309		11,120		91,429
Total ACL, end of period	$	637,640	$	5,859,020	$	6,496,660

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

















	Year-To-Date Ended March 31, 2021
(in thousands)	Commercial		Consumer		Total
ALLL, beginning of period	$	752,196	$	6,586,297	$	7,338,493
Credit loss expense / (benefit)	(21,846)		119,979		98,133
Charge-offs	(39,632)		(827,386)		(867,018)
Recoveries	25,629		564,918		590,547
Charge-offs, net of recoveries	(14,003)		(262,468)		(276,471)
ALLL, end of period	$	716,347	$	6,443,808	$	7,160,155

Reserve for unfunded lending commitments, beginning of period	$	119,129	$	27,326	$	146,455

Credit loss expense / (benefit) on unfunded lending commitments	(18,812)		(3,254)		(22,066)
Reserve for unfunded lending commitments, end of period	100,317		24,072		124,389
Total ACL, end of period	$	816,664	$	6,467,880	$	7,284,544

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 Company's allowance for loan losses decreased by $56.2 million from December 31, 2021 to March 31, 2022, primarily due to an improved macroeconomic outlook as well as improved credit quality and performance.

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

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:


	Non-accrual loans as of:(1)				Non-accrual loans with no allowance
(in thousands)	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021

Non-accrual loans:
Commercial:
CRE	$	29,891	$	31,752	$	24,327	$	24,112
C&I	86,326		69,754		24,947		35,965
Multifamily	100,022		103,299		99,748		103,138
Other commercial	7,654		9,036		3,984		5,472
Total commercial loans	223,893		213,841		153,006		168,687
Consumer:
Residential mortgages	112,990		123,548		60,979		71,463
Home equity loans and lines of credit	84,339		88,310		37,933		39,693
RICs and auto loans	1,196,948		1,467,928		196,776		202,193
Personal unsecured loans	3,740		2,892		—		—
Other consumer	408		1,047		37		16
Total consumer loans	1,398,425		1,683,725		295,725		313,365
Total non-accrual loans	1,622,318		1,897,566		448,731		482,052

OREO	4,322		3,724		—		—
Repossessed vehicles	249,656		247,757		—		—
Foreclosed and other repossessed assets	538		294		—		—
Total OREO and other repossessed assets	254,516		251,775		—		—
Total non-performing assets	$	1,876,834	$	2,149,341	$	448,731	$	482,052

(1) Interest income recognized on nonaccrual loans was $37.7 million and $26.2 million for the quarters ended March 31, 2022, and March 31, 2021 respectively.

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

Age Analysis of Past Due Loans

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

The 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:


	As of:
		March 31, 2022
(in thousands)		30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Financing Receivables		Amortized Cost > 90 Days and Accruing
Commercial:
CRE		$	7,646	$	6,777	$	14,423	$	7,336,389	$	7,350,812	$	—
C&I(1)		33,255		10,674		43,929		14,071,740		14,115,669		—
Multifamily		—		—		—		7,709,447		7,709,447		—
Other commercial		83,039		2,098		85,137		8,154,301		8,239,438		—
Consumer:
Residential mortgages(2)		62,590		95,792		158,382		5,394,913		5,553,295		—
Home equity loans and lines of credit		22,836		62,917		85,753		3,273,589		3,359,342		—
RICs and auto loans		3,237,357		186,551		3,423,908		39,662,737		43,086,645		—
Personal unsecured loans		13,498		6,773		20,271		2,541,751		2,562,022		2,605
Other consumer		3,742		321		4,063		122,998		127,061		—
Total		$	3,463,963	$	371,903	$	3,835,866	$	88,267,865	$	92,103,731	$	2,605

(1) C&I loans includes $247.0 million of LHFS at March 31, 2022.

(2) Residential mortgages includes $81.1 million of LHFS at March 31, 2022.


	As of
		December 31, 2021
(in thousands)		30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Financing Receivables		Recorded Investment > 90 Days and Accruing
Commercial:
CRE		$	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		—
Multifamily		336		2,574		2,910		7,544,472		7,547,382		—
Other commercial		77,842		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 credit		22,871		63,306		86,177		3,401,057		3,487,234		—
RICs and auto loans		3,535,402		324,150		3,859,552		39,323,546		43,183,098		—
Personal unsecured loans		10,361		5,206		15,567		1,994,087		2,009,654		2,314
Other consumer		3,493		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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NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Commercial Lending Asset Quality Indicators

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

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

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

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

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

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

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

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


March 31, 2022	Commercial Loan Portfolio (2)
(dollars in thousands)	Amortized Cost by Origination Year
Regulatory Rating:	2022(1)		2021		2020		2019		2018		Prior		Total (3)
CRE
Pass	$	334,119	$	1,124,835	$	1,446,329	$	1,304,042	$	837,269	$	1,590,331	$	6,636,925
Special mention	—		—		14,914		32,955		116,606		128,380		292,855
Substandard	—		26,902		17,917		135,283		102,352		138,578		421,032
Doubtful	—		—		—		—		—		—		—
N/A	—		—		—		—		—		—		—
Total CRE	$	334,119	$	1,151,737	$	1,479,160	$	1,472,280	$	1,056,227	$	1,857,289	$	7,350,812
C&I
Pass	$	486,319	$	3,277,037	$	3,011,041	$	1,966,504	$	986,036	$	2,544,382	$	12,271,319
Special mention	—		2,000		25,884		155,936		15,673		62,324		261,817
Substandard	10,320		133,507		27,446		29,799		73,359		249,468		523,899
Doubtful	—		—		26,229		—		—		—		26,229
N/A	156,795		459,300		224,689		151,017		33,455		7,149		1,032,405
Total C&I	$	653,434	$	3,871,844	$	3,315,289	$	2,303,256	$	1,108,523	$	2,863,323	$	14,115,669
Multifamily
Pass	$	543,310	$	1,556,328	$	729,397	$	1,456,419	$	819,771	$	1,443,589	$	6,548,814
Special mention	—		21,954		5,045		33,819		65,004		50,056		175,878
Substandard	—		3,887		83,537		231,042		300,044		366,245		984,755
Doubtful	—		—		—		—		—		—		—
N/A	—		—		—		—		—		—		—
Total Multifamily	$	543,310	$	1,582,169	$	817,979	$	1,721,280	$	1,184,819	$	1,859,890	$	7,709,447
Remaining commercial
Pass	$	1,310,663	$	2,820,756	$	1,685,435	$	854,615	$	392,585	$	1,151,128	$	8,215,182
Special mention	—		—		—		—		4,314		352		4,666
Substandard	—		3,302		689		6,485		2,026		7,088		19,590
Doubtful	—		—		—		—		—		—		—
N/A	—		—		—		—		—		—		—
Total Remaining commercial	$	1,310,663	$	2,824,058	$	1,686,124	$	861,100	$	398,925	$	1,158,568	$	8,239,438
Total commercial loans
Pass	$	2,674,411	$	8,778,956	$	6,872,202	$	5,581,580	$	3,035,661	$	6,729,430	$	33,672,240
Special mention	—		23,954		45,843		222,710		201,597		241,112		735,216
Substandard	10,320		167,598		129,589		402,609		477,781		761,379		1,949,276
Doubtful	—		—		26,229		—		—		—		26,229
N/A	156,795		459,300		224,689		151,017		33,455		7,149		1,032,405
Total commercial loans	$	2,841,526	$	9,429,808	$	7,298,552	$	6,357,916	$	3,748,494	$	7,739,070	$	37,415,366

(1)Loans originated during the year-to-date ended March 31, 2022.

(2)Includes $247.0 million of LHFS at March 31, 2022.

(3)Includes $343.2 million revolving loans converted to term loans.

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


December 31, 2021	Commercial Loan Portfolio (2)
(dollars in thousands)	Amortized Cost by Origination Year
Regulatory Rating:	2021(1)		2020		2019		2018		2017		Prior		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
Substandard	20,291		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 mention	11,003		32,268		154,820		31,026		25,176		98,964		353,257
Substandard	62,742		62,305		11,859		50,384		47,020		197,121		431,431
Doubtful	—		—		—		—		—		—		—
N/A	511,609		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 mention	4,850		—		101,375		71,031		15,125		35,449		227,830
Substandard	3,981		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 mention	2,959		—		3,007		5,169		625		1,741		13,501
Substandard	287		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 mention	18,812		41,758		286,094		225,329		158,629		171,289		901,911
Substandard	87,301		158,764		383,269		536,760		227,060		547,439		1,940,593
Doubtful	—		—		—		—		—		—		—
N/A	511,609		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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NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Consumer Lending Asset Quality Indicators-Credit Score

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


As of March 31, 2022	RICs and auto loans
(dollars in thousands)	Amortized Cost by Origination Year(3)
Credit Score Range	2022(1)		2021		2020		2019		2018		Prior		Total		Percent
No FICO(2)	$	399,461	$	1,248,679	$	621,683	$	382,162	$	206,419	$	228,914	$	3,087,318	7.2	%
<600	1,953,403		6,623,338		3,257,170		2,218,774		1,266,879		865,358		16,184,922		37.6	%
600-639	1,035,366		3,172,534		1,360,273		904,380		452,618		237,626		7,162,797		16.6	%
>=640	2,043,890		7,861,634		3,659,865		2,301,120		602,051		183,048		16,651,608		38.6	%
Total	$	5,432,120	$	18,906,185	$	8,898,991	$	5,806,436	$	2,527,967	$	1,514,946	$	43,086,645	100.0	%

(1) Loans originated during the year-to-date ended March 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)		2020		2019		2018		2017		Prior		Total		Percent
No FICO(2)	$	1,427,962	$	733,752	$	449,965	$	244,829	$	201,129	$	108,766	$	3,166,403	7.4	%
<600	7,410,017		3,768,302		2,574,070		1,488,371		580,881		515,318		16,336,959		37.8	%
600-639	3,574,644		1,585,530		1,056,397		537,222		165,318		141,316		7,060,427		16.3	%
>=640	8,793,804		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.

Consumer Lending Asset Quality Indicators-FICO and LTV Ratio

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

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

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

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


As of March 31, 2022	Amortized Cost by Origination Year (4)
(dollars in thousands)
Residential mortgages(1)	2022		2021		2020		2019		2018		Prior		Grand Total		Revolving Loans
LTV Ratios (3)
No LTV available (2)	$	7,465	$	939	$	803	$	552	$	268	$	3,160	$	13,187	$	—
<= 70%	79,401		816,999		832,391		519,194		301,580		2,140,446		4,690,011		—
70.01% - 110%	64,201		339,393		157,504		158,931		28,462		18,003		766,494		—
Greater than 110%	—		—		—		—		—		2,483		2,483		—
Total Residential mortgages	$	151,067	$	1,157,331	$	990,698	$	678,677	$	330,310	$	2,164,092	$	5,472,175	$	—

FICO Scores
No FICO score available	$	7,466	$	939	$	804	$	551	$	268	$	5,613	$	15,641	$	—
<600	—		4,764		6,881		19,649		16,602		110,402		158,298		—
600-679	4,941		41,367		38,944		58,516		38,818		218,454		401,040		—
680-759	53,075		337,969		244,489		217,916		111,116		579,903		1,544,468		—
>=760	85,585		772,292		699,580		382,045		163,506		1,249,720		3,352,728		—
Total Residential mortgages	$	151,067	$	1,157,331	$	990,698	$	678,677	$	330,310	$	2,164,092	$	5,472,175	$	—

Home equity(1)
LTV Ratios
No LTV available (2)	$	972	$	2,956	$	3,424	$	4,068	$	5,669	$	69,718	$	86,807	$	53,012
<= 70%	25,728		137,968		224,699		283,788		367,378		2,082,456		3,122,017		3,033,412
70.01% - 110%	13,845		43,844		6,452		8,084		1,043		66,146		139,414		134,904
Greater than 110%	968		2,860		43		—		—		7,233		11,104		11,030
Total Home equity	$	41,513	$	187,628	$	234,618	$	295,940	$	374,090	$	2,225,553	$	3,359,342	$	3,232,358

FICO Scores
No FICO score available	$	560	$	2,631	$	3,164	$	4,100	$	5,367	$	68,241	$	84,063	$	50,275
<600	—		649		963		4,843		11,165		130,132		147,752		129,458
600-679	1,005		6,222		11,817		22,975		36,109		281,467		359,595		339,683
680-759	15,191		66,168		78,274		95,554		123,254		699,683		1,078,124		1,055,692
>=760	24,757		111,958		140,400		168,468		198,195		1,046,030		1,689,808		1,657,250
Total Home equity	$	41,513	$	187,628	$	234,618	$	295,940	$	374,090	$	2,225,553	$	3,359,342	$	3,232,358

(1) Loans originated during the year-to-date ended March 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)


December 31, 2021	Amortized Cost by Origination Year (4)
(dollars in thousands)
Residential mortgages(1)	2021		2020		2019		2018		2017		Prior		Grand Total		Revolving 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	$	—
<600	$	2,356	$	4,719	$	15,894	$	16,995	$	17,879	$	83,310	$	141,153	$	—
600-679	$	30,763	$	39,681	$	61,969	$	37,104	$	39,283	$	192,786	$	401,586	$	—
680-759	$	372,215	$	257,513	$	235,167	$	126,926	$	147,159	$	513,020	$	1,652,000	$	—
>=760	$	734,862	$	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
<600	$	146	$	782	$	3,795	$	10,135	$	12,063	$	111,661	$	138,582	$	121,597
600-679	$	3,330	$	8,417	$	22,910	$	35,437	$	32,485	$	257,159	$	359,738	$	338,378
680-759	$	64,036	$	80,209	$	103,691	$	129,182	$	132,671	$	626,942	$	1,136,731	$	1,111,686
>=760	$	103,583	$	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-to-date 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)	March 31, 2022		December 31, 2021

Performing	$	3,297,361	$	3,641,593
Non-performing	561,204		607,824
Total (1)	$	3,858,565	$	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 the quarters ended March 31, 2022 and 2021:


















	Year-To-Date Ended March 31, 2022
	Number of Contracts	Pre-TDR Amortized Cost(1)		Post-TDR Amortized Cost(2)
	(dollars in thousands)
Commercial:
CRE	45	$	7,465	$	7,465
C&I	204	5,704		5,706
Multi-family	8	—		—
Other commercial	10	219		219
Consumer:
Residential mortgages(3)	16	4,482		4,477
Home equity loans and lines of credit	40	4,867		4,913
RICs and auto loans	8,782	151,593		151,433
Personal unsecured loans	1	23		23
Other consumer	1	1,250		1,250
Total	9,107	$	175,603	$	175,486

(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.



















	Year-To-Date Ended March 31, 2021
	Number of Contracts	Pre-TDR Recorded Investment(1)		Post-TDR Recorded Investment(2)
	(dollars in thousands)
Commercial:
CRE	3	$	7,952	$	7,952
C&I	311	15,512		15,568
Multi-family	—	—		—
Other commercial	164	13,635		13,635
Consumer:
Residential mortgages(3)	93	20,109		19,990
Home equity loans and lines of credit	43	4,542		4,748
RICs and auto loans	45,665	953,819		959,309
Personal unsecured loans	25	248		244
Other consumer	9	408		408
Total	46,313	$	1,016,225	$	1,021,854

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

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

TDRs Which Have Subsequently Defaulted

A TDR is generally considered to have subsequently defaulted if, after modification, the loan becomes 90 DPD. For RICs, a TDR is considered to have subsequently defaulted after modification at the earlier of the date of repossession or 120 DPD. The following table details period-end amortized cost balances of TDRs that became TDRs during the past twelve-month period and have subsequently defaulted during the quarters ended March 31, 2022 and 2021, respectively.


	Year-to-Date Ended March 31
		2022	2021
			Number of Contracts	Recorded Investment(1)		Number of Contracts	Recorded Investment(1)
	(dollars in thousands)
Commercial
CRE			—	$	—	—	$	—
C&I			—	—		30	1,172
Multifamily			—	—		—	—
Other commercial			—	—		1	17
Consumer:
Residential mortgages			74	26,561		—	—
Home equity loans and lines of credit			29	4,401		1	613
RICs and auto loans			1,809	33,049		5,656	110,780
Personal unsecured loans			9	92		—	—
Other consumer			2	57		—	—
Total			1,923	$	64,160	5,688	$	112,582

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

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NOTE 4. OPERATING LEASE ASSETS, NET

The Company has operating leases, including leased vehicles and commercial equipment vehicles and aircraft, which are included in the Company's Condensed Consolidated Balance Sheets as Operating lease assets, net.

Income continues to accrue during the extension period and remaining lease payments are recorded on a straight-line basis over the modified lease term.

