UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2023

☐						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 (800) 493-8219

Not applicable

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

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

Title of each class

Trading Symbols

Name of each exchange on which registered

Not Applicable

Not Applicable

Not Applicable

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

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

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

        

Large accelerated filer ☐

Accelerated filer ☐

Emerging growth company ☐

Non-accelerated Filer ☑

Smaller reporting company ☐

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

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

Number of shares of common stock outstanding at October 31, 2023: 530,391,043 shares

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Table of Contents

INDEX

			Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022			4
Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2023 and 2022			5
Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2023 and 2022			6
Condensed Consolidated Statements of Stockholder's Equity for the three months and nine months ended September 30, 2023 and 2022			7
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022			8
Notes to Condensed Consolidated Financial Statements			9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			73
Item 3. Quantitative and Qualitative Disclosures About Market Risk			110
Item 4. Controls and Procedures			110
PART II. OTHER INFORMATION			111
Item 1. Legal Proceedings			111
Item 1A. Risk Factors			111
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			111
Item 3. Defaults upon Senior Securities			111
Item 4. Mine Safety Disclosures			111
Item 5. Other Information			112
Item 6. Exhibits			113
SIGNATURES			114
Ex-31.1 Certification
Ex-31.2 Certification
Ex-32.1 Certification
Ex-32.2 Certification
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

SANTANDER HOLDINGS USA, INC., AND SUBSIDIARIES

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements about the Company’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words and phrases such as “may,” “could,” “should,” “will,” “would,” “believes,” “expects,” “anticipates,” “estimate,” “intends,” “plans,” “assume," "goal," "seek," "can," "predicts," "potential," "projects," "continuing," "ongoing," and similar expressions.

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

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

•SHUSA’s ability to manage credit risk may increase to the extent our loans are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral, and changes in the credit quality of SHUSA's customers and counterparties;

•adverse economic conditions in the United States and worldwide, including the extent of recessionary conditions in the U.S. and the strength of the U.S. economy in general and regional and local economies in which SHUSA conducts operations in particular, which may affect, among other things, the level of non-performing assets, charge-offs, and credit loss expense;

•inflation, interest rate, market and monetary fluctuations 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;

•bank failures and similar adverse developments at other banks may lead to decreased customer and investor sentiment regarding the stability and liquidity of banks in general, as well as increased regulation of banks by supervisory authorities as they seek to manage or mitigate such adverse developments;

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

•adverse movements and volatility in debt and equity capital markets and adverse changes in the securities markets, including those related to the financial condition of significant issuers in SHUSA’s investment portfolio;

•risks SHUSA faces implementing its growth strategy, including SHUSA's ability to grow revenue, manage expenses, attract and retain highly-skilled people, successfully complete and integrate mergers and acquisitions, and raise capital necessary to achieve its business goals and comply with regulatory requirements;

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

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

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

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

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

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

•changes in customer spending, investment or savings behavior;

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

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

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

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

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

•SHUSA’s ability to implement its ESG strategy and appropriately address social, environmental and sustainability matters that may arise from its activities;

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

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

•the other factors that are described in Part I, Item IA - Risk Factors of the Company's Annual Report on Form 10-K for 2022.

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

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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						Early stage delinquency: loans that are greater than 30 DPD, but less than 90 DPD
ACL: Allowance for credit losses						EFG: Enterprise Financial Group
AFS: Available-for-sale						EIR: Effective interest rate
ALLL: Allowance for loan and lease losses						ERISA: Employee Retirement Security Act of 1974, as amended
AOCI: Accumulated other comprehensive income						ESG: Environmental, Social, and Governance
APS: Amherst Pierpont Securities LLC, now known as Santander US Capital Markets LLC						ETR: Effective tax rate
ASC: Accounting Standards Codification						Evaluation Date: September 30, 2023
ASU: Accounting Standards Update						Exchange Act: Securities Exchange Act of 1934, as amended
ATM: Automated teller machine						Expanded Risk-Based Approach: New approach for calculating risk-weighted assets proposed by the federal banking agencies
BHC: Bank holding company						FASB: Financial Accounting Standards Board
BHCA: Bank Holding Company Act of 1956, as amended						FBO: Foreign banking organization
BOLI: Bank-owned life insurance						FDIA: Federal Deposit Insurance Corporation Improvement Act
Broker-Dealers: SanCap and SSLLC						FDIC: Federal Deposit Insurance Corporation
BSI: Banco Santander International						Federal Reserve: Board of Governors of the Federal Reserve System
BTFP: Bank Term Funding Program						FHLB: Federal Home Loan Bank
C&I: Commercial and Industrial Banking						FHLMC: Federal Home Loan Mortgage Corporation
Capital Proposal: Proposed revisions to capital rules issued by federal banking agencies on July 27, 2023						FICO®: Fair Isaac Corporation credit scoring model
CARES Act: Coronavirus Aid, Relief, and Economic Security Act						FNMA: Federal National Mortgage Association
CBB: Consumer and Business Banking						FOMC: Federal Open Market Committee
CCAP: Chrysler Capital; trade name used in providing services under the MPLFA						FRB: Federal Reserve Bank
CD: Certificate of deposit						FTP: Funds transfer pricing
CECL: Current expected credit losses as defined by FASB ASC Topic 326						FVO: Fair value option
CEO: Chief Executive Officer						GAAP: Accounting principles generally accepted in the United States of America
CET1: Common equity Tier 1						GDP: Gross domestic product
CEVF: Commercial equipment vehicle financing						GNMA: Government National Mortgage Association
CFPB: Consumer Financial Protection Bureau						GSIB: Globally systemically important bank
CFO: Chief Financial Officer						HFI: Held-for-investment
CFTC: Commodity Futures Trading Commission						HFS: Held-for-sale
CIB: Corporate and Investment Banking						HPI: Housing Price Index
CID: Civil investigative demand						HTM: Held-to-maturity
CLTV: Combined loan-to-value						IBOR: Inter-bank offered rate
CME: Chicago Mercantile Exchange						IDI: Insured depository institution
Company: Santander Holdings USA, Inc.						IHC: U.S. intermediate holding company
Covered Fund: a hedge fund or a 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						Large Banking Organization: Large banking organizations with assets of $100 billion or more
CRE: Commercial Real Estate						LCR: Liquidity coverage ratio
DCF: Discounted cash flow						LGD: Loss given default
DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act						LHFI: Loans held for investment
DIF: Deposit Insurance Fund						LHFS: Loans held for sale
DOJ: Department of Justice						LIBOR: London Interbank Offered Rate
DPD: Days past due						LIHTC: Low income housing tax credit
DTI: Debt-to-income						LTD: Long-term debt
EAD: Exposure at default						LTV: Loan-to-value

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Table of Contents

MBS: Mortgage-backed securities						SBALT: SBNA Auto Lease Trust
MD&A: Management's Discussion and Analysis of Financial Condition and Results of Operations						SBNA or the Bank: Santander Bank, National Association
MMNA: Mitsubishi Motors North America, Inc.						SC: Santander Consumer USA Holdings Inc. and its subsidiaries
Moody’s: Moody's Investors Service, Inc.						SCARF: Santander Consumer Auto Receivables Funding
MPLFA: Ten-year master private-label financing agreement with Stellantis						SCART: Santander Consumer Auto Receivables Trust
MSR: Mortgage servicing right						SCB: Stress capital buffer
MVE: Market value of equity						SCF: Statement of cash flows
NCI: Non-controlling interest						SCH: Santander Capital Holdings LLC
NCO: Net charge-off						SDART: Santander Drive Auto Receivables Trust
NFA: National Futures Association						SDGT: Specially Designated Global Terrorist
NMDs: Non-maturity deposits						SEC: Securities and Exchange Commission
NMTC: New market tax credits						Securities Act: Securities Act of 1933, as amended
NPL: Non-performing loan						Securities Financing Activities: Resale, repurchase securities borrowed and securities lending agreements
NPR: Notice of proposed rule-making						SHUSA: Santander Holdings USA, Inc.
OCC: Office of the Comptroller of the Currency						SOFR: Secured overnight financing rate
OCI: Other comprehensive income						SPAIN: Santander Private Auto Issuing Note
OEM: Original equipment manufacturer						SPE: Special purpose entity
OIS: Overnight indexed swap						SSLLC: Santander Securities LLC
OREO: Other real estate owned						Stellantis: Fiat Chrysler Automobiles U.S. LLC parent Stellantis N.V. and/or any affiliates
Parent Company: The parent holding company of SBNA and other consolidated subsidiaries						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.
PCH: Pierpont Capital Holdings LLC, now known as Santander Capital Holdings LLC						TDR: Troubled debt restructuring
PD: Probability of default						TLAC: Total loss-absorbing capacity
RIC: Retail installment contract						TLAC Rule: The Federal Reserve's total loss-absorbing capacity rule
ROU: Right-of-use						Trusts: Securitization trusts
RV: Recreational vehicle						UPB: Unpaid principal balance
RWA: Risk-weighted asset						VIE: Variable interest entity
S&P: Standard & Poor's						VOE: Voting rights entity
SanCap: Santander US Capital Markets, LLC						YTD: Year-to-date
Santander: Banco Santander, S.A.
Santander UK: Santander UK plc

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PART I. FINANCIAL INFORMATION

ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

unaudited (In thousands)

			September 30, 2023						December 31, 2022
ASSETS
Cash and cash equivalents			$	10,705,134					$	10,218,066
Federal funds sold and securities purchased under resale agreements or similar arrangements (1)			9,468,618						12,424,079
Investment securities:
AFS at fair value (amortized cost of $7,109,796 and $7,914,832 as of September 30, 2023 and December 31, 2022, respectively)			6,170,157						7,030,219
Trading securities			8,496,604						5,864,324
HTM (fair value of $7,486,846 and $8,273,285 as of September 30, 2023 and December 31, 2022, respectively)			9,153,367						9,549,218
Other investments			1,478,133						1,116,161
LHFI(2) (6)			95,999,941						97,338,329
ALLL (5)			(6,984,466)						(6,779,999)
Net LHFI			89,015,475						90,558,330
LHFS (3)			435,809						99,555
Premises and equipment, net (3)			938,404						910,477
Operating lease assets, net (6)(7)			13,691,320						14,267,111
Goodwill			2,766,665						2,767,732
Intangible assets, net			296,740						326,633
BOLI			1,979,330						1,969,717
Restricted cash (6)			5,406,821						6,346,248
Other assets (4) (5)			5,650,586						4,746,450
TOTAL ASSETS			$	165,653,163					$	168,194,320
LIABILITIES
Accounts payables and accrued expenses			$	5,490,578					$	6,148,533
Deposits and other customer accounts			77,470,633						79,128,541
Federal funds purchased and securities loaned or sold under repurchase agreements (1)			15,329,760						15,382,819
Trading liabilities			3,089,255						2,871,645
Borrowings and other debt obligations (6)			43,015,347						43,588,273
Advance payments by borrowers for taxes and insurance			188,202						149,133
Deferred tax liabilities, net			214,991						389,043
Other liabilities (6)			2,405,082						2,606,611
TOTAL LIABILITIES			147,203,848						150,264,598
Commitments and contingencies (Note 16)
MEZZANINE EQUITY
Preferred stock (no par value; 7,500,000 shares authorized; 1,500,000 and 500,000 shares outstanding at September 30, 2023 and December 31, 2022, respectively)			1,500,000						500,000
STOCKHOLDER'S EQUITY
Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both September 30, 2023 and December 31, 2022, respectively)			17,284,611						17,284,611
Accumulated other comprehensive loss, net of taxes			(1,208,894)						(1,336,023)
Retained earnings			873,598						1,481,134
TOTAL STOCKHOLDER'S EQUITY			16,949,315						17,429,722
TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDER'S EQUITY			$	165,653,163					$	168,194,320

(1) See Note 13 to these Condensed Consolidated Financial Statements for amounts of securities financing activities for which the Company has elected FVO.

(2) LHFI includes $15.4 million and $20.9 million of loans recorded at fair value at September 30, 2023 and December 31, 2022, respectively.

(3) Includes $488.0 thousand and $549.0 thousand of loans recorded at the FVO at September 30, 2023 and December 31, 2022, respectively.

(4) Net of accumulated depreciation of $2.2 billion and $2.1 billion at September 30, 2023 and December 31, 2022, respectively.

(5) Includes MSRs of $104.5 million and $107.4 million at September 30, 2023 and December 31, 2022, respectively, for which the Company has elected the FVO. See Note 13 to these Condensed Consolidated Financial Statements for additional information.

(6) The Company has interests in certain Trusts that are considered VIEs for accounting purposes. At September 30, 2023 and December 31, 2022, LHFI included $26.3 billion and $27.1 billion, Operating leases assets, net included $13.7 billion and $14.3 billion, restricted cash included $982.0 million and $923.5 million, Other assets included $665.4 million and $716.7 million, Borrowings and other debt obligations included $26.4 billion and $31.6 billion, and Other liabilities included $119.3 million and $138.0 million of assets or liabilities that were included within VIEs, respectively. See Note 7 to these Condensed Consolidated Financial Statements for additional information.

(7) Net of accumulated depreciation of $3.6 billion and $3.7 billion at September 30, 2023 and December 31, 2022, 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)

			Three months ended September 30,												Nine months ended September 30,
			2023						2022						2023						2022
INTEREST INCOME:
Loans			$	2,115,442					$	1,797,322					$	6,149,657					$	5,126,671
Interest-earning deposits			218,925						67,168						572,074						105,912
Interest and fees on federal funds sold and securities purchased under resale agreements or similar arrangements			580,720						230,436						1,797,354						314,168
Investment securities:
AFS			66,773						44,318						199,769						109,648
HTM			46,173						42,967						139,719						113,859
Trading securities			106,921						46,921						282,479						81,248
Other investments			12,172						8,492						30,144						16,020
TOTAL INTEREST INCOME			3,147,126						2,237,624						9,171,196						5,867,526
INTEREST EXPENSE:
Deposits and other customer accounts			440,239						69,171						1,086,496						115,981
Interest expense on federal funds purchased and securities loaned or sold under repurchase agreements			675,050						246,066						2,012,023						331,591
Interest expense on trading liabilities			33,273						21,524						102,964						37,814
Borrowings and other debt obligations			527,883						301,695						1,497,366						769,555
TOTAL INTEREST EXPENSE			1,676,445						638,456						4,698,849						1,254,941
NET INTEREST INCOME			1,470,681						1,599,168						4,472,347						4,612,585
Credit loss expense			856,292						636,406						1,607,543						1,257,416
NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE			614,389						962,762						2,864,804						3,355,169
NON-INTEREST INCOME:
Consumer and commercial fees			79,440						111,006						258,271						308,830
Capital markets and foreign exchange income			103,675						32,986						217,561						142,062
Lease income			617,962						663,123						1,866,968						2,012,982
Miscellaneous income, net(1)			83,316						126,995						283,705						376,177
TOTAL FEES AND OTHER INCOME			884,393						934,110						2,626,505						2,840,051
Net gain / (loss) on sale of investment securities			37,048						(18,594)						108,556						6,121
TOTAL NON-INTEREST INCOME			921,441						915,516						2,735,061						2,846,172
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES:
Compensation and benefits			528,465						507,155						1,519,614						1,500,086
Occupancy and equipment expenses			160,608						170,755						505,226						472,893
Technology, outside service, and marketing expense			184,168						161,705						523,190						476,027
Loan expense			86,729						88,185						276,420						218,786
Lease expense			479,991						530,349						1,455,820						1,527,265
Other expenses			123,883						116,075						383,861						378,929
TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES			1,563,844						1,574,224						4,664,131						4,573,986
INCOME / (LOSS) BEFORE INCOME TAX			(28,014)						304,054						935,734						1,627,355
Income tax (benefit) / provision			(147,767)						76,227						(54,937)						344,888
NET INCOME			$	119,753					$	227,827					$	990,671					$	1,282,467

(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

unaudited (In thousands)

			Three months ended September 30,												Nine months ended September 30,
			2023						2022						2023						2022
NET INCOME			$	119,753					$	227,827					$	990,671					$	1,282,467
OTHER COMPREHENSIVE INCOME / (LOSS), NET OF TAX
Net unrealized changes in cash flow hedge derivative financial instruments, net of tax			52,935						(146,787)						175,104						(474,896)
Net unrealized (losses) on AFS investment securities, net of tax			(39,640)						(152,972)						(49,472)						(680,547)
Pension and post-retirement actuarial gains, net of tax			506						1,037						1,497						2,176
TOTAL OTHER COMPREHENSIVE INCOME / (LOSS), NET OF TAX			13,801						(298,722)						127,129						(1,153,267)
COMPREHENSIVE INCOME / (LOSS)			$	133,554					$	(70,895)					$	1,117,800					$	129,200

See accompanying notes to unaudited Condensed Consolidated Financial Statements

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

unaudited (In thousands)

			Common Shares Outstanding												Common Stock and Paid-in Capital						Accumulated other comprehensive loss, net of taxes						Retained Earnings						Noncontrolling Interest						Total Stockholder's Equity						Preferred Stock Mezzanine
Balance, July 1, 2023			530,391												$	17,284,611					$	(1,222,695)					$	1,039,631					$	—					$	17,101,547					$	1,500,000
Comprehensive income			—												—						13,801						119,753						—						133,554						—
Dividends paid on common stock			—												—						—						(250,000)						—						(250,000)						—
Dividends paid on preferred stock			—												—						—						(35,786)						—						(35,786)						—
Balance, September 30, 2023			530,391												$	17,284,611					$	(1,208,894)					$	873,598					$	—					$	16,949,315					$	1,500,000
			Common Shares Outstanding												Common Stock and Paid-in Capital						Accumulated other comprehensive loss, net of taxes						Retained Earnings						Noncontrolling Interest						Total Stockholder's Equity						Preferred Stock Mezzanine
Balance, July 1, 2022			530,391												$	17,293,611					$	(1,042,655)					$	4,630,767					$	—					$	20,881,723					$	—
Comprehensive (loss)/ income			—												—						(298,722)						227,827						—						(70,895)						—
Dividends paid on common stock			—												—						—						(1,750,000)						—						(1,750,000)						—
Stock repurchase			—												(10,000)						—						—						—						(10,000)						—
Balance, September 30, 2022			530,391												$	17,283,611					$	(1,341,377)					$	3,108,594					$	—					$	19,050,828					$	—

			Common Shares Outstanding												Common Stock and Paid-in Capital						Accumulated Other Comprehensive Loss, Net of Tax						Retained Earnings						Noncontrolling Interest						Total Stockholder's Equity						Preferred Stock Mezzanine
Balance, January 1, 2023			530,391												$	17,284,611					$	(1,336,023)					$	1,481,134					$	—					$	17,429,722					$	500,000
Cumulative-effect adjustment upon adoption of new accounting standards (Note 1)			—												—						—						(41,396)						—						(41,396)						—
Comprehensive income			—												—						127,129						990,671						—						1,117,800						—
Dividends paid on common stock			—												—						—						(1,500,000)						—						(1,500,000)						—
Dividends paid on preferred stock			—												—						—						(56,811)						—						(56,811)						—
Preferred stock offering			—												—						—						—						—						—						1,000,000
Balance, September 30, 2023			530,391												$	17,284,611					$	(1,208,894)					$	873,598					$	—					$	16,949,315					$	1,500,000
			Common Shares Outstanding												Common Stock and Paid-in Capital						Accumulated Other Comprehensive Loss, Net of Tax						Retained Earnings						Noncontrolling Interest						Total Stockholder's Equity						Preferred Stock Mezzanine
Balance, January 1, 2022			530,391												$	17,875,938					$	(188,110)					$	4,826,127					$	1,953,395					$	24,467,350					$	—
Comprehensive (loss) / income			—												—						(1,153,267)						1,282,467						—						129,200						—
Dividends paid on common stock			—												—						—						(3,000,000)						—						(3,000,000)						—
Stock repurchase			—												(592,327)						—						—						(1,953,395)						(2,545,722)						—
Balance, September 30, 2022			530,391												$	17,283,611					$	(1,341,377)					$	3,108,594					$	—					$	19,050,828					$	—

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)

			Nine months ended September 30,
			2023						2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	990,671					$	1,282,467
Adjustments to reconcile net income to net cash provided by operating activities:
Credit loss expense/(benefit)			1,607,543						1,257,416
Deferred tax (benefit) / expense			(221,033)						102,384
Depreciation, amortization and accretion			1,952,133						2,119,639
Net (gain)/loss on sale or disposal of loans, investment securities, and other assets			(96,138)						(18,961)
Originations of LHFS			—						(195,849)
Proceeds from sales of and collections on LHFS			2,083						363,388
Net change in:
Trading securities and trading liabilities, net			(2,299,994)						(246,292)
Other assets and BOLI			(1,265,613)						(1,381,925)
Other liabilities			(240,852)						456,128
Other operating activities, net			(19,236)						(2,944)
NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES			409,564						3,735,451
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS investment securities			211,171						530,832
Proceeds from prepayments and maturities of AFS investment securities			1,215,255						1,669,869
Purchases of AFS investment securities			(693,525)						(1,943,332)
Proceeds from prepayments and maturities of HTM investment securities			403,973						931,132
Purchases of HTM investment securities			—						(946,375)
Proceeds from sales of equity method and other investments			342,627						421,855
Proceeds from maturities of other investments			100,000						400,000
Purchases of and contributions to equity method and other investments			(940,762)						(1,149,853)
Distributions from equity method investments			3,290						9,439
Net change in federal funds sold and securities purchased under resale agreements			2,955,461						2,453,760
Proceeds from sales of LHFI			352,735						521,337
Proceeds from settlements of BOLI policies			40,961						24,563
Purchases of LHFI			(117,192)						(1,011,077)
Net change in loans other than purchases and sales			(850,140)						(5,612,493)
Purchases and originations of operating leases			(4,380,980)						(4,676,535)
Proceeds from the sale and termination of operating leases			3,465,350						4,130,923
Proceeds from sales of premises and equipment, net			(132,768)						(131,730)
Acquisition of PCH			—						(391,931)
NET CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES			1,975,456						(4,769,616)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits and other customer accounts			(1,657,908)						(5,750,322)
Net change in short-term borrowings			42,645						1,945,230
Net proceeds from long-term borrowings			22,325,825						33,649,766
Repayments of long-term borrowings			(22,977,140)						(32,122,524)
Net change in federal funds purchased and securities loaned or sold under repurchase agreements			(53,059)						(1,866,986)
Dividends paid on common stock			(1,500,000)						(3,000,000)
Dividends paid on preferred stock			(56,811)						—
Stock repurchase			—						(2,545,722)
Preferred stock offering			1,000,000						—
Other financing activities, net			39,069						21,395
NET CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES			(2,837,379)						(9,669,163)
NET (DECREASE)/INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			(452,359)						(10,703,328)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD			16,564,314						25,017,235
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (1)			$	16,111,955					$	14,313,907
NON-CASH TRANSACTIONS
Loans transferred to/(from) OREO			59,192						37,885
Loans transferred from/(to) LHFI (from)/to LHFS, net			713,344						449,966
Unsettled purchases of investment securities			19,649						216,426
AFS investment securities transferred to HTM investment securities			—						2,982,195

(1) The nine months ended September 30, 2023 and 2022 include cash and cash equivalents balances of $10.7 billion, and $9.0 billion respectively, and restricted cash balances of $5.4 billion, and $5.3 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; 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; SanCap, an institutional broker-dealer headquartered in New York, which has significant capabilities in market making via an experienced fixed-income sales and trading team and a focus on structuring and advisory services for asset originators in the real estate and specialty finance markets; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC is a registered investment adviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.

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

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

Acquisition of PCH

On April 11, 2022, SHUSA acquired 100% ownership of PCH, parent company of APS, an institutional fixed-income broker dealer and a designated primary dealer by the FRB of New York, for approximately $448 million. With the addition of PCH, the Company significantly enhances its infrastructure and capabilities with respect to U.S. fixed-income capital markets. The transaction provides the Company a platform for self-clearing of fixed-income securities, growing its institutional client footprint, and expanding its structuring and advisory capabilities for asset originators. APS had 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.

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

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

Basis of Presentation

These 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 SCF for the periods indicated, and contain adequate disclosure to make the information presented not misleading.

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

Use of Estimates

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

Recently Adopted Accounting Standards

On January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures that removed the specific accounting and disclosure 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. Upon adoption of the standard, the Company recorded an increase in the ACL of approximately $55.2 million, a decrease in retained earnings of approximately $41.4 million and a decrease in deferred tax liabilities of approximately $13.8 million. Refer to Note 3 for additional information on modified loans.

Recently Issued Accounting Standards Not Yet Adopted

On March 29, 2023, the FASB issued ASU 2023-02 Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which permits the use of an accounting policy election to apply the proportional amortization method to all tax equity investments that meet specific criteria. The new accounting guidance is effective for the Company beginning January 1, 2024 and early adoption is permitted. The Company is currently evaluating the standard, but does not expect a material impact on the Company's financial position, or results of operations.

On August 23, 2023, the FASB issued ASU 2023-05 Business Combinations - Joint Venture Formations, Recognition and Initial Measurement requiring most assets and liabilities contributed to a joint venture upon formation to be measured at fair market value. The new guidance is effective prospectively for all joint ventures with a formation date on or after January 1, 2025, and early adoption is permitted. The Company is currently evaluating the standard but does not expect a material impact on the Company’s financial position or results of operations.

Subsequent Events

The Company evaluated events from the date of these Condensed Consolidated Financial Statements on September 30, 2023 through the issuance of these Condensed Consolidated Financial Statements. Except as noted in Note 9 and Note 17 to these Condensed Consolidated Financial Statements, there were no material events in that period that would require recognition or disclosure in its Condensed Consolidated Financial Statements as of September 30, 2023.

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NOTE 2. INVESTMENT SECURITIES

Summary of Investments in Debt Securities - AFS and HTM

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

						September 30, 2023																								December 31, 2022
(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						$	31,045					$	3					$	(5)					$	31,043					$	220,920					$	—					$	(2,481)					$	218,439
Corporate debt securities						280,679						—						(279)						280,400						371,458						1						(968)						370,491
ABS						510,409						24						(3,706)						506,727						517,920						58						(13,960)						504,018
MBS:
GNMA - Residential						3,257,264						—						(442,582)						2,814,682						3,484,616						—						(403,594)						3,081,022
GNMA - Commercial						664,226						4						(138,685)						525,545						684,502						267						(104,712)						580,057
FHLMC and FNMA - Residential						2,385,266						—						(461,091)						1,924,175						2,574,516						2						(394,317)						2,180,201
FHLMC and FNMA - Commercial						91,952						—						(4,367)						87,585						100,099						—						(4,108)						95,991
Unallocated fair value hedge basis adjustment(1)						(111,045)						—						111,045						—						(39,199)						—						39,199						—
Total investments in debt securities AFS						$	7,109,796					$	31					$	(939,670)					$	6,170,157					$	7,914,832					$	328					$	(884,941)					$	7,030,219

(1) The Company has entered into fair value hedges of portions of a closed portfolio of AFS debt securities, using the portfolio layer method. Refer to Note 12 for additional information.

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

						September 30, 2023																								December 31, 2022
(in thousands)						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Loss						Fair Value						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Loss						Fair Value
ABS						$	34,419					$	—					$	(538)					$	33,881					$	52,201					$	—					$	(967)					$	51,234
MBS:
GNMA - Residential						2,801,190						100						(564,468)						2,236,822						2,968,753						768						(492,643)						2,476,878
GNMA - Commercial						4,872,614						582						(918,371)						3,954,825						4,988,848						1,625						(656,952)						4,333,521
FHLMC and FNMA - Residential						1,445,144						—						(183,826)						1,261,318						1,539,416						243						(128,007)						1,411,652
Total investments in debt securities HTM						$	9,153,367					$	682					$	(1,667,203)					$	7,486,846					$	9,549,218					$	2,636					$	(1,278,569)					$	8,273,285

As of September 30, 2023 and December 31, 2022, the Company had investment securities with an estimated carrying value of $13.5 billion and $5.8 billion, respectively, pledged as collateral, which were comprised of the following: $7.5 billion and $2.7 billion, respectively, were pledged as collateral for the Company's borrowing capacity with the FRB; $3.0 billion and $2.7 billion, respectively, were pledged to secure public fund deposits; $2.5 billion and zero, respectively, were pledged as collateral for the Company's borrowing capacity with the FHLB, $112.1 million and $51.2 million, respectively, were pledged to various independent parties to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; and $393.3 million and $418.0 million, respectively, were pledged to secure the Company's customer overnight sweep product. There were no amounts pledged to secure repurchase agreements in which the secured party has the right to sell or repledge the collateral as of September 30, 2023 or December 31, 2022. The Company also participates in Securities Financing Activities discussed further in Note 11 to these Condensed Consolidated Financial Statements.

