UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

OR

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

Commission File Number: 001-16581

SANTANDER HOLDINGS USA, INC.

(Exact name of registrant as specified in its charter)

Virginia (State or other jurisdiction of incorporation or organization)	23-2453088 (I.R.S. Employer Identification No.)
75 State Street, Boston, Massachusetts (Address of principal executive offices)	02109 (Zip Code)

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

Not applicable

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

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

Title of each class	Trading Symbols	Name of each exchange on which registered	Outstanding at July 31, 2019
Common Stock (no par value)	Not Applicable	Not Applicable	530,391,043 shares

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 þ. No o.

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 þ. No o.

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 o	Accelerated filer o	Emerging growth company o
Non-accelerated filer þ	Smaller reporting company o

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 o

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

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2019 and December 31, 2018	4
Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2019 and 2018	5
Condensed Consolidated Statements of Comprehensive Income for the three-month and six-month periods ended June 30, 2019 and 2018	6
Condensed Consolidated Statements of Stockholder's Equity for the three-month and six-month periods ended June 30, 2019 and 2018	7
Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2019 and 2018	9
Notes to Condensed Consolidated Financial Statements	10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	72
Item 3. Quantitative and Qualitative Disclosures About Market Risk	114
Item 4. Controls and Procedures	114
PART II. OTHER INFORMATION	117
Item 1. Legal Proceedings	117
Item 1A. Risk Factors	117
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	118
Item 3. Defaults upon Senior Securities	118
Item 4. Mine Safety Disclosures	118
Item 5. Other Information	118
Item 6. Exhibits	119
SIGNATURES	121
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

FORWARD-LOOKING STATEMENTS

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

This Quarterly Report on Form 10-Q of Santander Holdings USA, Inc. (“SHUSA” or the “Company”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and future performance of the Company. Words such as “may,” “could,” “should,” “looking forward,” “will,” “would,” “believe,” “expect,” “hope,” “anticipate,” “estimate,” “intend,” “plan,” “assume," "goal," "seek" or similar expressions are intended to indicate forward-looking statements.

Although SHUSA 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 based on various factors and assumptions, many of which are beyond the Company's control. Among the factors that could cause SHUSA’s financial performance to differ materially from that suggested by forward-looking statements are:

• the effects of regulation and/or policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (the "FDIC"), the Office of the Comptroller of the Currency (the “OCC”) and the Consumer Financial Protection Bureau (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 in the impact of changes in and interpretations of generally accepted accounting principles in the United States of America ("GAAP"), the failure to adhere to which could subject SHUSA 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 that may increase to the extent our loans are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral;

• the slowing or reversal of the current U.S. economic expansion 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 provisions for credit losses;

• inflation, interest rate, market and monetary fluctuations, which may, among other things, reduce net interest margins and impact funding sources and the ability to originate and distribute financial products in the primary and secondary markets;

• Santander Consumer USA Inc.'s ("SC's") agreement with Fiat Chrysler Automobiles US LLC ("FCA") may not result in currently anticipated levels of growth, is subject to performance conditions that could result in termination of the agreement, and is also subject to an option giving FCA the right to acquire an equity participation in the Chrysler Capital portion of SC's business;

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

• 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;

• SHUSA's ability to grow revenue, manage expenses, attract and retain highly-skilled people and raise capital necessary to achieve its business goals and comply with regulatory requirements;

• SHUSA’s ability to effectively manage its capital and liquidity, including approval of its capital plans by its regulators and its ability to continue to receive dividends from its subsidiaries or other investments;

• changes in credit ratings assigned to SHUSA or its subsidiaries;

• 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;

• consumers and small businesses may decide not to use banks for their financial transactions, which could impact our net income;

• changes in customer spending, investment or savings behavior;

• loss of customer deposits that could increase our funding costs;

• the ability of SHUSA and its third-party vendors to convert, maintain and upgrade, as necessary, SHUSA’s data processing and other information technology ("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 SHUSA uses to manage its business, including as a result of cyberattacks, technological failure, human error, fraud or malice, and the possibility that SHUSA's controls will prove insufficient, fail or be circumvented;

• the ability of certain European member countries to continue to service their debt and the risk that a weakened European economy could negatively affect U.S.-based financial institutions, counterparties with which SHUSA does business, as well as the stability of global financial markets, including economic instability and recessionary conditions in Europe and the eventual exit of the United Kingdom from the European Union;

• changes to income 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 proceedings, including possible business restrictions resulting from such proceedings;

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

• acts of terrorism or domestic or foreign military conflicts; and acts of God, including natural disasters.