Operating lease assets, net consisted of the following as of March 31, 2022 and December 31, 2021:


(in thousands)	March 31, 2022		December 31, 2021

Leased vehicles	$	19,247,623	$	19,662,593
Less: accumulated depreciation	(3,653,353)		(3,789,882)
Depreciated net capitalized cost	15,594,270		15,872,711
Manufacturer subvention payments, net of accretion	(538,176)		(604,104)
Origination fees and other costs	147,919		136,013
Leased vehicles, net	15,204,013		15,404,620

Commercial equipment vehicles and aircraft, gross	2,515		2,677
Less: accumulated depreciation	(913)		(895)
Commercial equipment vehicles and aircraft, net	1,602		1,782

Total operating lease assets, net	$	15,205,615	$	15,406,402

The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of March 31, 2022 (in thousands):


2022	$	1,776,466
2023	1,784,019
2024	691,649
2025	96,344
2026	749
Thereafter	—
Total	$	4,349,227

During the quarters ended March 31, 2022, and 2021, the Company recognized $26.0 million and $108.3 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 Condensed Consolidated Statements of Operations.

NOTE 5. GOODWILL AND OTHER INTANGIBLES

Goodwill

Goodwill is assigned to reporting units, which are operating segments or one level below an operating segment, as of the acquisition date. The following table presents the roll-forward of the Company's goodwill by its reporting units for the quarter ended March 31, 2022:


(in thousands)	Auto		CBB		C&I		CRE		CIB		SC		Total
Goodwill at December 31, 2021	$	—	$	297,802	$	52,198	$	1,095,071	$	131,130	$	1,019,960	$	2,596,161



Re-allocation of goodwill	1,238,918		(138,802)		—		(80,156)		—		(1,019,960)		—
Goodwill at March 31, 2022	$	1,238,918	$	159,000	$	52,198	$	1,014,915	$	131,130	$	—	$	2,596,161

During the quarter ended March 31, 2022, there were no disposals, additions, or impairments of goodwill. In connection with the Company's organizational changes discussed further in Note 18 to these Condensed 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.

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NOTE 5. GOODWILL AND OTHER INTANGIBLES (continued)

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, 2021 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.


	March 31, 2022				December 31, 2021
(in thousands)	Net Carrying Amount		Accumulated Amortization		Net Carrying Amount		Accumulated Amortization
Intangibles subject to amortization:
Dealer networks	$	278,083	$	(191,917)	$	283,958	$	(186,042)
Chrysler relationship	16,250		(122,500)		20,000		(118,750)
Other intangibles	33,526		(50,168)		35,121		(48,541)
Total intangibles subject to amortization	$	327,859	$	(364,585)	$	339,079	$	(353,333)

At March 31, 2022 and December 31, 2021, the Company did not have any intangibles, other than goodwill, that were not subject to amortization.

Amortization expense on intangible assets was $11.3 million and $11.3 million for the quarters ended March 31, 2022 and 2021, 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:


Year	Calendar Year Amount		Recorded To Date		Remaining Amount To Record
	(in thousands)
2022	$	45,003	$	11,252	$	33,751
2023	33,757		—		33,757
2024	29,899		—		29,899
2025	29,854		—		29,854
2026	29,846		—		29,846
Thereafter	170,752		—		170,752

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NOTE 6. OTHER ASSETS

The following is a detail of items that comprised Other assets at March 31, 2022 and December 31, 2021:


(in thousands)	March 31, 2022		December 31, 2021
Operating lease ROU assets	$	509,173	$	531,408
Deferred tax assets	147,275		87,931
Accrued interest receivable	469,611		482,469
Derivative assets at fair value	723,530		661,080
Other repossessed assets	250,194		248,051
Equity method investments	259,132		260,010
MSRs	99,517		79,107
OREO	4,322		3,724
Income tax receivables	213,025		173,060
Prepaid expense	295,926		283,909
Miscellaneous assets and receivables	691,170		524,674
Total Other assets	$	3,662,875	$	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 quarters ended March 31, 2022 and 2021, operating lease expenses were $31.3 million and $39.7 million, respectively, and sublease income was $1.0 million and $1.1 million, respectively. These are reported within Occupancy and equipment expenses in the Company’s Condensed Consolidated Statements of Operations.

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NOTE 6. OTHER ASSETS (continued)

Supplemental balance sheet information related to leases was as follows:


Maturity of Lease Liabilities at March 31, 2022	Total Operating leases
	(in thousands)
2022	$	136,065
2023	120,831
2024	104,883
2025	76,485
2026	53,912
Thereafter	125,196
Total lease liabilities	$	617,372
Less: Interest	(50,107)
Present value of lease liabilities	$	567,265


Supplemental Balance Sheet Information	March 31, 2022	December 31, 2021
Operating lease ROU assets	$509,173	$531,408
Other liabilities	$567,265	$593,137
Weighted-average remaining lease term (years)	6.3	6.4
Weighted-average discount rate	2.8%	2.8%


	Year-to-Date Ended March 31
Other Information	2022		2021
	(in thousands)
Operating cash flows from operating leases(1)	$	(35,990)	$	(35,499)
Leased assets obtained in exchange for new operating lease liabilities	$	1,768	$	15,653

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

The remainder of Other assets is comprised of:

•Deferred tax asset, net - Refer to Note 15 of these Condensed Consolidated Financial Statements for more information on tax-related activities.

•Derivative assets at fair value - Refer to the "Offsetting of Financial Assets" table in Note 12 to these Condensed Consolidated Financial Statements for the detail of these amounts.

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

•MSRs - See further discussion on the valuation of the MSRs in Note 13.

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

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

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

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NOTE 7. VIEs

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

The collateral, borrowings under credit facilities and securitization notes payable of the Company’s consolidated VIEs remain on the Condensed 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 Condensed Consolidated Balance Sheets.

The Company also uses a titling Trust to originate and hold its leased vehicles and the associated leases, in order to facilitate the pledging of leases to financing facilities or the sale of leases to other parties without incurring the costs and administrative burden of retitling the leased vehicles. This titling Trust is considered a VIE.

On-balance sheet VIEs

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


(in thousands)	March 31, 2022		December 31, 2021
Assets
Restricted cash	$	1,649,539	$	1,637,311

LHFI	21,480,838		20,551,716
Operating lease assets, net	13,606,242		14,668,336
Various other assets	638,871		629,364
Total Assets	$	37,375,490	$	37,486,727
Liabilities
Notes payable	$	28,929,305	$	29,199,966
Various other liabilities	101,532		81,098
Total Liabilities	$	29,030,837	$	29,281,064

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

The Company retains servicing rights for receivables transferred to the Trusts and receives a monthly servicing fee on the outstanding principal balance. Supplemental fees, such as late charges, for servicing the receivables are reflected in Miscellaneous income, net.

As of March 31, 2022 and December 31, 2021, the Company was servicing $25.2 billion and $24.3 billion, respectively, of gross RICs that have been transferred to consolidated Trusts. The remainder of the Company’s RICs remain unpledged.

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NOTE 7. VIEs (continued)

A summary of the cash flows received from the consolidated Trusts for the respective periods is as follows:


	Year-to-Date Ended March 31
(in thousands)		2022		2021
Assets securitized		$	5,160,287	$	4,123,051

Net proceeds from new securitizations (1)		$	4,049,721	$	3,586,124
Net proceeds from sale of retained bonds		384,376		63,781
Cash received for servicing fees (2)		237,593		228,188

Net distributions from Trusts (2)		1,114,363		1,140,377
Total cash received from Trusts		$	5,786,053	$	5,018,470

(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 quarter ended March 31, 2022, SC sold no gross RICs to third-party investors in off-balance sheet securitizations and recorded no gain or loss on securitization. During the quarter ended March 31, 2021, SC sold $1.9 billion of gross RICs to third-party investors in off-balance sheet securitizations and recorded a gain of $7.2 million. The gains and losses were recorded in Miscellaneous income, net, in the accompanying Condensed Consolidated Statements of Income.

As of March 31, 2022 and December 31, 2021, 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:


(in thousands)	March 31, 2022		December 31, 2021
Related party SPAIN securitizations	$	438,332	$	554,040


Third-party SCART serviced securitizations	1,595,349		1,817,936



Total serviced for other portfolio	$	2,033,681	$	2,371,976

Other than repurchases of sold assets due to standard representations and warranties, the Company has no exposure to loss as a result of its involvement with these VIEs.

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


	Year-to-Date Ended March 31
(in thousands)		2022		2021
Receivables securitized (1)		—		1,891,278

Net proceeds from new securitizations		—		1,779,532
Cash received for servicing fees		5,940		6,726
Total cash received from Trusts		$	5,940	$	1,786,258

(1) Represents the UPB at the time of original securitization.

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NOTE 8. DEPOSITS AND OTHER CUSTOMER ACCOUNTS

Deposits and other customer accounts are summarized as follows:


	March 31, 2022				December 31, 2021
(dollars in thousands)	Balance		Percent of total deposits		Balance		Percent of total deposits
Interest-bearing demand deposits	$	13,444,446	17.1	%	$	16,335,499	20.0	%
Non-interest-bearing demand deposits	21,618,277		27.5	%	22,443,957		27.5	%
Savings	5,712,088		7.3	%	5,564,934		6.8	%
Customer repurchase accounts	294,039		0.4	%	338,698		0.4	%
Money market	35,225,418		44.8	%	34,390,613		42.1	%
CDs	2,294,848		2.9	%	2,524,471		3.2	%
Total deposits (1)	$	78,589,116	100.0	%	$	81,598,172	100.0	%

(1) Includes foreign deposits, as defined by the FRB, of $7.1 billion and $6.4 billion at March 31, 2022 and December 31, 2021, respectively.

Public fund deposits collateralized by investment securities, loans, and other financial instruments totaled $2.5 billion and $3.2 billion at March 31, 2022 and December 31, 2021, respectively.

Demand deposit overdrafts that have been reclassified as loan balances were $170.0 million and $133.1 million at March 31, 2022 and December 31, 2021, respectively.

At March 31, 2022 and December 31, 2021, the Company had $562.4 million and $635.0 million, respectively, of CDs greater than $250 thousand.

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NOTE 9. BORROWINGS

Total borrowings and other debt obligations at March 31, 2022 were $40.2 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.

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

On January 6, 2022, the Company completed the public offering and sale of $1 billion aggregate principal amount of its 2.49% Fixed-to-Floating Rate Senior Notes due January 2028. On February 28, 2022, the Company redeemed its 3.70% Senior Notes due March 2022, of which $706.8 million aggregate principal amount was outstanding. On April 14, 2022, the Company redeemed its 3.50% Senior Notes due 2023, of which $447.1 million aggregate principal amount was outstanding and issued $433.6 million of floating rate senior notes due April 2026 in a private offering.

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:


	March 31, 2022				December 31, 2021
(dollars in thousands)	Balance		Effective Rate		Balance		Effective Rate
Parent Company
3.70% senior notes due March 2022	$	—	—	%	$	706,819	3.67	%

Senior notes due January 2023 (1)	720,959		1.34	%	720,947		1.28	%
3.40% senior notes due January 2023	998,931		3.54	%	998,599		3.54	%

3.50% senior notes due April 2023	447,124		3.52	%	447,107		3.52	%
Senior notes due July 2023 (1)	439,100		1.36	%	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	997,846		3.60	%	997,610		3.60	%
3.45% senior notes, due June 2025	996,267		3.58	%	995,983		3.58	%
4.50% senior notes due July 2025	1,097,819		4.56	%	1,097,667		4.56	%
3.24% senior notes, due November 2026	920,290		3.97	%	918,851		3.97	%
4.40% senior notes, due July 2027	1,049,574		4.40	%	1,049,565		4.40	%
2.49% senior notes due January 2028	996,232		2.56	%	—		—	%
2.88% subordinate note, due November 2031 (2)	500,000		2.88	%	500,000		2.88	%


Subsidiaries
2.00% subordinated debt maturing through 2040	11		2.00	%	11		2.00	%
Short-term borrowing due within one year, maturing April 2022	2,364		0.05	%	—		—	%
Short-term borrowing due within one year, maturing January 2022	—		—	%	57,365		0.05	%
Total Parent Company and subsidiaries' borrowings and other debt obligations	$	9,916,517	3.35	%	$	9,679,609	3.44	%

(1) These notes will 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.

SBNA Borrowings and Debt Obligations

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


	March 31, 2022				December 31, 2021
(dollars in thousands)	Balance		Effective Rate		Balance		Effective Rate

FHLB advances, maturing through May 2022	$	250,000	0.93	%	$	250,000	0.93	%
Credit-linked notes due December 2031 (1)	257,743		2.59	%	293,749		2.53	%
Total Bank borrowings and other debt obligations	$	507,743	1.77	%	$	543,749	1.79	%

(1) 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.

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NOTE 9. BORROWINGS (continued)

Credit-Linked Notes

SBNA's credit-linked notes effectively 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. SBNA 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.

SBNA had outstanding irrevocable letters of credit totaling $37.3 million from the FHLB of Pittsburgh at March 31, 2022 used to secure uninsured deposits placed with SBNA by state and local governments and their political subdivisions.

SC Credit Facilities

The following tables present information regarding SC's credit facilities at the dates indicated:


	March 31, 2022
(dollars in thousands)	Balance		Committed Amount		Effective Rate		Assets Pledged		Restricted Cash Pledged

Warehouse line due January 2023	$	—	$	1,000,000	2.16	%	$	1,273,299	$	—
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		2.35	%	431,734		—
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		—	%	171,784		—

Total facilities with third parties	$	—	$	10,450,000	—	%	$	1,876,817	$	65

Promissory note with Santander due June 2022	$	2,000,000	$	2,000,000	1.35	%	$	—	$	—
Promissory note with Santander due September 2022	2,000,000		2,000,000		1.01	%	—		—
Total facilities with related parties	$	4,000,000	$	4,000,000	1.18	%	$	—	$	—

Total SC credit facilities	$	4,000,000	$	14,450,000	1.18	%	$	1,876,817	$	65


	December 31, 2021
(dollars in thousands)	Balance		Committed Amount		Effective Rate		Assets Pledged		Restricted 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

Promissory note with Santander due June 2022	$	2,000,000	$	2,000,000	2.03	%	$	—	$	—
Promissory note with Santander due September 2022	2,000,000		2,000,000		1.01	%	—		—
Total facilities with related parties	$	4,000,000	$	4,000,000	1.52	%	$	—	$	—

Total SC credit facilities	$	4,000,000	$	14,950,000	1.52	%	$	137,052	$	65

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

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NOTE 9. BORROWINGS (continued)

Secured Structured Financings

The following tables present information regarding SC's secured structured financings at the dates indicated:


	March 31, 2022
(dollars in thousands)	Balance		Initial Note Amounts Issued(3)		Initial Weighted Average Interest Rate Range	Collateral(2)		Restricted Cash
SC public securitizations maturing on various dates between July 2022 and July 2029(1)	$	23,244,911	$	53,565,975	0.48% - 3.42%	$	31,220,196	$	1,633,441
SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027 (3)	2,570,423		6,966,393		1.28% - 3.90%	3,996,290		16,034
Total SC secured structured financings	$	25,815,334	$	60,532,368	0.48% - 3.90%	$	35,216,486	$	1,649,475

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

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

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


	December 31, 2021
(dollars in thousands)	Balance		Initial Note Amounts Issued		Initial Weighted Average Interest Rate Range	Collateral		Restricted Cash
SC public securitizations maturing on various dates between July 2022 and March 2029(1)	$	23,531,904	$	54,534,275	0.48% - 3.42%	$	30,692,331	$	1,621,026
SC 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 SC secured structured financings	$	26,909,829	$	63,295,838	0.48% - 3.90%	$	36,420,623	$	1,637,246

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

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NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)

The following table presents the components of AOCI, net of related tax, for the quarters ended March 31, 2022 and 2021, respectively.