At September 30, 2023 and December 31, 2022, the Company had $122.9 million and $80.4 million, respectively, of accrued interest related to investment securities which is included in the Other assets line of the Company's Condensed Consolidated Balance Sheets. No accrued interest related to investment securities was written off during the periods ended September 30, 2023 or December 31, 2022.

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NOTE 2. INVESTMENT SECURITIES (continued)

Contractual Maturity of Investments in Debt Securities

Contractual maturities of the Company’s investments in debt securities AFS at September 30, 2023 were as follows:

(in thousands)						Amortized Cost(1)						Fair Value
Due within one year						$	215,439					$	215,179
Due after 1 year but within 5 years						197,662						193,930
Due after 5 years but within 10 years						271,489						256,864
Due after 10 years						6,536,251						5,504,184
Total						$	7,220,841					$	6,170,157

(1) Does not include unallocated fair value hedge basis adjustment.

Contractual maturities of the Company’s investments in debt securities HTM at September 30, 2023 were as follows:

(in thousands)						Amortized Cost						Fair Value
Due within one year						$	—					$	—
Due after 1 year but within 5 years						19,350						18,821
Due after 5 years but within 10 years						20,100						19,761
Due after 10 years						9,113,917						7,448,264
Total						$	9,153,367					$	7,486,846

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

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

The following table presents the aggregate amount of unrealized losses on debt securities in the Company’s AFS investment portfolios classified according to the amount of time those securities have been in a continuous loss position as of the dates indicated:

						September 30, 2023																								December 31, 2022
						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						$	6,939					$	(5)					$	—					$	—					$	212,990					$	(2,481)					$	—					$	—
Corporate debt securities						180,504						(162)						99,896						(117)						365,702						(968)						—						—
ABS						6,913						(172)						495,366						(3,534)						269,158						(7,551)						221,508						(6,409)
MBS:
GNMA - Residential						1						—						2,814,681						(442,582)						1,269,413						(144,616)						1,811,609						(258,978)
GNMA - Commercial						—						—						525,541						(138,685)						149,717						(20,243)						425,711						(84,469)
FHLMC and FNMA - Residential						1,937						(222)						1,922,239						(460,869)						856,047						(82,515)						1,323,972						(311,802)
FHLMC and FNMA - Commercial						—						—						87,586						(4,367)						51,299						(3,099)						44,691						(1,009)
Total investments in debt securities AFS(1)						$	196,294					$	(561)					$	5,945,309					$	(1,050,154)					$	3,174,326					$	(261,473)					$	3,827,491					$	(662,667)

(1) Does not include unallocated fair value hedge basis adjustment.

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NOTE 2. INVESTMENT SECURITIES (continued)

The following table presents the aggregate amount of unrealized losses on debt securities in the Company’s HTM investment portfolios classified according to the amount of time those securities have been in a continuous loss position as of the dates indicated:

						September 30, 2023																								December 31, 2022
						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						$	25,626					$	(432)					$	8,256					$	(106)					$	37,510					$	(699)					$	13,725					$	(268)
MBS:
GNMA - Residential						117,238						(4,406)						2,116,871						(560,062)						775,414						(86,237)						1,598,422						(406,406)
GNMA - Commercial						70,360						(1,463)						3,861,562						(916,908)						2,208,789						(255,345)						2,052,433						(401,607)
FHLMC and FNMA - Residential						60,602						(534)						1,200,715						(183,292)						1,343,276						(128,007)						—						—
Total investments in debt securities HTM						$	273,826					$	(6,835)					$	7,187,404					$	(1,660,368)					$	4,364,989					$	(470,288)					$	3,664,580					$	(808,281)

Allowance for credit-related losses on AFS and HTM securities

The Company did not record an allowance for credit-related losses on AFS or HTM securities at September 30, 2023 or December 31, 2022. As discussed in Note 1 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for 2022, securities for which management expects risk of nonpayment of the amortized cost basis is zero do not have a reserve.

For securities that do not qualify for the zero credit loss expectation exception, management has concluded that the unrealized losses are not credit-related since (1) they are not related to the underlying credit quality of the issuers, (2) the entire contractual principal and interest due on these securities is currently expected to be recoverable, (3) the Company does not intend to sell these investments at a loss and (4) it is more likely than not that the Company will not be required to sell the investments before recovery of the amortized cost basis, which for the Company's debt securities may be at maturity.

Gains (Losses) and Proceeds on Sales of Investment Securities

Proceeds from sales of investment securities and the realized gross gains and losses from those sales were as follows for the periods indicated:

						Three months ended September 30,												Nine months ended September 30,
(in thousands)						2023						2022						2023						2022
Proceeds from the sales of AFS securities						$	—					$	333,584					$	211,171					$	530,832
AFS debt and other securities:
Gross realized gains						$	—					$	—					$	192					$	—
Gross realized losses						—						(27,038)						(4,809)						(27,038)
Net realized gains/(losses) on AFS and other securities						$	—					$	(27,038)					$	(4,617)					$	(27,038)
Total trading securities gains/(losses)						37,048						8,444						113,173						20,679
Total equity securities gains/(losses)						—						—						—						12,480
Total realized gains/(losses) in income from investments						$	37,048					$	(18,594)					$	108,556					$	6,121

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

Trading Securities

The Company held $8.5 billion of trading securities as of September 30, 2023, compared to $5.9 billion held at December 31, 2022. Gains and losses on trading securities are recorded within Net gain on sale of investment securities on the Company's Condensed Consolidated Statements of Operations. At September 30, 2023, the Company had $7.8 billion of assets classified as trading securities pledged as collateral to counterparties that have the right to repledge these securities.

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NOTE 2. INVESTMENT SECURITIES (continued)

Other Investments

Other investments consisted of the following as of the dates indicated:

(in thousands)						September 30, 2023						December 31, 2022
FHLB of Pittsburgh and FRB stock						$	646,685					$	519,294
LIHTC investments						570,453						492,706
Equity securities not held for trading (1)						60,995						104,161
Interest-bearing deposits with an affiliate bank						200,000						—
Total						$	1,478,133					$	1,116,161

(1)    Includes $2.6 million and $2.4 million of equity certificates related to an off-balance sheet securitization as of September 30, 2023 and December 31, 2022, respectively.

Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the FRB. These stocks do not have readily determinable fair values because their ownership is restricted and there is no market for their sale. The stocks can be sold back only at their par value of $100 per share, and FHLB stock can be sold back only to the FHLB or to another member institution. Accordingly, these stocks are carried at cost. During the three months and nine months ended September 30, 2023, the Company purchased $0.3 million and $424.5 million of FHLB stock at par, and redeemed $65.5 million and $304.5 million of FHLB stock at par. The Company purchased $2.9 million and $7.4 million of FRB stock at par, and redeemed no FRB stock at par during the three months and nine months ended September 30, 2023. There was no gain or loss associated with these redemptions.

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

Interest-bearing deposits include deposits maturing in more than 90 days with Santander affiliates that are not consolidated.

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

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NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Overall

The Company's LHFI are generally reported at their outstanding principal balances net of any cumulative charge-offs, unamortized deferred fees and costs and unamortized premiums or discounts. Certain LHFI are accounted for at fair value under the FVO. Certain loans are pledged as collateral for borrowings, securitizations, or SPEs. These loans totaled $62.2 billion at September 30, 2023 and $50.0 billion at December 31, 2022.

Loans that the Company intends to sell are classified as LHFS. The LHFS portfolio balance at September 30, 2023 was $435.8 million, compared to $99.6 million at December 31, 2022. For a discussion on the valuation of LHFS at fair value, see Note 13 to these Condensed Consolidated Financial Statements. During the period ended September 30, 2023, the Company reclassified approximately $317.8 million of Commercial auto loans to HFS, resulting in an immaterial loss recorded in non-interest income.

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 generally over the contractual life of the loan utilizing the interest method. Loan origination costs and fees and premiums and discounts on RICs are deferred and recognized in interest income over their estimated lives using estimated prepayment speeds, which are updated on a monthly basis. At September 30, 2023 and December 31, 2022, accrued interest receivable on the Company's loans was $612.0 million and $566.8 million, respectively.

Loan and Lease Portfolio Composition

The following presents the composition of loans and leases HFI by portfolio and by rate type as of the dates indicated:

						September 30, 2023												December 31, 2022
(dollars in thousands)						Amount						Percent						Amount						Percent
Commercial LHFI:
CRE loans						$	8,586,705					8.9		%				$	7,971,299					8.2		%
C&I loans						12,337,891						12.9		%				14,811,074						15.2		%
Multifamily loans						10,832,680						11.3		%				9,629,423						9.9		%
Other commercial(2)						7,381,924						7.7		%				7,982,107						8.2		%
Total commercial LHFI						$	39,139,200					40.8		%				$	40,393,903					41.5		%
Consumer loans secured by real estate:
Residential mortgages						4,908,746						5.1		%				5,202,862						5.3		%
Home equity loans and lines of credit						2,556,814						2.7		%				3,002,804						3.1		%
Total consumer loans secured by real estate						$	7,465,560					7.8		%				$	8,205,666					8.4		%
Consumer loans not secured by real estate:
RICs and auto loans						44,897,647						46.7		%				44,577,186						45.8		%
Personal unsecured loans						4,430,676						4.6		%				4,068,848						4.2		%
Other consumer(3)						66,858						0.1		%				92,726						0.1		%
Total consumer loans						$	56,860,741					59.2		%				$	56,944,426					58.5		%
Total LHFI(1)						$	95,999,941					100.0		%				$	97,338,329					100.0		%
Total LHFI:
Fixed rate						$	67,341,300					70.1		%				$	67,693,444					69.5		%
Variable rate						28,658,641						29.9		%				29,644,885						30.5		%
Total LHFI(1)						$	95,999,941					100.0		%				$	97,338,329					100.0		%

(1)Total LHFI includes unamortized deferred loan fees, net of deferred origination costs; unamortized purchase premiums, net of discounts; unamortized participation fees; accretable subvention; as well as purchase accounting adjustments. These items resulted in a net adjustment to the loan balances of $488.8 million and $286.7 million as of September 30, 2023 and December 31, 2022, respectively.

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

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

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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 was as follows for the periods indicated:

						Three months ended September 30, 2023
(in thousands)						Commercial						Consumer												Total
ALLL, beginning of period						$	580,242					$	6,152,709											$	6,732,951
Credit loss expense						50,955						818,206												869,161
Charge-offs						(23,450)						(1,214,639)												(1,238,089)
Recoveries						14,781						605,662												620,443
Charge-offs, net of recoveries						$	(8,669)					$	(608,977)											$	(617,646)
ALLL, end of period						$	622,528					$	6,361,938											$	6,984,466
Reserve for unfunded lending commitments, beginning of period						$	78,446					$	7,281											$	85,727
Credit loss (benefit) on unfunded lending commitments						(11,645)						(1,224)												(12,869)
Reserve for unfunded lending commitments, end of period						$	66,801					$	6,057											$	72,858
Total ACL, end of period						$	689,329					$	6,367,995											$	7,057,324
						Three months ended September 30, 2022
(in thousands)						Commercial						Consumer												Total
ALLL, beginning of period						$	568,906					$	5,986,343											$	6,555,249
Credit loss expense						34,872						605,329												640,201
Charge-offs						(35,108)						(1,094,742)												(1,129,850)
Recoveries						11,136						598,374												609,510
Charge-offs, net of recoveries						$	(23,972)					$	(496,368)											$	(520,340)
ALLL, end of period						$	579,806					$	6,095,304											$	6,675,110
Reserve for unfunded lending commitments, beginning of period						$	75,712					$	10,461											$	86,173
Credit loss (benefit) on unfunded lending commitments						(2,609)						(1,186)												(3,795)
Reserve for unfunded lending commitments, end of period						$	73,103					$	9,275											$	82,378
Total ACL, end of period						$	652,909					$	6,104,579											$	6,757,488

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

						Nine months ended September 30, 2023
(in thousands)						Commercial						Consumer						Total
ALLL, beginning of period						$	562,216					$	6,217,783					$	6,779,999
Day 1: Adjustment to allowance for adoption of ASU 2022-02						4,986						50,254						55,240
Credit loss expense						79,974						1,540,293						1,620,267
Charge-offs						(71,539)						(3,380,617)						(3,452,156)
Recoveries						46,891						1,934,225						1,981,116
Charge-offs, net of recoveries						$	(24,648)					$	(1,446,392)					$	(1,471,040)
ALLL, end of period						$	622,528					$	6,361,938					$	6,984,466
Reserve for unfunded lending commitments, beginning of period						$	77,709					$	7,873					$	85,582
Credit loss (benefit) on unfunded lending commitments						(10,908)						(1,816)						(12,724)
Reserve for unfunded lending commitments, end of period						$	66,801					$	6,057					$	72,858
Total ACL, end of period						$	689,329					$	6,367,995					$	7,057,324
						Nine months ended September 30, 2022
(in thousands)						Commercial						Consumer						Total
ALLL, beginning of period						$	567,309					$	5,894,101					$	6,461,410
Credit loss expense						35,276						1,243,856						1,279,132
Charge-offs						(65,728)						(2,795,839)						(2,861,567)
Recoveries						42,949						1,753,186						1,796,135
Charge-offs, net of recoveries						$	(22,779)					$	(1,042,653)					$	(1,065,432)
ALLL, end of period						$	579,806					$	6,095,304					$	6,675,110
Reserve for unfunded lending commitments, beginning of period						$	91,191					$	12,903					$	104,094
Credit loss (benefit) on unfunded lending commitments						(18,088)						(3,628)						(21,716)
Reserve for unfunded lending commitments, end of period						$	73,103					$	9,275					$	82,378
Total ACL, end of period						$	652,909					$	6,104,579					$	6,757,488

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

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

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

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

The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustments for macroeconomic uncertainty and considers adjustments to macroeconomic inputs and outputs based on market volatility. The baseline scenario was based on the latest consensus forecasts available which showed an improvement in key variables in the current quarter, including an expected improvement in unemployment rates (which is a key driver to losses) and the GDP growth rate, offset by expected worsening of the commercial real estate outlook, indicating that there may be challenges ahead. The unemployment rate and used vehicle price index, which is a measure of wholesale used car price trends, are considered the most significant variables. Using the weighted-average of a range of economic forecast scenarios, we estimated at September 30, 2023 that the unemployment rate is expected to be approximately 4.2%, better than our previous estimate of 5.1% at December 31, 2022. Additionally, the weighted used vehicle index, where a higher number corresponds to a higher used car price at auction, is estimated at September 30, 2023 to be approximately 208 at the end of 2023 compared to our estimate at December 31, 2022 of approximately 183 for that period. While the economy saw significant recovery in 2022 and into 2023, there is still considerable uncertainty regarding overall lifetime loss estimates due to inflation and high interest rates.

The Company's ACL was $7.1 billion at September 30, 2023, an increase of $191.7 million from December 31, 2022. The increase in the ACL was primarily driven by a deterioration in the personal unsecured lending and CRE (including multifamily) portfolio, partially offset by improvement in the macroeconomic outlook for certain macro variables such as unemployment rate and used vehicle price index. The ACL for the consumer segment increased by $142.3 million, and the ACL for the commercial segment increased $49.4 million, for the period ended September 30, 2023 compared to December 31, 2022.

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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 non-accrual and other non-performing assets disaggregated by class of financing receivables (as well as the amount of non-accrual loans for which no related allowance is recorded) are as follows at the dates indicated:

						Non-accrual loans and other non-performing assets as of:(1)												Non-accrual loans with no related allowance
(in thousands)						September 30, 2023						December 31, 2022						September 30, 2023						December 31, 2022
Non-accrual loans:
Commercial:
CRE						$	92,107					$	62,093					$	24,866					$	19,694
C&I						143,147						94,299						43,406						11,257
Multifamily						44,136						18,476						—						18,214
Other commercial						4,935						5,180						—						674
Total commercial loans						$	284,325					$	180,048					$	68,272					$	49,839
Consumer:
Residential mortgages						59,247						75,666						5,957						30,337
Home equity loans and lines of credit						88,927						82,664						16,107						37,755
RICs and auto loans						1,961,943						1,986,748						166,361						179,319
Personal unsecured loans						20,950						10,397						149						—
Other consumer						12,190						5,332						112						129
Total consumer loans						$	2,143,257					$	2,160,807					$	188,686					$	247,540
Total non-accrual loans						$	2,427,582					$	2,340,855					$	256,958					$	297,379
OREO						24,716						4,437						—						—
Repossessed vehicles						268,790						229,531						—						—
Foreclosed and other repossessed assets						2,169						1,128						—						—
Total OREO and other repossessed assets						$	295,675					$	235,096					$	—					$	—
Total non-performing assets						$	2,723,257					$	2,575,951					$	256,958					$	297,379
(1) Interest income recognized on a cash basis on nonaccrual loans was $54.8 million and $146.3 million for the three months and nine months ended September 30, 2023, respectively, and $45.1 million and $117.0 million for the three months and nine months ended September 30, 2022, 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 at the dates indicated:

As of:						September 30, 2023
(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(2)						$	65,927					$	3,340					$	69,267					$	8,517,438					$	8,586,705					$	—
C&I(1)						76,166						36,276						112,442						12,660,769						12,773,211						—
Multifamily						8,335						42,493						50,828						10,781,852						10,832,680						—
Other commercial						73,635						2,519						76,154						7,305,770						7,381,924						—
Consumer:
Residential mortgages(3)						85,136						51,379						136,515						4,772,719						4,909,234						—
Home equity loans and lines of credit						30,837						73,616						104,453						2,452,361						2,556,814						—
RICs and auto loans						4,811,324						382,095						5,193,419						39,704,228						44,897,647						—
Personal unsecured loans						77,333						37,431						114,764						4,315,912						4,430,676						5,513
Other consumer						2,153						367						2,520						64,339						66,859						—
Total						$	5,230,846					$	629,516					$	5,860,362					$	90,575,388					$	96,435,750					$	5,513

(1) C&I loans includes $435.3 million of LHFS at September 30, 2023.

(2) CRE loans includes no LHFS at September 30, 2023.

(3) Residential mortgages includes $488 thousand of LHFS at September 30, 2023.

As of:						December 31, 2022
(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(2)						$	6,971					$	3,972					$	10,943					$	7,971,986					$	7,982,929					$	—
C&I (1)						48,763						21,884						70,647						14,827,803						14,898,450						—
Multifamily						21,423						—						21,423						9,608,000						9,629,423						—
Other commercial						34,071						2,506						36,577						7,945,530						7,982,107						—
Consumer:
Residential mortgages(3)						76,167						68,237						144,404						5,059,007						5,203,411						—
Home equity loans and lines of credit						37,192						64,107						101,299						2,901,505						3,002,804						—
RICs and auto loans						4,581,952						345,316						4,927,268						39,649,918						44,577,186						—
Personal unsecured loans						42,691						18,620						61,311						4,007,537						4,068,848						3,719
Other consumer						3,752						386						4,138						88,588						92,726						—
Total						$	4,852,982					$	525,028					$	5,378,010					$	92,059,874					$	97,437,884					$	3,719

(1)C&I loans included $87.4 million of LHFS at December 31, 2022.

(2)CRE loans includes $11.6 million of LHFS at December 31, 2022.

(3) Residential mortgages included $549 thousand of LHFS at December 31, 2022.

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

Commercial Lending Asset Quality Indicators

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

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

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

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

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

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

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

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

September 30, 2023						Commercial Loan Portfolio (2)
(dollars in thousands)						Amortized Cost by Origination Year
Regulatory Rating:						2023(1)						2022						2021						2020						2019						Prior						Total (3)
CRE
Pass						$	287,255					$	1,738,952					$	1,814,006					$	1,185,729					$	868,773					$	1,533,774					$	7,428,489
Special mention						—						153,954						57,197						60,724						99,636						65,321						436,832
Substandard						—						—						186,598						107,450						112,372						265,628						672,048
Doubtful						—						—						—						—						49,336						—						49,336
Total CRE						$	287,255					$	1,892,906					$	2,057,801					$	1,353,903					$	1,130,117					$	1,864,723					$	8,586,705
Current period gross write-offs - CRE						$	—					$	—					$	627					$	—					$	8,168					$	1,126					$	9,921
C&I(2)
Pass						$	939,826					$	3,375,309					$	1,948,873					$	1,327,250					$	1,020,996					$	2,384,350					$	10,996,604
Special mention						3,027						78,886						18,543						2,804						42,798						112,060						258,118
Substandard						—						11,880						94,607						64,695						10,498						293,470						475,150
N/A						235,486						459,571						215,780						75,586						48,171						8,745						1,043,339
Total C&I						$	1,178,339					$	3,925,646					$	2,277,803					$	1,470,335					$	1,122,463					$	2,798,625					$	12,773,211
Current period gross write-offs - C&I						$	2,071					$	16,621					$	10,603					$	3,937					$	6,045					$	16,911					$	56,188
Multifamily
Pass						$	1,239,569					$	3,154,637					$	1,453,801					$	1,039,354					$	1,452,268					$	1,318,897					$	9,658,526
Special mention						—						47,869						123,430						9,726						118,172						121,923						421,120
Substandard						—						207,755						79,048						61,372						161,574						243,285						753,034
Total multifamily						$	1,239,569					$	3,410,261					$	1,656,279					$	1,110,452					$	1,732,014					$	1,684,105					$	10,832,680
Current period gross write-offs - Multifamily						$	—					$	—					$	—					$	—					$	—					$	1,422					$	1,422
Remaining commercial
Pass						$	2,397,482					$	1,850,713					$	1,310,227					$	589,256					$	283,304					$	934,032					$	7,365,014
Special mention						—						226						4,484						—						—						3,825						8,535
Substandard						14						1,047						1,223						912						898						4,281						8,375
Total remaining commercial						$	2,397,496					$	1,851,986					$	1,315,934					$	590,168					$	284,202					$	942,138					$	7,381,924
Current period gross write-offs - Remaining commercial						$	205					$	—					$	—					$	—					$	—					$	3,803					$	4,008
Total commercial loans
Pass						$	4,864,132					$	10,119,611					$	6,526,907					$	4,141,589					$	3,625,341					$	6,171,053					$	35,448,633
Special mention						3,027						280,935						203,654						73,254						260,606						303,129						1,124,605
Substandard						14						220,682						361,476						234,429						285,342						806,664						1,908,607
Doubtful						—						—						—						—						49,336						—						49,336
N/A						235,486						459,571						215,780						75,586						48,171						8,745						1,043,339
Total commercial loans						$	5,102,659					$	11,080,799					$	7,307,817					$	4,524,858					$	4,268,796					$	7,289,591					$	39,574,520
Current period gross write-offs - Total commercial						$	2,276					$	16,621					$	11,230					$	3,937					$	14,213					$	23,262					$	71,539

(1)Loans originated during the nine months ended September 30, 2023.

(2)Includes $435.3 million of LHFS at September 30, 2023.

(3)Includes $177.2 million revolving loans converted to term loans.

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

December 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						$	1,155,364					$	1,699,342					$	1,607,481					$	1,053,514					$	678,388					$	1,130,533					$	7,324,622
Special mention						—						—						8,898						87,698						87,446						45,745						229,787
Substandard						—						47,337						45,843						91,346						100,372						143,622						428,520
Total CRE						$	1,155,364					$	1,746,679					$	1,662,222					$	1,232,558					$	866,206					$	1,319,900					$	7,982,929
C&I(2)
Pass						$	3,775,592					$	2,350,233					$	1,947,040					$	1,409,378					$	1,463,998					$	2,032,455					$	12,978,696
Special mention						96,074						16,032						65,864						46,573						8,542						77,027						310,112
Substandard						16,344						112,366						34,765						8,189						94,882						147,716						414,262
N/A						627,338						324,260						136,426						87,095						17,355						2,906						1,195,380
Total C&I						$	4,515,348					$	2,802,891					$	2,184,095					$	1,551,235					$	1,584,777					$	2,260,104					$	14,898,450
Multifamily
Pass						$	3,389,302					$	1,491,469					$	826,887					$	1,520,926					$	673,355					$	889,352					$	8,791,291
Special mention						—						70,869						25,560						52,534						42,430						113,535						304,928
Substandard						—						12,962						64,562						110,378						212,726						132,576						533,204
Total multifamily						$	3,389,302					$	1,575,300					$	917,009					$	1,683,838					$	928,511					$	1,135,463					$	9,629,423
Remaining commercial
Pass						$	3,488,006					$	1,853,056					$	982,849					$	580,025					$	248,510					$	823,200					$	7,975,646
Special mention						—						1,279						—						—						—						—						1,279
Substandard						235						814						1,052						971						984						1,126						5,182
Total remaining commercial						$	3,488,241					$	1,855,149					$	983,901					$	580,996					$	249,494					$	824,326					$	7,982,107
Total commercial loans
Pass						$	11,808,264					$	7,394,100					$	5,364,257					$	4,563,843					$	3,064,251					$	4,875,540					$	37,070,255
Special mention						96,074						88,180						100,322						186,805						138,418						236,307						846,106
Substandard						16,579						173,479						146,222						210,884						408,964						425,040						1,381,168
N/A						627,338						324,260						136,426						87,095						17,355						2,906						1,195,380
Total commercial loans						$	12,548,255					$	7,980,019					$	5,747,227					$	5,048,627					$	3,628,988					$	5,539,793					$	40,492,909

(1)Loans originated during the year ended December 31, 2022.

(2)Includes $99.0 million of LHFS at December 31, 2022.

(3)Includes $224.2 million revolving loans converted to term loans.

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

Consumer Lending Asset Quality Indicators-Credit Score

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

As of September 30, 2023						RICs and auto loans
(dollars in thousands)						Amortized Cost by Origination Year(3)
Credit Score Range						2023(1)						2022						2021						2020						2019						Prior						Total			Percent
No FICO(2)						$	1,014,539					$	919,854					$	508,430					$	249,932					$	144,650					$	84,806					$	2,922,211		6.5		%
<600						4,428,390						4,680,559						3,137,394						1,429,398						912,410						589,354						15,177,505			33.8		%
600-639						2,823,985						2,808,325						1,496,933						590,344						359,524						182,536						8,261,647			18.4		%
>=640						5,589,656						6,068,335						4,049,187						1,703,705						874,467						250,934						18,536,284			41.3		%
Total						$	13,856,570					$	14,477,073					$	9,191,944					$	3,973,379					$	2,291,051					$	1,107,630					$	44,897,647		100.0		%
Current period gross write-offs - RICs and auto loans						$	182,827					$	1,518,763					$	834,770					$	291,775					$	194,420					$	156,947					$	3,179,502

(1)    Loans originated during the nine months ended September 30, 2023.

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

(3)    Excludes LHFS.

As of December 31, 2022						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)						$	1,390,093					$	773,434					$	385,534					$	236,876					$	120,243					$	81,560					$	2,987,740		6.7		%
<600						6,427,169						4,479,653						2,120,477						1,418,891						757,190						399,144						15,602,524			35.0		%
600-639						3,801,538						2,142,540						878,099						570,636						264,720						102,409						7,759,942			17.4		%
>=640						8,192,528						5,633,422						2,497,563						1,445,413						356,267						101,787						18,226,980			40.9		%
Total						$	19,811,328					$	13,029,049					$	5,881,673					$	3,671,816					$	1,498,420					$	684,900					$	44,577,186		100.0		%

(1)    Loans originated during the year ended December 31, 2022.

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

(3)    Excludes LHFS.

