BUSINESS SEGMENT INFORMATION

Business Segment Products and Services

The Company’s reportable segments are focused principally around the customers the Bank and SCUSA serve. The Company has identified the following reportable segments:

•

The Retail Banking segment is primarily comprised of branch locations and residential mortgage business. The branches are responsible for attracting deposits through a variety of demand and negotiable order of withdrawal ("NOW") accounts, money market and savings accounts, CDs and retirement savings products. The branch locations also offer consumer loans such as home equity loans and lines of credit, as well as business banking and small business loans to individuals. Investment Services, which offers annuities, mutual funds, managed monies, insurance products and acts as an investment brokerage agent to the customers of the Retail Banking segment, became part of the Retail Banking Segment in the second quarter of 2014. Santander Universities, which provides grants and scholarships to universities and colleges around the globe as a way to foster education through research, innovation and entrepreneurship, is the last component of the Retail Banking segment.


•	The Auto Finance & Alliances segment currently provides indirect consumer leasing as well as commercial loans to dealers.

•

The Real Estate and Commercial Banking segment offers commercial real estate loans, multi-family loans, commercial loans, and the Bank's related commercial deposits. During the second quarter of 2014, this segment also included the Specialty & Government Banking segment, which provides financing and deposits for government entities and niche product financing for specific industries, including oil and gas, and mortgage warehousing, among others.

NOTE 17. BUSINESS SEGMENT INFORMATION (continued)


•	The Global Banking & Markets segment serves the needs of global commercial and institutional customers by leveraging the international footprint of the Santander group to provide financing and banking services to corporations with over $500 million in annual revenues. GBM's offerings and strategy are based on Santander's local and global capabilities in wholesale banking.

•

SCUSA is a full-service, technology-driven consumer finance company focused on vehicle finance and unsecured consumer lending products. Prior to the closing of the IPO in January 2014, the Company accounted for its investment in SCUSA under the equity method. Following the closing of the IPO, the Company consolidated the financial results of SCUSA in the Company’s condensed financial statements effective January 28, 2014. Accordingly, following the Change in Control, the segment performance in the first six months of 2014 is reflective of the consolidated results inclusive of the results attributable to a 39% non-controlling interest. Results presented for the first six months of 2013 are reflective of the Company's 65% equity method investment and therefore may not be directly comparable.

The Other category includes earnings from the investment portfolio, interest from the non-strategic assets portfolio, interest expense on the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.

For segment reporting purposes, SCUSA continues to be managed as a separate business unit. The Company’s segment results, excluding SCUSA, 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 business line, including fees, service charges, salaries and benefits, and other direct expenses, as well as certain allocated corporate expenses, and are accounted for within each segment’s financial results. Accounting policies for the lines of business are the same as those used in preparation of the Condensed Consolidated Financial Statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses and other financial elements to each line of business. Where practical, the results are adjusted to present consistent methodologies for the segments.

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

During the first quarter of 2014, certain management and business line changes were announced as the Company reorganized its management reporting structure in order to improve its structure and focus to better align management teams and resources with the business goals of the Company and to provide enhanced customer service to its clients. These changes became effective for reporting purposes during the second quarter. Accordingly, the following changes were made within the Company's reportable segments to provide greater focus on each of its core businesses:


•	The Investment Services business unit has been combined with the Retail Banking business unit.


•	The CEVF line, formerly included in the Specialty and Government Banking business unit, has been moved into the Auto Finance and Alliances business unit.


•	The Specialty and Government Banking business unit has been combined with the Real Estate and Commercial Banking business unit.

Prior period results have been recast to conform to the new composition of these reportable segments.

NOTE 17. BUSINESS SEGMENT INFORMATION (continued)

Certain segments previously deemed quantitatively significant no longer met the threshold and have been combined with the Other category as of June 30, 2014. Prior period results have been recast to conform to the new composition of the reportable segment.

Results of Segments

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



For the Three-Month Period Ended	SHUSA excluding SCUSA									Non-GAAP measure⁽⁴⁾
June 30, 2014	Retail Banking	Auto Finance & Alliances		Real Estate and Commercial Banking		Global Banking & Markets		Other⁽²⁾		SCUSA⁽³⁾	SCUSA Purchase Price Adjustments	Eliminations		Total
	(dollars in thousands)
Net interest income	214,495	18,696		129,579		45,460		(10,814	)	1,083,651	108,967	—		1,590,034
Total non-interest income	83,428	34,312		23,365		15,194		29,882		314,172	161,914	(23,977	)	638,290
Provision/(release) for credit losses	11,134	1,694		(12,019	)	(4,199	)	(36,610	)	588,577	137,457	—		686,034
Total expenses	253,041	35,620		44,603		19,447		224,212		419,121	14,603	(7,418	)	1,003,229
Income/(loss) before income taxes	33,748	15,694		120,360		45,406		(168,534	)	390,125	118,821	(16,559	)	539,061

Intersegment (expense)/ revenue⁽¹⁾	61,617	(3,248	)	(76,817	)	(9,020	)	27,468		—	—	—		—
Total average assets	18,695,696	2,925,777		22,780,861		9,213,611		26,064,827		29,409,369	—	—		109,090,141