		Total Other Comprehensive Income/(Loss)									Total Accumulated Other Comprehensive Income/(Loss)
		Year-To-Date Ended March 31, 2022									December 31, 2021						March 31, 2022
(in thousands)	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity			Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments		$	(341,828)		$	89,514		$	(252,314)
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)		7,446			(1,548)			5,898
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments		(334,382)			87,966			(246,416)			$	(80,017)		$	(246,416)		$	(326,433)



Change in unrealized gains/(losses) on investments in debt securities		(466,764)			122,493			(344,271)
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities (2)		(13,955)			2,901			(11,054)


Net unrealized gains/(losses) on investments in debt securities		(480,719)			125,394			(355,325)			(79,905)			(355,325)			(435,230)


Pension and post-retirement actuarial gain / (loss)(3)		726			(166)			560			(28,188)			560			(27,628)


As of March 31, 2022		$	(814,375)		$	213,194		$	(601,181)		$	(188,110)		$	(601,181)		$	(789,291)

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

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

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


	Total Other Comprehensive Income/(Loss)						Total Accumulated Other Comprehensive Income/(Loss)
	Year-To-Date Ended March 31, 2021						December 31, 2020				March 31, 2021
(in thousands)	Pretax Activity		Tax Effect		Net Activity		Beginning Balance		Net Activity		Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments	$	(87,120)	$	24,323	$	(62,797)
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)	141		(20)		121
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments	(86,979)		24,303		(62,676)		$	78,167	$	(62,676)	$	15,491

Change in unrealized gains/(losses) on investments in debt securities	(155,025)		40,184		(114,841)
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)	(9,874)		2,559		(7,315)


Net unrealized gains/(losses) on investments in debt securities	(164,899)		42,743		(122,156)		117,263		(122,156)		(4,893)


Pension and post-retirement actuarial gain / (loss)(3)	1,225		(287)		938		(29,135)		938		(28,197)


As of March 31, 2021	$	(250,653)	$	66,759	$	(183,894)	$	166,295	$	(183,894)	$	(17,599)

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

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NOTE 11. 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 Condensed Consolidated Balance Sheets. Refer to Note 1 of the Annual Report on Form 10-K 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:


(in thousands)	March 31, 2022		December 31, 2021
Securities purchased under agreements to resell	$	1,914,756	$	2,422,042
Securities borrowed	2,989,314		2,924,426
Total	$	4,904,070	$	5,346,468

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


(in thousands)	March 31, 2022		December 31, 2021
Securities sold under agreements to repurchase	$	4,820,950	$	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. At March 31, 2022 and December 31, 2021, the following amounts of securities financing assets or liabilities qualified for offset in the Condensed Consolidated Balance Sheets.



	March 31, 2022
(in thousands)	Gross amounts of recognized assets		Gross amounts offset on the Condensed Consolidated Balance Sheets(1)		Net amounts of assets included on the Condensed Consolidated Balance Sheets

Securities purchased under agreements to resell	$	2,008,756	$	(94,000)	$	1,914,756
Securities borrowed	2,989,314		—		2,989,314
Total	$	4,998,070	$	(94,000)	$	4,904,070

	March 31, 2022
(in thousands)	Gross amounts of recognized liabilities		Gross amounts offset on the Condensed Consolidated Balance Sheets(1)		Net amounts of liabilities included on the Condensed Consolidated Balance Sheets

Securities sold under agreements to repurchase	$	4,914,950	$	(94,000)	$	4,820,950


(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 11. SECURITIES FINANCING ACTIVITIES (continued)



	December 31, 2021
(in thousands)	Gross amounts of recognized assets		Gross amounts offset on the Condensed Consolidated Balance Sheets(1)		Net amounts of assets included on the Condensed Consolidated Balance Sheets

Securities purchased under agreements to resell	$	2,746,948	$	(324,906)	$	2,422,042
Securities borrowed	2,924,426		—		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 Condensed Consolidated Balance Sheets(1)		Net amounts of liabilities included on the Condensed 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:


	March 31, 2022
(in thousands)	Open and overnight		Up to 30 days		31-90 days		Greater than 90 days		Total
Securities sold under agreements to repurchase	$	4,914,950	$	—	$	—	$	—	$	4,914,950

The following tables present the gross amounts of liabilities associated with Securities Financing Activities by class of underlying collateral as of the following dates:


	Repurchase agreements
(in thousands)	March 31, 2022		December 31, 2021
U.S. Treasury	$	2,969,950	$	3,124,781
Residential agency MBS	1,945,000		2,459,000
Total	$	4,914,950	$	5,583,781

NOTE 12. DERIVATIVES

General

Derivatives represent contracts between parties that usually require little or no initial net investment and result in one or both parties delivering cash or another type of asset to the other party based on a notional amount and an underlying asset, index, interest rate or future purchase commitment or option as specified in the contract. Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged, is not recorded on the balance sheet, and does not represent the Company`s exposure to credit loss. The notional amount is the basis on which the financial obligation of each party to the derivative contract is calculated to determine required payments under the contract. The Company controls the credit risk of its derivative contracts through credit approvals, limits and monitoring procedures. The underlying asset is typically a referenced interest rate (commonly the OIS rate, 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 13 to these Condensed Consolidated Financial Statements for discussion of the valuation methodology for derivative instruments.

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NOTE 12. DERIVATIVES (continued)

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 March 31, 2022, derivatives in this category had a fair value of $0.3 million. The credit ratings of the Company and SBNA are currently considered investment grade. As of March 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 March 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 $9.1 million and $7.7 million, respectively. The Company had $1.6 million and $8.8 million in cash and securities collateral posted to cover those positions as of March 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

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

Cash Flow Hedges

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

The last of the hedges is scheduled to expire in March 2027. The Company includes all components of each derivative's gain or loss in the assessment of hedge effectiveness. As of March 31, 2022, the Company estimated that approximately $22.2 million of unrealized losses included in AOCI would be reclassified to earnings during the subsequent twelve months as the future cash flows occur.

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NOTE 12. DERIVATIVES (continued)

Derivatives Designated in Hedge Relationships – Notional and Fair Values

Derivatives designated as accounting hedges at March 31, 2022 and December 31, 2021 included:


(dollars in thousands)	Notional Amount		Asset		Liability		Weighted Average Receive Rate		Weighted Average Pay Rate		Weighted Average Life (Years)
March 31, 2022
Fair value hedges:
Cross-currency swaps	$	29,563	$	469	$	114	1.57	%	7.30	%	1.09
Interest rate swaps	409,659		8,440		—		0.28	%	0.89	%	3.08
Cash flow hedges:

Pay variable - receive fixed interest rate swaps	13,325,000		2,161		412,605		0.94	%	0.41	%	2.18
Interest rate floor	1,025,000		290		—		—	%	—	%	1.41
Total	$	14,789,222	$	11,360	$	412,719	0.86	%	0.41	%	2.15

December 31, 2021
Fair value hedges:
Cross-currency swaps	$	14,743	$	655	$	—	1.34	%	7.30	%	1.84
Interest rate swaps	128,789		1,188		—		0.05	%	0.71	%	3.59
Cash flow hedges:

Pay variable - receive fixed interest rate swaps	11,995,000		41,980		111,093		0.88	%	0.09	%	2.28
Interest rate floor	925,000		150		—		0.03	%	—	%	1.68
Total	$	13,063,532	$	43,973	$	111,093	0.81	%	0.10	%	2.25

During 2018, 2019, and 2020, SC entered into interest rate swap agreements with an aggregate notional amount of $2.2 billion. The interest rate swaps were to be used to hedge SC’s variable rate debt and had maturity dates ranging from two to five years. In 2021, SC de-designated the hedge relationships and terminated the swaps resulting in a fair value adjustment of $6.5 million recorded as a reduction to interest expense. Amounts previously recorded in AOCI related to these interest rate swaps, totaling $50.6 million, are being reclassified into earnings over the term as the previously hedged cash flow impacts earnings. For the terminated swaps, SC reclassified $7.3 million previously recorded in AOCI into interest expense during the quarter ended March 31, 2022.

Other Derivative Activities

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

Mortgage Banking Derivatives

The Company's derivatives portfolio includes mortgage banking interest rate lock commitments, forward sale commitments and interest rate swaps. As part of its overall business strategy, the Company originates fixed-rate and adjustable rate residential mortgages. It sells a portion of this production to the FHLMC, the FNMA, and private investors. The Company uses forward sales as a means of hedging against the economic impact of changes in interest rates on the mortgages that are originated for sale and on interest rate lock commitments.

The Company typically retains the servicing rights related to residential mortgage loans that are sold. Most of the Company`s residential MSRs are accounted for at fair value. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase MBS.

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NOTE 12. DERIVATIVES (continued)

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.

Derivatives Not Designated in Hedge Relationships – Notional and Fair Values

Other derivative activities at March 31, 2022 and December 31, 2021 included:


	Notional				Asset derivatives Fair value				Liability derivatives Fair value
(in thousands)	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021
Mortgage banking derivatives:
Forward commitments to sell loans	$	90,366	$	264,188	$	1,404	$	—	$	—	$	21
Interest rate lock commitments	7,281		99,752		—		2,852		104		—
Mortgage servicing	638,000		593,000		3,640		15,841		11,103		8,111
Total mortgage banking risk management	735,647		956,940		5,044		18,693		11,207		8,132

Customer-related derivatives:
Swaps receive fixed	15,335,553		14,801,189		101,240		400,168		403,991		89,767
Swaps pay fixed	15,570,273		15,141,223		427,383		102,312		92,538		383,987

Other	5,539,085		6,384,285		32,481		25,542		30,286		26,741
Total customer-related derivatives	36,444,911		36,326,697		561,104		528,022		526,815		500,495

Other derivative activities:

Foreign exchange contracts	6,107,095		5,085,973		51,801		35,899		51,597		33,836

Interest rate cap agreements	4,908,191		7,007,441		94,191		34,290		—		—
Options for interest rate cap agreements	4,908,191		7,007,441		—		—		94,191		34,290

Other	109,011		111,373		30		203		1,364		2,367

Total	$	53,213,046	$	56,495,865	$	712,170	$	617,107	$	685,174	$	579,120

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NOTE 12. DERIVATIVES (continued)

Gains (Losses) on All Derivatives

The following Condensed Consolidated Statements of Operations line items were impacted by the Company’s derivative activities for the quarters ended March 31, 2022 and 2021:


(in thousands)		Year-to-Date Ended March 31
	Line Item		2022		2021

Fair value hedges:
Cross-currency swaps	Net interest income		$	(367)	$	—


Interest rate swaps	Net interest income		7,088		—



Cash flow hedges:
Pay fixed-receive variable interest rate swaps	Interest expense on borrowings		(7,275)		(7,657)
Pay variable receive-fixed interest rate swap	Interest income on loans		23,251		23,116
Interest rate floors	Interest income on loans		67		11,315
Other derivative activities:
Forward commitments to sell loans	Miscellaneous income, net		1,425		10,715
Interest rate lock commitments	Miscellaneous income, net		(2,955)		(7,373)
Mortgage servicing	Miscellaneous income, net		(17,293)		(9,732)
Customer-related derivatives	Miscellaneous income, net		4,525		7,655

Foreign exchange	Miscellaneous income, net		1,962		1,687
Interest rate swaps, caps, and options	Miscellaneous income, net		(22)		244


Other	Miscellaneous income, net		371		1,418

(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 losses of $252.3 million and $62.8 million, net of tax, for the quarters ended March 31, 2022, and 2021, respectively.

The net amount of changes reclassified from OCI into earnings for cash flow hedge derivatives was losses of $5.9 million and $0.1 million, net of tax, for the quarters ended March 31, 2022 and 2021, respectively.

Disclosures about Offsetting Assets and Liabilities

The Company enters into legally enforceable master netting agreements which reduce risk by permitting netting of transactions with the same counterparty on the occurrence of certain events. A master netting agreement allows two counterparties the ability to net-settle amounts under all contracts, including any related collateral posted, through a single payment and in a single currency. The right to offset and certain terms regarding the collateral process, such as valuation, credit events and settlement, are contained in the applicable master agreement. The Company's financial instruments, including resell and repurchase agreements, securities lending arrangements, derivatives and cash collateral, may be eligible for offset on its Condensed Consolidated Balance Sheets.

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

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NOTE 12. DERIVATIVES (continued)

Information about financial assets and liabilities that are eligible for offset on the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, respectively, is presented in the following tables:


	Offsetting of Financial Assets
							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
(in thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheets		Collateral Received (3)		Net Amount
March 31, 2022
Fair value hedges	$	8,909	$	—	$	8,909			$	8,909
Cash flow hedges	2,451		—		2,451		$	—	2,451
Other derivative activities(1)	710,766		—		710,766		101,710		609,056
Total derivatives subject to a master netting arrangement or similar arrangement	722,126		—		722,126		101,710		620,416
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	1,404		—		1,404		1,404		—
Total Derivative Assets	$	723,530	$	—	$	723,530	$	103,114	$	620,416




December 31, 2021
Fair value hedges	$	1,843	$	—	$	1,843			$	1,843
Cash flow hedges	42,130		—		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 arrangement	658,228		—		658,228		41,899		616,329
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	2,852		—		2,852		122		2,730
Total Derivative Assets	$	661,080	$	—	$	661,080	$	42,021	$	619,059

(1)Includes customer-related and other derivatives.

(2)Includes mortgage banking derivatives.

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

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NOTE 12. DERIVATIVES (continued)


	Offsetting of Financial Liabilities
							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
(in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets		Collateral Pledged (3)		Net Amount
March 31, 2022
Fair value hedges	$	114	$	—	$	114			$	114
Cash flow hedges	412,605		—		412,605		$	241,174	171,431
Other derivative activities(1)	685,070		1,203		683,867		108,003		575,864
Total derivatives subject to a master netting arrangement or similar arrangement	1,097,789		1,203		1,096,586		349,177		747,409
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	104		—		104		—		104
Total Derivative Liabilities	$	1,097,893	$	1,203	$	1,096,690	$	349,177	$	747,513




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 arrangement	690,192		2,058		688,134		327,425		360,709
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	21		—		21		21		—
Total Derivative Liabilities	$	690,213	$	2,058	$	688,155	$	327,446	$	360,709

(1)Includes customer-related and other derivatives.

(2)Includes mortgage banking derivatives.

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

NOTE 13. FAIR VALUE

The 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 13. FAIR VALUE (continued)

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

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

The Company's Market Risk Department 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 March 31, 2022 and December 31, 2021:


(in thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2022		Level 1		Level 2		Level 3		Balance at December 31, 2021
Financial assets:
U.S. Treasury securities	$	253,150	$	—	$	—	$	253,150	$	73,618	$	—	$	—	$	73,618
Corporate debt	—		291,749		—		291,749		—		276,007		—		276,007
ABS	—		525,937		—		525,937		—		537,722		—		537,722

MBS	—		7,372,920		—		7,372,920		—		10,426,590		—		10,426,590
Investment in debt securities AFS(2)	253,150		8,190,606		—		8,443,756		73,618		11,240,319		—		11,313,937
Other investments - trading securities	5		33,314		—		33,319		64		35,727		—		35,791
RICs HFI(3)	—		—		29,485		29,485		—		—		33,529		33,529
LHFS (1)(4)	—		81,120		—		81,120		—		166,811		—		166,811
MSRs	—		—		99,517		99,517		—		—		79,107		79,107
Other assets - derivatives (2)	—		723,500		30		723,530		—		658,187		2,893		661,080










Total financial assets (5)	$	253,155	$	9,028,540	$	129,032	$	9,410,727	$	73,682	$	12,101,044	$	115,529	$	12,290,255
Financial liabilities:
Other liabilities - derivatives (2)	—		1,096,475		1,418		1,097,893		—		687,846		2,367		690,213











Total financial liabilities	$	—	$	1,096,475	$	1,418	$	1,097,893	$	—	$	687,846	$	2,367	$	690,213

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

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

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

(4) Residential mortgage loans.

(5) Approximately $129.0 million of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 1.4% of total assets measured at fair value on a recurring basis and approximately 0.1% of total consolidated assets.

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NOTE 13. FAIR VALUE (continued)

Valuation Processes and Techniques - Recurring Fair Value Assets and Liabilities

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

Investments in debt securities AFS

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

The classification of securities within the fair value hierarchy is based upon the activity level in the market for the security type and the observability of the inputs used to determine their fair values. Actively traded quoted market prices for debt securities AFS, such as 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 are measured at fair value on a recurring basis consist primarily of residential mortgage LHFS. The fair values of LHFS are estimated using published forward agency prices to agency buyers such as FNMA and FHLMC. The majority of the residential mortgage LHFS portfolio is sold to these two agencies. The fair value is determined using current secondary market prices for portfolios with similar characteristics, adjusted for servicing values and market conditions.

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

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NOTE 13. FAIR VALUE (continued)

MSRs

The Company maintains an MSR asset for sold residential real estate loans serviced for others. At March 31, 2022 and December 31, 2021, the balance of these loans serviced for others accounted for at fair value was $10.1 billion and $10.4 billion, respectively. Changes in fair value are recorded through Miscellaneous income, net on the Condensed Consolidated Statements of Operations.

The Company has elected to measure most of its residential MSRs at fair value to be consistent with the risk management strategy to hedge changes in the fair value of these assets. The fair value of residential MSRs is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates (reflective of a market participant’s return on an investment for similar assets), servicing costs, and other economic factors which are determined based on current market conditions. Historically, servicing costs and discount rates have been less volatile than prepayment rates, which are directly correlated with changes in market interest rates. Increases in prepayment rates, discount rates and servicing costs result in lower valuations of MSRs. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of MSRs. Assumptions incorporated into the residential MSR valuation model reflect management's best estimate of factors that a market participant would use in valuing the residential MSRs, as well as future expectations. Although sales of residential MSRs do occur, residential MSRs do not trade in an active market with readily observable prices. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase MBS. See further discussion on these derivative activities in Note 12 to these Condensed Consolidated Financial Statements.