As of September 30, 2023						Personal Unsecured loans
(dollars in thousands)						Amortized Cost by Origination Year
Credit Score Range						2023(1)						2022						2021						2020						2019						Prior						Total			Percent
No FICO(2)						$	8,684					$	—					$	—					$	—					$	—					$	55					$	8,739		0.2		%
<600						—						9						35						7						—						1,513						1,564			—		%
600-639						8,263						12,638						1,126						361						444						4,076						26,908			0.6		%
>=640						1,715,862						1,856,773						645,675						50,590						22,491						102,074						4,393,465			99.2		%
Total						$	1,732,809					$	1,869,420					$	646,836					$	50,958					$	22,935					$	107,718					$	4,430,676		100.0		%
Current period gross write-offs - Personal unsecured loans						$	7,416					$	108,581					$	51,297					$	3,351					$	1,501					$	3,921					$	176,067

(1)    Loans originated during the nine months ended September 30, 2023.

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

As of December 31, 2022						Personal Unsecured loans
(dollars in thousands)						Amortized Cost by Origination Year
Credit Score Range						2022(1)						2021						2020						2019						2018						Prior						Total			Percent
No FICO(2)						$	9,044					$	—					$	—					$	—					$	—					$	73					$	9,117		0.2		%
<600						33						8						22						19						43						1,605						1,730			—		%
600-639						18,430						1,745						629						790						383						4,164						26,141			0.6		%
>=640						2,663,981						1,085,026						93,544						38,661						41,062						109,586						4,031,860			99.2		%
Total						$	2,691,488					$	1,086,779					$	94,195					$	39,470					$	41,488					$	115,428					$	4,068,848		100.0		%

(1)    Loans originated during the year ended December 31, 2022.

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

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

Consumer Lending Asset Quality Indicators-FICO and LTV Ratio

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

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

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

As of September 30, 2023						Amortized Cost by Origination Year (4)
(dollars in thousands)
Residential mortgages						2023(1)			2022			2021			2020			2019			Prior						Grand Total						Revolving Loans
LTV Ratios (3)
No LTV available (2)						$	—		$	—		$	—		$	—		$	—		$	1,892					$	1,892					$	—
<= 70%						—			184,765			1,015,117			894,176			603,408			2,028,642						4,726,108						—
70.01% - 110%						—			91,684			82,202			—			275			6,207						180,368						—
Greater than 110%						—			—			—			—			—			378						378						—
Total residential mortgages						$	—		$	276,449		$	1,097,319		$	894,176		$	603,683		$	2,037,119					$	4,908,746					$	—
FICO Scores
No FICO score available						$	—		$	—		$	—		$	—		$	—		$	2,663					$	2,663					$	—
<600						—			7,774			16,019			11,633			26,720			111,624						173,770						—
600-679						—			24,290			46,575			33,023			49,534			186,720						340,142						—
680-759						—			76,319			255,748			213,194			173,447			546,338						1,265,046						—
>=760						—			168,066			778,977			636,326			353,982			1,189,774						3,127,125						—
Total residential mortgages						$	—		$	276,449		$	1,097,319		$	894,176		$	603,683		$	2,037,119					$	4,908,746					$	—
Current period gross write-offs - Residential mortgages						$	—		$	33		$	—		$	—		$	16		$	62					$	111
Home equity
LTV Ratios
No LTV available (2)						$	—		$	1,731		$	3,586		$	3,063		$	3,700		$	55,597					$	67,677					$	42,626
<= 70%						—			40,109			173,248			186,655			234,893			1,823,528						2,458,433						2,380,662
70.01% - 110%						—			8,744			2,708			349			23			16,067						27,891						26,605
Greater than 110%						—			667			331			—			—			1,815						2,813						2,813
Total home equity						$	—		$	51,251		$	179,873		$	190,067		$	238,616		$	1,897,007					$	2,556,814					$	2,452,706
FICO Scores
No FICO score available						$	—		$	713		$	2,502		$	2,644		$	3,319		$	53,810					$	62,988					$	37,951
<600						—			381			2,334			3,778			6,073			125,786						138,352						122,068
600-679						—			3,650			8,233			10,488			22,143			231,539						276,053						256,165
680-759						—			17,773			62,160			63,735			74,276			608,536						826,480						809,298
>=760						—			28,734			104,644			109,422			132,805			877,336						1,252,941						1,227,224
Total home equity						$	—		$	51,251		$	179,873		$	190,067		$	238,616		$	1,897,007					$	2,556,814					$	2,452,706
Current period gross write-offs - Home equity						$	—		$	—		$	—		$	12		$	11		$	666					$	689

(1) Loans originated during the nine months ended September 30, 2023. The Company ceased origination of new residential mortgage and home equity loans in 2022.

(2) Balances in the "No LTV available" or "No FICO score available" ranges primarily represent loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.

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

(4) Excludes LHFS

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

As of December 31, 2022						Amortized Cost by Origination Year (4)
(dollars in thousands)
Residential mortgages						2022(1)			2021			2020			2019			2018			Prior						Grand Total						Revolving Loans
LTV Ratios (3)
No LTV available (2)						$	3,643		$	—		$	—		$	—		$	—		$	2,452					$	6,095					$	—
<= 70%						152,701			1,002,042			909,631			632,589			301,007			1,894,872						4,892,842						—
70.01% - 110%						124,348			138,416			26,284			1,109			133			12,117						302,407						—
Greater than 110%						—			—			—			—			—			1,518						1,518						—
Total residential mortgages						$	280,692		$	1,140,458		$	935,915		$	633,698		$	301,140		$	1,910,959					$	5,202,862					$	—
FICO Scores
No FICO score available						$	—		$	—		$	—		$	—		$	—		$	3,797					$	3,797					$	—
<600						4,142			11,386			10,011			26,269			19,036			99,192						170,036						—
600-679						31,150			38,784			39,880			55,183			34,099			187,788						386,884						—
680-759						78,838			270,703			234,685			180,914			104,859			516,661						1,386,660						—
>=760						166,562			819,585			651,339			371,332			143,146			1,103,521						3,255,485						—
Total residential mortgages						$	280,692		$	1,140,458		$	935,915		$	633,698		$	301,140		$	1,910,959					$	5,202,862					$	—
Home equity
LTV Ratios
No LTV available (2)						$	1,732		$	2,761		$	3,097		$	3,501		$	4,620		$	58,329					$	74,040					$	46,632
<= 70%						40,187			181,790			210,585			266,668			342,939			1,826,910						2,869,079						2,786,266
70.01% - 110%						10,626			16,561			490			73			24			27,879						55,653						53,482
Greater than 110%						1,066			667			—			—			—			2,299						4,032						4,032
Total home equity						$	53,611		$	201,779		$	214,172		$	270,242		$	347,583		$	1,915,417					$	3,002,804					$	2,890,412
FICO Scores
No FICO score available						$	686		$	2,582		$	2,764		$	3,458		$	4,497		$	55,902					$	69,889					$	42,490
<600						150			1,900			2,384			5,037			14,119			118,276						141,866						123,744
600-679						1,715			7,591			11,629			22,646			34,051			244,795						322,427						302,644
680-759						17,796			68,756			69,834			85,248			112,138			612,141						965,913						942,837
>=760						33,264			120,950			127,561			153,853			182,778			884,303						1,502,709						1,478,697
Total home equity						$	53,611		$	201,779		$	214,172		$	270,242		$	347,583		$	1,915,417					$	3,002,804					$	2,890,412

(1) Loans originated during the year ended December 31, 2022.

(2) Balances in the "No LTV available" or "No FICO score available" ranges primarily represent loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.

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

(4) Excludes LHFS.

During the nine months ended September 30, 2023, the Company reported $24.2 million in gross charge-offs related to other consumer portfolios.

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

Loan Modifications

Occasionally the Company modifies loans to customers in financial difficulty by providing term extensions, payment deferrals, and interest rate reductions. When a loan is modified, the related unamortized net fees and costs and any prepayment penalties are carried forward and any fees received, and direct loan origination costs associated with the refinancing or restructuring are deferred. Additionally, the EIR is recalculated based upon the amortized cost basis of the modified loan and its revised contractual cash flows. If the modification results in a new loan, unamortized fees and costs from the original loan are recognized into income.

All of the Company’s commercial loan modifications are based on the circumstances of the individual customer, including specific customers' complete relationship with the Company. Loan terms are modified to meet each borrower’s specific circumstances at a point in time and may allow for modifications such as term extensions, covenant waivers, payment holidays and interest rate reductions. Commercial loan modifications are generally restructured to allow for an upgraded risk rating and return to accrual status after a sustained period of payment performance has been achieved (typically 12 months for monthly payment schedules).

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

For RICs and auto loans, the Company at times offers deferrals under which the consumer is allowed to defer a maximum of three payments per event to the end of the loan. We limit the frequency of each new deferral that may be granted to one deferral after completion of at least eight payments from origination and eight payments between each extension. The maximum number of months extended for the life of the loan for all automobile RICs is eight for non-natural disaster extensions and twelve for natural disaster extensions. Some marine and RV contracts also have a maximum of twelve months extension to reflect their longer terms. Additionally, we generally limit the granting of deferrals on new accounts until a requisite number of payments has been received. During the deferral period, we continue to accrue and collect interest on the loan in accordance with the terms of the deferral agreement. Some auto loan modifications include a reduction of the interest rate and may include an extension of term to eligible borrowers at risk of default and repossession of the financed vehicle.

When estimating the ACL, the Company uses a statistical methodology based on an expected credit loss approach that focuses on forecasting the expected credit loss components (i.e., PD, payoff, LGD and EAD) on a loan level basis to estimate the expected future lifetime losses. This methodology generally does not change when loans are modified. However, the Company monitors credit quality indicators and delinquency, and adjusts the allowance as those factors change. The Company generally uses a DCF approach for large impaired commercial loans. For all collateral-dependent loans, the Company measures the ACL as the difference between the asset’s amortized cost basis and the fair value of the underlying collateral as of the reporting date, adjusted for expected costs to sell. Refer to Note 1 of our Annual Report on Form 10-K for 2022 for more information on the ACL.

The following table shows the amortized cost basis at the end of the reporting period for loans modified during the reporting period to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of modification granted. Short-term modifications (three months or less) are not included in these tables.

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

			Payment Deferral Only
			Three months ended												Nine months ended
			September 30, 2023												September 30, 2023
(dollars in thousands)			Amortized Cost						% of Total Class of Financing Receivable						Amortized Cost						% of Total Class of Financing Receivable
Commercial:
CRE			$	64,427					0.75		%				$	64,600					0.75		%
C&I			23,758						0.19		%				71,824						0.56		%
Multifamily			59,521						0.55		%				62,342						0.58		%
Consumer:
RICs and auto loans			261,306						0.58		%				608,640						1.36		%
Total			$	409,012					0.42		%				$	807,406					0.84		%

			All Other Modifications
			Three months ended												Nine months ended
			September 30, 2023												September 30, 2023
(dollars in thousands)			Amortized Cost						% of Total Class of Financing Receivable						Amortized Cost						% of Total Class of Financing Receivable
Commercial:
C&I			$	36,933					0.29		%				$	38,446					0.30		%
Other commercial			—						—		%				23						—		%
Consumer:
Residential mortgages			1,890						0.04		%				3,757						0.08		%
Home equity loans and lines of credit			1,167						0.05		%				3,865						0.15		%
RICs and auto loans			90,928						0.20		%				331,107						0.74		%
Total			$	130,918					0.14		%				$	377,198					0.39		%

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

The following table describes the financial effects of the modifications made to borrowers experiencing financial difficulty:

Loan Type			Modification Type			Financial Effect
RICs and auto loans			Payment deferral			Provide payment deferrals to borrowers through our deferral program, which allows a customer to defer payments for a maximum of up to eight months over the life of the loan. The deferred payments are added to the end of the original loan term.
Commercial loans			Payment deferral			Provide payment deferrals to commercial borrowers through our deferral program. The deferred payments are added to the end of the original loan term.
Consumer secured by real estate			All other modification types			Provide modifications consisting of a combination of term extension, interest rate reduction, and/or deferment of principal on a case-by-case basis to determine which benefit or combination of benefits will be offered to achieve the target DTI range.
RICs and auto loans			All other modification types			Provides reduction in interest rate and maturity date extension of up to 36 months beyond current maturity date resulting in reduction to monthly payment.

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

Performance of Modified Loans

The Company monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the current period:

			Amortized Cost
			As of September 30, 2023
(dollars in thousands)			Current						30-89 DPD						90+ DPD
Commercial:
CRE			$	64,600					$	—					$	—
C&I			82,602						27,378						290
Multifamily			56,627						—						5,715
Other commercial			23						—						—
Consumer:
Residential mortgages			3,202						555						—
Home equity loans and lines of credit			3,613						40						212
RICs and auto loans			649,146						266,772						23,829
Total			$	859,813					$	294,745					$	30,046

Payment Defaults Which Have Had a Prior Modification

A modified loan is generally considered to have subsequently defaulted if, after modification, the loan becomes 90 DPD. For RICs, a modified loan is considered to have subsequently defaulted after modification at the earlier of the date of repossession or 120 DPD. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Refer to Note 1 of our Annual Report on Form 10-K for 2022 for more information on the Company's charge-off policy. The following table provides the amortized cost basis of financing receivables that had a payment default during the period and were modified in the period before default due to the borrower's financial difficulty:

			Amortized Cost									Amortized Cost
			Three months ended									Year ended
			September 30, 2023									September 30, 2023
			Payment deferral						All other modification types			Payment deferral						All other modification types
Commercial:
C&I			$	391					$	93		$	548					$	118
Consumer:
RICs and auto loans			21,327						14,145			28,514						18,207
Total			$	21,718					$	14,238		$	29,062					$	18,325

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

TDR Loans

Prior to the adoption of ASU 2022-02 (as discussed in Note 1), the Company followed the TDR guidance effective at the time. The following table summarizes the Company’s performing and non-performing TDRs at the date indicated:

(in thousands)									December 31, 2022
Performing									$	2,694,007
Non-performing									478,431
Total (1)									$	3,172,438

(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 period indicated:

			Three months ended September 30, 2022
			Number of Contracts						Pre-TDR Recorded Investment(1)																											Post-TDR Recorded Investment(2)
			(dollars in thousands)
Commercial:
C&I			35						$	5,076																										$	5,082
Other commercial			3						1																											1
Consumer:
Residential mortgages(3)			3						1,264																											1,262
Home equity loans and lines of credit			9						953																											1,026
RICs and auto loans			13,392						247,175																											247,048
Total			13,442						$	254,469																										$	254,419
			Nine months ended September 30, 2022
(dollars in thousands)			Number of Contracts						Pre-TDR Recorded Investment(1)																											Post-TDR Recorded Investment(2)
Commercial:
CRE			45						$	7,465																										$	7,465
C&I			269						12,184																											12,192
Multi-family			17						7,168																											7,168
Other commercial			15						228																											228
Consumer:
Residential mortgages(3)			22						6,234																											6,232
Home equity loans and lines of credit			73						9,409																											9,786
RICs and auto loans			31,042						555,347																											554,822
Personal unsecured loans			2						23																											23
Other consumer			1						1,250																											1,250
Total			31,486						$	599,308																										$	599,166

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

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

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

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

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 period presented.

			Three months ended September 30,																											Nine months ended September 30,
						2022																		2022
(dollars in thousands)						Number of Contracts						Recorded Investment(1)																		Number of Contracts						Recorded Investment(1)
Commercial
Other commercial						—						$	—																	1						$	11
Consumer:
Residential mortgages						2						296																		82						$	28,945
Home equity loans and lines of credit						4						321																		39						5,268
RICs and auto loans						1,240						25,382																		4,143						78,390
Personal unsecured loans						—						—																		14						196
Other consumer						—						—																		2						57
Total						1,246						$	25,999																	4,281						$	112,867

(1)Represents the period-end balance.

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NOTE 4. OPERATING LEASE ASSETS, NET

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

Operating lease assets, net consisted of the following as of the periods indicated:

(in thousands)						September 30, 2023						December 31, 2022
Leased vehicles						$	17,591,391					$	18,241,836
Less: accumulated depreciation						(3,634,754)						(3,699,350)
Depreciated net capitalized cost						$	13,956,637					$	14,542,486
Manufacturer subvention payments, net of accretion						(545,781)						(447,009)
Origination fees and other costs						280,464						170,435
Leased vehicles, net						$	13,691,320					$	14,265,912
Commercial equipment vehicles and aircraft, gross						$	—					$	2,221
Less: accumulated depreciation						—						(1,022)
Commercial equipment vehicles and aircraft, net						$	—					$	1,199
Total operating lease assets, net						$	13,691,320					$	14,267,111

The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of September 30, 2023 (in thousands):

2023						$	599,881
2024						1,801,566
2025						1,044,025
2026						334,779
2027						4,683
Total						$	3,784,934

During the three months and nine months ended September 30, 2023, the Company recognized $12.9 million and $55.3 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, compared to $19.7 million and $66.0 million recognized during the three months and nine months ended September 30, 2022, respectively. 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 periods indicated:

(in thousands)						Auto						CBB						C&I						CRE						CIB																								Total
Goodwill at December 31, 2022						$	1,238,676					$	159,026					$	52,198					$	1,015,131					$	302,701																							$	2,767,732
Deferred tax acquisition adjustment						—						—						—						—						(1,067)																								(1,067)
Goodwill at September 30, 2023						$	1,238,676					$	159,026					$	52,198					$	1,015,131					$	301,634																							$	2,766,665

During the first quarter of 2023, there was an immaterial adjustment to the value of goodwill acquired in connection with the 2022 acquisition of PCH. During the three months and nine months ended September 30, 2023, there were no other additions, re-allocations, impairments, or disposals of goodwill.

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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, 2022 using generally accepted valuation methods. As a result of that impairment test, no goodwill impairment was identified.

Other Intangible Assets

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

						September 30, 2023												December 31, 2022
(in thousands)						Net Carrying Amount						Accumulated Amortization						Net Carrying Amount						Accumulated Amortization
Intangibles subject to amortization:
Dealer networks						$	242,833					$	(227,167)					$	260,458					$	(209,542)
Stellantis relationship						6,357						(132,393)						10,261						(128,489)
Other intangibles						47,550						(44,754)						55,914						(66,695)
Total intangibles subject to amortization						$	296,740					$	(404,314)					$	326,633					$	(404,726)

At September 30, 2023 and December 31, 2022, the Company did not have any intangibles, other than goodwill, that were not subject to amortization.

Amortization expense on intangible assets was $9.3 million and $29.9 million and $11.0 million and $36.0 million for the three months and nine months ended September 30, 2023 and 2022, 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)
2023						$	39,110					$	29,896					$	9,214
2024						37,954						—						37,954
2025						34,693						—						34,693
2026						32,496						—						32,496
2027						28,650						—						28,650
Thereafter						153,733						—						153,733

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NOTE 6. OTHER ASSETS

The following is a detail of items that comprised Other assets at the periods indicated:

(in thousands)						September 30, 2023						December 31, 2022
Operating lease ROU assets						$	446,008					$	532,667
Deferred tax assets						212,478						221,602
Accrued interest receivable						844,757						685,229
Derivative assets at fair value						1,755,704						1,390,218
Other real estate owned and other repossessed assets						295,675						235,096
Equity method investments						307,584						265,392
MSRs						104,523						107,383
Income tax receivables						379,118						400,063
Prepaid expense						520,996						223,815
Miscellaneous assets and receivables						783,743						684,985
Total Other assets						$	5,650,586					$	4,746,450

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 three months and nine months ended September 30, 2023, operating lease expenses were $34.5 million and $122.7 million, respectively, compared to $38.4 million and $100.6 million for the corresponding periods in 2022. Sublease income was $1.1 million and $3.0 million, respectively, for the three months and nine months ended September 30, 2023, compared to $1.1 million and $3.0 million for the corresponding periods in 2022. These are reported within Occupancy and equipment expenses in the Company’s Condensed Consolidated Statements of Operations.

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NOTE 6. OTHER ASSETS (continued)

Supplemental balance sheet information related to leases was as follows:

Maturity of Lease Liabilities at September 30, 2023						Total Operating leases
						(in thousands)
2023						$	36,181
2024						138,238
2025						114,096
2026						85,047
2027						72,865
Thereafter						126,472
Total lease liabilities						$	572,899
Less: Interest						(45,811)
Present value of lease liabilities						$	527,088

Supplemental Balance Sheet Information						September 30, 2023						December 31, 2022
Operating lease ROU assets						$446,008						$532,667
Other liabilities						$527,088						$607,432
Weighted-average remaining lease term (years)						5.7						6.0
Weighted-average discount rate						3.0%						3.0%

						Nine months ended September 30,
Other Information						2023						2022
						(in thousands)
Operating cash flows from operating leases(1)						$	(115,681)					$	(116,159)
Leased assets obtained in exchange for new operating lease liabilities						$	27,958					$	127,958

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

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

On-balance sheet VIEs

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

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

(in thousands)						September 30, 2023						December 31, 2022
Assets
Restricted cash						$	982,009					$	923,485
LHFI						26,300,656						27,138,450
Operating lease assets, net (1)						13,691,320						14,267,111
Various other assets						665,425						716,707
Total Assets						$	41,639,410					$	43,045,753
Liabilities
Notes payable						$	26,363,198					$	31,582,685
Various other liabilities						119,261						137,989
Total Liabilities						$	26,482,459					$	31,720,674

(1) As noted above, all leased vehicles are originated through a titling trust. At September 30, 2023 and December 31, 2022, $7.7 billion and $4.8 billion of leased vehicle assets included in this amount were in a titling trust, but not in a securitization trust.

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

As of September 30, 2023 and December 31, 2022, the Company was servicing $29.7 billion and $31.9 billion, respectively, of gross RICs that have been transferred to consolidated Trusts. Certain amounts shown above are greater than the amounts shown in the corresponding line items in the accompanying 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.

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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 for the periods indicated:

						Three months ended September 30,												Nine months ended September 30,
(in thousands)						2023						2022						2023						2022
Assets securitized						$	3,055,760					$	9,376,437					$	8,967,889					$	18,033,866
Net proceeds from new securitizations (1)						$	2,093,050					$	6,594,664					$	5,813,928					$	12,736,284
Net proceeds on retained bonds						339,690						912,632						935,479						1,942,378
Cash received for servicing fees (2)						231,757						229,978						701,264						691,407
Net distributions from Trusts (2)						734,192						893,756						2,156,206						3,100,654
Total cash received from Trusts						$	3,398,689					$	8,631,030					$	9,606,877					$	18,470,723

(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 three months and nine months ended September 30, 2023, the Company sold no gross RICs to third-party investors in off-balance sheet securitizations and recorded no gain or loss on securitization. During the three months and nine months ended September 30, 2022, the Company sold no gross RICs to third-party investors in off-balance sheet securitizations and recorded no gain or loss on securitization. Gains and losses on securitizations are recorded in Miscellaneous income, net, in the accompanying Condensed Consolidated Statements of Operations.

The Company was servicing gross RICs that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call as follows at the dates indicated:

(in thousands)																		September 30, 2023						December 31, 2022
Related party SPAIN securitizations																		$	—					$	200,320
Third-party SCART serviced securitizations																		736,497						1,088,580
Total serviced for other portfolio																		$	736,497					$	1,288,900

Other than repurchases of sold assets due to claims against standard representations and warranties, the Company's exposure to loss as a result of its involvement with these VIEs includes the portion of securitizations retained by the Company. The carrying value of this exposure at September 30, 2023 was $34.0 million and $3.0 million of debt and equity investments, respectively, compared to $52.0 million and $2.0 million at December 31, 2022. These amounts are reported in debt securities HTM and other investments, respectively, in Note 2 to these Condensed Consolidated Financial Statements.

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

						Three months ended September 30,												Nine months ended September 30,
(in thousands)						2023						2022						2023						2022
Cash received for servicing fees						$	2,109					$	5,023					$	6,666					$	16,061

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NOTE 8. DEPOSITS AND OTHER CUSTOMER ACCOUNTS

Deposits and other customer accounts are summarized as follows at the dates indicated:

						September 30, 2023												December 31, 2022
(dollars in thousands)						Balance						Percent of total deposits						Balance						Percent of total deposits
Interest-bearing demand deposits						$	11,614,182					15.0		%				$	12,950,737					16.4		%
Non-interest-bearing demand deposits						15,916,975						20.5		%				18,082,061						22.9		%
Savings						4,792,578						6.2		%				5,282,259						6.7		%
Customer repurchase accounts						284,222						0.4		%				338,421						0.4		%
Money market						25,639,976						33.1		%				29,369,827						37.0		%
CDs						19,222,700						24.8		%				13,105,236						16.6		%
Total deposits (1)						$	77,470,633					100.0		%				$	79,128,541					100.0		%

(1) Includes foreign deposits, as defined by the FRB, of $5.1 billion and $5.9 billion at September 30, 2023 and December 31, 2022, respectively.

Demand deposit overdrafts that have been reclassified as loan balances were $116.8 million and $150.0 million at September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023 and December 31, 2022, the Company had $4.9 billion and $2.9 billion, respectively, of CDs greater than $250 thousand.

The Company's subsidiaries had outstanding irrevocable letters of credit totaling $40.0 million from the FHLB of Pittsburgh at September 30, 2023 used to secure uninsured deposits placed with the Bank by state and local governments and their political subdivisions.

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NOTE 9. BORROWINGS

Total borrowings and other debt obligations at September 30, 2023 were $43.0 billion, compared to $43.6 billion at December 31, 2022. The Company's debt agreements impose certain limitations on dividend payments and other transactions. The Company is currently in compliance with these limitations.

During the nine months ended September 30, 2023, the Company completed the public offering and sale of $1.0 billion in aggregate principal amount of its 6.50% fixed-to-floating rate senior notes due March 2029, and $500 million in aggregate principal amount of its 6.57% fixed-to-floating rate senior notes due June 2029. Additionally, the Bank issued $131.6 million of credit-linked notes due February 2052, and $115.5 million of credit-linked notes due June 2033. The notes contain a financial guarantee on a reference pool of mortgage loans and auto loans, respectively, owned by the Company. The Company also completed on-balance sheet securitization transactions of $4.7 billion on its SDART platform, of which it retained approximately $518.2 million and issued $2.1 billion of amortizing notes on its SCARF platform.

Periodically, as part of the Company's wholesale funding management, it opportunistically repurchases outstanding borrowings in the open market and subsequently retires the obligations. During the three months and nine months ended September 30, 2023, the Company paid approximately $85.5 million and $137.5 million to purchase some of its debt related to on-balance sheet securitizations, resulting in a gain of $5.3 million and $7.5 million which is reported as Other miscellaneous income within Miscellaneous income, net.

Subsequent to September 30, 2023, in October 2023, the Bank entered into a fixed rate loan agreement with Santander in the amount of $2.0 billion. Also, In October 2023, our auto business completed an on-balance sheet securitization transaction of $1.1 billion on its SDART platform, of which it retained approximately $100.8 million, and completed its first on-balance sheet securitization on its SBALT platform in the amount of approximately $1.2 billion, of which it retained approximately $161.5 million.