For the Six-Month Period Ended	SHUSA excluding SCUSA									Non-GAAP measure⁽⁴⁾
June 30, 2014	Retail Banking	Auto Finance & Alliances		Real Estate and Commercial Banking		Global Banking & Markets		Other⁽²⁾		SCUSA	SCUSA Purchase Price Adjustments		Eliminations		Total
	(dollars in thousands)
Net interest income	429,586	37,543		247,613		87,015		(21,292	)	2,145,853	179,957		(344,136	)	2,762,139
Total non-interest income	170,846	40,372		49,279		37,621		57,957		553,770	245,142		(83,980	)	1,071,007
Gain on change in control⁽³⁾	—	—		—		—		—		—	2,428,539		—		2,428,539
Provision/(release) for credit losses	20,344	1,690		(7,352	)	(1,761	)	(52,921	)	1,287,155	(337	)	(225,454	)	1,021,364
Total expenses	499,882	46,037		89,857		35,637		357,290		892,837	105,153		(253,083	)	1,773,610
Income/(loss) before income taxes	80,206	30,188		214,387		90,760		(267,704	)	519,631	2,748,822		50,421		3,466,711

Intersegment (expense)/ revenue⁽¹⁾	126,253	(5,418	)	(161,208	)	(18,096	)	58,469		—	—		—		—
Total average assets	18,746,035	2,638,505		22,579,026		8,828,262		26,291,936		23,864,215	—		—		102,947,979


(1)	Intersegment revenue/(expense) represents charges or credits for funds used or provided by each of the segments and is included in net interest income.


(2)	Other is not considered a segment and includes earnings from non-strategic assets, the investment portfolio, interest expense on the Bank’s borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.


(3)	Management of SHUSA manages SCUSA by analyzing the pre-Change in Control results of SCUSA as disclosed in this column.


(4)	Purchase Price Adjustments represents the impact that SCUSA purchase marks had on the results of SCUSA included within the consolidated operations of SHUSA, while eliminations adjust for the one month that SHUSA accounted for SCUSA as an equity method investment and eliminate intercompany transactions.

NOTE 17. BUSINESS SEGMENT INFORMATION (continued)



For the Three- Month Period Ended
June 30, 2013	Retail Banking	Auto Finance & Alliances		Real Estate and Commercial Banking		Global Banking & Markets		Other⁽²⁾		Equity method investment in SCUSA	Total
	(dollars in thousands)
Net interest income	181,908	15,209		111,358		44,328		32,474		—	385,277
Total non-interest income	112,856	483		37,136		21,444		(34,436	)	116,909	254,392
Provision/(release) for credit losses	15,015	2,480		9,490		2,015		(19,000	)	—	10,000
Total expenses	214,989	1,876		42,016		13,359		134,194		—	406,434
Income/(loss) before income taxes	64,760	11,336		96,988		50,398		(117,156	)	116,909	223,235

Intersegment revenue/(expense)⁽¹⁾	21,550	(2,714	)	(95,912	)	(12,553	)	89,629		—	—
Total average assets	19,645,132	1,755,659		21,665,719		8,295,728		29,180,530		—	80,542,768



For the Six-Month Period Ended
June 30, 2013	Retail Banking	Auto Finance & Alliances		Real Estate and Commercial Banking		Global Banking & Markets		Other⁽²⁾		Equity method investment in SCUSA	Total
	(dollars in thousands)
Net interest income	366,197	30,144		219,964		85,049		79,941		—	781,295
Total non-interest income	220,456	942		64,959		46,748		35,678		305,430	674,213
Provision/(release) for credit losses	62,711	2,324		(6,555	)	7,492		(39,122	)	—	26,850
Total expenses	436,461	4,060		83,084		25,963		267,686		—	817,254
Income/(loss) before income taxes	87,481	24,702		208,394		98,342		(112,945	)	305,430	611,404

Intersegment revenue/(expense)⁽¹⁾	39,462	(5,621	)	(191,837	)	(25,213	)	183,209		—	—
Total average assets	20,130,286	1,749,950		21,611,348		8,407,450		30,548,753		—	82,447,787


(1)	Intersegment revenue/(expense) represents charges or credits for funds used or provided by each of the segments and is included in net interest income.


(2)	Other is not considered a segment and includes earnings from non-strategic assets, the investment portfolio, interest expense on the Bank’s borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.

NON-GAAP FINANCIAL MEASURES

The "Chief Operating Decision Maker," as described by ASC 280, Segment Reporting, manages SCUSA on a historical basis by reviewing the results of SCUSA on a pre-Change in Control basis. The Results of Segments table discloses SCUSA's operating information on the same basis that it is reviewed by SHUSA's Chief Operating Decision Maker to reconcile to SCUSA's U.S. GAAP results, purchase price adjustments and accounting for SCUSA as an equity method investment must be reflected. The Company's non-GAAP information has limitations as an analytical tool, and the reader should not consider it in isolation, or as a substitute for analysis of our results or any performance measures under U.S. GAAP as set forth in our financial statements. The reader should compensate for these limitations by relying primarily on our U.S. GAAP results and using this non-GAAP information only as a supplement to evaluate the Company's performance.