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

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

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

• A 10% and 20% increase in the CPR speed would decrease the fair value of the residential servicing asset by $3.3 million and $6.4 million, respectively, at March 31, 2022.

•A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $3.5 million and $6.8 million, respectively, at March 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 13. 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. Significant increases (decreases) in any of these inputs in isolation would result in significantly higher (lower) fair value measurements. Significant increases (decreases) in the fair value of a mortgage banking derivative asset (liability) results when the probability of funding increases (decreases). Significant increases (decreases) in the fair value of a mortgage loan commitment result when the embedded servicing value increases (decreases).

See Note 12 to these Consolidated Financial Statements for a discussion of derivatives activity.

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

The tables below present the changes in Level 3 balances for the quarters ended March 31, 2022 and 2021, respectively, for those assets and liabilities measured at fair value on a recurring basis.












	Year-To-Date Ended March 31, 2022							Year-To-Date Ended March 31, 2021
(in thousands)		RICs HFI		MSRs		Derivatives, net		Total		Investments AFS		RICs HFI		MSRs		Derivatives, net		Total
Balances, beginning of period		$	33,529	$	79,107	$	526	$	113,162	$	50,393	$	50,391	$	77,545	$	9,448	$	187,777
Losses in OCI		—		—		—		—		(156)		—		—		—		(156)
Gains/(losses) in earnings		—		22,765		(1,914)		20,851		—		—		13,578		(5,257)		8,321
Additions/Issuances		—		2,520		—		2,520		—		—		3,611		—		3,611

Settlements(1)		(4,044)		(4,875)		—		(8,919)		—		(5,823)		(8,081)		78		(13,826)
Balances, end of period		$	29,485	$	99,517	$	(1,388)	$	127,614	$	50,237	$	44,568	$	86,653	$	4,269	$	185,727
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period		$	—	$	22,765	$	1,043	$	23,808	$	—	$	—	$	13,578	$	2,116	$	15,694

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

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NOTE 13. FAIR VALUE (continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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


(in thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2022		Level 1		Level 2		Level 3		Balance at December 31, 2021
Impaired commercial LHFI	$	—	$	14,164	$	26,345	$	40,509	$	—	$	17,180	$	614	$	17,794
Foreclosed assets	—		2,407		—		2,407		—		1,322		—		1,322
Vehicle inventory	—		266,316		—		266,316		—		271,396		—		271,396
LHFS	—		171,432		75,611		247,043		—		—		88,212		88,212
Auto loans impaired due to bankruptcy	—		197,260		—		197,260		—		202,448		—		202,448

Valuation Processes and Techniques - Nonrecurring Fair Value Assets and Liabilities

Impaired commercial LHFI in the table above represents the recorded investment of impaired commercial loans for which the Company measures impairment during the period based on the fair value of the underlying collateral supporting the loan. Written offers to purchase a specific impaired loan are considered observable market inputs, which are considered Level 1 inputs. Appraisals are obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and are considered Level 2 inputs. Loans for which the value of the underlying collateral is determined using a combination of real estate appraisals, field examinations and internal calculations are classified as Level 3. The inputs in the internal calculations may include the loan balance, estimation of the collectability of the underlying receivables held by the customer used as collateral, sale and liquidation value of the inventory held by the customer used as collateral and historical loss-given-default parameters. In cases in which the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized. The net carrying value of these loans was $51.2 million and $9.0 million at March 31, 2022 and December 31, 2021, respectively. Loans previously impaired which were not marked to fair value during the periods presented are excluded from this table.

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

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

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

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

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NOTE 13. FAIR VALUE (continued)

The estimated fair value of goodwill is valued using unobservable inputs and is classified as Level 3. 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.

Fair Value Adjustments

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


		Year-to-Date Ended March 31
(in thousands)	Statement of Operations Location		2022		2021
Impaired LHFI	Credit loss expense (1)		$	10,675	$	(6,583)
Foreclosed assets	Miscellaneous income, net (1)		—		(338)

(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 5 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 March 31, 2022 and December 31, 2021, respectively:

(dollars in thousands)

Fair Value at

March 31, 2022 (3)

Valuation Technique

Unobservable Inputs

Range
(Weighted Average)

Financial Assets:

MSRs

99,517

DCF

CPR (1)

6.65% - 85.85% (8.76%)

Discount rate (2)

9.35

(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 13. FAIR VALUE (continued)

(dollars in thousands)

Fair Value at

December 31, 2021 (3)

Valuation Technique

Unobservable Inputs

Range
(Weighted Average)

Financial Assets:

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 March 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:


	March 31, 2022										December 31, 2021
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	13,519,278	$	13,519,278	$	13,519,278	$	—	$	—	$	19,305,530	$	19,305,530	$	19,305,530	$	—	$	—
Federal funds sold and securities purchased under resale agreements or similar arrangements	4,904,070		4,901,580		—		4,901,580		—		5,346,468		5,372,052		—		5,372,052		—
Investments in debt securities AFS	8,443,756		8,443,756		253,150		8,190,606		—		11,313,937		11,313,937		73,618		11,240,319		—
Investments in debt securities HTM	9,388,092		8,968,074		—		8,968,074		—		6,702,471		6,629,206		—		6,629,206		—
Other investments (2)	433,319		436,851		5		436,846		—		285,791		286,526		64		286,462		—
LHFI, net	85,370,336		88,603,043		—		14,164		88,588,879		85,614,402		89,039,439		—		17,180		89,022,259
LHFS	328,164		328,163		—		252,552		75,611		255,023		255,023		—		166,811		88,212
Restricted cash	5,944,767		5,944,767		5,944,767		—		—		5,711,705		5,711,705		5,711,705		—		—
MSRs	99,517		99,517		—		—		99,517		79,107		79,107		—		—		79,107
Derivatives	723,530		723,530		—		723,500		30		661,080		661,080		—		658,187		2,893

Financial liabilities:
Deposits (1)	2,294,848		2,295,313		—		2,295,313		—		2,524,471		2,524,707		—		2,524,707		—
Federal funds purchased and securities loaned or sold under repurchase agreements	4,820,950		4,820,943		—		4,820,943		—		5,258,875		5,258,874		—		5,258,874		—
Borrowings and other debt obligations	40,239,594		39,965,388		—		33,191,303		6,774,085		41,133,187		41,600,737		—		33,874,253		7,726,484
Derivatives	1,097,893		1,097,893		—		1,096,475		1,418		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 13. FAIR VALUE (continued)

Valuation Processes and Techniques - Financial Instruments

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

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

Cash, cash equivalents and restricted cash

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

Restricted cash is related to cash restricted for investment purposes, cash posted for collateral purposes, cash advanced for loan purchases, and lockbox collections. Cash and cash equivalents, including restricted cash, have maturities of three months or less and, accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.

Securities Financing Activities

No quoted prices exist for Securities Financing Activities, so fair value is determined using a discounted cash flow 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 March 31, 2022, the fair value of the underlying collateral was $4.9 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 13. FAIR VALUE (continued)

Deposits

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

Borrowings and other debt obligations

Fair value is estimated by discounting cash flows using rates currently available to the Company for other borrowings with similar terms and remaining maturities. Certain other debt obligation instruments are valued using available market quotes for similar instruments, which contemplates issuer default risk. The related fair value measurements have generally been classified as Level 2. A certain portion of debt relating to revolving credit facilities is classified as Level 3. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements and, therefore, they are considered to be Level 3.

FVO for Financial Assets and Financial Liabilities

LHFS

The Company's LHFS portfolios that are measured using the FVO consist of residential mortgage LHFS. The adoption of the FVO for residential mortgage loans classified as HFS allows the Company to record the mortgage LHFS portfolio at fair market value instead of using the lower of amortized cost or market approach. The Company economically hedges its residential LHFS portfolio, and the offsetting hedge instrument is reported at fair value. As a result, both the loans and related hedges are carried at fair value, which reduces earnings volatility, as the amounts more closely offset.

RICs HFI

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

The following table summarizes the differences between the fair value and the principal balance of LHFS and RICs measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021:


	March 31, 2022						December 31, 2021
(in thousands)	Fair Value		Aggregate UPB		Difference		Fair Value		Aggregate UPB		Difference
LHFS(1)	$	81,120	$	82,393	$	(1,273)	$	166,811	$	162,525	$	4,286

RICs HFI	29,485		29,785		(300)		33,529		33,737		(208)
Nonaccrual loans	385		405		(20)		435		457		(22)

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

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NOTE 14. NON-INTEREST INCOME AND OTHER EXPENSES

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


	Year-to-Date Ended March 31
(in thousands)		2022		2021
Non-interest income:
Consumer and commercial fees		$	97,490	$	119,220
Lease income		671,204		772,892
Capital market revenue		64,759		81,788
Miscellaneous income, net
Mortgage banking income, net		11,381		20,739
BOLI		15,617		15,545
Net gain on sale of operating leases		26,046		108,263
Asset and wealth management fees		66,702		58,727

Gain / (loss) on sale of non-mortgage loans		324		(38,017)
Other miscellaneous income / (loss), net		13,778		35,465
Net gain on sale of investment securities		13,955		9,874
Total Non-interest income		$	981,256	$	1,184,496

Disaggregation of Revenue from Contracts with Customers

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


	Year-to-Date Ended March 31
(in thousands)		2022		2021
Non-interest income:
In-scope of revenue from contracts with customers:
Depository services(1)		$	39,900	$	43,035
Commission and trailer fees(2)		59,186		54,539
Interchange income, net(2)		18,018		16,509
Underwriting service fees(2)		35,662		59,073
Asset and wealth management fees(2)		37,924		32,242
Other revenue from contracts with customers(2)		12,004		17,966
Total in-scope of revenue from contracts with customers		202,694		223,364
Out-of-scope of revenue from contracts with customers:
Consumer and commercial fees(3)		41,534		61,949
Lease income		671,204		772,892
Other miscellaneous income / (loss), net (3)		51,869		116,417
Net gain/(loss) on sale of investment securities		13,955		9,874
Total out-of-scope of revenue from contracts with customers		778,562		961,132
Total non-interest income		$	981,256	$	1,184,496

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

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

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

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

Other Expenses

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


	Year-to-Date Ended March 31
(in thousands)		2022		2021
Other expenses:
Amortization of intangibles		$	11,252	$	11,286
Deposit insurance premiums and other expenses		8,230		9,320


Other administrative expenses		88,751		72,976
Other miscellaneous expenses		27,004		10,841
Total Other expenses		$	135,237	$	104,423

NOTE 15. INCOME TAXES

An income tax expense of $161.7 million and $286.8 million were recorded for the quarters ended March 31, 2022 and 2021, respectively. This resulted in an ETR of 20.8% and 24.3% for the quarters ended March 31, 2022 and 2021, respectively. The decrease in the ETR for the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021, was primarily the result of a decrease in expected pre-tax income and an increase in electric vehicle tax credits for 2022 compared to 2021.

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

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

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NOTE 15. INCOME TAXES (continued)

With few exceptions, the Company is no longer subject to federal 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.

The Company had a net deferred tax liability balance of $567.3 million at March 31, 2022 (consisting of a deferred tax asset balance of $147.3 million and a deferred tax liability balance of $714.6 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). The $116.1 million decrease in net deferred liability for the quarter ended March 31, 2022 was primarily due to an increase in the accumulated other comprehensive income deferred tax asset due to a loan transfer from available for sale to held to maturity and a decrease in the deferred tax liability related to leasing transactions partially offset by a decrease in net operating loss carryforwards.

NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES

Off-Balance Sheet Risk - Financial Instruments

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

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

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

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


Other Commitments	March 31, 2022		December 31, 2021
	(in thousands)
Commitments to extend credit	$	27,454,152	$	27,648,128
Letters of credit	1,398,343		1,374,081
Commitments to sell loans	65,405		56,725

Recourse exposure on sold loans	18,656		19,095
Total commitments	$	28,936,556	$	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 March 31, 2022 and December 31, 2021 were $4.0 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 March 31, 2022 was 12.3 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 March 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 March 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 March 31, 2022 and December 31, 2021, the liability related to unfunded lending commitments was $91.4 million and $104.1 million, respectively.

Unsecured Revolving Lines of Credit

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

Loans Sold with Recourse

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

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

Commitments to Sell Loans

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

Securities Borrowed and Lending Subject to Repurchase or Resale Agreements

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

SC Commitments

The following table summarizes liabilities recorded for commitments and contingencies as of March 31, 2022 and December 31, 2021, all of which are included in Accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets:


Agreement or Legal Matter	Commitment or Contingency	March 31, 2022		December 31, 2021
		(in thousands)
MPLFA	Revenue-sharing and gain/(loss), net-sharing payments	$	25,112	$	41,995
Agreement with Bank of America	Servicer performance fee	462		462
Agreement with CBP	Loss-sharing payments	261		273
Other contingencies	Consumer arrangements	6,273		6,937

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

MPLFA

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

Agreement with Bank of America

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

Agreement with CBP

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

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

Agreements

Bluestem

SC is party to agreements with Bluestem whereby SC is committed to purchase certain new advances on personal revolving financings receivables, along with existing balances on accounts with new advances, originated by Bluestem through April 2022. During the first quarter of 2021, SC completed the sale of the Bluestem personal lending portfolio to a third party. In addition, SC executed a forward flow sale agreement with a third party to purchase all personal lending receivables that SC purchases from Bluestem through the term of the agreement with Bluestem.

Others

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

In connection with the sale of RICs through securitizations and other sales, SC has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require SC to repurchase loans previously sold to on- or off-balance sheet Trusts or other third parties. As of March 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.

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 March 31, 2022 and December 31, 2021 not subject to a market price check was $110.0 thousand 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.

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

Legal and Regulatory Proceedings

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

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

As of March 31, 2022 and December 31, 2021, the Company accrued aggregate legal and regulatory liabilities of approximately $33.9 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 $10.5 million as of March 31, 2022. Set forth below are descriptions of the material lawsuits, regulatory matters and other legal proceedings to which the Company is subject.

SBNA Matters

Mortgage Escrow Interest Putative Class Action

SBNA is a defendant in a putative class action lawsuit in the United States District Court, Southern District of New York, captioned Daniel and Rebecca Ruf-Tepper v. Santander Bank, N.A., No. 20-cv-00501. The Tepper Lawsuit, filed in January 2020, alleges that SBNA is obligated to pay interest on mortgage escrow accounts pursuant to state law. Plaintiffs filed an amended complaint and SBNA has filed a motion to dismiss. On July 12, 2021, plaintiffs filed a motion seeking preliminary approval of a settlement with SBNA pursuant to which SBNA will pay a total of $2 million to resolve the litigation.

Overtime Putative Class Action

SBNA is a defendant in a putative class action lawsuit in the United States District Court, District of New Jersey, captioned Crystal Sanchez, et. Al. v. Santander Bank, N.A., No. 17-cv-5775. The lawsuit alleges that SBNA failed to pay overtime to current and former branch operations managers. On January 28, 2022, plaintiffs filed a motion seeking preliminary approval of a settlement with SBNA pursuant to which SBNA will pay a total of $4.25 million to resolve the litigation. On February 23, 2022, the court granted preliminary approval of the settlement and set the final approval hearing for June 21, 2022.

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

SC Matters

Shareholder Derivative Lawsuits

Seattle City Employees Retirement System v. Santander Holdings USA, Inc., et al: In November 2020, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Seattle City v. Santander Holdings USA, Inc., C.A. No. 2020-0977-AGB. The plaintiff seeks unspecified monetary damages and other injunctive relief in the complaint. The complaint alleges, among other things, that SHUSA and the current SC directors breached their fiduciary duties by causing SC to engage in share repurchases for the purpose of increasing SHUSA’s ownership of SC above 80%, which the complaint alleges would allow SHUSA to obtain tax and other benefits not available to the rest of SC’s shareholders. The defendants filed an answer to the complaint. The complaint was dismissed with prejudice in February 2022.

Caldwell v. Santander Consumer USA Holdings Inc.: In September 2021, a purported shareholder of SC Common Stock filed a complaint against SC and its Board of Directors in the United States District Court for the Southern District of New York, captioned Craig Caldwell v. Santander Consumer USA Holdings Inc., 1:21-cv-07842, alleging violations of the Exchange Act when the Board allegedly authorized the filing of a materially incomplete and misleading Solicitation/Recommendation Statement with the SEC in connection with SHUSA’s proposed purchase of the remaining shares of SC Common Stock not already owned by SHUSA. The plaintiff sought to enjoin the defendants from proceeding with the proposed transaction. SC’s response to the complaint was due on February 15, 2022. On March 1, 2022, the plaintiff voluntarily dismissed the complaint.

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. SC filed an answer to the complaint.