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NOTE 9. BORROWINGS (continued)

Parent Company and other Subsidiary Borrowings and Debt Obligations

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

						September 30, 2023												December 31, 2022
(dollars in thousands)						Balance						Effective Rate						Balance						Effective Rate
Parent Company
2.88% senior notes due January 2024 (1)						$	—					—		%				$	750,000					2.88		%
3.50% senior notes due June 2024						999,308						3.50		%				998,567						3.60		%
3.45% senior notes due June 2025						998,026						3.45		%				997,135						3.58		%
4.26% senior notes due June 2025						499,429						4.43		%				498,826						4.36		%
4.50% senior notes due July 2025						1,098,772						4.50		%				1,098,287						4.56		%
Senior notes due April 2026 (2)						433,436						5.97		%				433,396						3.63		%
5.81% senior notes due September 2026						498,953						5.92		%				498,697						5.90		%
3.24% senior notes due October 2026						929,226						3.24		%				924,692						3.97		%
6.89% senior notes due June 2027 (1)						750,000						6.89		%				—						—		%
4.40% senior notes due July 2027						1,049,631						4.40		%				1,049,601						4.40		%
2.49% senior notes due January 2028						997,390						2.57		%				996,691						2.56		%
6.50% senior notes due March 2029						996,404						6.59		%				—						—		%
6.57% senior notes due June 2029						497,940						6.67		%				—						—		%
2.88% subordinated notes due November 2031 (1)						500,000						2.88		%				500,000						2.88		%
7.18% subordinated notes due December 2032 (1)						500,000						7.18		%				500,000						7.18		%
Total Parent Company borrowings						10,748,515												9,245,892
Subsidiaries
Short-term borrowing due within one year, maturing thru January 2023						$	—					—		%				$	234,581					3.05		%
Short-term borrowing due within one year, maturing thru January 2024						277,227						4.66		%				—						—		%
FHLB advances, maturing through April 2027						7,017,702						5.02		%				4,000,000						4.65		%
Credit-linked notes due December 2031 (3)						107,079						3.29		%				170,563						2.84		%
Credit-linked notes due May 2032 (4)						251,285						7.01		%				383,485						6.51		%
Credit-linked notes due August 2032 (5)						219,050						8.73		%				329,774						7.93		%
Credit-linked notes due December 2032 (6)						276,392						9.87		%				385,279						9.19		%
Credit-linked notes due June 2033 (7)						100,082						9.95		%				—						—		%
Credit-linked notes due February 2052 (8) (11)						121,259						11.87		%				—						—		%
Warehouse lines maturing through July 2025(9) (10)						3,729,078						7.77		%				3,953,800						5.88		%
Secured structured financings maturing through December 2031						20,167,678						0.48% -5.96%						24,884,899						0.48% - 5.72%
Total subsidiary borrowings and other debt obligations						32,266,832												34,342,381
Total Parent Company and subsidiaries' borrowings and other debt obligations						$	43,015,347											$	43,588,273

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

(2) These notes bear interest at a rate equal to the SOFR index rate plus 135 basis points per year.

(3) 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.

(4) Issued in June 2022 in the amount of $521.5 million. Notes are tied to the performance of a $3.5 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $63 million.

(5) Issued in September 2022 in the amount of $374.5 million. Notes are tied to the performance of a $3.5 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $63 million.

(6) Issued in December 2022 in the amount of $388.4 million. Notes are tied to the performance of a $3.6 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $65.3 million.

(7) Issued in June 2023 in the amount of $115.50 million. Notes are tied to the performance of a $1.1 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $22.0 million.

(8) Issued in February 2023 in the amount of $131.6 million. Notes are tied to the performance of a $2.5 billion original reference pool of SBNA residential mortgage loans. The contractual residual amount is $5.1 million.

(9) Refer to further information on amounts committed, pledged, and restricted below.

(10) Benchmark rates used included commercial paper, daily simple SOFR, one-month term SOFR, and three-month term SOFR.

(11) Variable rate notes issued in tranches that bear interest at a rate equal to SOFR index plus varying spreads ranging from 4.15% to 13.90% and reset monthly.

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NOTE 9. BORROWINGS (continued)

Credit-Linked Notes

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

In connection with certain of its credit linked notes, the Company is required to maintain a letter of credit, as well as a collateral account with a third-party financial institution, with the amount equal to at least the outstanding balances of the transaction’s credit-linked notes. This is reported as restricted cash in the Condensed Consolidated Financial Statements.

Warehouse Lines

The following tables present information regarding the Company's warehouse lines at the dates indicated:

						September 30, 2023
(dollars in thousands)						Balance						Committed Amount						Effective Rate						Assets Pledged						Restricted Cash Pledged
Warehouse line due October 2024						$	1,063,600					$	2,600,000					8.82		%				$	1,460,769					$	64
Warehouse line due November 2024						118,600						500,000						8.30		%				184,026						—
Warehouse line due January 2025						277,178						500,000						6.62		%				383,840						537
Warehouse line due January 2025						965,400						1,000,000						8.75		%				1,351,291						2,532
Warehouse line due April 2025						509,300						1,000,000						5.98		%				776,067						1
Warehouse line due July 2025						729,400						1,000,000						6.57		%				874,739						2,579
Warehouse line due July 2025						65,600						500,000						7.39		%				95,652						—
Total credit facilities						$	3,729,078					$	7,100,000					7.77		%				$	5,126,384					$	5,713

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

Secured Structured Financings

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

						September 30, 2023
(dollars in thousands)						Balance						Initial Note Amounts Issued(3)						Initial Weighted Average Interest Rate Range						Collateral(2)						Restricted Cash
Public securitizations maturing on various dates through December 2031(1)						$	15,817,557					$	46,179,575					0.48% - 5.96%						$	24,601,480					$	970,153
Privately issued amortizing notes maturing on various dates through August 2030 (3)						4,350,121						10,350,027						2.17% - 6.73%						7,009,208						6,144
Total secured structured financings						$	20,167,678					$	56,529,602					0.48% - 6.73%						$	31,610,688					$	976,297

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

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

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

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

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NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)

The following table presents the components of AOCI / (Loss), net of related tax, for the periods indicated.

									Total Other Comprehensive Income/(Loss)																		Total Accumulated Other Comprehensive Income/(Loss)
									Three months ended September 30, 2023																		June 30, 2023												September 30, 2023
(in thousands)						Pretax Activity						Tax Effect						Net Activity						Beginning Balance						Net Activity						Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments									$	63,730					$	(13,491)					$	50,239
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)									3,640						(944)						2,696
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments									67,370						(14,435)						52,935						$	(393,495)					$	52,935					$	(340,560)
Change in unrealized (losses) on investments in debt securities AFS									(88,733)						21,656						(67,077)
Reclassification adjustment for (gains)/losses included in net income/(expense) on debt securities AFS (2)									37,049						(9,612)						27,437
Net unrealized (losses) / gains on investments in debt securities AFS									(51,684)						12,044						(39,640)						(806,404)						(39,640)						(846,044)
Pension and post-retirement actuarial (loss)/gain(3)									683						(177)						506						(22,796)						506						(22,290)
As of September 30, 2023									$	16,369					$	(2,568)					$	13,801					$	(1,222,695)					$	13,801					$	(1,208,894)
(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)
						Three months ended September 30, 2022																		June 30, 2022												September 30, 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						$	(207,888)					$	57,465					$	(150,423)
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)						4,590						(954)						3,636
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments						(203,298)						56,511						(146,787)						$	(408,126)					$	(146,787)					$	(554,913)
Change in unrealized gains/(losses) on investment securities						(186,805)						47,681						(139,124)
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS(2)						(18,594)						4,746						(13,848)
Net unrealized (losses) on investment securities AFS						(205,399)						52,427						(152,972)						(607,480)						(152,972)						(760,452)
Pension and post-retirement actuarial gain(3)						757						280						1,037						(27,049)						1,037						(26,012)
As of September 30, 2022						$	(407,940)					$	109,218					$	(298,722)					$	(1,042,655)					$	(298,722)					$	(1,341,377)
(1)- (3) Refer to the corresponding explanations in the table above.

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

									Total Other Comprehensive Income/(Loss)																		Total Accumulated Other Comprehensive Income/(Loss)
									Nine months ended September 30, 2023																		December 31, 2022												September 30, 2023
(in thousands)						Pre-tax Activity						Tax Effect						Net Activity						Beginning Balance						Net Activity						Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments									$	224,400					$	(57,629)					$	166,771
Reclassification adjustment for net losses/(gains) on cash flow hedge derivative financial instruments(1)									11,252						(2,919)						8,333
Net unrealized (losses)/gains on cash flow hedge derivative financial instruments									235,652						(60,548)						175,104						$	(515,664)					$	175,104					$	(340,560)
Change in unrealized (losses)/gains on investments in debt securities									(151,605)						21,742						(129,863)
Reclassification adjustment for net losses/(gains) included in net income/(expense) on debt securities (2)									108,556						(28,165)						80,391
Net unrealized (losses)/gains on investments in debt securities									(43,049)						(6,423)						(49,472)						(796,572)						(49,472)						(846,044)
Pension and post-retirement actuarial gain / (loss)(3)									2,022						(525)						1,497						(23,787)						1,497						(22,290)
As of September 30, 2023									$	194,625					$	(67,496)					$	127,129					$	(1,336,023)					$	127,129					$	(1,208,894)

(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)
						Nine months ended September 30, 2022																		December 31, 2021												September 30, 2022
(in thousands)						Pre-tax Activity						Tax Effect						Net Activity						Beginning Balance						Net Activity						Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments						$	(666,264)					$	178,401					$	(487,863)
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)						16,370						(3,403)						12,967
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments						(649,894)						174,998						(474,896)						$	(80,017)					$	(474,896)					$	(554,913)
Change in unrealized (losses)/gains on investments in debt securities						(924,765)						239,369						(685,396)
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)						6,121						(1,272)						4,849
Net unrealized gains/(losses) on investments in debt securities						(918,644)						238,097						(680,547)						(79,905)						(680,547)						(760,452)
Pension and post-retirement actuarial gain / (loss)(3)						2,267						(91)						2,176						(28,188)						2,176						(26,012)
As of September 30, 2022						$	(1,566,271)					$	413,004					$	(1,153,267)					$	(188,110)					$	(1,153,267)					$	(1,341,377)

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

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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 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for 2022 for further discussion of accounting for and the offsetting of securities financing assets and liabilities.

The Company has elected the FVO for certain of its Securities Financing Activities. Refer to Note 13 to these Condensed Consolidated Financial Statements for the amounts recorded at FVO.

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

(in thousands)			September 30, 2023						December 31, 2022
Securities purchased under agreements to resell			$	8,034,089					$	10,064,717
Securities borrowed			1,434,529						2,359,362
Total			$	9,468,618					$	12,424,079

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

(in thousands)			September 30, 2023						December 31, 2022
Securities sold under agreements to repurchase			$	15,283,490					$	15,382,819
Securities lending			46,270						—
Total			$	15,329,760					$	15,382,819

Securities Financing Activities are generally executed under standard industry agreements, including master agreements that create a single contract under which all transactions between two counterparties are executed, allowing for trade aggregation of receivables and payables into a single net payment or settlement. The amounts of securities financing assets or liabilities qualified for offset in the Condensed Consolidated Balance Sheets were as follows for the dates indicated.

						September 30, 2023
(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						$	44,873,056					$	(36,838,967)					$	8,034,089
Securities borrowed						1,434,529						—						1,434,529
Total						$	46,307,585					$	(36,838,967)					$	9,468,618
						September 30, 2023
(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						$	52,122,457					$	(36,838,967)					$	15,283,490
Securities lending						46,270						—						46,270
Total						$	52,168,727					$	(36,838,967)					$	15,329,760
(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, 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						$	32,015,292					$	(21,950,575)					$	10,064,717
Securities borrowed						2,359,362						—						2,359,362
Total						$	34,374,654					$	(21,950,575)					$	12,424,079
						December 31, 2022
(in thousands)						Gross amounts of recognized liabilities						Gross amounts offset on the Condensed Consolidated Balance Sheets(1)						Net amounts of liabilities included on the Condensed Consolidated Balance Sheets
Securities sold under agreements to repurchase						$	37,333,394					$	(21,950,575)					$	15,382,819
(1) Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45.

The following tables present the gross amounts of liabilities associated with Securities Financing Activities by remaining contractual maturity as of the date indicated:

						September 30, 2023
(in thousands)						Open and overnight						Up to 30 days						31-90 days						Greater than 90 days						Total
Securities sold under agreements to repurchase						$	24,174,546					$	7,373,654					$	11,261,845					$	9,312,412					$	52,122,457
Securities lending						46,270						—						—						—						46,270
Total						$	24,220,816					$	7,373,654					$	11,261,845					$	9,312,412					$	52,168,727

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

						September 30, 2023															December 31, 2022
(in thousands)						Repurchase agreements						Securities lending						Total			Repurchase agreements
U.S. Treasury						$	32,078,737					$	—					$	32,078,737		$	22,477,916
Residential agency MBS						18,026,592						—						18,026,592			13,223,958
Corporate and other securities						2,017,128						46,270						2,063,398			1,631,520
Total						$	52,122,457					$	46,270					$	52,168,727		$	37,333,394

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NOTE 12. DERIVATIVES

General

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

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

See Note 13 to these Condensed Consolidated Financial Statements for discussion of the valuation methodology for derivative instruments.

Credit Risk Contingent Features

The Company has entered into certain derivative contracts that require the posting of collateral to counterparties when those contracts are in a net liability position. The amount of collateral to be posted is based on the amount of the net liability and thresholds generally related to the Company's long-term senior unsecured credit ratings. In a limited number of instances, counterparties also have the right to terminate their ISDA Master Agreements if the Company's ratings fall below a specified level, typically investment grade. As of September 30, 2023, derivatives in this category had a fair value of $127.0 thousand. The credit ratings of the Company and SBNA are currently considered investment grade. As of September 30, 2023, no additional collateral would be required if there were a further 1- or 2- notch downgrade by either S&P or Moody's.

As of September 30, 2023 and December 31, 2022, 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 $13.6 million and $14.6 million, respectively. The Company had $70.6 million and $7.3 million in cash and securities collateral posted to cover those positions as of September 30, 2023 and December 31, 2022, respectively.

Hedge Accounting

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

Interest rate swaps are generally used to convert fixed-rate assets and liabilities to variable rate assets and liabilities and vice versa. The Company utilizes interest rate swaps that have a high degree of correlation to the related financial instrument.

Fair Value Hedges

The Company enters into derivatives to hedge the risk of changes in fair value of a portion of its AFS debt securities portfolio. These derivatives are designated as fair value hedges at inception. The gains/(losses) from changes in the fair value of the hedging derivative and the offsetting gains/(losses) from changes in the fair value of the related underlying hedged items due to the hedged risk are reporting in the same line item in the 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 February 2030. The Company has entered into fair value hedges of portions of a closed portfolio of approximately $3.0 billion of AFS debt securities, using the portfolio layer method.

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NOTE 12. DERIVATIVES (continued)

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

			Carrying Amount of Hedged Assets												Amount of Fair Value Hedge Adjustment Included in the Carrying Amount
			September 30, 2023						December 31, 2022						September 30, 2023						December 31, 2022
Debt securities AFS (Note 2)			$	2,432,322					$	2,500,000					$	67,678					$	39,199

Cash Flow Hedges

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

The last of the hedges is scheduled to expire in March 2027. The Company includes all components of each derivative's gain or loss in the assessment of hedge effectiveness. As of September 30, 2023, the Company estimated that approximately $75.2 million of unrealized losses included in AOCI would be reclassified to earnings during the subsequent twelve months as the future cash flows occur.

Derivatives Designated in Hedge Relationships – Notional and Fair Values

Derivatives designated as accounting hedges included the following as of the dates indicated:

(dollars in thousands)						Notional Amount						Asset						Liability						Weighted Average Receive Rate						Weighted Average Pay Rate						Weighted Average Life (Years)
September 30, 2023
Fair value hedges:
Cross-currency swaps						$	18,766					$	417					$	1,606					5.82		%				9.90		%				4.08
Interest rate swaps - debt securities AFS						4,650,000						105,830						—						2.73		%				3.37		%				3.29
Cash flow hedges:
Pay fixed — receive variable interest rate swaps						$	3,471,700					$	69,237					$	—					5.31		%				3.82		%				3.1
Pay variable - receive fixed interest rate swaps						12,475,000						—						534,061						1.77		%				1.45		%				1.43
Interest rate floor						700,000						—						—						—		%				—		%				0.22
Total						$	21,315,466					$	175,484					$	535,667					2.50		%				2.22		%				2.07
December 31, 2022
Fair value hedges:
Cross-currency swaps						$	50,214					$	534					$	905					5.28		%				8.37		%				2.19
Interest rate swaps - debt securities AFS						2,500,000						43,814						4,615						3.66		%				1.85		%				2.74
Cash flow hedges:
Pay fixed — receive variable interest rate swaps						$	250,000					$	1,361					$	—					4.30		%				3.92		%				3.00
Pay variable - receive fixed interest rate swaps						13,075,000						1,315						685,733						1.35		%				3.56		%				1.80
Interest rate floor						800,000						1						—						—		%				—		%				0.91
Total						$	16,675,214					$	47,025					$	691,253					1.69		%				3.16		%				1.92

During 2018, 2019, and 2020, the Company entered into interest rate swap agreements with an aggregate notional amount of $2.2 billion. The interest rate swaps were to be used to hedge against variable rate debt and had maturity dates ranging from two to five years. In 2021, the Company de-designated the hedge relationships and terminated the swaps, resulting in a fair value adjustment of $6.5 million recorded as a reduction to interest expense. Amounts previously recorded in AOCI related to these interest rate swaps, totaling $50.6 million, are being reclassified into earnings over the term as the previously hedged cash flow impacts earnings. For the terminated swaps, SC reclassified $3.6 million and $11.3 million previously recorded in AOCI into interest expense during the three months and nine months ended September 30, 2023, respectively.

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NOTE 12. DERIVATIVES (continued)

Other Derivative Activities

The Company also enters into derivatives that are not designated as accounting hedges under GAAP. 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 often carried at fair value on the balance sheet, resulting in generally symmetrical accounting treatment for the hedging instrument and the hedged item.

Customer-related derivatives

The Company offers derivatives to its customers in connection with their risk management requirements related to foreign exchange and lending arrangements. These derivatives primarily consist of interest rate swaps, caps, floors and foreign exchange contracts. Risk exposure from customer positions is managed through offsetting transactions with other dealers, including Santander.

Broker dealer activities

The Company uses exchange-traded options and futures, credit default swaps, and forward-settling securities trades as part of its trading business, as well as to actively manage risk exposures that arise from its trading in cash instruments.

Structured financing activities

In certain circumstances, the Company is required to hedge its interest rate risk on revolving credit and term borrowings related to its secured structured financings. The Company uses interest rate caps to satisfy these requirements, and enters into offsetting option contracts.

Foreign exchange 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 increase or decrease over their respective lives as currency exchange and interest rates fluctuate.

AFS securities

The Company uses swaptions to economically hedge changes in the fair value of certain AFS debt securities. Swaptions are agreements that give the Company the option to enter into swap agreements at a specified interest rate at a predetermined date.

Mortgage Banking Derivatives

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.

Other derivative activities

Other derivative instruments primarily include forward contracts related to certain investment securities sales, an OIS, and a total return swap on Visa, Inc. Class B common shares.

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NOTE 12. DERIVATIVES (continued)

Derivatives Not Designated in Hedge Relationships – Notional and Fair Values

Other derivative activities included the following as of the dates indicated:

						Notional												Asset derivatives Fair value												Liability derivatives Fair value
(in thousands)						September 30, 2023						December 31, 2022						September 30, 2023						December 31, 2022						September 30, 2023						December 31, 2022
Mortgage banking derivatives:
Mortgage servicing interest rate swaps						$	662,000					$	682,000					$	22,403					$	19,479					$	45,170					$	38,408
Total mortgage banking risk management						662,000						682,000						22,403						19,479						45,170						38,408
Customer-related derivatives:
Swaps receive fixed						15,151,109						14,372,637						—						4,111						1,077,609						939,118
Swaps pay fixed						15,128,507						14,465,930						1,113,562						970,795						1,441						8,687
Other						9,069,092						7,394,081						78,056						91,724						80,120						89,139
Total customer-related derivatives						39,348,708						36,232,648						1,191,618						1,066,630						1,159,170						1,036,944
Other derivative activities:
Foreign exchange contracts						10,399,977						6,552,782						57,529						69,423						55,033						70,583
Interest rate swap agreements						2,700,100						1,100,100						—						4,454						2						—
Interest rate cap agreements						2,562,241						3,071,578						116,164						143,197						—						—
Options for interest rate cap agreements						2,562,241						3,071,578						—						—						116,164						143,197
Interest rate swaptions						2,500,000						—						84,038						—						—						—
Other						58,656,744						43,519,111						113,127						61,736						46,809						65,614
Total						$	119,392,011					$	94,229,797					$	1,584,879					$	1,364,919					$	1,422,348					$	1,354,746

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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 periods indicated:

(in thousands)												Three months ended September 30,												Nine months ended September 30,
						Line Item						2023						2022						2023						2022
Fair value hedges:
Cross-currency swaps						Net interest income						$	727					$	(57)					$	(577)					$	(1,078)
Interest rate swaps						Net interest income						8,249						7,509						21,411						17,554
Derivative Activity(1)
Cash flow hedges:
Pay fixed-receive variable interest rate swaps						Interest expense on borrowings						8,764						(4,590)						7,696						(16,663)
Pay variable receive-fixed interest rate swap						Interest income on loans						(116,685)						(40,007)						(336,023)						(12,218)
Interest rate floors						Interest income on loans						(351)						(312)						(436)						(289)
Other derivative activities:
Mortgage banking derivatives						Miscellaneous income, net						(5,904)						(10,334)						(8,415)						(40,522)
Customer-related derivatives						Miscellaneous income, net						(6,788)						42,691						(6,719)						8,133
Foreign exchange						Miscellaneous income, net						17,214						(35,094)						30,648						16,218
Interest rate swaps, caps, and options						Miscellaneous income, net						(2,809)						(1,821)						(5,909)						3,316
Other						Miscellaneous income, net						231,411						127,748						201,280						154,823

(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 were gains of $50.2 million and $166.8 million, and losses of $150.4 million and $487.9 million, net of tax, for the three months and nine months ended September 30, 2023, and 2022, respectively.

The net amount of changes reclassified from OCI into earnings for cash flow hedge derivatives were losses of $2.7 million and $8.3 million, and losses of $3.6 million and $13.0 million, net of tax, for the three months and nine months ended September 30, 2023, and 2022, 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.

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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 was as follows for the dates indicated:

						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 (2)									Net Amount
September 30, 2023
Fair value hedges						$	106,247					$	—					$	106,247								$	(43,485)								$	62,762
Cash flow hedges						69,237						—						69,237									(69,237)									—
Other derivative activities(1)						1,584,879						(4,659)						1,580,220									(493,327)									1,086,893
Total Derivative Assets						$	1,760,363					$	(4,659)					$	1,755,704								$	(606,049)								$	1,149,655
December 31, 2022
Fair value hedges						$	44,348					$	—					$	44,348								$	—								$	44,348
Cash flow hedges						2,677						—						2,677									—									2,677
Other derivative activities(1)						1,364,919						(21,726)						1,343,193									(259,734)									1,083,459
Total Derivative Assets						$	1,411,944					$	(21,726)					$	1,390,218								$	(259,734)								$	1,130,484

(1)Includes customer-related and other derivatives.

(2)Collateral received includes cash, cash equivalents, and other financial instruments. Cash collateral received is reported in Other liabilities, as applicable, in the 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 (2)									Net Amount
September 30, 2023
Fair value hedges						$	1,606					$	—					$	1,606								$	—								$	1,606
Cash flow hedges						534,061						—						534,061									(200,622)									333,439
Other derivative activities(1)						1,422,348						(4,609)						1,417,739									(118,509)									1,299,230
Total Derivative Liabilities						$	1,958,015					$	(4,609)					$	1,953,406								$	(319,131)								$	1,634,275
December 31, 2022
Fair value hedges						$	5,520					$	—					$	5,520								—									$	5,520
Cash flow hedges						685,733						—						685,733									$	(302,935)								382,798
Other derivative activities(1)						1,354,746						(21,726)						1,333,020									(149,381)									1,183,639
Total Derivative Liabilities						$	2,045,999					$	(21,726)					$	2,024,273								$	(452,316)								$	1,571,957

(1)Includes customer-related and other derivatives.

(2)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 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for a broad discussion of fair value measurement techniques. When available, the Company uses quoted market prices or matrix pricing in active markets to determine fair value and classifies such items as Level 1 or Level 2 assets or liabilities. If quoted market prices in active markets are not available, fair value is determined using third-party broker quotes and/or DCF models incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using broker quotes and/or DCF models are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation.

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NOTE 13. FAIR VALUE (continued)

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

The Company's Market Risk Department approves the methodologies used in the estimations of fair value, including the Company's Level 3 assets and liabilities. Price validation procedures are performed and the results are reviewed for Level 3 assets and liabilities by the Market Risk Department. Price validation procedures performed for these assets and liabilities can include comparing current prices to historical pricing trends by collateral type and vintage, comparing prices by product type to indicative pricing grids published by market makers, and obtaining corroborating dealer prices for significant securities.

The Company reviews the assumptions utilized to determine fair value on a quarterly basis. Any changes in methodologies or significant inputs used in determining fair values are further reviewed to determine if a change in fair value level hierarchy has occurred.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the assets and liabilities that are measured at fair value on a recurring basis by major product category and fair value hierarchy as of the dates indicated:

(in thousands)						Level 1						Level 2						Level 3						Balance at September 30, 2023						Level 1						Level 2						Level 3						Balance at December 31, 2022
Financial assets:
U.S. Treasury securities						$	31,043					$	—					$	—					$	31,043					$	218,439					$	—					$	—					$	218,439
Corporate debt						—						280,400						—						280,400						—						370,491						—						370,491
ABS						—						506,727						—						506,727						—						504,018						—						504,018
MBS						—						5,351,987						—						5,351,987						—						5,937,271						—						5,937,271
Investment in debt securities AFS(2)						$	31,043					$	6,139,114					$	—					$	6,170,157					$	218,439					$	6,811,780					$	—					$	7,030,219
Trading securities						1,704,832						6,789,198						2,574						8,496,604						1,229,279						4,634,676						369						5,864,324
Federal funds sold and securities purchased under resale agreements or similar arrangements						—						1,400,766						—						1,400,766						—						234,169						—						234,169
RICs HFI(3)						—						—						15,437						15,437						—						—						20,924						20,924
LHFS (1)(4)						—						488						—						488						—						549						—						549
MSRs						—						—						104,523						104,523						—						—						107,383						107,383
Other assets - derivatives (2)						1,572						1,754,115						17						1,755,704						602						1,389,593						22						1,390,217
Total financial assets (5)						$	1,737,447					$	16,083,681					$	122,551					$	17,943,679					$	1,448,320					$	13,070,767					$	128,698					$	14,647,785
Financial liabilities:
Federal funds purchased and securities loaned or sold under repurchase agreements						$	—					$	364,284					$	—					$	364,284					$	—					$	245,149					$	—					$	245,149
Trading liabilities						2,770,142						318,887						226						3,089,255						2,557,495						313,920						230						2,871,645
Other liabilities - derivatives (2)						1,125						1,951,146						1,135						1,953,406						448						2,021,593						2,232						2,024,273
Total financial liabilities						$	2,771,267					$	2,634,317					$	1,361					$	5,406,945					$	2,557,943					$	2,580,662					$	2,462					$	5,141,067

(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 $122.6 million of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 0.7% 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.

Securities Financing Activities

No quoted prices exist for Securities Financing Activities, so fair value is determined using a DCF technique. Cash flows are estimated based on the terms of the contract. These cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Securities Financing Activities are classified as Level 2.

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 is classified as Level 3.

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NOTE 13. FAIR VALUE (continued)

MSRs

The Company maintains an MSR asset accounted for at fair value for sold residential real estate loans serviced for others. At September 30, 2023 and December 31, 2022, the balance of these loans serviced for others was $8.7 billion and $9.2 billion, respectively. Changes in fair value of the MSR are recorded through Miscellaneous income, net on the Condensed Consolidated Statements of Operations.

The Company has elected to measure its residential MSRs at fair value to be consistent with the risk management strategy to hedge changes in the fair value of these assets. The fair value of residential MSRs is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates (reflective of a market participant’s return on an investment for similar assets), servicing costs, and other economic factors which are determined based on current market conditions. Historically, servicing costs and discount rates have been less volatile than prepayment rates, which are directly correlated with changes in market interest rates. Increases in prepayment rates, discount rates and servicing costs result in lower valuations of MSRs. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of MSRs. Assumptions incorporated into the residential MSR valuation model reflect management's best estimate of factors that a market participant would use in valuing the residential MSRs, as well as future expectations. Although sales of residential MSRs do occur, residential MSRs do not trade in an active market with readily observable prices. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase MBS. See further discussion on these derivative activities in Note 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 $3.0 million and $5.9 million, respectively, at September 30, 2023.

•A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $4.0 million and $7.7 million, respectively, at September 30, 2023.

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

Trading liabilities

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

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

The tables below present the changes in Level 3 balances for those assets and liabilities measured at fair value on a recurring basis for the periods indicated.

									Three months ended September 30, 2023																																				Three months ended September 30, 2022
(in thousands)												RICs HFI						MSRs						Derivatives, net						Other						Total												RICs HFI						MSRs						Derivatives, net						Other						Total
Balances, beginning of period												$	16,983					$	105,241					$	(1,368)					$	2,352					$	123,208											$	26,172					$	104,411					$	(1,364)					$	1,403					$	130,622
Gains/(losses) in earnings												—						2,215						250						(4)						2,461												—						9,721						(133)						—						9,588
Additions/Issuances												—						—						—						—						—												—						—						—						(1,092)						(1,092)
Settlements(1)												(1,546)						(2,933)						—						—						(4,479)												(2,889)						(3,721)						—						(163)						(6,773)
Balances, end of period												$	15,437					$	104,523					$	(1,118)					$	2,348					$	121,190											$	23,283					$	110,411					$	(1,497)					$	148					$	132,345
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period												$	—					$	2,215					$	250					$	(4)					$	2,461											$	—					$	9,721					$	(133)					$	—					$	9,588
									Nine months ended September 30, 2023																																				Nine months ended September 30, 2022
(in thousands)												RICs HFI						MSRs						Derivatives, net						Other						Total												RICs HFI						MSRs						Derivatives, net						Other						Total
Balances, beginning of period												$	20,924					$	107,383					$	(2,210)					$	139					$	126,236											$	33,529					$	79,107					$	526					$	—					$	113,162
Gains/(losses) in earnings												—						4,963						1,092						(11)						6,044												—						41,274						(2,023)						—						39,251
Additions/Issuances												—						—						—						—						—												47						3,383						—						311						3,741
Transfer from Level 2												—						—						—						2,220						2,220												—						—						—												—
Settlements(1)												(5,487)						(7,823)						—						—						(13,310)												(10,293)						(13,353)						—						(163)						(23,809)
Balances, end of period												$	15,437					$	104,523					$	(1,118)					$	2,348					$	121,190											$	23,283					$	110,411					$	(1,497)					$	148					$	132,345
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period												$	—					$	4,963					$	1,092					$	(11)					$	6,044											$	—					$	41,274					$	829					$	—					$	42,103

(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 at the dates indicated:

(in thousands)						Level 1						Level 2						Level 3						Balance at September 30, 2023						Level 1						Level 2						Level 3						Balance at December 31, 2022
Impaired commercial LHFI						$	—					$	56,170					$	110,874					$	167,044					$	—					$	33,133					$	51,794					$	84,927
Foreclosed assets						—						38,640						—						38,640						—						4,108						—						4,108
Vehicle inventory						—						299,115						—						299,115						—						246,970						—						246,970
LHFS						—						—						435,321						435,321						—						—						99,006						99,006
Auto loans impaired due to bankruptcy						—						167,106						—						167,106						—						212,866						—						212,866
Goodwill						—						—						2,766,665						2,766,665						—						—						2,767,732						2,767,732

Valuation Processes and Techniques - Nonrecurring Fair Value Assets and Liabilities

Impaired commercial LHFI in the table above represents the recorded investment of impaired commercial loans for which the Company measures impairment during the period based on the fair value of the underlying collateral supporting the loan. Written offers to purchase a specific impaired loan are considered observable market inputs, which are considered Level 1 inputs. Appraisals are obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and are considered Level 2 inputs. Loans for which the value of the underlying collateral is determined using a combination of real estate appraisals, field examinations and internal calculations are classified as Level 3. The inputs in the internal calculations may include the loan balance, estimation of the collectability of the underlying receivables held by the customer used as collateral, sale and liquidation value of the inventory held by the customer used as collateral and historical loss-given-default parameters. In cases in which the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized.

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

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

The Company had LHFS portfolios of $435.3 million and $99.0 million at September 30, 2023 and December 31, 2022, respectively that are measured at fair value on a nonrecurring basis primarily consisting of commercial loans and RICs. The estimated fair value of these LHFS is calculated based on a combination of estimated market rates for similar loans with similar credit risks and a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, including historical default rates and adjustments to reflect voluntary prepayments, prepayment rates, discount rates reflective of the cost of funding, and credit loss expectations.

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

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NOTE 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:

									Three months ended September 30,												Nine months ended September 30,
(in thousands)			Statement of Operations Location						2023						2022						2023						2022
Impaired LHFI			Credit loss expense / (benefit) (1)						$	9,097					$	34,184					$	21,415					$	43,752
Foreclosed assets			Miscellaneous income, net (1)						(290)						(22)						(298)						(22)
LHFS			Credit loss expense / (benefit) (1)						—						—						(3,614)						(77)
LHFS			Miscellaneous income						(18,571)						(3,909)						(24,801)						(11,356)
Auto loans impaired due to bankruptcy			Credit loss expense						(4,125)						—						(5,840)						—

(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 the dates indicated:

(dollars in thousands)

Fair Value at September 30, 2023 (3)

Valuation Technique

Unobservable Inputs

Range (Weighted Average)

Financial Assets:

MSRs

$

104,523

DCF

CPR (1)

0.00% - 100.00% (7.45%)

Discount rate (2)

9.80

%

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

(2)    Average discount rate from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the associated relative UPB.

(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, 2022 (3)

Valuation Technique

Unobservable Inputs

Range (Weighted Average)

MSRs

$

107,383

DCF

CPR (2)

0.00% - 100.00% (7.56%)

Discount rate (3)

9.54

%

(1), (2), (3) - See corresponding footnotes to the September 30, 2023 Level 3 significant inputs table above.

Fair Value of Financial Instruments

The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company's financial instruments are as follows as of the dates indicated:

						September 30, 2023																														December 31, 2022
(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						$	10,705,134					$	10,705,134					$	10,705,134					$	—					$	—					$	10,218,066					$	10,218,066					$	10,218,066					$	—					$	—
Federal funds sold and securities purchased under resale agreements or similar arrangements						9,468,618						9,461,813						—						9,461,813						—						12,424,079						12,399,815						—						12,399,815						—
Investments in debt securities AFS						6,170,157						6,170,157						31,043						6,139,114						—						7,030,219						7,030,219						218,439						6,811,780						—
Investments in debt securities HTM						9,153,367						7,486,846						—						7,486,846						—						9,549,218						8,273,285						—						8,273,285						—
Trading securities and other investments(2)						8,696,604						8,696,853						1,704,832						6,989,447						2,574						5,864,324						5,864,324						1,229,279						4,634,676						369
LHFI, net						89,015,475						91,152,556						—						56,170						91,096,386						90,558,330						92,466,522						—						33,133						92,433,389
LHFS						435,809						435,809						—						488						435,321						99,555						99,555						—						549						99,006
Restricted cash						5,406,821						5,406,821						5,406,821						—						—						6,346,248						6,346,248						6,346,248						—						—
MSRs						104,523						104,523						—						—						104,523						107,383						107,383						—						—						107,383
Derivatives						1,755,704						1,755,704						1,572						1,754,115						17						1,390,217						1,390,217						602						1,389,593						22
Financial liabilities:
Deposits (1)						19,222,700						19,302,669						—						19,302,669						—						13,105,236						13,095,685						—						13,095,685						—
Federal funds purchased and securities loaned or sold under repurchase agreements						15,329,760						15,322,701						—						15,322,701						—						15,382,819						15,406,457						—						15,406,457						—
Trading liabilities						3,089,255						3,089,255						2,770,142						318,887						226						2,871,645						2,871,645						2,557,495						313,920						230
Borrowings and other debt obligations						43,015,347						42,542,651						—						33,598,901						8,943,750						43,588,273						42,837,678						—						34,092,868						8,744,810
Derivatives						1,953,406						1,953,406						1,125						1,951,146						1,135						2,024,273						2,024,273						448						2,021,593						2,232

(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.

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.

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NOTE 13. FAIR VALUE (continued)

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 DCF technique. Cash flows are estimated based on the terms of the contract. These cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Securities Financing Activities are classified as Level 2. At September 30, 2023, the fair value of the underlying collateral was $52.3 billion before netting of $36.8 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 stratification 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. Estimated fair value for these portfolios is generally based on prices obtained from agreements to sell the specific assets, if available, recent market transactions or prices 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

RICs HFI

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

Securities Financing Activities

The Company has elected the FVO for certain of its Securities Financing Activities, primarily to align the accounting with the derivatives that are used to economically hedge changes in fair value of the assets and liabilities. Changes in fair value for Securities Financing Activities under an FVO are recording in non-interest income.

The following table summarizes the differences between the fair value and the principal balance of financial instruments measured at fair value on a recurring basis as of the dates indicated:

						September 30, 2023																		December 31, 2022
(in thousands)						Fair Value						Principal Balance						Difference						Fair Value						Principal Balance						Difference
RICs HFI						$	15,437					$	15,437					$	—					$	20,924					$	21,358					$	(434)
Nonaccrual loans						125						125						—						295						308						(13)
Securities Financing Activities
Federal funds sold and securities purchased under resale agreements or similar arrangements						1,400,766						1,401,838						(1,072)						$	234,169					$	237,000					$	(2,831)
Federal funds purchased and securities loaned or sold under repurchase agreements						364,284						364,520						(236)						245,149						250,000						(4,851)

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NOTE 14. NON-INTEREST INCOME AND OTHER EXPENSES

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

						Three months ended September 30,												Nine months ended September 30,
(in thousands)						2023						2022						2023						2022
Non-interest income:
Consumer and commercial fees						$	79,440					$	111,006					$	258,271					$	308,830
Lease income						617,962						663,123						1,866,968						2,012,982
Capital market revenue						103,675						32,986						217,561						142,062
Miscellaneous income, net
Mortgage banking income, net						784						3,802						9,624						21,119
BOLI						19,389						14,674						49,485						44,631
Net gain on sale of operating leases						12,922						19,740						55,296						66,002
Asset and wealth management fees						62,523						62,986						185,844						196,544
(Loss) /Gain on non-mortgage loans						2,058						(3,936)						(8,147)						(10,485)
Other miscellaneous income, net						(14,360)						29,729						(8,397)						58,366
Net gain / (loss) on sale of investment securities						37,048						(18,594)						108,556						6,121
Total Non-interest income						$	921,441					$	915,516					$	2,735,061					$	2,846,172

Disaggregation of Revenue from Contracts with Customers

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

						Three months ended September 30,												Nine months ended September 30,
(in thousands)						2023						2022						2023						2022
Non-interest income:
In-scope of revenue from contracts with customers:
Depository services(1)						$	28,110					$	43,693					$	92,081					$	125,001
Commission and trailer fees(2)						56,942						56,385						171,442						176,170
Interchange income, net(2)						18,798						19,025						53,321						55,590
Underwriting service fees(2)						38,147						13,668						107,624						68,048
Asset and wealth management fees(2)						26,520						37,132						87,135						115,776
Other revenue from contracts with customers(2)						7,594						11,991						24,518						37,385
Total in-scope of revenue from contracts with customers						176,111						181,894						536,121						577,970
Out-of-scope of revenue from contracts with customers:
Consumer and commercial fees(3)						34,601						50,142						115,571						132,870
Lease income						617,962						663,123						1,866,968						2,012,982
Other miscellaneous income, net (3)						55,719						38,951						107,845						116,229
Net gain / (loss) on sale of investment securities						37,048						(18,594)						108,556						6,121
Total out-of-scope of revenue from contracts with customers						745,330						733,622						2,198,940						2,268,202
Total non-interest income						$	921,441					$	915,516					$	2,735,061					$	2,846,172

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

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

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

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

Other Expenses

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

						Three months ended September 30,												Nine months ended September 30,
(in thousands)						2023						2022						2023						2022
Other expenses:
Amortization of intangibles						$	9,301					$	10,986					$	29,896					$	35,952
Deposit insurance premiums and other expenses						16,175						11,334						58,774						32,348
Loss on debt extinguishment						$	—					$	67					$	—					$	67
Other administrative expenses						91,759						85,626						275,203						272,116
Other miscellaneous expenses						6,648						8,062						19,988						38,446
Total Other expenses						$	123,883					$	116,075					$	383,861					$	378,929

NOTE 15. INCOME TAXES

Income tax benefit of $147.8 million and $54.9 million was recorded for the three months and nine months ended September 30, 2023, respectively, compared to Income tax expense of $76.2 million and $344.9 million for the corresponding periods in 2022. This resulted in an ETR of 527.5% and (5.9)% for three months and nine months ended September 30, 2023, respectively, compared to 25.1% and 21.2% for the corresponding periods in 2022.

The income tax benefit recorded (and related ETR) for the three months and nine months ended September 30, 2023 was directly impacted by a reduction in the Company’s full-year forecasted ETR from 9.93% as of June 30, 2023 to (5.76)% as of September 30, 2023. This reduction was primarily the result of (i) a decrease in 2023 full-year forecasted pre-tax income and (ii) a significant increase in forecasted electric vehicle tax credits expected to be generated in 2023 related to new preferred lease and lending agreements entered into with several auto OEMs after August 2023.

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.

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 $2.5 million at September 30, 2023 (consisting of a deferred tax asset balance of $212.5 million and a deferred tax liability balance of $215.0 million with respect to jurisdictional netting), compared to a net deferred tax liability balance of $167.4 million at December 31, 2022 (consisting of a deferred tax asset balance of $221.6 million and a deferred tax liability balance of $389.0 million). The $164.9 million change in net deferred tax liability for the period ended September 30, 2023 was primarily due to a decrease in the deferred tax liability related to leasing transactions.

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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.

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

Other Commitments						September 30, 2023						December 31, 2022
						(in thousands)
Commitments to extend credit						$	26,047,201					$	28,964,952
Letters of credit						1,390,028						1,448,459
Recourse exposure on sold loans						19,158						19,836
Total commitments						$	27,456,387					$	30,433,247

Commitments to Extend Credit

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

Included within the reported balances for commitments to extend credit at September 30, 2023 and December 31, 2022 were $3.2 billion and $3.3 billion, respectively, of commitments that can be canceled by the Company without notice.

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

Letters of Credit

The Company’s letters of credit meet the definition of a guarantee. Letters of credit commit the Company to make payments on behalf of its customers if specified future events occur. The guarantees are primarily issued to support public and private borrowing arrangements. The weighted average term of these commitments at September 30, 2023 was 14.2 months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. In the event of a requested draw by the beneficiary that complies with the terms of the letter of credit, the Company would be required to honor the commitment. The Company has various forms of collateral for these letters of credit, including real estate assets and other customer business assets. The maximum undiscounted exposure related to these commitments at September 30, 2023 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 September 30, 2023. Management believes that the utilization rate of these letters of credit will continue to be substantially less than the amount of the commitments, as has been the Company’s experience to date. The credit risk associated with letters of credit is monitored using the same risk rating system utilized within the loan and financing lease portfolio. As of September 30, 2023 and December 31, 2022, the liability related to unfunded lending commitments was $72.9 million and $85.6 million, respectively.

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

Unsecured Revolving Lines of Credit

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

Loans Sold with Recourse

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

Commitments to Sell Loans

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

RIC Commitments

The following table summarizes significant liabilities recorded for commitments and contingencies associated with the Company's RIC origination and servicing operations, all of which are included in Accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets at the dates indicated:

Agreement or Legal Matter						Commitment or Contingency						September 30, 2023						December 31, 2022
												(in thousands)
MPLFA						Revenue-sharing and gain/(loss), net-sharing payments						$	10,732					$	14,219
Other contingencies						Consumer arrangements						—						5,000

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 requires SC to maintain at least $2.5 billion in funding available for floor plan loans and $2.5 billion of financing dedicated to Stellantis retail financing. In turn, Stellantis must provide designated minimum threshold percentages of its Subvention business to SC.

Agreements

In connection with the sale of RICs through securitizations and other sales, SC has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require SC to repurchase loans previously sold to on or off-balance sheet Trusts or other third parties. As of September 30, 2023, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for SC's ABS or other sales. In the opinion of management, the potential exposure of other recourse obligations related to SC’s RIC sale agreements is not expected to have a material adverse effect on the Company's or SC’s business, consolidated financial position, results of operations, or cash flows.

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

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

In November 2015, SC executed a forward flow asset sale agreement with a third party under the terms of which SC is committed to sell $350.0 million in charged-off loan receivables in bankruptcy status on a quarterly basis. However, any sale of more than $275.0 million is subject to a market price check. The remaining aggregate commitment as of September 30, 2023 and December 31, 2022 not subject to a market price check was zero.

Other Off-Balance Sheet Risk

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

Legal and Regulatory Proceedings

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

The Company establishes an accrued liability for legal and regulatory proceedings when those matters present material loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued that are reasonably possible.

As of September 30, 2023 and December 31, 2022, the Company accrued aggregate legal and regulatory liabilities of approximately $12.3 million and $17.0 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 $17.5 million as of September 30, 2023 and $9.0 million as of December 31, 2022. Set forth below are descriptions of the significant lawsuits, regulatory matters and other legal proceedings to which the Company is subject.

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

Consumer Lending Cases

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

Kelly v. SC. A putative Pennsylvania-only class action pending in the United States District Court for the Eastern District of Pennsylvania captioned Hugh and Christina Kelly v. Santander Consumer USA Holdings Inc., 2:20-cv-03698, alleges that SC violated the Uniform Commercial Code and Pennsylvania Motor Vehicle Sales Finance Act, and that repossessions were not commercially reasonable or done in good faith when the post-repossession notice included a storage fee of $25 that was less than the stated amount. Plaintiffs also allege that SC failed to inform the consumers of a required fee to retrieve their personal affects. Plaintiffs allege that any fee charged by a recovery agent or auction house was impermissible due to SC’s failure to disclose them. On December 16, 2022, the court preliminarily approved a settlement with SC pursuant to which SC will pay a total of $14 million to resolve the litigation. A final settlement approval hearing was held on October 18, 2023. The court has not yet issued an order.

Enterprise Financial Group v. SC. EFG, a former GAP products and services provider to SC, sued SC for breach of contract, alleging that SC placed non-conforming loans in the program, resulting in EFG losses. The case is pending in Texas District Court, Dallas County, and is captioned Enterprise Financial Group v. SC, Case No. 18-08119. SC asserted a counterclaim against EFG seeking approximately $10.5 million in connection with EFG’s refusal to pay claims. A jury trial concluded on November 2, 2022 and the jury awarded EFG $5 million and SC $4.2 million. On May 9, 2023, the court issued a final judgment awarding EFG approximately $10.6 million, and eliminating the jury award of $4.2 million in favor of SC. On July 17, 2023, the court heard arguments on SC’s motion for judgment notwithstanding the verdict, a new trial and remittitur; The court denied SC's motions for judgment notwithstanding the verdict, new trial, or remittitur. SC filed its Notice of Appeal.

Real Legacy Assurance ERISA Litigation. On April 13, 2020, participants of the Real Legacy Assurance Plan, a pension plan, filed an amended complaint adding SSLLC as a defendant to an ERISA putative class action pending against the owner of Real Legacy, Real Legacy Board members, the Plan’s Trustee, actuaries and other defendants. The case is pending in the United States District Court for the District of Puerto Rico and captioned Vega-Ortiz et al v. Cooperativa de Seguros Multiples de Puerto Rico, et al, Civ. No. 3:19-cv-02056. The amended complaint alleges that SSLLC served as an investment manager to the Real Legacy Assurance Plan and breached its fiduciary duties by failing to ensure the Plan was adequately funded. On November 24, 2021, the court denied each of the defendants’ motions to dismiss. SSLLC filed its answer and discovery is ongoing. On April 4, 2023, the court granted the plaintiffs' motion for class certification.

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

Regulatory Investigations and Proceedings

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

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NOTE 17. RELATED PARTY TRANSACTIONS

In the normal course of business, the Company conducts business with Santander and its subsidiaries. Santander policy requires that these transactions occur at prevailing market rates and terms, and, where applicable, these transactions are compliant with United States banking regulations. All extensions of credit by (and certain credit exposures of) the Bank to other Santander affiliates are legally required to be secured by eligible collateral. The following disclosures below are the more significant related party transactions entered into during 2023:

Debt and derivative activities

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 2022.

On October 5, 2023, SBNA entered into a loan agreement with Santander to borrow $2.0 billion at a fixed rate of 6.98%, which will mature on October 16, 2025.

Mezzanine and Stockholder's Equity

On June 15, 2023, the Company issued 1,000,000 shares of a new series of its preferred stock, the 9.380% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series F, without par value and with a liquidation preference of $1,000 per share, to Santander. As of September 30, 2023, Santander was the sole holder of the Series E and F Preferred Stock.

During the nine months ended September 30, 2023, the Company declared and paid dividends to its common shareholder, Santander, in the amount of $1.5 billion. In addition, during the nine months ended September 30, 2023, the Company declared and paid dividends to its preferred shareholder, Santander, in the amount of $56.8 million.

Deposit and checking accounts

Affiliates of Santander that are not consolidated by SHUSA had deposits with SBNA of $125.9 million and $130.4 million as of September 30, 2023 and December 31, 2022, respectively.

Repurchase Agreements and Securities Trading

During the three months and nine months ended September 30, 2023, SanCap entered into intercompany repurchase agreements and securities trading with Santander and its affiliates. The gross principal amount outstanding on these repurchase agreements and securities trading activities, which do not eliminate in consolidation, was $50.0 million and $234.8 million at September 30, 2023, respectively. During the three months and nine months ended September 30, 2023, the amount of income / expense related to these accounts was negligible to the overall results of the Company and Santander.

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NOTE 18. BUSINESS SEGMENT INFORMATION

Business Segment Products and Services

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

•The Auto segment includes the Company's consumer and commercial auto loans and leases and the Company's commercial loans to dealers and dealer floorplan financing products. This includes the Company's specialized consumer finance subsidiary focused on vehicle finance and third-party servicing. The specialized consumer finance primary business is the indirect origination of RICs, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. The Company offers a full spectrum of auto financing products and services to captive financing companies. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. The Company also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders. All intercompany revenue and fees between consolidated affiliates are eliminated in the consolidated results of the Company.

•The CBB segment includes the products and services provided to consumer and small business banking customers, including consumer deposit, small business banking, unsecured lending and investment services. This segment offers a wide range of products and services to consumers and business banking customers, including demand and interest-bearing demand deposit accounts, money market and savings accounts, CDs and retirement savings products. It also offers lending products such as unsecured personal loans, credit cards, and small business loans such as business lines of credit. In addition, the Company makes investment services available to its retail customers, including products such as annuities, mutual funds, managed accounts and insurance products through a networking agreement with a consolidated affiliate.

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

•The CRE segment offers CRE loans, CEVF, and multifamily loans, as well as cash management and deposit services to customers. This category also includes community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.

•The CIB segment serves the needs of global corporate and institutional customers by leveraging the international footprint of Santander to provide financing and banking services to corporations with over $500 million in annual revenues. CIB also includes the Company's institutional broker-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

The Company also offers customer-related derivatives to hedge interest rate risk, and in the C&I, CRE, and CIB business segments and the dealer commercial lending division of the Auto business segment, 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.

Three months ended			SHUSA Reportable Segments
			Consumer Activities									Commercial Activities
September 30, 2023			Auto			CBB						C&I			CRE			CIB			Wealth Management			Other(1)						Total
			(in thousands)
Net interest income / (expense)			$	926,581		$	407,358					$	80,426		$	115,389		$	48,677		$	66,736		$	(174,486)					$	1,470,681
Non-interest income			623,850			58,682						10,732			8,033			90,219			66,696			63,229						921,441
Credit loss expense / (benefit)			782,504			31,789						(8,292)			55,865			(5,258)			205			(521)						856,292
Total expenses			815,996			360,685						57,933			33,362			157,583			72,910			65,375						1,563,844
Income/(loss) before income taxes			(48,069)			73,566						41,517			34,195			(13,429)			60,317			(176,111)						(28,014)
(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.

Three months ended			SHUSA Reportable Segments
			Consumer Activities									Commercial Activities
September 30, 2022			Auto			CBB						C&I			CRE			CIB			Wealth Management			Other(1)						Total
			(in thousands)
Net interest income / (expense)			$	1,020,542		$	368,627					$	80,734		$	92,271		$	50,364		$	53,870		$	(67,240)					$	1,599,168
Non-interest income			695,303			77,131						17,502			10,337			56,674			63,748			(5,179)						915,516
Credit loss expense / (benefit)			521,235			83,451						27,295			6,243			905			—			(2,723)						636,406
Total expenses			855,150			383,597						60,672			31,186			124,832			62,110			56,677						1,574,224
Income/(loss) before income taxes			339,460			(21,290)						10,269			65,179			(18,699)			55,508			(126,373)						304,054
(1) Refer to corresponding notes above

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NOTE 18. BUSINESS SEGMENT INFORMATION (continued)

Nine months ended			SHUSA Reportable Segments
			Consumer Activities									Commercial Activities
September 30, 2023			Auto			CBB						C&I			CRE			CIB			Wealth Management			Other(1)						Total
			(in thousands)
Net interest income / (expense)			$	2,754,863		$	1,219,442					$	242,421		$	333,456		$	170,311		$	210,392		$	(458,538)					$	4,472,347
Non-interest income			1,924,771			188,390						38,439			25,682			268,012			187,203			102,564						2,735,061
Credit loss expense / (benefit)			1,296,120			238,596						(13,348)			111,931			(19,391)			205			(6,570)						1,607,543
Total expenses			2,464,793			1,090,912						178,239			99,830			392,760			208,931			228,666						4,664,131
Income/(loss) before income taxes			918,721			78,324						115,969			147,377			64,954			188,459			(578,070)						935,734
Total assets			62,945,184			12,601,046						5,031,230			22,488,032			27,502,833			7,404,818			27,680,020						165,653,163
(1) Refer to corresponding notes above

Nine months ended			SHUSA Reportable Segments
			Consumer Activities									Commercial Activities
September 30, 2022			Auto			CBB						C&I			CRE			CIB			Wealth Management			Other(1)																		Total
			(in thousands)
Net interest income / (expense)			$	3,093,143		$	1,002,016					$	224,191		$	255,453		$	124,613		$	118,239		$	(205,070)																	$	4,612,585
Total non-interest income			2,098,169			233,842						44,876			32,402			198,940			203,986			33,957																		2,846,172
Credit loss expense / (benefit)			1,075,942			148,794						39,551			(8,544)			4,295			—			(2,622)																		1,257,416
Total expenses			2,485,535			1,137,645						193,189			95,236			318,066			183,142			161,173																		4,573,986
Income/(loss) before income taxes			1,629,835			(50,581)						36,327			201,163			1,192			139,083			(329,664)																		1,627,355
Total assets			62,490,143			13,072,265						6,559,994			19,663,939			30,358,386			7,944,125			26,739,976																		166,828,828
(1) Refer to corresponding notes above

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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; 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; SanCap, an institutional broker-dealer headquartered in New York, which has significant capabilities in market making via an experienced fixed-income sales and trading team and a focus on structuring and advisory services for asset originators in the real estate and specialty finance markets; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC is a registered investment adviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.

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

Since May 2013, under the MPLFA with Stellantis, the Company has operated as Stellantis' preferred provider for consumer loans, leases and dealer loans and provides services to Stellantis customers and dealers under the CCAP brand. In the second quarter of 2022, the Company announced it had reached an agreement with Stellantis to amend and extend the MPLFA through December 2025. In June 2022, the Company launched a preferred lender, full spectrum financing program in partnership with MMNA to provide customer and dealer financing programs that will help MMNA achieve its goal of improving the car-buying experience.

During the second half of 2023, the Company entered into numerous new lending agreements with various auto OEMs. These new agreements reinforce the Company’s leadership in the U.S. auto finance market and the Bank’s commitment to forging deep, multi-geography relationships with automotive manufacturers catering to customers across the credit spectrum. These various OEMs have a diverse product lineup including an increased focus on electric vehicles. In addition, the Company has been chosen by LendingClub to be its primary loan servicer for its auto refinance program.