Regulatory Investigations and Proceedings

SC is party to, or is periodically otherwise involved in, reviews, investigations, examinations and proceedings (both formal and informal), and information-gathering requests, by government and self-regulatory agencies, including the FRB of Boston, the CFPB, the DOJ, the SEC, the Federal Trade Commission and various state regulatory and enforcement agencies. Currently, such matters include, but are not limited to, the following:

Massachusetts Attorney General Investigation – Repossession Notices. The Massachusetts Attorney General issued a CID to SC seeking all notices provided to Massachusetts residents from March 30, 2017 to the present regarding repossession or auction of a repossessed vehicle. On February 18, 2022, the Massachusetts Attorney General publicly announced that it had entered into an Assurance of Discontinuance with SC resolving this matter for a payment of $5.6 million by SC.

IHC 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 alleges damages of not less than $720.0 million.

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

On September 16, 2020, the defendants moved to dismiss the complaint. On June 2, 2021, the court denied the defendants’ motion to dismiss. Defendants appealed the decision and, on December 17, 2021, the Puerto Rico Court of Appeals reversed the trial court decision and dismissed the complaint. The Court of Appeals denied plaintiffs' motion to reconsider the court's decision and plaintiffs have sought permission to appeal to the Puerto Rico Supreme Court.

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

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

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.

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

NOTE 17. RELATED PARTY TRANSACTIONS

The Company and its affiliates have various debt and derivative agreements with Santander. For further details of these agreements, see Note 10 and Note 20 to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The Company and its affiliates also entered into or were subject to various service agreements with Santander and its affiliates. Each of these agreements was made in the ordinary course of business and on market terms.

Banco Santander (Brasil) S.A. had deposits with the Bank of zero and $1.5 billion as of March 31, 2022 and December 31, 2021, respectively. Banco Santander-Chile had deposits with the Bank of zero and $1.0 billion as of March 31, 2022 and December 31, 2021, respectively. Banco Santander Rio had deposits with the Bank of $110.0 million and $110.0 million as of March 31, 2022 and December 31, 2021, respectively. These transactions do not eliminate in the consolidation of SHUSA.

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). In addition to the Company's investment, Mouro Capital, which is a wholly-owned subsidiary of Santander, owns 10.3% of the total equity of AutoFi Inc.

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NOTE 18. 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, SBNA's auto loan and lease portfolio business, previously in the CBB segment, and SBNA's dealer financing business, previously in the CRE&VF 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 floor plan 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. SC also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders. All intercompany revenue and fees between SBNA and SC are eliminated in the consolidated results of the Company.

•The CBB segment includes the products and services provided to Bank 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 credit cards, and business loans such as business lines of credit and commercial cards. In addition, SBNA 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. Santander Universities, which provides grants and scholarships to universities and colleges as a way to foster education through research, innovation and entrepreneurship, is the last component of this segment.

•The C&I segment currently provides commercial lines, loans, letters of credit, receivables financing, 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 and multifamily loans, as well as cash management and deposit services to customers. This category also includes SBNA’s community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.

•The CIB segment serves the needs of global 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 registered institutional broker-dealer that provides 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

SBNA 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 12 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 18. 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 Condensed Consolidated Financial Statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses and other financial elements to each line of business. Where practical, the results are adjusted to present consistent methodologies for the segments.

The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. The implementation of these enhancements to the internal management reporting methodology may materially affect the results disclosed for each segment with no impact on consolidated results. Whenever significant changes to management reporting methodologies take place, prior period information is reclassified wherever practicable.

Results of Segments

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


Year-To-Date Ended	SHUSA Reportable Segments

March 31, 2022	Auto		CBB		C&I		CRE		CIB		Wealth Management		Other(1)		Total
	(in thousands)
Net interest income	$	1,051,266	$	301,955	$	67,661	$	78,435	$	25,888	$	19,143	$	(64,342)	$	1,480,006
Non-interest income	706,514		78,153		15,942		15,340		67,841		77,650		19,816		981,256
Credit loss expense / (benefit)	220,526		7,045		3,634		(19,338)		6,393		—		(1,451)		216,809
Total expenses	802,084		383,948		67,486		29,199		75,553		61,658		46,762		1,466,690
Income/(loss) before income taxes	735,170		(10,885)		12,483		83,914		11,783		35,135		(89,837)		777,763

Total assets	61,182,043		12,661,670		6,847,050		17,637,567		15,369,237		8,675,004		31,413,607		153,786,178

(1) Other includes the results of the immaterial entities, earnings from non-strategic assets, the investment portfolio, interest expense on SBNA’s and the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.


Year-To-Date Ended	SHUSA Reportable Segments

March 31, 2021	Auto		CBB		C&I		CRE		CIB(4)		Wealth Management		Other(1)		Total
	(in thousands)
Net interest income	$	1,072,248	$	402,337	$	73,775	$	85,283	$	27,411	$	23,680	$	(65,402)	$	1,619,332
Non-interest income	917,857		67,209		16,402		5,616		77,549		63,246		36,617		1,184,496
Credit loss expense / (benefit)	121,385		(4,321)		(31,341)		1,776		(8,694)		(73)		(2,665)		76,067
Total expenses	890,593		402,335		63,259		28,024		67,330		50,562		46,326		1,548,429
Income/(loss) before income taxes	978,127		71,532		58,259		61,099		46,324		36,437		(72,446)		1,179,332

Total assets	59,882,586		13,782,238		7,679,097		17,794,929		10,786,520		6,824,500		29,840,471		146,590,341

(1) Refer to corresponding notes above.

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

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

EXECUTIVE SUMMARY

SHUSA is the parent holding company of SBNA, a national banking association; SC, a consumer finance company headquartered in Dallas, Texas; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; BSI, a financial services company headquartered in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; SIS, a registered broker-dealer headquartered in New York providing services in investment banking, institutional sales, trading and offering research reports of Latin American and European equity and fixed-income securities; SFS, a consumer credit institution headquartered in Puerto Rico; and several other subsidiaries. SHUSA is headquartered in Boston, Massachusetts and SBNA's main office is in Wilmington, Delaware. SSLLC 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.

Refer to Note 1 of the Condensed Consolidated Financial Statements for additional information on SHUSA's January 31, 2022 acquisition of the remainder of SC's outstanding shares.

SBNA's primary business consists of attracting deposits and providing other retail banking services through its network of retail branches, and originating small business loans, middle market, large and global commercial loans, multifamily loans, and auto and other consumer loans throughout the Mid-Atlantic and Northeastern areas of the United States, principally located in Massachusetts, New Hampshire, Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and Delaware. SBNA uses its deposits, as well as other financing sources, to fund its loan and investment portfolios. SBNA earns interest income on its loan and investment portfolios. In addition, SBNA generates non-interest income from a number of sources, including deposit and loan services, sales of loans and investment securities, capital markets products and BOLI. SBNA's principal non-interest expenses include employee compensation and benefits, occupancy and facility-related costs, technology and other administrative expenses. The financial results of SBNA are affected by the economic environment, including interest rates and consumer and business confidence and spending, as well as the competitive conditions within SBNA's geographic footprint.

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

Captive Financing Arrangements

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. Subsequent to March 31, 2022, SC announced it had reached an agreement with Stellantis to amend and extend the MPLFA through December 2025.

In addition, SC announced a new partnership with Mistubishi Motors North America, Inc. ("MMNA"), to provide customer and dealer financing programs that will help MMNA achieve its goal of improving the car-buying experience. The captive-like, full-spectrum financing program launches in June 2022.

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

ECONOMIC AND BUSINESS ENVIRONMENT

Overview

The unemployment rate at March 31, 2022 was 3.6% compared to 4.0% at December 31, 2021 and 6.0% one year ago. According to the U.S. Bureau of Labor Statistics, the improvement from March 2021 reflects the continuing resumption of economic activity, particularly in the leisure and hospitality, public and private education, professional and business services, retail trade and other services.

Market year-to-date returns for the following indices based on closing prices at March 31, 2022 were:


						March 31, 2022
Dow Jones Industrial Average						(4.6)%
S&P 500						(4.9)%
NASDAQ Composite						(9.1)%

At its March 2022 meeting, the Federal Open Market Committee decided to raise the federal funds rate target range 25 basis points to 0.25% to 0.50% in response to persistently high inflation above the 2.0% target rate. The Committee 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 March 31, 2022 was 2.33%, up from 1.51% at December 31, 2021. Within the industry, changes in this metric are often considered to correspond to changes in 15-year and 30-year mortgage rates.

Changing market conditions are considered a significant risk factor to the Company. The interest rate environment can present challenges in the growth of net interest income for the banking industry, which continues to rely on non-interest activities to support revenue growth. Changing market conditions and political uncertainty could have an overall impact on the Company's results of operations and financial condition. Such conditions could also impact the Company's credit risk and the associated credit loss expense and legal expense.

Credit Rating Actions

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

SANTANDER (1)

SHUSA

SBNA (2)

Overall Outlook

Fitch

BBB+

Stable

Moody's

Baa3

Baa1

Stable

S&P

BBB+

A-

Stable

(1) Senior preferred rating

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

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

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.

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

Payment of Dividends

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

Regulatory Capital Requirements

U.S. Basel III regulatory capital rules are applicable to both SHUSA and SBNA.

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

As described in Note 1 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. This interim rule was subsequently updated with technical amendments in a final rule dated September 30, 2020. The Company has elected this alternative option instead of the one described in the December 2018 rule.

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

Material restrictions can be imposed on SBNA, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver or conservator. Critically undercapitalized banks generally may not make any payment of principal or interest on their subordinated debt and all but well-capitalized banks are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to the FDIA and OCC regulations, institutions which are not categorized as well-capitalized or adequately-capitalized are restricted from making capital distributions, which include cash dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the capital account of the institution. At March 31, 2022, SBNA met the criteria to be classified as “well-capitalized.”

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

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

Liquidity Rules

The Federal Reserve, the FDIC, and the OCC have established a rule to implement the Basel III LCR for certain internationally active banks and nonbank financial companies, and a modified version of the LCR for certain depository institution holding companies that are not internationally active. The LCR is designed to ensure that a banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to its expected net cash outflow for a 30-day time horizon. Smaller covered companies (more than $50 billion in assets) such as the Company are required to calculate the LCR monthly.

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

Resolution Planning

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

TLAC

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

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

Volcker Rule

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

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

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

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

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. At September 30, 2019, SBNA reported aggregate trading exposure in excess of the market risk threshold and, as a result, both the Company and SBNA began holding the market risk component within RWAs of the risk-based capital ratios, and submitted the FFIEC 102 - Market Risk Regulatory Report beginning for the period ended December 31, 2019. The incorporation of market risk within regulatory capital has resulted in a decrease in the Company's risk-based capital ratios.

Heightened Standards

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

Transactions with Affiliates

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

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

Regulation AB II

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

CRA

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

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

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 March 31, 2022, the Company had approximately $17 billion of loans and approximately $4 billion of borrowings with LIBOR exposure. We also had approximately $56 billion in notional amounts of derivative contracts with LIBOR exposure.

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 this year 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 us' categories. Limited exceptions with fallbacks may be granted for limited use of LIBOR in 2022 if clients are unready or unprepared for alternative reference rates.

The Company has completed the following aspects of the LIBOR transition program:

Communications and training

•Published employee and customer-facing LIBOR transition web pages

•Communicated with clients about the LIBOR transition through existing channels

•Conduct risk training for client-facing staff members

•Internal training on alternative reference rate product offerings

Contracts remediation

•Delivered amendments to clients for contracts without sufficient fallback.

•Adhered to the ISDA IBOR Fallbacks Protocol

Products

•Launched SOFR-referenced products across consumer, commercial, derivatives, and corporate investment channels.

•Maintained quarterly LIBOR exposure reporting

•Provided SOFR pricing framework to internal teams

Models

•Completed development for all models identified in scope for LIBOR remediation.

•Completed validation for approximately 90% of models and on track to complete validation for the remaining 10% of models by Q3 2022.

Accounting and tax

•Implemented relevant FASB and IRS guidance

•Documented approach to hedging

Systems

•Technology systems updates and testing to support alternative reference rates

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

RESULTS OF OPERATIONS

CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS




	YEARS-TO-DATE ENDED MARCH 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)		Volume		Rate
EARNING ASSETS
TOTAL SECURITIES FINANCING ACTIVITIES, INVESTMENTS AND INTEREST-EARNING DEPOSITS(3)	$	38,858,377	$	77,105	0.79	%	$	28,361,244	$	59,196	0.83	%	$	17,909	$	20,590	$	(2,681)
LOANS(4):
C&I	14,420,518		114,340		3.17	%	16,483,191		142,180		3.45	%	(27,840)		(16,888)		(10,952)
CRE	7,223,994		51,437		2.85	%	7,447,802		53,791		2.89	%	(2,354)		(1,612)		(742)
Other commercial loans	8,171,434		40,110		1.96	%	7,429,629		47,482		2.56	%	(7,372)		5,471		(12,843)
Multifamily	7,489,872		58,257		3.11	%	8,204,141		70,897		3.46	%	(12,640)		(5,847)		(6,793)
Total commercial loans	37,305,818		264,144		2.83	%	39,564,763		314,350		3.18	%	(50,206)		(18,876)		(31,330)
Consumer loans:
Residential mortgages	5,660,603		43,811		3.10	%	6,747,397		51,917		3.08	%	(8,106)		(8,446)		340
Home equity loans and lines of credit	3,429,461		26,003		3.03	%	4,013,586		32,256		3.21	%	(6,253)		(4,514)		(1,739)
Total consumer loans secured by real estate	9,090,064		69,814		3.07	%	10,760,983		84,173		3.13	%	(14,359)		(12,960)		(1,399)
RICs and auto loans	43,265,679		1,254,220		11.60	%	40,894,433		1,321,893		12.93	%	(67,673)		87,440		(155,113)
Personal unsecured	2,201,176		55,035		10.00	%	1,657,386		141,890		34.24	%	(86,855)		75,025		(161,880)
Other consumer	134,492		1,871		5.56	%	212,912		3,405		6.40	%	(1,534)		(1,131)		(403)
Total consumer	54,691,411		1,380,940		10.10	%	53,525,714		1,551,361		11.59	%	(170,421)		148,374		(318,795)
Total loans	91,997,229		1,645,084		7.15	%	93,090,477		1,865,711		8.02	%	(220,627)		129,498		(350,125)

TOTAL EARNING ASSETS	130,855,606		1,722,189		5.26	%	121,451,721		1,924,907		6.34	%	(202,718)		150,088		(352,806)
Allowance for loan losses(5)	(6,472,894)						(7,316,533)
Other assets(6)	32,050,520						33,005,218
TOTAL ASSETS	$	156,433,232					$	147,140,406
INTEREST-BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits	$	14,407,174	$	1,662	0.05	%	$	11,754,935	$	1,408	0.05	%	$	254	$	254	$	—
Savings	5,601,687		494		0.04	%	4,998,441		483		0.04	%	11		11		—
Money market	34,583,976		11,785		0.14	%	33,947,692		17,900		0.21	%	(6,115)		364		(6,479)
CDs	2,417,549		3,004		0.50	%	3,576,850		9,995		1.12	%	(6,991)		(2,582)		(4,409)
TOTAL INTEREST-BEARING DEPOSITS	57,010,386		16,945		0.12	%	54,277,918		29,786		0.22	%	(12,841)		(1,953)		(10,888)

Fed funds purchased and securities sold under agreements to repurchase	5,185,142		843		0.07	%	—		—		—	%	843		843		—
FHLB advances	250,000		580		0.93	%	1,042,755		1,657		0.64	%	(1,077)		(2,666)		1,589
Other borrowings	40,927,235		223,815		2.19	%	43,898,212		274,132		2.50	%	(50,317)		(17,767)		(32,550)
TOTAL SECURITIES FINANCING ACTIVITIES AND BORROWED FUNDS (7)	46,362,377		225,238		1.94	%	44,940,967		275,789		2.45	%	(50,551)		(19,590)		(30,961)
TOTAL INTEREST-BEARING FUNDING LIABILITIES	103,372,763		242,183		0.94	%	99,218,885		305,575		1.23	%	(63,392)		(21,543)		(41,849)
Noninterest bearing demand deposits	21,172,667						19,085,040
Other liabilities(8)	8,642,346						7,376,334
TOTAL LIABILITIES	133,187,776						125,680,259
STOCKHOLDER’S EQUITY	23,245,456						21,460,147
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	156,433,232					$	147,140,406

NET INTEREST SPREAD (9)					4.32	%					5.11	%
NET INTEREST MARGIN (10)					4.52	%					5.33	%
NET INTEREST INCOME			$	1,480,006					$	1,619,332

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

(2)Yields calculated using taxable equivalent net interest income.