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

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

In April 2022, SHUSA acquired 100% ownership of PCH, parent company of APS, an institutional fixed-income broker dealer and a designated primary dealer by the FRB of New York In February 2023, the Company completed the merger of SIS into APS, with the resulting company renamed SanCap. Following the merger, SanCap, along with SSLLC, now comprise the Broker-Dealers.

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

ECONOMIC AND BUSINESS ENVIRONMENT

Overview

The unemployment rate at September 30, 2023 was 3.8% compared to 3.6% at June 30, 2023 and 3.6% one year ago. According to the U.S. Bureau of Labor Statistics, employment continued to trend up in government, health care, social assistance, and construction.

Market year-to-date returns for the following indices based on closing prices for the period indicated were:

						September 30, 2023
Dow Jones Industrial Average						1.1%
S&P 500						11.7%
NASDAQ Composite						26.3%

At its September 2023 meeting, the FOMC maintained the federal funds rate target range of 5.25% - 5.50%. The FOMC continues to focus its policy making on maximum employment and a 2.0% inflation target rate.

The ten-year Treasury bond rate at September 30, 2023 was 4.57%, up from 3.88% at December 31, 2022.

One of the primary metrics used by the market to monitor the strength of the used car market is the Manheim Used Vehicle Index. The Manheim Used Vehicle Value Index, based on the 1997 Manheim- based index, decreased from 219.3 at December 31, 2022 to 214.3 at September 30, 2023.

Recent Events Affecting the Financial Services Industry

In response to the current interest rate environment and recent events affecting the financial services industry, the Company has enhanced its monitoring of interest rate and liquidity risks. Additional information related to these matters can be found in the sections of this MD&A captioned "Deposits", "Bank Regulatory Capital", "Liquidity and Capital Resources", and "Asset and Liability Management".

The recent failure of several large U.S. banking institutions has led to increased market uncertainty. The Company was not materially impacted by these events during the quarter; however, changing market conditions are considered a significant risk factor to the Company. These factors will likely increase competition and pricing on customer deposits over the short and medium term, heighten market and regulatory focus and reform on liquidity, capital, and interest rate risk and likely result in a special assessment on banks to cover losses to the FDIC’s DIF which we estimate to be approximately $60 million in total and to be paid quarterly over the next two years beginning in the first quarter of 2024. These changing market conditions and uncertainty will likely present challenges in the growth of net interest income, and increased credit risk and associated credit loss expense, and could have an overall impact on the Company's results of operations. It is not possible to quantify the impact of changing market conditions, uncertainty, or regulatory action on the Company's results of operations.

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

Credit Rating Actions

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

SANTANDER (1)

SHUSA(3)

SBNA (2)

Overall Outlook

Fitch

A / A-

BBB+

BBB+

Stable

Moody's

A2 / Baa1

Baa2

Baa1

Stable

S&P

A+ / A-

BBB+

A-

Stable

(1) Senior preferred debt / Senior non-preferred rating

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

(3) SHUSA's senior unsecured rating upgraded by Moody's subsequent to September 30, 2023.

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.

The Federal Reserve tailors its supervisory programs and regulatory requirements by category based on firm-specific characteristics such as total assets, cross-jurisdictional activity, and nonbank asset or off-balance sheet exposure. As of September 30, 2023, SHUSA was designated a Category IV institution under the Federal Reserve's tailoring rule. Institutions that change to a higher category would become subject to the requirements of the new category, as outlined by the Federal Reserve, generally within two quarters of the change in category.

On July 27, 2023 the regulatory agencies issued an NPR to modify the definition of cross-jurisdictional activity, which would expand the scope of exposures included in the measurement of cross-jurisdictional activity. This change in scope has the potential to move certain firms into a higher supervisory category under the Federal Reserve’s tailoring rule.

Payment of Dividends

SHUSA is the parent holding company of SBNA. SHUSA and SBNA are subject to various regulatory restrictions relating to the payment of dividends, including regulatory capital minimums and the requirement to remain "well-capitalized" under prompt corrective action regulations. Refer to the "Liquidity and Capital Resources" section of this MD&A for detail of the capital actions of the Company and its subsidiaries during the period.

Regulatory Capital Requirements

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

These rules include prompt corrective action thresholds that require banking organizations, including the Company and SBNA, to maintain a minimum CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total capital ratio of 8.0% and a minimum leverage ratio, calculated as the ratio of Tier 1 capital to average consolidated assets for the quarter, of 4.0%. A further capital conservation buffer of 2.5% above these minimum ratios is required for banking institutions to make capital distributions, including paying dividends.

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

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

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

Material restrictions can be imposed on SBNA, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver or conservator. Critically undercapitalized banks generally may not make any payment of principal or interest on their subordinated debt and all, but well-capitalized banks are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to the FDIA and OCC regulations, institutions which are not categorized as well-capitalized or adequately-capitalized are restricted from making capital distributions, which include cash dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the capital account of the institution. At September 30, 2023, 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. The SCB is calculated as the maximum decline in CET1 in the severely adverse scenario (subject to a 2.5% floor) plus four quarters of dividends. The rule results in new firm-specific regulatory capital expectations which are equal to 4.5% of CET1 plus the SCB, any GSIB surcharge, and any countercyclical capital buffer. The GSIB buffer is applicable only to the largest and most complex firms and does not apply to SHUSA. In the event a firm falls below its new minimums, the rule imposes restrictions on capital distributions and discretionary bonuses. Firms continue to submit a capital plan annually. Supervisory expectations for capital planning processes do not change under the final rule. As of September 30, 2023, SHUSA's CET1 minimum requirement was 8.2% and declined to 7.0% on October 1, 2023.

On July 27, 2023, the federal banking agencies issued the Capital Proposal that would make significant changes to the regulatory capital rules applicable to Large Banking Organizations (including SHUSA and SBNA) and banking organizations with significant trading activity. This proposal would implement the final elements of the Basel III capital framework and make other changes to the regulatory capital rules in response to recent bank failures. The Capital Proposal would establish the Expanded Risk-Based Approach for calculating RWA that would apply to Large Banking Organizations. The Expanded Risk-Based Approach would include a new more risk-sensitive standardized approach for measuring credit risk and operational risk. It would also include new standardized approaches for measuring market risk and credit valuation adjustment risk, but would allow the use of internal models for market risk in certain circumstances with regulatory approval. Under the Capital Proposal, a Large Banking Organization would be required to calculate its risk-based capital ratios under both the expanded risk-based approach and the current standardized approach and would use the lower of the two. All capital buffer requirements, including the stress capital buffer requirement, would apply regardless of whether the Expanded Risk-Based Approach or the existing standardized approach produces the lower ratio.

The expanded total RWA calculation used in the Expanded Risk-Based Approach would be phased in over a three-year period starting on July 1, 2025. The requirement to reflect AOCI in regulatory capital would also be phased in over a three-year period starting on July 1, 2025. All other elements of the calculation of regulatory capital would apply on the effective date of the final rule, which is expected to be on or about July 1, 2025. On October 20, 2023, the federal banking agencies announced that they have extended the comment period on the Capital Proposal from November 30, 2023 until January 16, 2024. In addition to pushing back the comment deadline, the Federal Reserve indicated it would begin collecting data to gather more information from the banks affected by the proposal. That data collection will also end on Jan. 16, 2024. The proposed rules and their impact on SHUSA are under review.

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

Resolution Planning

The DFA requires the Company to prepare and update resolution plans. The 165(d) resolution plan must assume that the covered company is resolved under the U.S. Bankruptcy Code and that no “extraordinary support” is received from the U.S. or any other government. The most recent 165(d) resolution plan was submitted to the Federal Reserve and FDIC in June 2022. In addition, under amended FDIA rules, the IDI resolution plan rule requires that a bank with assets of $50 billion or more develop a plan for its resolution that supports depositors’ rapid access to their insured deposits, maximizes the net present value return from the sale or disposition of its assets, and minimizes the amount of any loss realized by creditors in resolution.

On August 29, 2023 the FDIC issued an NPR that modifies the IDI resolution planning requirement to focus on operational readiness and changes to existing resolution strategy. The proposal tailors the requirements for banks with total assets between $50 billion and $100 billion and those above $100 billion.

Long Term Debt Requirements

On July 28, 2023, the Federal Reserve and FDIC issued an NPR that would require banks with total assets of $100 billion or more to maintain a layer of long-term debt from the holding company to improve financial stability by increasing the resolvability and resiliency of such institutions. By requiring each such large bank to maintain a minimum amount of long-term debt to absorb losses, the proposal would increase the options available to resolve such banks in case of failure. Additionally, by reducing the risk that uninsured depositors would face losses, long-term debt can reduce the speed and severity of bank runs, and limit the risk of contagion when a bank is under stress. The proposal would provide a three-year phase-in period and would also allow certain outstanding long-term debt to count toward the minimum requirements to provide banks with a reasonable period to transition to the required characteristics of eligible long-term debt instruments. Comments on the proposal are due by November 30, 2023. SHUSA remains subject to the TLAC requirements outlined below.

Deposit Insurance and Assessments

On October 18, 2022, the FDIC adopted a final rule, applicable to all IDIs, to increase the initial base deposit insurance assessment rate schedules uniformly by two basis points consistent with the Amended Restoration Plan approved by the FDIC on June 21, 2022. The FDIC indicated that it was taking this action in order to restore the DIF reserve ratio to the required statutory minimum of 1.35% by the statutory deadline of September 30, 2028. The FDIC indicated that the reserve ratio had declined below this level because of the increase in insured deposits since the start of the pandemic and other factors that affect the level of the DIF. Under the final rule, the increase in rates began with the first quarterly assessment period of 2023 and will remain in effect unless and until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% reserve ratio. The increase in assessment rates applies to SBNA.

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

The recent failure of several large U.S. banking institutions has led to increased market uncertainty. Under the FDIA, the loss to the DIF arising from the use of the systemic risk exception must be recovered through one or more special assessments on IDIs, depository institution holding companies, or both, as the FDIC determines to be appropriate. On May 11, 2023, the FDIC issued for public comment a proposed rule to impose a special assessment on IDIs to recover the loss to the DIF resulting from the use of the systemic risk exception to protect the uninsured depositors of the failed U.S. banking institutions. Under the proposal, the FDIC would collect a special assessment from IDIs at an annual rate of approximately 12.5 basis points over eight quarterly assessment periods, starting with the first quarterly assessment period of 2024. The assessment base for the proposed special assessment would be equal to an IDI’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits held by the IDI. The special assessment rate could be revised before the proposal is finalized in order to reflect any adjustments to the estimated loss to the DIF from protecting the uninsured depositors of failed institutions, any mergers or failures of IDIs, or any amendments to the reported estimates of uninsured deposits by the covered IDIs. In its proposal, the FDIC indicated that the special assessment would be a tax-deductible operating expense for IDIs, and that it assumed that the effect on income of the entire amount of the special assessment would occur in one quarter for the IDIs subject to the assessment. Comments on the proposal were due by July 21, 2023.

As proposed, the current estimated impact of the special assessment is approximately $60 million, which is expected to be recognized upon the rule’s final issuance. Any change to the amount of the uninsured deposits subject to the rule or the terms of the final rule impacting the determination of uninsured deposits, exclusionary criteria, annual rate, or term of annual rate application would have a direct impact on the estimate of SBNA’s special assessment.

TLAC

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

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

Volcker Rule

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

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

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

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.

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

Market Risk Rule

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

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

SHUSA is integrating SanCap's products, models and infrastructure into SHUSA’s U.S. market risk rule program, which is scheduled to be completed in 2023. Until the integration is completed and SanCap’s models are in compliance with the U.S. market risk rule, SHUSA is required to include and report market risk RWAs as of September 30, 2023 utilizing the approaches available in the U.S. market risk rule. Assuming a consistent balance of assets, the Company expects market risk RWAs to decrease as the models are fully implemented.

Heightened Standards

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

Transactions with Affiliates

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

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

Regulation AB II

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

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.

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

Broker-Dealer Regulation

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

Edge Act Corporation Requirements

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

Reference Rate Reform

The U.S. dollar LIBOR reference rate panel ceased publication of LIBOR tenors on June 30, 2023. Although 1-, 3-, and 6-month LIBOR settings continue to be published in synthetic form, these rates are not representative of the markets and, as a result, are not generally used unless required by the underlying contract. Under the guidance of our cross-functional LIBOR transition program, the Company offered products linked to alternative reference rates and remediated existing contracts that used LIBOR reference rates. On December 1, 2022, we ceased originations of new LIBOR-referenced products that did not fall under 'approved use' categories.

As of September 30, 2023, the Company had an immaterial amount of loans with LIBOR exposure and no derivative contracts with LIBOR exposure. All remaining LIBOR loans utilize a LIBOR reference rate that was fixed prior to LIBOR cessation and generally will move to alternative rates at the time of their next contractual rate reset. Transition away from LIBOR to new reference rates presents legal, financial, reputational, and operational risks to the Company as well as to other participants in the market.

As of September 30, 2023, the Company has largely completed its LIBOR-to-SOFR transition program.

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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

CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
			Three months ended September 30, 2023 and 2022
			2023 (1)																		2022 (1)																		Interest			Change due to
(dollars in thousands)			Average Balance						Interest						Yield/  Rate(2)						Average Balance						Interest						Yield/ Rate(2)						Increase/(Decrease)			Volume			Rate
Interest-earning deposits			$	11,523,253					$	218,925					7.60		%				$	8,617,709					$	67,168					3.12		%				$	151,757		$	28,864		$	122,893
Federal funds sold and securities purchased under resale or similar agreements, gross (3)			48,147,107						580,720						4.82		%				48,595,404						230,436						1.90		%				350,284			(2,102)			352,386
Federal funds sold and securities purchased under resale or similar agreements, netting			(37,774,270)																		(34,285,170)
Federal funds sold and securities purchased under resale or similar agreements, net			10,372,837																		14,310,234
AFS			6,360,187						66,773						4.20		%				7,693,194						44,318						2.30		%				22,455			(5,960)			28,415
HTM			9,227,351						46,173						2.00		%				9,362,844						42,967						1.84		%				3,206			(640)			3,846
Trading securities			8,846,360						106,921						4.83		%				4,947,678						46,921						3.79		%				60,000			44,502			15,498
Other investments			1,300,741						12,172						3.74		%				1,041,356						8,492						3.26		%				3,680			2,313			1,367
TOTAL SECURITIES FINANCING ACTIVITIES, INVESTMENTS AND INTEREST-EARNING DEPOSITS			$	47,630,729					$	1,031,684					8.66		%				$	45,973,015					$	440,302					3.83		%				$	591,382		$	16,440		$	574,942
LOANS (4):
C&I			13,756,417						125,124						3.64		%				14,592,904						111,811						3.06		%				13,313			(5,771)			19,084
CRE			8,609,794						166,584						7.74		%				7,633,869						91,113						4.77		%				75,471			12,853			62,618
Other commercial loans			7,330,746						88,440						4.83		%				7,920,011						62,609						3.16		%				25,831			(4,234)			30,065
Multifamily			10,794,348						134,236						4.97		%				8,413,635						79,419						3.78		%				54,817			25,950			28,867
Total commercial loans			40,491,305						514,384						5.08		%				38,560,419						344,952						3.58		%				169,432			28,798			140,634
Consumer loans:
Residential mortgages			4,959,907						43,369						3.50		%				5,325,894						44,949						3.38		%				(1,580)			(3,269)			1,689
Home equity loans and lines of credit			2,627,286						51,216						7.80		%				3,223,451						38,449						4.77		%				12,767			(5,243)			18,010
Total consumer loans secured by real estate			7,587,193						94,585						4.99		%				8,549,345						83,398						3.90		%				11,187			(8,512)			19,699
RICs and auto loans			44,695,318						1,373,171						12.29		%				44,279,309						1,277,206						11.54		%				95,965			12,120			83,845
Personal unsecured			4,601,412						132,212						11.49		%				3,567,627						89,960						10.09		%				42,252			28,571			13,681
Other consumer			70,776						1,090						6.16		%				107,340						1,806						6.73		%				(716)			(573)			(143)
Total consumer			56,954,699						1,601,058						11.24		%				56,503,621						1,452,370						10.28		%				148,688			31,606			117,082
Total loans			97,446,004						2,115,442						8.68		%				95,064,040						1,797,322						7.56		%				318,120			60,404			257,716
TOTAL EARNING ASSETS			145,076,733						3,147,126						8.68		%				141,037,055						2,237,624						6.35		%				909,502			76,844			832,658
Non-interest bearing assets (5)			26,032,881																		26,057,626
TOTAL ASSETS			$	171,109,614																	$	167,094,681
INTEREST BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits			$	12,470,098					$	44,848					1.44		%				$	13,903,253					$	8,138					0.23		%				$	36,710		$	(734)		$	37,444
Savings			4,959,909						3,223						0.26		%				5,537,110						590						0.04		%				2,633			(51)			2,684
Money market			26,382,035						183,991						2.79		%				31,723,865						51,620						0.65		%				132,371			(7,135)			139,506
CDs			18,164,247						208,177						4.58		%				2,782,961						8,823						1.27		%				199,354			135,481			63,873
TOTAL INTEREST-BEARING DEPOSITS			61,976,289						440,239						2.84		%				53,947,189						69,171						0.51		%				371,068			127,561			243,507
Federal funds purchased and securities sold under agreements to repurchase, gross (3)			50,636,237						675,050						5.33		%				49,038,167						246,066						2.01		%				428,984			8,279			420,705
Federal funds purchased and securities sold under agreements to repurchase, netting			(33,583,913)																		(32,879,257)
Federal funds purchased and securities sold under agreements to repurchase, net			17,052,324																		16,158,910
Trading liabilities			2,678,681						33,273						4.97		%				2,629,373						21,524						3.27		%				11,749			409			11,340
FHLB advances			7,697,514						98,435						5.12		%				3,951,196						24,774						2.51		%				73,661			35,129			38,532
Other borrowings			37,032,125						429,448						4.64		%				39,431,097						276,921						2.81		%				152,527			(15,710)			168,237
TOTAL SECURITIES FINANCING ACTIVITIES AND BORROWED FUNDS			64,460,644						1,236,206						7.67		%				62,170,576						569,285						3.66		%				666,921			28,107			638,814
TOTAL INTEREST-BEARING FUNDING LIABILITIES			126,436,933						1,676,445						5.30		%				116,117,765						638,456						2.20		%				1,037,989			61,553			976,436
Non-interest bearing liabilities (6)			25,744,838																		29,674,029
TOTAL LIABILITIES			152,181,771																		145,791,794
Mezzanine equity			1,500,000																		—
STOCKHOLDER’S EQUITY			17,427,843																		21,302,887
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY			$	171,109,614																	$	167,094,681
NET INTEREST SPREAD (7)															3.38		%																4.15		%
NET INTEREST MARGIN (8)															4.05		%																4.54		%
NET INTEREST INCOME									$	1,470,681																	$	1,599,168

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

			Nine months ended September 30, 2023 and 2022
			2023 (1)																		2022 (1)																		Interest			Change due to
(dollars in thousands)			Average Balance						Interest						Yield/ Rate(2)						Average Balance						Interest						Yield/ Rate(2)						Increase/(Decrease)			Volume			Rate
Interest-earning deposits			$	10,409,463					$	572,074					7.33		%				$	11,567,319					$	105,912					1.22		%				$	466,162		$	(9,510)		$	475,672
Federal funds sold and securities purchased under resale or similar agreements, gross (3)			51,623,580						1,797,354						4.64		%				51,634,616						314,168						0.81		%				1,483,186			—			1,483,186
Federal funds sold and securities purchased under resale or similar agreements, netting			(37,456,177)																		(36,095,832)
Federal funds sold and securities purchased under resale or similar agreements, net			14,167,403																		15,538,784
AFS			6,654,822						199,769						4.00		%				9,043,745						109,648						1.62		%				90,121			(19,755)			109,876
HTM			9,359,202						139,719						1.99		%				8,474,367						113,859						1.79		%				25,860			12,493			13,367
Trading securities			8,371,191						282,479						4.50		%				4,932,518						81,248						2.20		%				201,231			80,513			120,718
Other investments			1,282,981						30,144						3.13		%				961,691						16,020						2.22		%				14,124			6,342			7,782
TOTAL SECURITIES FINANCING ACTIVITIES, INVESTMENTS AND INTEREST-EARNING DEPOSITS			$	50,245,062					$	3,021,539					8.02		%				$	50,518,424					$	740,855					1.96		%				$	2,280,684		$	70,083		$	2,210,601
LOANS (4):
C&I			14,961,759						400,781						3.57		%				14,246,294						338,250						3.17		%				62,531			17,803			44,728
CRE			8,407,974						462,271						7.33		%				7,441,308						206,242						3.70		%				256,029			29,930			226,099
Other commercial loans			7,432,895						255,535						4.58		%				7,966,158						162,778						2.72		%				92,757			(10,064)			102,821
Multifamily			10,553,821						377,417						4.77		%				7,926,611						203,159						3.42		%				174,258			79,531			94,727
Total commercial loans			41,356,449						1,496,004						4.82		%				37,580,371						910,429						3.23		%				585,575			117,200			468,375
Consumer loans:
Residential mortgages			5,064,592						132,225						3.48		%				5,470,993						133,552						3.25		%				(1,327)			(28,055)			26,728
Home equity loans and lines of credit			2,769,320						152,277						7.33		%				3,325,585						92,235						3.70		%				60,042			(12,339)			72,381
Total consumer loans secured by real estate			7,833,912						284,502						4.84		%				8,796,578						225,787						3.42		%				58,715			(40,394)			99,109
RICs and auto loans			44,525,835						3,988,326						11.94		%				43,671,326						3,773,186						11.52		%				215,140			75,148			139,992
Personal unsecured			4,462,604						378,035						11.29		%				2,840,749						214,509						10.07		%				163,526			126,046			37,480
Other consumer			79,181						2,790						4.70		%				120,571						2,760						3.05		%				30			(52)			82
Total consumer			56,901,532						4,653,653						10.90		%				55,429,224						4,216,242						10.14		%				437,411			160,748			276,663
Total loans			98,257,981						6,149,657						8.34		%				93,009,595						5,126,671						7.35		%				1,022,986			277,948			745,038
TOTAL EARNING ASSETS			148,503,043						9,171,196						8.23		%				143,528,019						5,867,526						5.45		%				3,303,670			348,031			2,955,639
Non-interest bearing assets (5)			26,234,627																		26,274,879
TOTAL ASSETS			$	174,737,670																	$	169,802,898
INTEREST BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits			$	12,667,901					$	103,584					1.09		%				$	14,321,693					$	13,418					0.12		%				$	90,166		$	(1,307)		$	91,473
Savings			5,067,383						5,890						0.15		%				5,603,233						1,577						0.04		%				4,313			(155)			4,468
Money market			27,027,192						463,852						2.29		%				33,283,516						86,446						0.35		%				377,406			(13,247)			390,653
CDs			16,335,529						513,170						4.19		%				2,455,423						14,540						0.79		%				498,630			283,072			215,558
TOTAL INTEREST-BEARING DEPOSITS			61,098,005						1,086,496						2.37		%				55,663,865						115,981						0.28		%				970,515			268,363			702,152
Federal funds purchased and securities sold under agreements to repurchase, gross (3)			54,135,129						2,012,023						4.96		%				51,912,600						331,591						0.85		%				1,680,432			14,788			1,665,644
Federal funds purchased and securities sold under agreements to repurchase, netting			(34,362,894)																		(34,623,357)
Federal funds purchased and securities sold under agreements to repurchase, net			19,772,235																		17,289,243
Trading liabilities			3,245,920						102,964						4.23		%				2,711,920						37,814						1.86		%				65,150			8,724			56,426
FHLB advances			7,400,964						279,000						5.03		%				1,746,374						28,638						2.19		%				250,362			178,758			71,604
Other borrowings			37,837,815						1,218,366						4.29		%				40,236,862						740,917						2.46		%				477,449			(41,586)			519,035
TOTAL SECURITIES FINANCING ACTIVITIES AND BORROWED FUNDS			68,256,934						3,612,353						7.06		%				61,984,399						1,138,960						2.45		%				2,473,393			160,684			2,312,709
TOTAL INTEREST-BEARING FUNDING LIABILITIES			129,354,939						4,698,849						4.84		%				117,648,264						1,254,941						1.42		%				3,443,908			429,047			3,014,861
Non-interest bearing liabilities (6)			26,817,620																		30,146,885
TOTAL LIABILITIES			156,172,559																		147,795,149
Mezzanine equity			895,258																		—
STOCKHOLDER’S EQUITY			17,669,853																		22,007,749
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY			$	174,737,670																	$	169,802,898
NET INTEREST SPREAD (7)															3.39		%																4.03		%
NET INTEREST MARGIN (8)															4.02		%																4.28		%
NET INTEREST INCOME									$	4,472,347																	$	4,612,585

(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)Represents the average gross Securities Financing Activities balance, including activity that qualifies for balance sheet netting, as discussed further in Note 11 to these Condensed Consolidated Financial Statements.

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

(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)Includes allowance for loan losses and Other assets including 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.

(6)Includes Non-interest bearing deposits and Other liabilities primarily including accounts payable and accrued expenses, derivative liabilities, net deferred tax liabilities and the unfunded lending commitments liability.

(7)Represents the difference between the yield on total earning assets and the cost of total funding liabilities on a managed basis.

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

.

NET INTEREST INCOME

Net interest income decreased $128.5 million and decreased $140.2 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The most significant factors contributing to these changes were as follows:

•Interest income on loans increased $318.1 million and increased $1.0 billion for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The three month period change is attributed to an increase in average loan volume of $60.4 million and an increase in average rates of $257.7 million. The nine month period change is attributed to an increase in average loan volume of $277.9 million and an increase in average rates of $745.0 million. Refer to the discussion of changes in loan balances in the "Loan Portfolio" section of this MD&A. The increases are also attributed to interest rate increases.

•Interest income on interest-earning deposits increased $151.8 million and increased $466.2 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The three month period change is attributed to an increase in average interest-bearing deposits volume of $28.9 million and an increase in average rates of $122.9 million. The nine month period change is attributed to a decrease in average interest-bearing deposits volume of $9.5 million and an increase in average rates of $475.7 million. These changes are primarily driven by the changing interest rate environment.

•Interest and fees on federal funds sold and securities purchased under resale agreements or similar arrangements increased $350.3 million and increased $1.5 billion for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The three month period change is attributed to a decrease in average federal funds sold and securities purchased under resale agreements or similar arrangements volume of $2.1 million and an increase in average rates of $352.4 million. The nine month period change is attributed to an increase in average rates of $1.5 billion. These changes are primarily due to increased Securities Financing Activities following the acquisition of PCH during 2022.

•Interest income on investment securities increased $89.3 million and increased $331.3 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The three month period change is attributed to an increase in average investment securities volume of $40.2 million and an increase in average rates of $49.1 million. The nine month period change is attributed to an increase in average investment securities volume of $79.6 million and an increase in average rates of $251.7 million. These changes are primarily driven by an increase in interest rates during the year.

•Interest expense on deposits and related customer accounts increased $371.1 million and increased $970.5 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The three month period change is attributed to an increase in average interest-bearing deposit volume of $127.6 million and an increase in average rates of $243.5 million. The nine month period change is attributed to an increase in average interest-bearing deposit volume of $268.4 million and an increase in average rates of $702.2 million. The increase in average rates is primarily attributed to money market and CD products.

•Interest expense on Securities Financing Activities and borrowed funds increased $666.9 million and increased $2.5 billion for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The three month period change is attributed to an increase in average Securities Financing Activities and borrowed funds volume of $28.1 million and an increase in average rates of $638.8 million. The nine month period change is attributed to an increase in average Securities Financing Activities and borrowed funds volume of $160.7 million and an increase in average rates of $2.3 billion. Both changes were mostly attributed to an increase in Securities Financing Activities.

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

CREDIT LOSS EXPENSE (BENEFIT)

The Company had credit loss expense of $856.3 million and $1.6 billion for the three months and nine months ended September 30, 2023, respectively, compared to a credit loss expense of $636.4 million and $1.3 billion for the corresponding periods in 2022. The credit loss expense during the three months and nine months ended September 30, 2023 was mainly due to RICs charge-offs which continue to normalize and increase in the ACL driven by the deterioration in the personal unsecured lending portfolio.