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

(4)Interest on loans includes amortization of premiums and discounts on purchased loan portfolios and amortization of deferred loan fees, net of origination costs. Average loan balances includes non-accrual loans and LHFS.

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

(6)Other assets primarily includes leases, goodwill and intangibles, premise and equipment, net deferred tax assets, equity method investments, BOLI, accrued interest receivable, derivative assets, miscellaneous receivables, prepaid expenses and MSRs. Refer to Note 6 to the Condensed Consolidated Financial Statements for further discussion.

(7)Refer to Note 9 and Note 11 to the Condensed Consolidated Financial Statements for further discussion.

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

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

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

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

NET INTEREST INCOME

Net interest income decreased $139.3 million for the quarter ended March 31, 2022, respectively, compared to 2021. The most significant factors contributing to the change were as follows:

•Interest income on investment securities and interest-earning deposits increased $17.9 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, attributable to an increase average balances of $20.6 million and a decrease in average rates of $2.7 million. The decrease in rate was attributable to Federal Reserve actions in response to the COVID-19 pandemic.

•Interest income on loans decreased $220.6 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, attributable to a increase in average loan balances of $129.5 million and a decrease in average rates of $350.1 million. This was the result of a lower overall interest rate environment.

•Interest expense on deposits and related customer accounts decreased $12.8 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, attributable to a decrease in average interest-bearing deposit balances of $2.0 million and a decrease in average rates of $10.9 million.

•Interest expense on securities financing activities and borrowed funds decreased $50.6 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, attributable to a decrease in average interest-bearing borrowings balances of $19.6 million and a decrease in average rates of $31.0 million. This was the result of an overall lower interest rate environment along with the repayment of debt.

CREDIT LOSS EXPENSE (BENEFIT)

The Company had a credit loss expense of $216.8 million for the quarter ended March 31, 2022, compared to credit loss expense of $76.1 million for the corresponding period in the prior year.

Credit loss expense on commercial loans increased $10.4 million compared to the corresponding period in the prior year, primarily driven by a release of allowance across several commercial segments offset by a decrease in net charge-offs of $15.4 million.

Credit loss expense on consumer loans increased $120.9 million compared to the corresponding period in the prior year, primarily driven by an increase in RIC charge-offs. Net charge-offs on the consumer portfolios increased by $24.6 million, respectively, compared to 2021.

The provision on unfunded credit losses increased $9.4 million compared to 2021.

NON-INTEREST INCOME


	Year-to-Date Ended March 31					YTD Change
(dollars in thousands)		2022		2021			Dollar increase/(decrease)		Percentage
Consumer fees		$	62,053	$	83,693		$	(21,640)	(25.9)	%
Commercial fees		35,437		35,527			(90)		(0.3)	%
Lease income		671,204		772,892			(101,688)		(13.2)	%
Capital Market Revenue		64,759		81,788			(17,029)		(20.8)	%
Miscellaneous income, net		133,848		200,722			(66,874)		(33.3)	%
Net gains recognized in earnings		13,955		9,874			4,081		41.3	%
Total non-interest income		$	981,256	$	1,184,496		$	(203,240)	(17.2)	%

Total non-interest income decreased $203.2 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year. The change for the quarter ended March 31, 2022 was primarily due to a decrease in lease income $101.7 million, and a decrease in miscellaneous income $66.9 million, net discussed further below.

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

Miscellaneous income


	Year-to-Date Ended March 31					YTD Change
(dollars in thousands)		2022		2021			Dollar increase/(decrease)		Percentage
Mortgage banking income, net		$	11,381	$	20,739		$	(9,358)	(45.1)	%
BOLI		15,617		15,545			72		0.5	%
Net gain on sale of operating leases		26,046		108,263			(82,217)		(75.9)	%
Asset and wealth management fees		66,702		58,727			7,975		13.6	%
Gain on sale of non-mortgage loans		324		(38,017)			38,341		100.9	%
Other miscellaneous income / (loss), net		13,778		35,465			(21,687)		(61.2)	%
Total miscellaneous income		$	133,848	$	200,722		$	(66,874)	(33.3)	%

Miscellaneous income decreased $66.9 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year. This increase was primarily related to:

•Gain on sale of operating leases decreased for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, primarily driven by limited new and used car supply.

•Gain on the sale of non-mortgage loans increased for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, primarily attributable to the consumer RIC portfolio.

GENERAL, ADMINISTRATIVE AND OTHER EXPENSES


	Year-to-Date Ended March 31					YTD Change
(dollars in thousands)		2022		2021			Dollar increase/(decrease)		Percentage
Compensation and benefits		$	495,325	$	465,258		$	30,067	6.5	%
Occupancy and equipment expenses		151,550		172,076			(20,526)		(11.9)	%
Technology, outside services, and marketing expense		137,684		134,752			2,932		2.2	%
Loan expense		65,592		111,580			(45,988)		(41.2)	%
Lease expense		481,302		560,340			(79,038)		(14.1)	%

Other expenses		135,237		104,423			30,814		29.5	%
Total general, administrative and other expenses		$	1,466,690	$	1,548,429		$	(81,739)	(5.3)	%

Total general, administrative and other expenses decreased $81.7 million for the quarter ended March 31, 2022 compared to 2021. The most significant contributing factors were as follows:

•Loan expense decreased $46.0 million for the quarter ended March 31, 2022, compared to the corresponding period in the prior year, due to decreases in loan servicing expense.

•Lease expense decreased for the quarter ended March 31, 2022, compared to the corresponding period in the prior year, due to a shortage in automobile supply and receipt of lease subvention payments, which reduce lease expense related to depreciation.

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

INCOME TAX PROVISION

Income tax expense of $161.7 million and $286.8 million were recorded for the quarters ended March 31, 2022 and 2021, respectively. This resulted in an ETR of 20.8% and 24.3% for the quarters ended March 31, 2022 and 2021, respectively. Refer to Note 15 to the Condensed Consolidated Financial Statements for the year-to-year comparison of the ETR.

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.

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 consists of the Company's CBB reportable segment and Auto reportable segment.












Year-To-Date Ended	2022						2021						Total Consumer Activities
March 31, 2022	Auto		CBB		Total Consumer activities		Auto		CBB		Total Consumer Activities		Dollar increase/(decrease)		Percentage
Net interest income	$	1,051,266	$	301,955	$	1,353,221	$	1,072,248	$	402,337	$	1,474,585	$	(121,364)	(8.2)	%
Non-interest income	706,514		78,153		$	784,667	917,857		67,209		$	985,066	$	(200,399)	(20.3)	%
Credit loss expense / (benefit)	220,526		7,045		$	227,571	121,385		(4,321)		$	117,064	$	110,507	94.4	%
Total expenses	802,084		383,948		$	1,186,032	890,593		402,335		$	1,292,928	$	(106,896)	(8.3)	%
Income/(loss) before income taxes	735,170		(10,885)		$	724,285	978,127		71,532		$	1,049,659	$	(325,374)	(31.0)	%

Total assets	61,182,043		12,661,670		$	73,843,713	59,882,586		13,782,238		$	73,664,824	$	178,889	0.2	%

The Company reported total income before income taxes related to its Consumer activities of $724.3 million and $1.0 billion, respectively, for the periods ending March 31, 2022 and 2021, which included income before income taxes of $735.2 million and $978.1 million on Auto in the respective periods, and a loss before income taxes of $10.9 million and income before income taxes of $71.5 million on CBB in the respective periods. The most significant drivers of the change were:

•Net interest income on CBB decreased $100.4 million, compared to the corresponding period of 2021. This decrease was primarily due to the sale of the Bluestem portfolio during the first quarter of 2021.

•Non-interest income on Auto decreased $211.3 million for the quarter ended March 31, 2022, compared to the corresponding period of 2021. This change was primarily due to a lower volume of active leases as a result of supply chain issues impacting new vehicle inventory.

•Total expenses on Consumer activities decreased $106.9 million for the quarter ended March 31, 2022 compared to the corresponding period of 2021, for which Auto decreased by $88.5 million and CBB decreased by $18.4 million, primarily due to the Company's focus on cost efficiency.

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

Commercial Activities

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












Year-To-Date Ended	2022						2021						Total Commercial Activities
March 31, 2022	C&I		CRE		Total Commercial Activities		C&I		CRE		Total Commercial Activities		Dollar increase/(decrease)		Percentage
Net interest income	$	67,661	$	78,435	$	146,096	$	73,775	$	85,283	$	159,058	$	(12,962)	(8.1)	%
Non-interest income	15,942		15,340		$	31,282	16,402		5,616		$	22,018	$	9,264	42.1	%
Credit loss expense / (benefit)	3,634		(19,338)		$	(15,704)	(31,341)		1,776		$	(29,565)	$	13,861	46.9	%
Total expenses	67,486		29,199		$	96,685	63,259		28,024		$	91,283	$	5,402	5.9	%
Income/(loss) before income taxes	12,483		83,914		$	96,397	58,259		61,099		$	119,358	$	(22,961)	(19.2)	%

Total assets	6,847,050		17,637,567		$	24,484,617	7,679,097		17,794,929		$	25,474,026	$	(989,409)	(3.9)	%

The Company reported total income before income taxes related to its Commercial activities of $96.4 million and $119.4 million, respectively, for the periods ending March 31, 2022 and 2021. This included income before income taxes of $12.5 million and $58.3 million on C&I in the respective periods, and income before income taxes of $83.9 million and $61.1 million on CRE in the respective periods. The most significant drivers of the change were:

•Credit loss expense on C&I increased $35.0 million for the quarter ended March 31, 2022, compared to the corresponding period of 2021. This change was primarily due to new origination volume.

•Credit loss expense on CRE decreased $21.1 million, compared to the corresponding period of 2021.

•Total expenses on Commercial activities increased $5.4 million for the quarter ended March 31, 2022 compared to the corresponding period of 2021, for which C&I increased by $4.2 million and CRE increased by $1.2 million.

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

CIB


	Year-to-Date Ended March 31					YTD Change
(dollars in thousands)		2022		2021			Dollar increase/(decrease)		Percentage
Net interest income		$	25,888	$	27,411		$	(1,523)	(5.6)	%
Total non-interest income		67,841		77,549			(9,708)		(12.5)	%
Credit loss expense / (benefit)		6,393		(8,694)			15,087		173.5	%
Total expenses		75,553		67,330			8,223		12.2	%
Income / (Loss) before income taxes		11,783		46,324			(34,541)		(74.6)	%

Total assets		15,369,237		10,786,520			4,582,717		42.5	%

CIB reported income before income taxes of $11.8 million for the quarter ended March 31, 2022, compared to income before income taxes of $46.3 million for the corresponding period in 2021. Factors contributing to this change were:

•Credit loss expense increased $15.1 million for the quarter ended March 31, 2022 compared to the corresponding period of 2021. This change was due to a decrease in recoveries.

Wealth Management


	Year-to-Date Ended March 31					YTD Change
(dollars in thousands)		2022		2021			Dollar increase/(decrease)		Percentage
Net interest income		$	19,143	$	23,680		$	(4,537)	(19.2)	%
Total non-interest income		77,650		63,246			14,404		22.8	%
Credit loss expense / (benefit)		—		(73)			73		100.0	%
Total expenses		61,658		50,562			11,096		21.9	%
Income / (Loss) before income taxes		35,135		36,437			(1,302)		(3.6)	%

Total assets		8,675,004		6,824,500			1,850,504		27.1	%

Wealth Management reported income before income taxes of $35.1 million for the quarter ended March 31, 2022, compared to income before income taxes of $36.4 million for the corresponding period in 2021. Factors contributing to this change were:

•Total non-interest income increased $14.4 million for the quarter ended March 31, 2022 compared to the corresponding period in 2021, is due to an increase in structured products, trading volume increases, new income from real estate commissions, and a revaluation of derivative gains.

•Total expenses increased $11.1 million for the quarter ended March 31, 2022 compared to the corresponding period of 2021. This increase was due to increased headcount partially resulting from the recent acquisition of Credit Agricole, and increases in expenses related to referral fee expense and temporary services expenses.

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

Other


	Year-to-Date Ended March 31					YTD Change
(dollars in thousands)		2022		2021			Dollar increase/(decrease)		Percentage
Net interest income		$	(64,342)	$	(65,402)		$	1,060	1.6	%
Total non-interest income		19,816		36,617			(16,801)		(45.9)	%
Credit loss expense / (benefit)		(1,451)		(2,665)			1,214		45.6	%
Total expenses		46,762		46,326			436		0.9	%
Income / (Loss) before income taxes		(89,837)		(72,446)			(17,391)		(24.0)	%

Total assets		31,413,607		29,840,471			1,573,136		5.3	%

The Other category reported a loss before income taxes of $89.8 million for the quarter ended March 31, 2022, compared to a loss before income taxes of $72.4 million for the corresponding period in 2021.

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

FINANCIAL CONDITION

LOAN PORTFOLIO

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


	March 31, 2022				December 31, 2021				Dollar Increase / (Decrease)		Percent Increase (Decrease)

(dollars in thousands)	Amount		Percent		Amount		Percent
Commercial LHFI:
CRE	$	7,350,812	8.0	%	$	7,227,003	7.8	%	$	123,809	1.7	%
C&I	13,868,625		15.1	%	14,710,864		16.0	%	(842,239)		(5.7)	%
Multifamily	7,709,447		8.4	%	7,547,382		8.2	%	162,065		2.1	%
Other commercial	8,239,438		9.0	%	8,170,031		8.9	%	69,407		0.8	%
Total commercial loans (1)	37,168,322		40.5	%	37,655,280		40.9	%	(486,958)		(1.3)	%

Consumer loans secured by real estate:
Residential mortgages	5,472,175		6.0	%	5,598,560		6.1	%	(126,385)		(2.3)	%
Home equity loans and lines of credit	3,359,342		3.7	%	3,487,234		3.8	%	(127,892)		(3.7)	%
Total consumer loans secured by real estate	8,831,517		9.7	%	9,085,794		9.9	%	(254,277)		(2.8)	%

Consumer loans not secured by real estate:
RICs and auto loans	43,086,645		46.9	%	43,183,098		46.9	%	(96,453)		(0.2)	%
Personal unsecured loans	2,562,022		2.8	%	2,009,654		2.2	%	552,368		27.5	%
Other consumer	127,061		0.1	%	141,986		0.1	%	(14,925)		(10.5)	%

Total consumer loans	54,607,245		59.5	%	54,420,532		59.1	%	186,713		0.3	%
Total LHFI	$	91,775,567	100.0	%	$	92,075,812	100.0	%	$	(300,245)	(0.3)	%

Total LHFI with:
Fixed	$	64,993,477	70.8	%	$	64,774,941	70.3	%	$	218,536	0.3	%
Variable	26,782,090		29.2	%	27,300,871		29.7	%	(518,781)		(1.9)	%
Total LHFI	$	91,775,567	100.0	%	$	92,075,812	100.0	%	$	(300,245)	(0.3)	%

(1) As of March 31, 2022, the Company had $322.8 million of commercial loans that were denominated in a currency other than the U.S. dollar.

Commercial

Commercial loans decreased approximately $487.0 million, or 1.3%, from December 31, 2021 to March 31, 2022. This decrease was comprised of a decrease in C&I loans of $842.2 million, offset by an increase in Multifamily loans of $162.1 million, an increase in CRE of $123.8 million, and an increase in Other commercial of $69.4 million which includes BSI's acquisition of Crédit Agricole's global wealth management client assets.

Consumer Loans Secured By Real Estate

Consumer loans secured by real estate decreased $254.3 million, or 2.8%, from December 31, 2021 to March 31, 2022. This decrease was comprised of a decrease in the residential mortgage portfolio of $126.4 million, and a decrease in the home equity loans and lines of credit portfolio of $127.9 million.

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

Consumer Loans Not Secured By Real Estate

RICs and auto loans

RICs and auto loans decreased $96.5 million, or 0.2%, from December 31, 2021 to March 31, 2022. The decrease in the RIC and auto loan portfolio was primarily due to decreases in originations, net of securitizations. RICs are collateralized by vehicle titles, and the lender has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. Most of the Company's RICs HFI are pledged against warehouse lines or securitization bonds. Refer to further discussion of these in Note 9 to the Condensed Consolidated Financial Statements.

As of March 31, 2022, 61.4% of the Company's RIC and auto loan portfolio balance was comprised of nonprime loans (defined by the Company as customers with a FICO score of below 640) with customers who did not qualify for conventional consumer finance products as a result of, among other things, a lack of or adverse credit history, low income levels and/or the inability to provide adequate down payments. This also includes 7.2% of loans for which no FICO score was available. While underwriting guidelines are designed to establish that the customer would be a reasonable credit risk, nonprime loans will nonetheless experience higher default rates than a portfolio of obligations of prime customers. Additionally, higher unemployment rates, higher gasoline prices, unstable real estate values, re-sets of adjustable rate mortgages to higher interest rates, the general availability of consumer credit, and other factors that impact consumer confidence or disposable income could lead to an increase in delinquencies, defaults, and repossessions, as well as decreased consumer demand for used automobiles and other consumer products, weaken collateral values and increase losses in the event of default. Because SC's historical focus for such credit has been predominantly on nonprime consumers, the actual rates of delinquencies, defaults, repossessions, and losses on these loans could be more dramatically affected by a general economic downturn.

The Company's automated originations process for these credits reflects a disciplined approach to credit risk management to mitigate the risks of nonprime customers. The Company's robust historical data on both organically originated and acquired loans provides it with the ability to perform advanced loss forecasting. Each applicant is automatically assigned a proprietary custom score using information such as FICO scores, DTI ratios, LTV ratios, and over 30 other predictive factors, placing the applicant in one of 100 pricing tiers. The pricing in each tier is continuously monitored and adjusted to reflect market and risk trends. In addition to the Company's automated process, it maintains a team of underwriters for manual review, consideration of exceptions, and review of deal structures with dealers.

Personal unsecured and other consumer loans

During the quarter ended March 31, 2022, SBNA approved and completed purchases of performing personal unsecured loans from third parties with a UPB of approximately $268.2 million. Servicing was retained by the sellers with no future minimum amounts required to be purchased.

Personal unsecured and other consumer loans HFI increased from December 31, 2021 to March 31, 2022 by $537.4 million.

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

Loans by Maturity and Interest Rate Sensitivity



	At March 31, 2022, Maturing
(in thousands)	In One Year Or Less		One to Five Years		Five to 15 Years		After 15 Years		Total (1)
Fixed Rates:
CRE loans	$	113,928	$	295,287	$	139,303	$	18,833	$	567,351
C&I	736,039		972,553		548,433		305		2,257,330
Multifamily loans	520,166		2,495,407		2,464,381		23,157		5,503,111
Other commercial	1,870,122		3,465,763		1,011,909		—		6,347,794
Total commercial	$	3,240,255	$	7,229,010	$	4,164,026	$	42,295	$	14,675,586
Residential mortgages	802		25,639		732,673		3,982,400		4,741,514
Home equity loans and lines of credit	16,561		12,569		48,650		33,630		111,410
RICs and auto loans	546,852		22,038,393		20,501,118		281		43,086,644
Personal unsecured loans	22,532		2,221,011		237,343		1		2,480,887
Other consumer	676		8,887		12,732		6,714		29,009
Total Fixed Rates	$	3,827,678	$	31,535,509	$	25,696,542	$	4,065,321	$	65,125,050
Variable Rates:
CRE loans	$	1,211,059	$	4,586,253	$	838,954	$	147,196	$	6,783,462
C&I	3,043,343		8,276,785		500,972		37,239		11,858,339
Multifamily loans	373,743		966,649		862,472		3,472		2,206,336
Other commercial	1,793,954		97,338		—		352		1,891,644
Total commercial	$	6,422,099	$	13,927,025	$	2,202,398	$	188,259	$	22,739,781
Residential Mortgages	543		6,596		158,690		645,952		811,781
Home equity loans and lines of credit	5,754		3,282		388,602		2,850,295		3,247,933
RICs and auto loans	—		—		—		—		—
Personal unsecured loans	174		14,405		66,166		391		81,136
Other consumer	1,509		51,700		44,843		—		98,052
Total Variable Rates	$	6,430,079	$	14,003,008	$	2,860,699	$	3,684,897	$	26,978,683
Total	$	10,257,757	$	45,538,517	$	28,557,241	$	7,750,218	$	92,103,733

(1) Includes LHFS.

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

NON-PERFORMING ASSETS

The following table presents the composition of non-performing assets at the dates indicated:


	Period Ended						Change
(dollars in thousands)	March 31, 2022			December 31, 2021			Dollar		Percentage
Non-accrual loans:
Commercial:
CRE	$	29,891		$	31,752		$	(1,861)	(5.9)	%
C&I	86,326			69,754			16,572		23.8	%
Multifamily	100,022			103,299			(3,277)		(3.2)	%
Other commercial	7,654			9,036			(1,382)		(15.3)	%
Total commercial loans	223,893			213,841			10,052		4.7	%

Consumer loans secured by real estate:
Residential mortgages	112,990			123,548			(10,558)		(8.5)	%
Home equity loans and lines of credit	84,339			88,310			(3,971)		(4.5)	%
Consumer loans not secured by real estate:
RICs and auto loans	1,196,948			1,467,928			(270,980)		(18.5)	%
Personal unsecured loans	3,740			2,892			848		29.3	%
Other consumer	408			1,047			(639)		(61.0)	%
Total consumer loans	1,398,425			1,683,725			(285,300)		(16.9)	%
Total non-accrual loans	1,622,318			1,897,566			(275,248)		(14.5)	%

OREO	4,322			3,724			598		16.1	%
Repossessed vehicles	249,656			247,757			1,899		0.8	%
Other repossessed assets	538			294			244		83.0	%
Total OREO and other repossessed assets	254,516			251,775			2,741		1.1	%
Total non-performing assets	$	1,876,834		$	2,149,341		$	(272,507)	(12.7)	%

Past due 90 days or more as to interest or principal and accruing interest	$	2,605		$	2,314		$	291	12.6%

Non-performing assets as a percentage of total assets	1.2		%	1.3		%	n/a		n/a

Potential problem loans are loans not currently classified as NPLs for which management has doubts about the borrower's ability to comply with the present repayment terms. These assets are principally loans delinquent for more than 30 days but less than 90 days. Potential problem commercial loans totaled approximately $123.9 million and $113.9 million at March 31, 2022 and December 31, 2021, respectively. Potential problem consumer loans amounted to $3.3 billion and $3.7 billion at March 31, 2022 and December 31, 2021, respectively. Management has included these loans in its evaluation of the Company's ACL and reserved for them during the respective periods.

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

CREDIT RATIOS


	As of and for the year ended
(dollars in thousands)	March 31, 2022			March 31, 2021			December 31, 2021
ACL to total loan outstanding	7.05		%	7.95		%	7.11		%
ACL	$	6,496,660		$	7,284,544		$	6,565,504
Total loans outstanding	92,103,731			91,628,049			92,330,835
NPL to total loans outstanding	1.8		%	1.6		%	2.1		%
NPL	$	1,622,500		$	1,427,892		$	1,897,566
Total loans outstanding	92,103,731			91,628,049			92,330,835
ACL to NPL	400.4		%	510.2		%	346.0		%
ACL	$	6,496,660		$	7,284,544		$	6,565,504
NPL	1,622,500			1,427,892			1,897,566
NCO during the period to average loans outstanding:
Commercial	—		%	0.04		%	0.18		%
Net charge-offs / (recoveries) during the period	$	(1,419)		$	14,003		$	68,949
Average amount outstanding	37,305,818			39,564,763			38,771,427
Consumer	0.52		%	0.49		%	1.19		%
Net charge-offs / (recoveries) during the period	$	287,072		$	262,468		$	643,146
Average amount outstanding	54,691,411			53,525,714			54,066,174

Commercial

Commercial NPLs increased $10.1 million from December 31, 2021 to March 31, 2022. Commercial NPLs accounted for less than 1% of commercial LHFI at March 31, 2022 and 2021, respectively. The change in commercial NPLs was primarily comprised of a an increase of $16.6 million in the C&I portfolio, offset by a decrease of $3.3 million in the Multifamily portfolio, a decrease of $1.9 million in the CRE portfolio, and a decrease of $1 million in Other commercial.

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 decreased by $271.0 million from December 31, 2021 to March 31, 2022. Non-performing RICs and auto loans accounted for 2.8% and 3.4% of total RICs and auto loans at March 31, 2022 and December 31, 2021, respectively.

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 $0.8 million from December 31, 2021 to March 31, 2022. Non-performing personal unsecured loans accounted for 0.1% and 0.1% of total personal unsecured loans at March 31, 2022 and December 31, 2021, respectively.

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

Consumer Loans Secured by Real Estate

The following table shows NPLs compared to total loans outstanding for the residential mortgage and home equity portfolios as of March 31, 2022 and December 31, 2021, respectively:


	March 31, 2022						December 31, 2021
(dollars in thousands)	Residential mortgages			Home equity loans and lines of credit			Residential mortgages			Home equity loans and lines of credit
NPLs - HFI	$	112,990		$	84,339		$	123,548		$	88,310
Total LHFI	5,472,175			3,359,342			5,598,560			3,487,234
NPLs as a percentage of total LHFI	2.1		%	2.5		%	2.2		%	2.5		%

NPLs as a percentage of LHFI in the Residential mortgage portfolio decreased year-over-year due to lower NPLs in 2022 on a decreasing Residential mortgage portfolio. Foreclosures on consumer loans secured by real estate were $60.0 million or 30.4% of non-performing consumer loans secured by real estate at March 31, 2022, compared to $41.1 million or 19.4% of consumer loans secured by real estate at December 31, 2021.

Delinquencies

The Company generally considers an account delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date.

Overall, total delinquencies decreased by $450.3 million, or 10.5%, from December 31, 2021 to March 31, 2022, primarily due to past due auto loans. Delinquent balances and nonaccrual balances on mortgages and other consumer loans were lower as of March 31, 2022, primarily due to the benefits of government stimulus payments and tax refunds provided to customers.

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

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 March 31, 2022
(in thousands)	Commercial			%		Consumer Loans Secured by Real Estate			%		RICs and Auto Loans			%		Other Consumer			%		Total TDRs
Performing	$	103,756		55.1	%	$	179,338		63.7	%	$	2,992,155		88.9	%	$	22,112		98.4	%	$	3,297,361
Non-performing	84,477			44.9	%	102,343			36.3	%	374,031			11.1	%	353			1.6	%	561,204
Total	$	188,233		100.0	%	$	281,681		100.0	%	$	3,366,186		100.0	%	$	22,465		100.0	%	$	3,858,565

% of loan portfolio	0.5		%	n/a		3.2		%	n/a		7.8		%	n/a		0.8		%	n/a		4.2		%
(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-performing	98,620			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 portfolio	0.5		%	n/a		3.1		%	n/a		8.7		%	n/a		1.1		%	n/a		4.6		%

(1) Excludes LHFS.

The following table provides a summary of TDR activity:



	Year-To-Date Ended March 31, 2022				Year-To-Date Ended March 31, 2021
(in thousands)	RICs and Auto Loans		All Other Loans(1)(2)		RICs and Auto Loans		All Other Loans(1)
TDRs, beginning of period	$	3,731,960	$	510,356	$	3,987,845	$	336,284
New TDRs(1)	160,049		37,932		651,812		116,485
Charged-off TDRs	(134,226)		(4,209)		188,870		(2,832)
Sold TDRs	—		—		48,956		—
Payments on TDRs	(391,597)		(51,700)		(428,529)		(94,914)
TDRs, end of period	$	3,366,186	$	492,379	$	4,448,954	$	355,023

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

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

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 facts 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.

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

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

There were no significant changes to the ACL during the quarter ended March 31, 2022. Refer to the rollforward of the ACL in Note 3 to the Condensed Consolidated Financial Statements.

Reserve for Unfunded Lending Commitments

The reserve for unfunded lending commitments decreased from $104.1 million at December 31, 2021 to $91.4 million at March 31, 2022. The decrease of the reserve for unfunded lending commitments was due to a $10.9 million decrease on commercial commitments and a $1.8 million decrease on consumer commitments.

INVESTMENT SECURITIES

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


(in thousands)	March 31, 2022		December 31, 2021
Investment securities AFS:
U.S. Treasury securities and government agencies	$	4,831,224	$	6,172,652
FNMA and FHLMC securities	2,794,846		4,327,556

Other securities (1)	817,686		813,729
Total investment securities AFS	8,443,756		11,313,937
Investment securities HTM:
U.S. government agencies	7,999,449		6,702,471
FNMA and FHLMC securities	1,388,643		—
Total investment securities HTM	9,388,092		6,702,471

Other investments	1,311,863		1,096,138
Total investment portfolio	$	19,143,711	$	19,112,546

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

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

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


	March 31, 2022		December 31, 2021		Change		Percent
(in thousands)	Fair Value		Fair Value
U.S. Treasury securities	$	253,150	$	73,618	$	179,532	243.9	%
Corporate debt securities	291,749		276,007		15,742		5.7	%
ABS	525,937		537,722		(11,785)		(2.2)	%

MBS:
GNMA - Residential	3,924,762		4,066,195		(141,433)		(3.5)	%
GNMA - Commercial	653,312		2,032,839		(1,379,527)		(67.9)	%
FHLMC and FNMA - Residential	2,691,186		4,219,641		(1,528,455)		(36.2)	%
FHLMC and FNMA - Commercial	103,660		107,915		(4,255)		(3.9)	%
Total investments in debt securities AFS	$	8,443,756	$	11,313,937	$	(2,870,181)	(25.4)	%

The Company’s MBS are either guaranteed as to principal and interest by the issuer or have ratings of “AAA” by S&P and Moody’s at the date of issuance.

The average life of the AFS investment portfolio (excluding certain ABS) at March 31, 2022 was approximately 7.00 years. The average effective duration of the investment portfolio (excluding certain ABS) at March 31, 2022 was approximately 3.15 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 346 investment securities classified as HTM as of March 31, 2022.


(in thousands)	March 31, 2022		December 31, 2021		Change in unrealized gain/(loss)
Total unrealized loss	$	(356,661)	$	(138,703)	$	(217,958)
Total unrealized gain	5,668		42,687		(37,019)
Total unrealized gain/(loss) position	$	(350,993)	$	(96,016)	$	(254,977)

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 March 31, 2022:


	March 31, 2022
(in thousands)	Amortized Cost		Fair Value
FNMA	$	1,959,141	$	1,887,258
FHLMC	2,392,283		2,296,231
GNMA (1)	12,677,067		12,079,394

Total	$	17,028,491	$	16,262,883

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

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

GOODWILL

The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired less the fair value of liabilities assumed as goodwill. Consistent with ASC 350, the Company does not amortize goodwill, and reviews the goodwill recorded for impairment on an annual basis or more frequently when events or changes in circumstances indicate the potential for goodwill impairment. At March 31, 2022, goodwill totaled $2.6 billion and represented 1.7% of total assets and 11.8% of total stockholder's equity. The following table shows goodwill by reporting units at March 31, 2022:


(in thousands)	Auto		CBB		C&I		CRE		CIB		Total



Goodwill at March 31, 2022	$	1,238,918	$	159,000	$	52,198	$	1,014,915	$	131,130	$	2,596,161

The Company evaluates goodwill for impairment at the reporting unit level. The Company completes its annual goodwill impairment test as of October 1 of each year. The Company conducted its most recent annual goodwill impairment tests as of October 1, 2021 using generally accepted valuation methods and noted no impairment..

The Company completes a quarterly review for impairment indicators over each of its reporting units, which includes consideration of economic and organizational factors that could impact the fair value of the Company's reporting units. As of the most recent review completed at the end of the first quarter of 2022, the Company did not identify any indicators which resulted in the Company's conclusion that an interim impairment test would be required to be completed.

Refer to Note 5 and Note 18 to these Condensed Consolidated Financial Statements for discussion of changes to the Company's organizational structure impacting goodwill during the first quarter of 2022.

DEFERRED TAXES AND OTHER TAX ACTIVITY

BANK REGULATORY CAPITAL

The Company's capital priorities are to support client growth and business investment while maintaining appropriate capital in light of economic uncertainty and the Basel III framework.

The Company is subject to the regulations of certain federal, state, and foreign agencies and undergoes periodic examinations by those regulatory authorities. At March 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 March 31, 2022 and 2021, based on the Company’s capital calculations, exceeded the required capital ratios for BHCs.

For a discussion of Basel III, including the standardized approach and related future changes to the minimum U.S. regulatory capital ratios, see the section captioned "Regulatory Matters" in this MD&A.

Federal banking laws, regulations and policies also limit SBNA's ability to pay dividends and make other distributions to the Company. SBNA must obtain prior OCC approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the bank's total distributions to SHUSA within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years, (2) the bank would not meet capital levels imposed by the OCC in connection with any order, or (3) the bank is not adequately capitalized at the time. The OCC's prior approval would also be required if SBNA were notified by the OCC that it is a problem institution or in troubled condition.

Any dividend declared and paid or return of capital has the effect of reducing capital ratios. Refer to the section captioned "Liquidity and Capital Resources" for discussion of the Company's dividends.