Credit loss expense on commercial loans increased $16.1 million and increased $44.7 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022, primarily driven by deterioration in the CRE and Multifamily portfolio and other factors such as rising interest rates and persistent inflation.

Credit loss expense on consumer loans increased $212.9 million and increased $296.4 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022, primarily driven by an increase in RIC charge-offs, and deterioration in personal unsecured lending portfolios. Net charge-offs on the consumer loan portfolios increased $112.6 million and $403.7 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022, as current year activity reflects normalization in credit performance as delinquencies have started to return to pre- COVID-19 pandemic levels and repossession activity increased compared to 2022.

The credit loss expense on unfunded credit losses for the three months and nine months ended September 30, 2023 increased $9.1 million and decreased $9.0 million, respectively, compared to the corresponding periods in 2022.

NON-INTEREST INCOME

						Three months ended September 30,												Nine months ended September 30,												QTD Change												YTD Change
(dollars in thousands)						2023						2022						2023						2022						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Consumer fees						$	45,294					$	74,144					$	154,515					$	198,964					$	(28,850)					(38.9)		%				$	(44,449)					(22.3)		%
Commercial fees						34,146						36,862						103,756						109,866						(2,716)						(7.4)		%				(6,110)						(5.6)		%
Lease income						617,962						663,123						1,866,968						2,012,982						(45,161)						(6.8)		%				(146,014)						(7.3)		%
Capital market revenue						103,675						32,986						217,561						142,062						70,689						214.3		%				75,499						53.1		%
Miscellaneous income, net						83,316						126,995						283,705						376,177						(43,679)						(34.4)		%				(92,472)						(24.6)		%
Net gains recognized in earnings						37,048						(18,594)						108,556						6,121						55,642						299.2		%				102,435						1,673.5		%
Total non-interest income						$	921,441					$	915,516					$	2,735,061					$	2,846,172					$	5,925					0.6		%				$	(111,111)					(3.9)		%

Total non-interest income increased $5.9 million for the three months and decreased $111.1 million for the nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. These changes were primarily due to:

•an increase in Capital market revenue of $70.7 million and $75.5 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022, primarily due to increases in swaption activity and increases in investment banking activity;

•an increase in Net gains recognized in earnings of $55.6 million and $102.4 million for three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022, primarily due to an increase from trading securities gains and gains on the sale of AFS securities during the first quarter of 2023.

•a decrease in Miscellaneous income, net of $43.7 million and $92.5 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022 discussed further below.

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

Miscellaneous income

						Three months ended September 30,												Nine months ended September 30,												QTD Change												YTD Change
(dollars in thousands)						2023						2022						2023						2022						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Mortgage banking income, net						$	784					$	3,802					$	9,624					$	21,119					$	(3,018)					(79.4)		%				$	(11,495)					(54.4)		%
BOLI						19,389						14,674						49,485						44,631						4,715						32.1		%				4,854						10.9		%
Net gain on sale of operating leases						12,922						19,740						55,296						66,002						(6,818)						(34.5)		%				(10,706)						(16.2)		%
Asset and wealth management fees						62,523						62,986						185,844						196,544						(463)						(0.7)		%				(10,700)						(5.4)		%
Gain/(Loss) on sale of non-mortgage loans						2,058						(3,936)						(8,147)						(10,485)						5,994						152.3		%				2,338						22.3		%
Other miscellaneous income / (loss), net						(14,360)						29,729						(8,397)						58,366						(44,089)						(148.3)		%				(66,763)						(114.4)		%
Total miscellaneous income						$	83,316					$	126,995					$	283,705					$	376,177					$	(43,679)					(34.4)		%				$	(92,472)					(24.6)		%

Miscellaneous income decreased $43.7 million and $92.5 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The decreases for both periods were primarily due to decreases in mortgage banking income due to the decision to stop mortgage originations, net gain on sale of operating leases due due to a reduction of the lease portfolio, and elevated customer/dealer purchase rate at end of lease life, and other miscellaneous income due to the decrease in securitization transactions.

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

GENERAL, ADMINISTRATIVE AND OTHER EXPENSES

			Three months Ended September 30,												Nine months Ended September 30,												QTD Change												YTD Change
(dollars in thousands)			2023						2022						2023						2022						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Compensation and benefits			$	528,465					$	507,155					$	1,519,614					$	1,500,086					$	21,310					4.2		%				$	19,528					1.3		%
Occupancy and equipment expenses			160,608						170,755						505,226						472,893						(10,147)						(5.9)		%				32,333						6.8		%
Technology, outside services, and marketing expense			184,168						161,705						523,190						476,027						22,463						13.9		%				47,163						9.9		%
Loan expense			86,729						88,185						276,420						218,786						(1,456)						(1.7)		%				57,634						26.3		%
Lease expense			479,991						530,349						1,455,820						1,527,265						(50,358)						(9.5)		%				(71,445)						(4.7)		%
Other expenses			123,883						116,075						383,861						378,929						7,808						6.7		%				4,932						1.3		%
Total general, administrative and other expenses			$	1,563,844					$	1,574,224					$	4,664,131					$	4,573,986					$	(10,380)					(0.7)		%				$	90,145					2.0		%

Total general, administrative and other expenses decreased $10.4 million and increased $90.1 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The most significant contributing factors were as follows:

•Loan expense decreased $1.5 million and increased $57.6 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022, due to increasing auto loan servicing costs, offset by lower origination costs.

•Lease expense decreased $50.4 million and $71.4 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022, due to lower auto lease volumes resulting in lower depreciation expense.

INCOME TAX PROVISION

Income tax benefit of $147.8 million and $54.9 million was recorded for the three months and nine months ended September 30, 2023, respectively, compared to Income tax expense of $76.2 million and $344.9 million for the corresponding periods in 2022. This resulted in an ETR of 527.5% and (5.9)% for three months and nine months ended September 30, 2023, respectively, compared to 25.1% and 21.2% for the corresponding periods in 2022.

The income tax benefit recorded (and related ETR) for the three months and nine months ended September 30, 2023 was directly impacted by a reduction in the Company’s full-year forecasted ETR from 9.93% as of June 30, 2023 to (5.76)% as of September 30, 2023. This reduction was primarily the result of (i) a decrease in 2023 full-year forecasted pre-tax income and (ii) a significant increase in forecasted electric vehicle tax credits expected to be generated in 2023 related to new preferred lease and lending agreements entered into with several auto OEMs after August 2023.

The Company's ETR in future periods will be affected by the results of operations allocated to the various tax jurisdictions in which the Company operates, any change in income tax laws or regulations within those jurisdictions, and interpretations of income tax regulations that differ from the Company's interpretations by tax authorities that examine tax returns filed by the Company or any of its subsidiaries.

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

LINE OF BUSINESS RESULTS

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

Consumer Activities

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

Three months ended			September 30, 2023												September 30, 2022									Total Consumer Activities
			Auto			CBB			Total Consumer activities						Auto			CBB			Total Consumer Activities			Dollar increase/(decrease)			Percentage
Net interest income			$	926,581		$	407,358		$	1,333,939					$	1,020,542		$	368,627		$	1,389,169		$	(55,230)		(4.0)		%
Non-interest income			623,850			58,682			$	682,532					695,303			77,131			$	772,434		$	(89,902)		(11.6)		%
Credit loss expense / (benefit)			782,504			31,789			$	814,293					521,235			83,451			$	604,686		$	209,607		34.7		%
Total expenses			815,996			360,685			$	1,176,681					855,150			383,597			$	1,238,747		$	(62,066)		(5.0)		%
Income/(loss) before income taxes			(48,069)			73,566			$	25,497					339,460			(21,290)			$	318,170		$	(292,673)		(92.0)		%
Total assets			62,945,184			12,601,046			$	75,546,230					62,490,143			13,072,265			$	75,562,408		$	(16,178)		—		%
Nine months ended			September 30, 2023												September 30, 2022									Total Consumer Activities
			Auto			CBB			Total Consumer activities						Auto			CBB			Total Consumer Activities			Dollar increase/(decrease)			Percentage
Net interest income			$	2,754,863		$	1,219,442		$	3,974,305					$	3,093,143		$	1,002,016		$	4,095,159		$	(120,854)		(3.0)		%
Non-interest income			1,924,771			188,390			$	2,113,161					2,098,169			233,842			$	2,332,011		$	(218,850)		(9.4)		%
Credit loss expense / (benefit)			1,296,120			238,596			$	1,534,716					1,075,942			148,794			$	1,224,736		$	309,980		25.3		%
Total expenses			2,464,793			1,090,912			$	3,555,705					2,485,535			1,137,645			$	3,623,180		$	(67,475)		(1.9)		%
Income/(loss) before income taxes			918,721			78,324			$	997,045					1,629,835			(50,581)			$	1,579,254		$	(582,209)		(36.9)		%
Total assets			62,945,184			12,601,046			$	75,546,230					62,490,143			13,072,265			$	75,562,408		$	(16,178)		—		%

The Company reported total income before income taxes related to its Consumer activities of $25.5 million and $997.0 million for the three months and nine months ended September 30, 2023, respectively, compared to income before income taxes of $318.2 million and $1.6 billion for the corresponding periods in 2022. The most significant drivers of these changes were:

•Net interest income for Auto decreased $94.0 million and decreased $338.3 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods of 2022. These changes were primarily due to higher interest expense on borrowings partially offset by higher loan volume and slightly higher yields on new originations.

•Non-interest income for Auto decreased $71.5 million and decreased $173.4 million for the three months and nine months ended September 30, 2023, respectively compared to the corresponding periods of 2022. This change was primarily due to a reduction of the lease portfolio and elevated customer/dealer purchase rate at end of lease life.

•Credit loss expense in Auto increased $261.3 million and increased $220.2 million or the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. This increase was driven by the normalization of the net charge-off rate however still lower to pre-pandemic levels.

•Net interest income for CBB increased $38.7 million and increased $217.4 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. These changes were primarily driven by higher rate environment and improved deposit FTP.

•Non-interest income for CBB decreased $18.4 million and decreased $45.5 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods of 2022 as a result of lower customer fees.

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

•Credit loss expense for CBB decreased $51.7 million and increased $89.8 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The decrease in the three months ended September 30, 2023, was attributable to lower balances across most consumer portfolios whereas the increase in the nine months ending September 30,2023 was due normalization of the net charge-off rate.

Commercial Activities

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

Three months ended			September 30, 2023															September 30, 2022									Total Commercial Activities
			C&I			CRE			Total Commercial Activities									C&I			CRE			Total Commercial Activities			Dollar increase/(decrease)			Percentage
Net interest income			$	80,426		$	115,389		$	195,815								$	80,734		$	92,271		$	173,005		$	22,810		13.2		%
Non-interest income			10,732			8,033			$	18,765								17,502			10,337			$	27,839		$	(9,074)		(32.6)		%
Credit loss expense / (benefit)			(8,292)			55,865			$	47,573								27,295			6,243			$	33,538		$	14,035		41.8		%
Total expenses			57,933			33,362			$	91,295								60,672			31,186			$	91,858		$	(563)		(0.6)		%
Income/(loss) before income taxes			41,517			34,195			$	75,712								10,269			65,179			$	75,448		$	264		0.3		%
Total assets			5,031,230			22,488,032			$	27,519,262								6,559,994			19,663,939			$	26,223,933		$	1,295,329		4.9		%
Nine months ended			September 30, 2023															September 30, 2022									Total Commercial Activities
			C&I			CRE			Total Commercial Activities									C&I			CRE			Total Commercial Activities			Dollar increase/(decrease)			Percentage
Net interest income			$	242,421		$	333,456		$	575,877								$	224,191		$	255,453		$	479,644		$	96,233		20.1		%
Non-interest income			38,439			25,682			$	64,121								44,876			32,402			$	77,278		$	(13,157)		(17.0)		%
Credit loss expense / (benefit)			(13,348)			111,931			$	98,583								39,551			(8,544)			$	31,007		$	67,576		217.9		%
Total expenses			178,239			99,830			$	278,069								193,189			95,236			$	288,425		$	(10,356)		(3.6)		%
Income/(loss) before income taxes			115,969			147,377			$	263,346								36,327			201,163			$	237,490		$	25,856		10.9		%
Total assets			5,031,230			22,488,032			$	27,519,262								6,559,994			19,663,939			$	26,223,933		$	1,295,329		4.9		%

The Company reported total income before income taxes related to its Commercial activities of $75.7 million and $263.3 million, for the three months and nine months ended September 30, 2023, respectively compared to income before income taxes of $75.4 million and $237.5 million for the corresponding periods in 2022. The most significant drivers of these changes were:

•Credit loss expense in C&I decreased $35.6 million and decreased $52.9 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods of 2022. These decreases were due to prior year higher one-time charge-offs.

•Total assets in C&I at September 30, 2023 decreased $1.5 billion compared to the corresponding date of 2022. The decrease were driven by strategic asset sales and lower loan originations.

•Net interest income in CRE increased $23.1 million and increased $78.0 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods of 2022. The increase was driven by a higher rate environment and higher average loan balances.

•Credit loss expense in CRE increased $49.6 million and increased $120.5 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods of 2022. These increases were driven by increased reserves due in part to volume growth in the CRE and multifamily businesses and in part due to the deteriorated macroeconomic outlook.

•Total assets in CRE at September 30, 2023 increased $2.8 billion compared to the corresponding date in 2022. This increase was driven by higher originations in multi-family loans and lower prepayments since rates began to rise in the first half of 2022.

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

CIB

			Three months ended September 30												Nine months ended September 30												QTD Change												YTD Change
(dollars in thousands)			2023						2022						2023						2022						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Net interest income			$	48,677					$	50,364					$	170,311					$	124,613					$	(1,687)					(3.3)		%				$	45,698					36.7		%
Total non-interest income			90,219						56,674						268,012						198,940						33,545						59.2		%				69,072						34.7		%
Credit loss expense / (benefit)			(5,258)						905						(19,391)						4,295						(6,163)						(681.0)		%				(23,686)						(551.5)		%
Total expenses			157,583						124,832						392,760						318,066						32,751						26.2		%				74,694						23.5		%
Income/(Loss) before income taxes			(13,429)						(18,699)						64,954						1,192						5,270						28.2		%				63,762						5,349.2		%
Total assets			27,502,833						30,358,386						27,502,833						30,358,386						(2,855,553)						(9.4)		%				(2,855,553)						(9.4)		%

CIB reported loss before income taxes of $13.4 million and income before income taxes of $65.0 million for the three months and nine months ended September 30, 2023 respectively, compared to loss before income taxes of $18.7 million and income before income taxes $1.2 million for the corresponding periods in 2022. Factors contributing to these changes were:

•Net interest income decreased $1.7 million and increased $45.7 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The year-to-date increase was due in part to the higher interest yields.

•Total non-interest income increased $33.5 million and increased $69.1 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. These increases were due to increased gains on trading activity.

•Credit loss expense/(benefit) decreased $6.2 million and decreased $23.7 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. These decreases were due to lower loan balances.

•Total assets at September 30, 2023 decreased $2.9 billion compared to the corresponding date in 2022. The decrease was primarily driven by lower loan balances.

Wealth Management

			Three months ended September 30												Nine months ended September 30												QTD Change												YTD Change
(dollars in thousands)			2023						2022						2023						2022						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Net interest income			$	66,736					$	53,870					$	210,392					$	118,239					$	12,866					23.9		%				$	92,153					77.9		%
Total non-interest income			66,696						63,748						187,203						203,986						2,948						4.6		%				(16,783)						(8.2)		%
Credit loss expense / (benefit)			205						—						205						—						205						100%						205						100%
Total expenses			72,910						62,110						208,931						183,142						10,800						17.4		%				25,789						14.1		%
Income / (Loss) before income taxes			60,317						55,508						188,459						139,083						4,809						8.7		%				49,376						35.5		%
Total assets			7,404,818						7,944,125						7,404,818						7,944,125						(539,307)						(6.8)		%				(539,307)						(6.8)		%

Wealth Management reported income before income taxes of $60.3 million and $188.5 million for the three months and nine months ended September 30, 2023 respectively, compared to income before income taxes of $55.5 million and $139.1 million for the corresponding periods in 2022. The primary factor contributing to these changes was:

•Net interest income increased $12.9 million and increased $92.2 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. These increases were primarily driven by the increase in interest rates driving higher yields.

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

Other

			Three months ended September 30												Nine months ended September 30												QTD Change												YTD Change
(dollars in thousands)			2023						2022						2023						2022						Dollar increase/(decrease)						Percentage						Dollar increase/(decrease)						Percentage
Net interest income			$	(174,486)					$	(67,240)					$	(458,538)					$	(205,070)					$	(107,246)					(159.5)		%				$	(253,468)					(123.6)		%
Total non-interest income			63,229						(5,179)						102,564						33,957						68,408						1,320.9		%				68,607						202.0		%
Credit loss expense / (benefit)			(521)						(2,723)						(6,570)						(2,622)						2,202						80.9		%				(3,948)						(150.6)		%
Total expenses			65,375						56,677						228,666						161,173						8,698						15.3		%				67,493						41.9		%
Income / (Loss) before income taxes			(176,111)						(126,373)						(578,070)						(329,664)						(49,738)						(39.4)		%				(248,406)						(75.4)		%
Total assets			27,680,020						26,739,976						27,680,020						26,739,976						940,044						3.5		%				940,044						3.5		%

The Other category reported losses before income taxes of $176.1 million and $578.1 million for the three months and nine months ended September 30, 2023 respectively, compared to losses before income taxes of $126.4 million and $329.7 million for the corresponding periods in 2022. The primary factors contributing to these changes were:

•Net interest income decreased $107.2 million and decreased $253.5 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods of 2022. These decreases were mainly due to increased cost of funding from the FHLB and brokered deposits.

•Total non-interest income increased $68.4 million and increased $68.6 million for the three months and nine months ended September 30, 2023 compared to the corresponding periods of 2022. The increase is mainly due to gains in the AFS hedge portfolio in 2023 compared to losses on investments in 2022.

•Total expenses increased $8.7 million and increased $67.5 million for the three months and nine months ended September 30, 2023, respectively, compared to the corresponding periods of 2022. These increases were a result of one-time restructuring charges as a result of transformation initiatives underway at the Bank.

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

FINANCIAL CONDITION

LOAN PORTFOLIO

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

    

						September 30, 2023												December 31, 2022												Dollar Increase / (Decrease)			Percent Increase (Decrease)
(dollars in thousands)						Amount						Percent						Amount						Percent
Commercial LHFI:
CRE						$	8,586,705					8.9		%				$	7,971,299					8.2		%				$	615,406		7.7		%
C&I						12,337,891						12.9		%				14,811,074						15.2		%				(2,473,183)			(16.7)		%
Multifamily						10,832,680						11.3		%				9,629,423						9.9		%				1,203,257			12.5		%
Other commercial						7,381,924						7.7		%				7,982,107						8.2		%				(600,183)			(7.5)		%
Total commercial loans (1)						39,139,200						40.8		%				40,393,903						41.5		%				(1,254,703)			(3.1)		%
Consumer loans secured by real estate:
Residential mortgages						4,908,746						5.1		%				5,202,862						5.3		%				(294,116)			(5.7)		%
Home equity loans and lines of credit						2,556,814						2.7		%				3,002,804						3.1		%				(445,990)			(14.9)		%
Total consumer loans secured by real estate						7,465,560						7.8		%				8,205,666						8.4		%				(740,106)			(9.0)		%
Consumer loans not secured by real estate:
RICs and auto loans						44,897,647						46.7		%				44,577,186						45.8		%				320,461			0.7		%
Personal unsecured loans						4,430,676						4.6		%				4,068,848						4.2		%				361,828			8.9		%
Other consumer						66,858						0.1		%				92,726						0.1		%				(25,868)			(27.9)		%
Total consumer loans						56,860,741						59.2		%				56,944,426						58.5		%				(83,685)			(0.1)		%
Total LHFI						$	95,999,941					100.0		%				$	97,338,329					100.0		%				$	(1,338,388)		(1.4)		%
Total LHFI with:
Fixed						$	67,341,300					70.1		%				$	67,693,444					69.5		%				$	(352,144)		(0.5)		%
Variable						28,658,641						29.9		%				29,644,885						30.5		%				(986,244)			(3.3)		%
Total LHFI						$	95,999,941					100.0		%				$	97,338,329					100.0		%				$	(1,338,388)		(1.4)		%

(1) As of September 30, 2023, the Company had $466.7 million of commercial loans that were denominated in a currency other than the U.S. dollar.

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

Loans by Maturity and Interest Rate Sensitivity

9						At September 30, 2023, Maturing
(in thousands)						In One Year Or Less						One to Five Years						Five to 15 Years						After 15 Years						Total
Fixed Rates:
CRE loans						$	86,616					$	198,169					$	153,674					$	8,083					$	446,542
C&I						708,686						1,547,121						482,522						160						2,738,489
Multifamily loans						430,542						3,730,076						3,439,787						369						7,600,774
Other commercial						892,585						2,279,336						1,038,121						—						4,210,042
Total Commercial						$	2,118,429					$	7,754,702					$	5,114,104					$	8,612					$	14,995,847
Residential mortgages						409						28,372						529,506						3,192,587						3,750,874
Home equity loans and lines of credit						9,903						8,009						37,795						18,697						74,404
RICs and auto loans						559,908						26,588,596						17,749,084						59						44,897,647
Personal unsecured loans						58,081						3,437,164						365,486						931						3,861,662
Other consumer						602						49,772						4,468						4,594						59,436
Total Fixed Rates						$	2,747,332					$	37,866,615					$	23,800,443					$	3,225,480					$	67,639,870
Variable Rates:
CRE loans						$	3,071,486					$	4,312,299					$	634,437					$	121,941					$	8,140,163
C&I						1,906,974						7,376,747						726,724						24,277						10,034,722
Multifamily loans						754,805						1,549,635						925,649						1,817						3,231,906
Other commercial						2,852,886						316,626						2,370						—						3,171,882
Total Commercial						$	8,586,151					$	13,555,307					$	2,289,180					$	148,035					$	24,578,673
Residential mortgages						315						8,222						194,911						954,912						1,158,360
Home equity loans and lines of credit						6,914						3,043						629,449						1,843,004						2,482,410
Personal unsecured loans						8,082						475,219						85,434						279						569,014
Other consumer						—						—						7,423						—						7,423
Total Variable Rates						$	8,601,462					$	14,041,791					$	3,206,397					$	2,946,230					$	28,795,880
Total						$	11,348,794					$	51,908,406					$	27,006,840					$	6,171,710					$	96,435,750

Commercial

Commercial loans decreased approximately $1.3 billion, or 3.1% from December 31, 2022 to September 30, 2023. This decrease was primarily attributed to an increase in Multifamily loans of $1.2 billion and an increase in CRE loans of $0.6 billion offset by a decrease in C&I loans of $2.5 billion. During the period ended September 30, 2023, the Company reclassified approximately $317.8 million of Commercial auto loans to HFS, resulting in an immaterial loss recorded in non-interest income.

Consumer Loans Secured By Real Estate

Consumer loans secured by real estate decreased $740.1 million from December 31, 2022 to September 30, 2023. This decrease primarily resulted from the Company’s decision to stop the origination of new residential mortgage and home equity loans in the first quarter of 2022.

Consumer Loans Not Secured By Real Estate

RICs and auto loans

RICs and auto loans increased $320.5 million from December 31, 2022 to September 30, 2023. 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. A significant portion 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.

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

As of September 30, 2023, 58.7% of the Company's RIC and auto loan portfolio balance was comprised of nonprime loans (defined by the Company as customers with a FICO score of below 640) with customers who did not qualify for conventional consumer finance products as a result of, among other things, a lack of or adverse credit history, low income levels and/or the inability to provide adequate down payments. This also includes 6.5% of loans for which no FICO score was available. While underwriting guidelines are designed to establish that the customer would be a reasonable credit risk, nonprime loans will nonetheless experience higher default rates than a portfolio of obligations of prime customers. Additionally, higher unemployment rates, higher gasoline prices, unstable real estate values, re-sets of adjustable rate mortgages to higher interest rates, the general availability of consumer credit, and other factors that impact consumer confidence or disposable income could lead to an increase in delinquencies, defaults, and repossessions, as well as decreased consumer demand for used automobiles and other consumer products, weaken collateral values and increase losses in the event of default. Because of the historical focus for such credit has been predominantly on nonprime consumers, the actual rates of delinquencies, defaults, repossessions, and losses on these loans could be more dramatically affected by a general economic downturn.

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

Personal unsecured and other consumer loans

Personal unsecured and other consumer loans HFI increased $336.0 million from December 31, 2022 to September 30, 2023. This increase was primarily attributable to increased originations in the personal unsecured portfolio.

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

At September 30, 2023, the CRE and multifamily portfolios included the following:

						As of September 30, 2023
(in thousands)						Balance						Percentage of Total CRE and Multifamily
CRE loans						$	8,586,705					44.2		%
Multifamily loans (1)						$	10,832,680					55.8		%
Total CRE and multifamily loans						$	19,419,385					100.0		%
CRE loans by type
Multifamily construction						$	2,687,013					13.8		%
Office						$	1,977,569					10.2		%
Retail						$	1,239,803					6.4		%
Industrial						$	1,462,750					7.5		%
Other						$	1,219,570					6.3		%
Total						$	8,586,705
(1) Occupied properties

Multifamily lending (occupied and construction) continues to be our focus, representing 70% of the total CRE and multifamily portfolio and 14% of total LHFI. Overall, occupancy across the multifamily loan portfolio and our primary markets such as New York City, continues to be stable. Our construction originations are concentrated to well-established and proven builders and sponsors.

Office CRE loans represent 10.2% of the total CRE and multifamily portfolio and 2% of total LHFI. The Company's office exposure primarily consists of investment grade, single tenants with long leases.

The Company's retail CRE portfolio represents 6.4% of the total CRE and multifamily portfolio and 1% of total LHFI. The retail portfolio is anchored by pharmacies and high-end grocery stores, which have demonstrated recovery following the COVID-19 pandemic.

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

NON-PERFORMING ASSETS

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

						Period Ended												Change
(dollars in thousands)						September 30, 2023						December 31, 2022						Dollar						Percentage
Non-accrual loans:
Commercial:
CRE						$	92,107					$	62,093					$	30,014					48.3		%
C&I						143,147						94,299						48,848						51.8		%
Multifamily						44,136						18,476						25,660						138.9		%
Other commercial						4,935						5,180						(245)						(4.7)		%
Total commercial loans						284,325						180,048						104,277						57.9		%
Consumer loans secured by real estate:
Residential mortgages						59,247						75,666						(16,419)						(21.7)		%
Home equity loans and lines of credit						88,927						82,664						6,263						7.6		%
Consumer loans not secured by real estate:
RICs and auto loans						1,961,943						1,986,748						(24,805)						(1.2)		%
Personal unsecured loans						20,950						10,397						10,553						101.5		%
Other consumer						12,190						5,332						6,858						128.6		%
Total consumer loans						2,143,257						2,160,807						(17,550)						(0.8)		%
Total non-accrual loans						2,427,582						2,340,855						86,727						3.7		%
OREO						24,716						4,437						20,279						457.0		%
Repossessed vehicles						268,790						229,531						39,259						17.1		%
Other repossessed assets						2,169						1,128						1,041						92.3		%
Total OREO and other repossessed assets						295,675						235,096						60,579						25.8		%
Total non-performing assets						$	2,723,257					$	2,575,951					$	147,306					5.7		%
Past due 90 days or more as to interest or principal and accruing interest						$	5,513					$	3,719					$	1,794					48.2%
Non-performing assets as a percentage of total assets						1.6		%				1.5		%				n/a						n/a

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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)						September 30, 2023						December 31, 2022						September 30, 2022
ACL to total loan outstanding						7.3%						7.0%						7.0%
ACL						$7,057,324						$6,865,581						$6,757,488
Total loans outstanding						96,435,750						97,437,884						96,936,993
NPL to total loans outstanding						2.5%						2.4%						2.1%
NPL						$2,427,582						$2,340,855						$2,075,643
Total loans outstanding						96,435,750						97,437,884						96,936,993
ACL to NPL						290.7%						293.3%						325.6%
ACL						$7,057,324						$6,865,581						$6,757,488
NPL						2,427,582						2,340,855						2,075,643
Net Charge-offs during the period to average loans outstanding:
Commercial						0.1%						0.2%						0.1%
Net charge-offs / (recoveries) during the period (1)						$24,648						$76,469						$22,779
Average amount outstanding						41,356,449						38,288,899						37,580,371
Consumer						2.5%						2.9%						1.9%
Net charge-offs / (recoveries) during the period (1)						$1,446,392						$1,642,271						$1,042,653
Average amount outstanding						56,901,532						55,886,419						55,429,224

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

Commercial net charge-offs during the period to average loans increased from September 30, 2022 to September 30, 2023. The increase in net charge-offs was primarily due to deterioration in the macroeconomic outlook and higher volume in the portfolio. Consumer net charge-offs during the period to average loans increased from September 30, 2022 to September 30, 2023. This increase was primarily due to charge-offs normalizing to pre-COVID periods and an increase in repossession activity compared to 2022.