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

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


	SHUSA

	March 31, 2022		Well-capitalized Requirement(1)		Minimum Requirement(1)
CET1 capital ratio	18.51	%	6.50	%	4.50	%
Tier 1 capital ratio	18.82	%	8.00	%	6.00	%
Total capital ratio	20.55	%	10.00	%	8.00	%
Leverage ratio	13.56	%	5.00	%	4.00	%


	SBNA

	March 31, 2022		Well-capitalized Requirement(1)		Minimum Requirement(1)
CET1 capital ratio	16.27	%	6.50	%	4.50	%
Tier 1 capital ratio	16.27	%	8.00	%	6.00	%
Total capital ratio	17.47	%	10.00	%	8.00	%
Leverage ratio	11.25	%	5.00	%	4.00	%

(1) Capital ratios starting in the first quarter of 2020 calculated under CECL transition provisions permitted by the CARES Act

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

LIQUIDITY AND CAPITAL RESOURCES

Overall

The Company continues to maintain strong liquidity. Liquidity represents the ability of the Company to obtain cost-effective funding to meet the needs of customers as well as the Company's financial obligations. Factors that impact the liquidity position of the Company include loan origination volumes, loan prepayment rates, the maturity structure of existing loans, core deposit growth levels, CD maturity structure and retention, the Company's credit ratings, investment portfolio cash flows, the maturity structure of the Company's wholesale funding, and other factors. These risks are monitored and managed centrally. The Company's Asset/Liability Committee reviews and approves the Company's liquidity policy and guidelines on a regular basis. This process includes reviewing all available wholesale liquidity sources. The Company also forecasts future liquidity needs and develops strategies to ensure adequate liquidity is available at all times. SHUSA conducts monthly liquidity stress test analyses to manage its liquidity under a variety of scenarios, all of which demonstrate that the Company has ample liquidity to meet its short-term and long-term cash requirements.

Further changes to the credit ratings of SHUSA, Santander and its affiliates or the Kingdom of Spain could have a material adverse effect on SHUSA's business, including its liquidity and capital resources. The credit ratings of SHUSA have changed in the past and may change in the future, which could impact its cost of and access to sources of financing and liquidity. Any reductions in the long-term or short-term credit ratings of SHUSA would increase its borrowing costs and require it to replace funding lost due to the downgrade, which may include the loss of customer deposits, limit its access to capital and money markets and trigger additional collateral requirements in derivatives contracts and other secured funding arrangements. See further discussion on the impacts of credit ratings actions in the "Economic and Business Environment" section of this MD&A.

Sources of Liquidity

Company and Bank

The Company and SBNA have several sources of funding to meet liquidity requirements, including SBNA's core deposit base, liquid investment securities portfolio, ability to acquire large deposits, FHLB borrowings, wholesale deposit purchases, and federal funds purchased, as well as through securitizations in the ABS market and committed credit lines from third-party banks and Santander. In addition, the Company has other sources of funding to meet its liquidity requirements such as dividends and returns of investments from its subsidiaries, short-term investments held by non-bank affiliates, and access to the capital markets.

As of March 31, 2022, SBNA has borrowed $1.0 billion from SHUSA. This transaction eliminates in consolidation.

SC requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. SC funds its operations through its lending relationships with 12 third-party banks, Santander and SHUSA, and through securitizations in the ABS market and third party flow agreements. SC seeks to issue debt that appropriately matches the cash flows of the assets that it originates. SC has more than $7.0 billion of stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements. SC uses liquidity for debt service and repayment of borrowings, as well as for funding loan commitments.

During the quarter ended March 31, 2022, SC completed on-balance sheet funding transactions totaling approximately $3.3 billion, including:

•securitizations on its SDART platform for approximately $2.5 billion; and

•lease securitization on its SRT platform for approximately $0.9 billion.

SC did not complete any asset sales to third parties during the quarter ended March 31, 2022.

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

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

IHC

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 March 31, 2022, there were no outstanding balances on the subordinated loan or the liquidity line.

BSI's primary sources of liquidity are from customer deposits and deposits from affiliated banks.

Institutional borrowings

The Company regularly projects its funding needs under various stress scenarios, and maintains contingency plans consistent with the Company’s access to diversified sources of contingent funding. The Company maintains a substantial level of total available liquidity in the form of on-balance sheet and off-balance sheet funding sources. These include cash, unencumbered liquid assets, and capacity to borrow at the FHLB and the FRB’s discount window.

Available Liquidity

As of March 31, 2022, SBNA had approximately $14.0 billion in committed liquidity from the FHLB and the FRB. Of this amount, $13.7 billion was unused and therefore provides additional borrowing capacity and liquidity for the Company. At March 31, 2022 and December 31, 2021, liquid assets (cash and cash equivalents and LHFS) and securities AFS exclusive of securities pledged as collateral) totaled approximately $23.7 billion and $29.4 billion, respectively. These amounts represented 31.5% and 36.4% of total deposits at March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022, SBNA and BSI had $2.3 billion and $1.5 billion, respectively, in cash held at the FRB. Management believes that the Company has ample liquidity to fund its operations.

Cash, cash equivalents, and restricted cash


	Year-to-Date Ended March 31
(in thousands)	2022		2021
Net cash flows from operating activities	$	2,149,646	$	3,503,913
Net cash flows from investing activities	(844,435)		(342,716)
Net cash flows from financing activities	(6,858,401)		(3,785,310)

Cash flows from operating activities

Net cash flow from operating activities decreased by $1.4 billion from the quarter ended March 31, 2021 to the quarter ended March 31, 2022, primarily due to a decrease in proceeds from sales of and collections on LHFS which included the sale of the Bluestem personal lending portfolio during the quarter ended March 31, 2021.

Cash flows from investing activities

Net cash flow from investing activities decreased by $501.7 million from the quarter ended March 31, 2021 to the quarter ended March 31, 2022, primarily due to a decrease in proceeds from sales of LHFI, offset by an increase in securities purchased under resale agreements which began in the second quarter of 2021.

Cash flows from financing activities

Net cash flow from financing activities decreased by $3.1 billion from the quarter ended March 31, 2021 to the quarter ended March 31, 2022, primarily due to stock repurchase activity related to the acquisition of SC shares and a decrease in deposits, offset by a net increase in borrowings activity.

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

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

Credit Facilities

Third-Party Revolving Credit Facilities

Warehouse Lines

SC has one credit facility with seven banks providing an aggregate commitment of $3.5 billion for the exclusive use of providing short-term liquidity needs to support Chrysler Capital lease financing. The facility requires reduced advance rates in the event of delinquency, credit loss, or residual loss ratios, as well as other metrics exceeding specified thresholds.

SC has eight credit facilities with eleven banks providing an aggregate commitment of $7.0 billion for the exclusive use of providing short-term liquidity needs to support core and CCAP loan financing. As of March 31, 2022, there was no outstanding balance on these facilities in the aggregate. These facilities reduced advance rates in the event of delinquency, credit loss, as well as various other metrics exceeding specific thresholds.

Repurchase Agreements

SC also obtains financing through investment management or repurchase agreements under which it pledges retained subordinate bonds on its own securitizations as collateral for repurchase agreements with various borrowers and at renewable terms ranging up to 365 days. As of March 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 $4.7 billion of term financing with maturities ranging from June 2022 to May 2025. These loans eliminate in the consolidation of SHUSA. Santander provides SC with $4.0 billion of unsecured financing with maturities ranging from June 2022 and September 2022.

Secured Structured Financings

SC's secured structured financings primarily consist of both public, SEC-registered securitizations, as well as private securitizations under Rule 144A of the Securities Act, and privately issues amortizing notes. SC has on-balance sheet securitizations outstanding in the market with a cumulative ABS balance of approximately $26.0 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, but provide a stable stream of servicing fee income and may also provide a gain or loss on sale.

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

Off-Balance Sheet Financing

Beginning in 2018, SC has agreed to provide SBNA with origination support services in connection with the processing, underwriting, and purchasing of retail loans, all of which are serviced by SC. The loans 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, as well as for funding loan commitments and satisfying deposit withdrawal requests. SIS uses liquidity primarily to support underwriting transactions, as well as billing and delivery services. The primary use of liquidity for BSI is to meet customer liquidity requirements, such as maturing deposits, investment activities, funds transfers, and payment of operating expenses.

At March 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 March 31, 2022, the Company had total contractual cash obligations of $57.0 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, $15.0 billion of the total contractual cash obligations is due within one year. In addition, the Company had other commitments of $28.9 billion which consisted of commitments to extend credit and letters of credit. Of this amount, $8.3 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 12 and Note 16 to the Condensed Consolidated Financial Statements.

Dividends, Contributions and Stock Issuances

As of March 31, 2022, the Company had 530,391,043 shares of common stock outstanding. During the quarters ended March 31, 2022 and 2021, the Company did not pay any cash dividends to its common stock shareholder. During the second quarter of 2022, the Company declared and paid dividends of $1.25 billion to its sole shareholder, Santander.

During the quarter ended March 31, 2022, there was no capital activity related to SHUSA's subsidiaries.

During the second quarter of 2022, SHUSA's subsidiaries had the following capital activity which eliminates in consolidation:

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

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

ASSET AND LIABILITY MANAGEMENT

Interest Rate Risk

Interest rate risk arises primarily through the Company’s traditional business activities of extending loans and accepting deposits. Many factors, including economic and financial conditions, movements in market interest rates, and consumer preferences, affect the spread between interest earned on assets and interest paid on liabilities. Interest rate risk is managed by the Company's Treasury group and measured by its Market Risk Department, with oversight by the Asset/Liability Committee. In managing interest rate risk, the Company seeks to minimize the variability of net interest income across various likely scenarios, while at the same time maximizing net interest income and the net interest margin. To achieve these objectives, the Treasury group works closely with each business line in the Company. The Treasury group also uses various other tools to manage interest rate risk, including wholesale funding maturity targeting, investment portfolio purchase strategies, asset securitizations/sales, and financial derivatives.

Interest rate risk focuses on managing four elements of risk associated with interest rates: basis risk, repricing risk, yield curve risk and option risk. Basis risk stems from rate index timing differences with rate changes, such as differences in the extent of changes in Federal funds rates compared with the three-month LIBOR. Repricing risk stems from the different timing of contractual repricing, such as one-month versus three-month reset dates, as well as the related maturities. Yield curve risk stems from the impact on earnings and market value resulting from different shapes and levels of yield curves. Option risk stems from prepayment or early withdrawal risk embedded in various products. These four elements of risk are analyzed through a combination of net interest income and balance sheet valuation simulations, shocks to those simulations, and scenario and market value analyses, and the subsequent results are reviewed by management. Numerous assumptions are made to produce these analyses, including assumptions about new business volumes, loan and investment prepayment rates, deposit flows, interest rate curves, economic conditions and competitor pricing.

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

Net Interest Income Simulation Analysis

The Company utilizes a variety of measurement techniques to evaluate the impact of interest rate risk, including simulating the impact of changing interest rates on expected future interest income and interest expense, to estimate the Company's net interest income sensitivity. This simulation is run monthly and includes various scenarios that help management understand the potential risks in the Company's net interest income sensitivity. These scenarios include both parallel and non-parallel rate shocks as well as other scenarios that are consistent with quantifying the four elements of risk described above. This information is used to develop proactive strategies to ensure that the Company’s risk position remains within SHUSA Board of Directors-approved limits so that future earnings are not significantly adversely affected by future interest rates.

The table below reflects the estimated sensitivity to the Company’s net interest income based on interest rate changes at March 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 below	March 31, 2022		December 31, 2021
Down 100 basis points	(3.53)	%	(2.63)	%
Up 100 basis points	3.57	%	4.33	%
Up 200 basis points	6.92	%	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 March 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 below	March 31, 2022		December 31, 2021
Down 100 basis points	0.43	%	(3.18)	%
Up 100 basis points	(3.07)	%	(0.91)	%
Up 200 basis points	(7.54)	%	(3.71)	%

As of March 31, 2022, the Company’s profile reflected a decrease of MVE of 0.43% for downward parallel interest rate shocks of 100 basis points and a decrease of 3.07% 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.

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

Uses of Derivatives to Manage Interest Rate and Other Risks

To mitigate interest rate risk and, to a lesser extent, foreign exchange, equity and credit risks, the Company uses derivative financial instruments to reduce the effects that changes in interest rates may have on net income, the fair value of assets and liabilities, and cash flows.

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

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

The Company's derivatives portfolio includes mortgage banking interest rate lock commitments, forward sale commitments and interest rate swaps. As part of its overall business strategy, SBNA originates residential mortgages. It sells a portion of this production to the FHLMC, the FNMA, and private investors. The Company uses forward sales as a means of hedging against the economic impact of changes in interest rates on the mortgages that are originated for sale and on interest rate lock commitments.

The Company typically retains the servicing rights related to residential mortgage loans that are sold. The majority of the Company's residential MSRs are accounted for at fair value. As deemed appropriate, the Company economically hedges MSRs, using interest rate swaps and forward contracts to purchase MBS. For additional information on MSRs, see Note 13 to the Condensed Consolidated Financial Statements.

The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate. The Company also utilizes forward contracts to manage market risk associated with certain expected investment securities sales.

For additional information on foreign exchange contracts, derivatives and hedging activities, see Note 12 to the Condensed Consolidated Financial Statements.

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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Incorporated by reference from Part I, Item 2, MD&A — "Asset and Liability Management" above.

ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act, as of March 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 Condensed Consolidated Statement of Cash Flows (“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 Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q present fairly, in all material respects our financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with generally accepted accounting principles (“GAAP”).

A material weakness 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.

Management identified a material weakness in our internal control over financial reporting related to the lack of designing and maintaining effective controls to verify the proper classification of loan activities related to loans held for sale (“LHFS”) and loans held for investment (“LHFI”) within the SCF. This material weakness resulted in material misstatements to the classification of cash flows associated with LHFS and LHFI within the SCF. Additionally, this material weakness could result in further misstatements of the classification of cash flows for LHFS and LHFI that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

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; and 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.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

Refer to Note 16 to the Condensed Consolidated Financial Statements for SHUSA’s litigation disclosures, which are incorporated herein by reference.

ITEM 1A - RISK FACTORS

The Company is subject to a number of risks potentially impacting its business, financial condition, results of operations, and cash flows. There have been no material changes from the risk factors set forth under Part I, Item 1A, Risk Factors, in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4 - MINE SAFETY DISCLOSURES

None.

ITEM 5 - OTHER INFORMATION

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

(Amounts presented as actuals)

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act of 1934, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.

The following activities are disclosed in response to Section 13(r) with respect to Santander and its affiliates. During the period covered by this report:

•Santander UK holds seven blocked accounts for five customers 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 three-month period ended March 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 US under the SDGT sanctions program. The accounts have been blocked since 2008. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the three-month period ended March 31, 2022.

•Santander Brasil holds a blocked account for a customer with domicile in Brazil designated by the U.S. under the SDGT sanctions program. The relationship with the customer preceded its designation under the sanctions program. Revenues and profits generated by Santander Brasil on this account in the three-month period ended March 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 US under the SDGT sanctions program (standby letters of credit to guarantee the obligations, either under tender documents or under contracting agreements, of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.

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In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the three-month period ended March 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.

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ITEM 6 - EXHIBITS


(3.1)			Amended and Restated Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 30, 2009) (Commission File Number 001-16581)

(3.2)			Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.'s Current Report on Form 8-K filed March 27, 2009) (Commission File Number 001-16581)

(3.3)			Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed February 5, 2010) (Commission File Number 001-16581)

(3.4)			Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.2 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed June 21, 2011) (Commission File Number 001-16581)

(3.5)			Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 3, 2017) (Commission File Number 001-16581)

(3.6)			Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed August 12, 2019) (Commission File Number 001-16581)

(3.7)			Bylaws of Santander Holdings USA, Inc. as amended on May 23, 2019 (Incorporated by reference to Exhibit 3.1 of Santander Holdings USA, Inc.’s Current Report on Form 8-K filed May 23, 2019) (Commission File Number 001-16581)

(4.1)			Santander Holdings USA, Inc. has certain debt obligations outstanding. None of the instruments evidencing such debt authorizes an amount of securities in excess of 10% of the total assets of Santander Holdings USA, Inc. and its subsidiaries on a consolidated basis; therefore, copies of such instruments are not included as exhibits to this Quarterly Report on Form 10-Q. Santander Holdings USA, Inc. agrees to furnish copies to the SEC on request.

(31.1)			Chief Executive Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

(31.2)			Chief Financial Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

(32.1)			Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

(32.2)			Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

(101.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)

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(101.LAB)			Inline XBRL Taxonomy Extension Label Linkbase (Filed herewith)

(101.PRE)			Inline XBRL Taxonomy Extension Presentation Linkbase (Filed herewith)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SANTANDER HOLDINGS USA, INC. (Registrant)

Date:	May 6, 2022	/s/ Juan Carlos Alvarez de Soto
		Juan Carlos Alvarez de Soto
		Chief Financial Officer and Senior Executive Vice President


Date:	May 6, 2022	/s/ David L. Cornish
		David L. Cornish
		Chief Accounting Officer, Corporate Controller and Executive Vice President

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