Commercial

Commercial NPLs increased $104.3 million from December 31, 2022 to September 30, 2023. Commercial NPLs accounted for less than 1% of commercial LHFI at September 30, 2023. The change in commercial NPLs was primarily comprised of an increase of $25.7 million in the multifamily portfolio, an increase of $30.0 million in the CRE portfolio and an increase of $48.8 million in the C&I portfolio. Increases in these portfolios are primarily driven by higher interest rates and deteriorated macroeconomic outlook.

Consumer Loans Secured by Real Estate

NPLs in the residential mortgage portfolio decreased year-over-year primarily resulting from the Company’s decision to stop the origination of new residential mortgage and home equity loans in the first quarter of 2022. Foreclosures on consumer loans secured by real estate were $66.4 million or 44.8% of non-performing consumer loans secured by real estate at September 30, 2023, compared to $75.2 million, or 47.5%, of consumer loans secured by real estate at December 31, 2022.

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 $24.8 million from December 31, 2022 to September 30, 2023. Non-performing RICs and auto loans accounted for 4.4% and 4.5% of total RICs and auto loans at September 30, 2023 and December 31, 2022, respectively.

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

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 $10.6 million from December 31, 2022 to September 30, 2023. Non-performing personal unsecured loans accounted for 0.5% and 0.3% of total personal unsecured loans at September 30, 2023 and December 31, 2022, respectively.

Delinquencies

Early stage delinquency in commercial loans totaled approximately $224.1 million and $111.2 million at September 30, 2023 and December 31, 2022, respectively. Early stage delinquency consumer loans amounted to $5.0 billion and $4.7 billion at September 30, 2023 and December 31, 2022, respectively. Management has included these loans in its evaluation of the Company's ACL and reserved for them during the respective periods.

The Company generally considers an account delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date.    Overall, total delinquencies increased by $482.4 million from December 31, 2022 to September 30, 2023. The main driver of this is the increase in past due auto loans in early stages of delinquency due to a return to normal seasonality as well as pressure from inflation.

Loan Modifications

Loan modifications occur when a borrower is experiencing financial difficulties and the loan is modified with terms that would otherwise not be granted to the borrower. In these cases, the Company agrees to make certain concessions to both meet the needs of customers and maximize its ultimate recovery on the loans. The types of concessions granted are generally interest rate reductions, limitations on accrued interest charged, term extensions, covenant waivers and deferments of principal.

Modified loans are generally placed on nonaccrual status upon modification, unless the loan was performing immediately prior to modification. For most portfolios, modified loans 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 modifications 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 modifications are considered for return to accrual when the account becomes 60 days or less past due. To the extent the modified loan 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 modified loan 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 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, and cash flow forecasts used in the determination of the adequacy of the ALLL for loans classified as modified 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.

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

Effective January 1, 2023, the Company adopted ASU 2022-02. This guidance removes the specific accounting and disclosure guidance for TDR designations and enhances disclosure requirements related to modifications of receivables made to borrowers experiencing financial difficulty. The Company adopted the new guidance on January 1, 2023 on a modified retrospective basis with a cumulative effect adjustment to retained earnings. The effect of this implementation was an increase in the ACL of approximately $55.2 million, a decrease in retained earnings of approximately $41.4 million and a decrease in deferred tax liabilities of approximately $13.8 million. Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information on modified loans.

CREDIT RISK

The risk inherent in the Company’s loan and lease portfolios is driven by credit and collateral quality, and is affected by borrower-specific and economy-wide factors such as changes in unemployment, GDP, HPI, CRE price index, used vehicle index, and other factors. In general, there is an inverse relationship between credit quality of transactions and projections of impairment losses so that transactions with better credit quality require a lower expected loss. The Company manages this risk through its underwriting, pricing and credit approval guidelines and servicing policies and practices, as well as geographic and other concentration limits.

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

Management uses the qualitative framework to exercise judgment about matters that are inherently uncertain and that are not considered by the quantitative framework. These adjustments are documented and reviewed through the Company’s risk management processes. Furthermore, management reviews, updates, and validates its process and loss assumptions on a periodic basis. This process involves an analysis of data integrity, review of loss and credit trends, a retrospective evaluation of actual loss information to loss forecasts, and other analyses.

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

ACL

The Company's ACL was $7.1 billion at September 30, 2023, an increase of $191.7 million from December 31, 2022. The increase in the ACL was primarily driven by a deterioration in the personal unsecured lending and CRE (including multifamily) portfolio, partially offset by improvement in the macroeconomic outlook for certain macro variables such as unemployment rate and used vehicle price index. The ACL for the consumer segment increased by $142.3 million, and the ACL for the commercial segment increased $49.4 million for the period ended September 30, 2023 compared to December 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 $85.6 million at December 31, 2022 to $72.9 million at September 30, 2023.

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

INVESTMENT SECURITIES

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

(in thousands)						September 30, 2023						December 31, 2022
Investment securities AFS:
U.S. Treasury securities and government agencies						$	3,371,270					$	3,879,518
FNMA and FHLMC securities						2,011,760						2,276,192
Other securities (1)						787,127						874,509
Total investment securities AFS						6,170,157						7,030,219
Investment securities HTM:
U.S. government agencies						7,708,223						8,009,802
FNMA and FHLMC securities						1,445,144						1,539,416
Total investment securities HTM						9,153,367						9,549,218
Trading securities						8,496,604						5,864,324
Other investments						1,478,133						1,116,161
Total investment portfolio						$	25,298,261					$	23,559,922

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

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

						September 30, 2023						December 31, 2022						Change						Percent
(in thousands)						Fair Value						Fair Value
U.S. Treasury securities						$	31,043					$	218,439					$	(187,396)					(85.8)		%
Corporate debt securities						280,400						370,491						(90,091)						(24.3)		%
ABS						506,727						504,018						2,709						0.5		%
MBS:
GNMA - Residential						2,814,682						3,081,022						(266,340)						(8.6)		%
GNMA - Commercial						525,545						580,057						(54,512)						(9.4)		%
FHLMC and FNMA - Residential						1,924,175						2,180,201						(256,026)						(11.7)		%
FHLMC and FNMA - Commercial						87,585						95,991						(8,406)						(8.8)		%
Total investments in debt securities AFS						$	6,170,157					$	7,030,219					$	(860,062)					(12.2)		%

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 unrealized gain / (loss) position of the AFS investment portfolio

(in thousands)						September 30, 2023						December 31, 2022						Change in unrealized gain/(loss)						Percent
Total unrealized loss						$	(939,670)					$	(884,941)					$	(54,729)					6.2		%
Total unrealized gain						31						328						(297)						(90.5)		%
Total unrealized gain/(loss) position						$	(939,639)					$	(884,613)					$	(55,026)					6.2		%

The average life of the AFS investment portfolio (excluding certain ABS) at September 30, 2023 was approximately 6.62 years. The average effective duration of the investment portfolio (excluding certain ABS) at September 30, 2023 was approximately 5.11 years. The actual maturities of MBS AFS will differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties.

HTM securities are reported at cost and adjusted for amortization of premium and accretion of discount. The Company had 350 investment securities classified as HTM as of September 30, 2023.

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

The following table presents the securities of single issuers (other than obligations of the United States and its political subdivisions, agencies, and corporations) having an aggregate book value in excess of 10% of the Company's stockholder's equity that were held by the Company at September 30, 2023:

						September 30, 2023
(in thousands)						Amortized Cost						Fair Value
FNMA						$	1,798,483					$	1,515,687
FHLMC						2,123,879						1,757,391
GNMA (1)						11,595,294						9,531,874
Total						$	15,517,656					$	12,804,952

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

GOODWILL

At September 30, 2023, goodwill totaled $2.8 billion and represented 1.7% of total assets and 16.3% of total stockholder's equity. The Company conducted its most recent annual goodwill impairment tests as of October 1, 2022 using generally accepted valuation methods and noted no impairment.

The Company completes a quarterly review for impairment indicators over each of its reporting units, which includes consideration of economic and organizational factors that could impact the fair value of the Company's reporting units. As of the most recent review completed at the end of the third quarter of 2023, the Company did not identify any indicators which resulted in the Company's conclusion that an interim impairment test would be required to be completed.

DEFERRED TAXES AND OTHER TAX ACTIVITY

The Company had a net deferred tax liability balance of $2.5 million at September 30, 2023 (consisting of a deferred tax asset balance of $212.5 million and a deferred tax liability balance of $215.0 million with respect to jurisdictional netting), compared to a net deferred tax liability balance of $167.4 million at December 31, 2022 (consisting of a deferred tax asset balance of $221.6 million and a deferred tax liability balance of $389.0 million. Refer to Note 15 to the Condensed Consolidated Financial Statements for further discussion of the change in deferred tax balances.

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

BANK REGULATORY CAPITAL

The Company's capital priorities are to support client growth and business investment while maintaining appropriate capital for a range of macroeconomic outcomes.

The Company is subject to the regulations of certain federal, state, and foreign agencies and undergoes periodic examinations by those regulatory authorities. At September 30, 2023 and 2022, based on SBNA’s capital calculations, SBNA was considered well-capitalized under the applicable capital framework. In addition, the Company's capital levels as of September 30, 2023 and 2022, based on the Company’s capital calculations, exceeded the required capital ratios for BHCs.

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

Federal banking laws, regulations and policies also limit SBNA's ability to pay dividends and make other distributions to the Company. SBNA must obtain prior OCC approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the Bank's total distributions to SHUSA within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years, (2) the Bank would not meet capital levels imposed by the OCC in connection with any order, (3) the Bank has negative retained earnings, or (4) the Bank is not adequately capitalized at the time. The OCC's prior approval would also be required if SBNA were notified by the OCC that it is a problem institution or in troubled condition.

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

The following schedule summarizes the actual capital ratios of SHUSA and SBNA at September 30, 2023:

						SHUSA
						September 30, 2023						Well-capitalized Requirement						Minimum Requirement
CET1 capital ratio						12.82		%				6.50		%				4.50		%
Tier 1 capital ratio						14.23		%				8.00		%				6.00		%
Total capital ratio						16.26		%				10.00		%				8.00		%
Leverage ratio						10.33		%				5.00		%				4.00		%

						SBNA
						September 30, 2023						Well-capitalized Requirement						Minimum Requirement
CET1 capital ratio						14.80		%				6.50		%				4.50		%
Tier 1 capital ratio						14.80		%				8.00		%				6.00		%
Total capital ratio						16.06		%				10.00		%				8.00		%
Leverage ratio						11.36		%				5.00		%				4.00		%

The Company utilizes fair value hedging strategies to mitigate the risk of unrealized losses in its investments in debt securities - AFS. As of December 31, 2022, the Company had $2.5 billion of notional in fair value hedges which increased to $4.7 billion at September 30, 2023. Refer to the notional and fair value of these hedging instruments in Note 12 to these Condensed Consolidated Financial Statements.

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

DEPOSITS

The Company reported deposits of $77.5 billion and $79.1 billion at September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023, SBNA had $74.8 billion of U.S.-based deposits, including $2.6 billion of deposits from SHUSA affiliates that eliminate in consolidation. Uninsured U.S.-based deposits were $26.2 billion and $27.9 billion at September 30, 2023 and December 31, 2022, respectively, and represented approximately 35% of all U.S. deposits at both September 30, 2023 and December 31, 2022.

SBNA attracts deposits primarily through its retail branch network located within the Mid-Atlantic and Northeastern areas of the United States, focused throughout Pennsylvania, New Jersey, New York, New Hampshire, Massachusetts, Connecticut, Rhode Island, and Delaware. Many of these deposit customers have more than one bank product including small business loans, middle market, large and global commercial loans, multi-family loans, and auto and other consumer loans. In addition, SBNA obtains deposits through third-party brokerage firms.

The following shows the Company's deposits by business as of September 30, 2023:

						Consumer (1)			Commercial (2)			CIB			Wealth Management			Other and eliminations (3)			Total
(dollars in thousands)						Balance
Interest-bearing demand deposits						$	37,637,579		$	9,329,517		$	3,881,415		$	2,629,260		$	8,075,887		$	61,553,658
Non-interest-bearing demand deposits						9,642,085			3,506,199			104,742			2,657,476			6,473			15,916,975
Total deposits (1)						$	47,279,664		$	12,835,716		$	3,986,157		$	5,286,736		$	8,082,360		$	77,470,633

(1) Consumer consists of deposits related to the Company's Auto and CBB reportable segments.

(2) Commercial consists of deposits related to the Company's C&I and CRE reportable segments.

(3) Other consists of deposits related to certain of the Company's immaterial subsidiaries and corporate treasury deposits.

During the third quarter of 2023, deposits have remained stable across our consumer and commercial businesses with changes to overall deposit balances being primarily driven by strategic deposits in CIB.

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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.

Enhanced Monitoring of Liquidity

In addition to its normal monitoring of liquidity, SBNA has enhanced monitoring of its liquidity position since the recent financial system market disruption that began in March 2023 and the ensuing market volatility. Additionally, SBNA continues to improve and optimize contingent sources of liquidity. Some of these actions in the second quarter of 2023 include the pledge of additional loans to the FRB discount window, the transfer of securities from the discount window to the BTFP and the transfer of loans from the discount window to the FHLB in order to receive more favorable haircuts. Overall, the available capacity from the FRB and FHLB remained stable from the second quarter.

Impact of Changes to Credit Rating on Liquidity and Capital Resources

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

Sources of Liquidity

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

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

During the nine months ended September 30, 2023, the Company's subsidiaries completed on-balance sheet funding transactions totaling approximately $6.1 billion, including:

•securitization on its SDART platform for approximately $4.0 billion; and

•lease securitizations on its SCARF platform for approximately $2.1 billion.

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

In addition, during the nine months ended September 30, 2023, the Company's subsidiaries issued $131.6 million of credit-linked notes due February 2052 and $115.5 million of credit-linked notes due June 2033 The notes contain a financial guarantee on a reference pool of mortgage loans and auto loans, respectively, owned by the Company. For information regarding the Company's and its subsidiaries' debt, see Note 9 to the Condensed Consolidated Financial Statements.

Intercompany Borrowings with SHUSA affiliates

SanCap has a revolving subordinated loan agreement with SHUSA to provide additional capital to SanCap for its 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 SanCap is $750.0 million with an additional liquidity line of $4.0 billion. At September 30, 2023, there were no outstanding balances on the subordinated loan or the liquidity line. In addition, SanCap has entered into a loan agreement with SHUSA to provide an additional liquidity buffer.

During the third quarter, the Bank entered into a loan agreement with the Company to borrow $500.0 million at a fixed rate of 6.98% maturing in September 2026. This loan eliminates in consolidation.

Available Liquidity

As of the periods indicated, the Company and its subsidiaries had the following available liquidity:

						September 30, 2023																		June 30, 2023
						Total Capacity						Used						Available						Total Capacity						Used						Available
Cash on deposit at FRB																		$	8,312,372																	$	10,420,155
Liquidity from released government deposit collateral (1)						2,989,973						—						2,989,973						3,194,478						—						3,194,478
Liquidity from unencumbered securities						812,426						—						812,426						700,000						—						700,000
FHLB						$	15,713,286					$	7,057,702					8,655,584						$	15,653,689					$	8,695,247					6,958,442
FRB:
Discount window						9,164,841						—						9,164,841						8,741,785						—						8,741,785
BTFP						7,402,356						—						7,402,356						7,827,037						—						7,827,037
Total FRB						$	16,567,197					—						$	16,567,197					$	16,568,822					—						$	16,568,822
Total available liquidity																		$	37,337,552																	$	37,841,897

(1) Includes high quality liquid assets that are encumbered as collateral for uninsured government deposits.

At September 30, 2023, unencumbered highly liquid assets (cash and cash equivalents and investments in debt securities AFS exclusive of securities pledged as collateral) totaled approximately $19.8 billion. This amount represented 25.6% of total deposits at September 30, 2023. Management believes that the Company has ample liquidity to fund its operations under business-as-usual and stress conditions.

Cash, cash equivalents, and restricted cash

						Nine months ended September 30,												YTD Change
(in thousands)						2023						2022												Increase/(Decrease)
Net cash flows from operating activities						$	409,564					$	3,735,451											$	(3,325,887)
Net cash flows from investing activities						1,975,456						(4,769,616)												6,745,072
Net cash flows from financing activities						(2,837,379)						(9,669,163)												6,831,784

Cash flows from operating activities

Net cash flow from operating activities decreased by $3.3 billion from the nine months ended September 30, 2022 to the nine months ended September 30, 2023, primarily due to the change in net trading activity during the nine months ended September 30, 2023, resulting from the acquisition of PCH in the second quarter of 2022.

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

Cash flows from investing activities

Net cash flow from investing activities increased by $6.7 billion from the nine months ended September 30, 2022 to the nine months ended September 30, 2023, primarily due to lower AFS investments purchase activity and lower LHFI purchase activity, as well as a decrease in originations of LHFI.

Cash flows from financing activities

Net cash flow from financing activities increased by $6.8 billion from the nine months ended September 30, 2022 to the nine months ended September 30, 2023, primarily driven by net change in deposits, as well as cash outflows during the nine months ended September 30, 2022 related to the repurchase of the remaining outstanding shares of SC.

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

Credit Facilities

Third-Party Revolving Credit Facilities

Warehouse Lines

The Company's subsidiaries have a credit facility with several banks providing an aggregate commitment of $500.0 million for the exclusive use of providing short-term liquidity needs to support preferred auto lessor financing. As of September 30, 2023, there was an outstanding balance of $277.2 million on this facility. The facility requires reduced advance rates in the event of delinquency, credit loss, or residual loss ratios, as well as other metrics exceeding specified thresholds.

In addition, the Company's subsidiaries have credit facilities with several banks providing an aggregate commitment of $6.6 billion for the exclusive use of providing short-term liquidity to support core and preferred lender financing. As of September 30, 2023, there was an outstanding balance of $3.5 billion on these facilities in the aggregate. These facilities reduced advance rates in the event of delinquency, credit loss, as well as various other metrics exceeding specific thresholds.

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 11 to the Condensed Consolidated Financial Statements for additional information about the Company's Securities Financing Activities.

Related Party Credit Facilities

The Company provides SC with $0.5 billion of committed revolving credit and $2.5 billion of contingent liquidity that can be drawn on an unsecured basis. The Company also provides SC with $3.8 billion of term financing with maturities ranging from December 2023 to April 2028. These loans eliminate in the consolidation of SHUSA.

Secured Structured Financings

The Company's subsidiaries' secured structured financings primarily consist of both public, SEC-registered securitizations, as well as private securitizations under Rule 144A of the Securities Act, and privately issued amortizing notes. As of September 30, 2023, there were on-balance sheet securitizations outstanding in the market with a cumulative balance of approximately $20.0 billion.

Deficiency and Debt Forward Flow Agreement

In addition to SC's credit facilities and secured structured financings, SC has a flow agreement in place with a third party for charged-off assets. Loans and leases sold under these flow agreements are not on SC's balance sheet.

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

Off-Balance Sheet Financing

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

Uses of Liquidity

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

At September 30, 2023, 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 September 30, 2023, the Company had total contractual cash obligations of $84.3 billion, which included FHLB advances, notes payable, other debt obligations, CDs, repurchase agreements, non-qualified pension and post-retirement benefits, and operating leases. Of this amount, approximately $51.3 billion of the total contractual cash obligations is due within one year. In addition, the Company had other commitments of $25.1 billion which consisted of commitments to extend credit and letters of credit. Of this amount, approximately $6.0 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 September 30, 2023, the Company had 530,391,043 shares of common stock outstanding.

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

On June 15, 2023, the Company issued 1,000,000 shares of a new series of its preferred stock, the 9.380% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series F, without par value and with a liquidation preference of $1,000 per share, to Santander. As of September 30, 2023, Santander was the sole holder of the Series E and F Preferred Stock.

During the nine months ended September 30, 2023, the Company declared and paid dividends to its common shareholder, Santander, in the amount of $1.5 billion. In addition, during the nine months ended September 30, 2023, the Company declared and paid dividends to its preferred shareholder, Santander, in the amount of $56.8 million.

During the nine months ended September 30, 2023, SHUSA's subsidiaries had the following capital activity which eliminates in consolidation:

•SC declared and paid $1.0 billion in dividends to SHUSA.

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

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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 term SOFR. Repricing risk stems from the different timing of contractual repricing, such as one-month versus three-month reset dates, as well as the related maturities. Yield curve risk stems from the impact on earnings and market value resulting from different shapes and levels of yield curves. Option risk stems from prepayment or early withdrawal risk embedded in various products. These four elements of risk are analyzed through a combination of net interest income and balance sheet valuation simulations, shocks to those simulations, and scenario and market value analyses, and the subsequent results are reviewed by management. Several assumptions and models are used 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. Certain models use historical data analyses to estimate future customer behavior, such as deposit re-pricing and attrition. Estimates from these models can differ from actual behavior, depending on various factors such as macroeconomic conditions, competitor response, etc.

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

Net Interest Income Simulation Analysis

The Company utilizes a variety of measurement techniques to evaluate the impact of interest rate risk, including simulating the impact of changing interest rates on expected future interest income and interest expense, to estimate the Company's net interest income sensitivity. This simulation is run monthly and includes various scenarios that help management understand the potential risks in the Company's net interest income sensitivity. These various scenarios include parallel, non-parallel, gradual parallel and gradual non-parallel rate shocks applied relative to the implied market-based forward curve, as well as other scenarios that are consistent with quantifying the four measures of risk described above. The shocks below are extended using the parallel scenario and are applied instantaneously to the implied forward curve as of the stated month-end. The down 200 basis point shock has been added as market rates have increased. This set of shocks represents a range of plausible rate shocks, as an instantaneous shock down 200 basis points can be analogous to a gradual ramp-down of 400 basis points over one year. This information is used to develop proactive strategies to ensure that the Company’s risk position remains within SHUSA Board of Directors-approved limits so that future earnings are not significantly adversely affected by future interest rates.

The table below reflects the estimated sensitivity to the Company’s net interest income based on interest rate changes at September 30, 2023 and December 31, 2022:

						The following estimated percentage increase/(decrease) to net interest income would result
If interest rates changed in parallel by the amounts below						September 30, 2023						December 31, 2022
Down 200 basis points						(3.24)		%				(4.99)		%
Down 100 basis points						(1.55)		%				(2.38)		%
Up 100 basis points						1.51		%				2.32		%
Up 200 basis points						2.99		%				4.60		%

MVE Analysis

The Company also evaluates the impact of interest rate risk by utilizing MVE modeling. This analysis measures the present value of all estimated future cash flows of the Company over the estimated remaining life of the balance sheet. MVE is calculated as the difference between the market value of assets and liabilities. The MVE calculation utilizes only the current balance sheet, and therefore does not factor in any future changes in balance sheet size, balance sheet mix, yield curve relationships or product spreads, which may mitigate the impact of any interest rate changes.

Management examines the effect of interest rate changes on MVE. The sensitivity of MVE to changes in interest rates is a measure of longer-term interest rate risk, and highlights the potential capital at risk due to adverse changes in market interest rates. The following table discloses the estimated sensitivity to the Company’s MVE at September 30, 2023 and December 31, 2022.

						The following estimated percentage increase/(decrease) to MVE would result
If interest rates changed in parallel by the amounts below						September 30, 2023						December 31, 2022
Down 200 basis points						8.12		%				4.52		%
Down 100 basis points						4.40		%				3.09		%
Up 100 basis points						(4.15)		%				(3.70)		%
Up 200 basis points						(8.03)		%				(7.40)		%

As of September 30, 2023, the Company’s profile reflected an increase of MVE of 4.40% for downward parallel interest rate shocks of 100 basis points and a decrease of 4.15% 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.

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

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.

Uses of Derivatives to Manage Interest Rate and Other Risks

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

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

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

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

The Company typically retains the servicing rights related to residential mortgage loans that are sold. The majority of the Company's residential MSRs are accounted for at fair value. As deemed appropriate, the Company economically hedges MSRs, using interest rate swaps and forward contracts to purchase MBS. For additional information on MSRs, see Note 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 September 30, 2023 (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 Statements 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 and lease transfer activities within the SCF. This material weakness resulted in material misstatements to the classification of cash flows associated with LHFS and LHFI within the SCF which resulted in the restatement of the Consolidated Financial Statements as of and for the period ending March 31, June 30 and September 30, 2021. Additionally, immaterial errors were identified related to the classification of cash flows associated with loan and lease transfer activities in prior periods. This material weakness could result in further misstatements of the classification of cash flows for loan and lease transfer activities that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Remediation Status of Reported Material Weakness

The Company has taken the following measures during the quarter ended September 30, 2023 to remediate the material weakness described above, including:

•enhanced the process around identification and tracking of the classification of loans at origination;

•enhanced 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;

•enhanced procedures around loan and lease transfer activities that may have an impact on reporting the operating and investing sections of the SCF;

•enhanced the controls pertaining to manual entries as they relate to their impact on loan and lease transfer activities within the SCF.

While progress has been made to remediate the above-referenced material weakness, including the development and implementation of enhanced processes, procedures and controls as noted above, we are still in the process of testing the operating effectiveness of the new and enhanced controls. We believe our actions will be effective in remediating the material weakness, and we continue to devote significant time and attention to these efforts. However, the material weakness will not be considered remediated until the applicable remedial processes and procedures have been in place for a sufficient period of time and management has concluded, through testing, that these controls are effective. Accordingly, the material weakness is not remediated as of September 30, 2023.

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Changes in Internal Control over Financial Reporting

As described in the Remediation Status of Reported Material Weakness, there were changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 2022.

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.

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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, 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 nine months ended September 30, 2023, were negligible relative to the overall profits of Santander.

•Santander Consumer Finance, S.A. holds through its Belgian branch seven blocked correspondent accounts for an Iranian bank that is currently designated by the U.S. under the SDGT sanctions program. The accounts have been blocked since 2008. No revenues or profits were generated by the Belgian branch on these accounts in the nine months ended, September 30, 2023.

•Santander Brasil holds three blocked accounts for three customers with domicile in Brazil designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander Brasil on these accounts in the nine months ended September 30, 2023, were negligible relative to the overall profits of Santander.

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

In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the nine months ended September 30, 2023, 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 December 21, 2022) (Commission File Number 001-16581)
(3.2)			Articles of Amendment to the Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of Santander Holdings USA, Inc.’s Current Report on Form 8-K filed June 15, 2023) (Commission File Number 001-16581)
(3.3)			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)
(101.LAB)			Inline XBRL Taxonomy Extension Label Linkbase (Filed herewith)
(101.PRE)			Inline XBRL Taxonomy Extension Presentation Linkbase (Filed herewith)

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SIGNATURES

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

									SANTANDER HOLDINGS USA, INC. (Registrant)
Date:			November 3, 2023						/s/ Juan Carlos Alvarez de Soto
									Juan Carlos Alvarez de Soto
									Chief Financial Officer and Senior Executive Vice President
Date:			November 3, 2023						/s/ David L. Cornish
									David L. Cornish
									Chief Accounting Officer, Corporate Controller and Executive Vice President

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