1

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	ECOA: Equal Credit Opportunity Act
ACL: Allowance for credit losses	EPS: Enhanced Prudential Standards
AFS: Available-for-sale	ETR: Effective tax rate
ALLL: Allowance for loan and lease losses	Exchange Act: Securities Exchange Act of 1934, as amended
ASC: Accounting Standards Codification	FASB: Financial Accounting Standards Board
ASU: Accounting Standards Update	FBO: Foreign banking organization
Bank: Santander Bank, National Association	FCA: Fiat Chrysler Automobiles US LLC
BHC: Bank holding company	FDIA: Federal Deposit Insurance Corporation Improvement Act
BOLI: Bank-owned life insurance	FDIC: Federal Deposit Insurance Corporation
BSI: Banco Santander International	Federal Reserve: Board of Governors of the Federal Reserve System
BSPR: Banco Santander Puerto Rico	FHLB: Federal Home Loan Bank
C&I: Commercial & industrial	FHLMC: Federal Home Loan Mortgage Corporation
CBP: Citizens Bank of Pennsylvania	FICO®: Fair Isaac Corporation credit scoring model
CCAR: Comprehensive Capital Analysis and Review	Final Rule: Rule implementing certain of the EPS mandated by Section 165 of the DFA
CD: Certificate of deposit	FINRA: Financial Industrial Regulatory Authority
CEF: Closed-end fund	FNMA: Federal National Mortgage Association
CEO: Chief Executive Officer	FOB: Financial Oversight and Management Board of Puerto Rico
CEVF: Commercial equipment vehicle financing	FRB: Federal Reserve Bank
CET1: Common equity Tier 1	FVO: Fair value option
CFPB: Consumer Financial Protection Bureau	GAAP: Accounting principles generally accepted in the United States of America
Change in Control: First quarter 2014 change in control and consolidation of SC	GAP: Guaranteed auto protection
Chrysler Agreement: Ten-year private label financing agreement with Fiat Chrysler Automobiles US LLC, formerly Chrysler Group LLC, signed by SC	HFI: Held for investment
Chrysler Capital: Trade name used in providing services under the Chrysler Agreement	HTM: Held to maturity
CIB: Corporate and Investment Banking	IHC: U.S. intermediate holding company
CID: Civil investigative demand	IPO: Initial public offering
CLTV: Combined loan-to-value	IRS: Internal Revenue Service
CMO: Collateralized mortgage obligation	ISDA: International Swaps and Derivatives Association, Inc.
CMP: Civil monetary penalty	IT: Information Technology
CODM: Chief Operating Decision Maker	LendingClub: LendingClub Corporation, a peer-to-peer personal lending platform company from which SC acquires loans under flow agreements
Company: Santander Holdings USA, Inc.	LCR: Liquidity coverage ratio
COSO: Committee of Sponsoring Organizations	LHFI: Loans held-for-investment
CPR: Constant prepayment rate	LHFS: Loans held-for-sale
CRA: Community Reinvestment Act	LIBOR: London Interbank Offered Rate
CRE: Commercial real estate	LIHTC: Low Income Housing Tax Credit
DCF: Discounted cash flow	LTD: Long-term debt
DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act	LTV: Loan-to-value
DOJ: Department of Justice	MBS: Mortgage-backed securities
DPD: Days past due	MD&A: Management's Discussion and Analysis of Financial Condition and Results of Operations
DTI: Debt-to-income	MSR: Mortgage servicing right

2

MVE: Market value of equity	SBNA: Santander Bank, National Association
NCI: Non-controlling interest	SC: Santander Consumer USA Holdings Inc. and its subsidiaries
NMTC: New market tax credits	SC Common Stock: Common shares of SC
NPL: Non-performing loan	SCF: Statement of cash flows
NSFR: Net stable funding ratio	SCRA: Servicemembers' Civil Relief Act
NYSE: New York Stock Exchange	SEC: Securities and Exchange Commission
OCC: Office of the Comptroller of the Currency	Securities Act: Securities Act of 1933, as amended
OREO: Other real estate owned	SFS: Santander Financial Services, Inc.
OTTI: Other-than-temporary impairment	SHUSA: Santander Holdings USA, Inc.
Parent Company: the parent holding company of SBNA and other consolidated subsidiaries	SIS: Santander Investment Securities Inc.
REIT: Real estate investment trust	SPE: Special purpose entity
RIC: Retail installment contract	SSLLC: Santander Securities LLC
RV: Recreational vehicle	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.
RWA: Risk-weighted asset	TCJA: Tax Cut and Jobs Act of 2017
S&P: Standard & Poor's	TDR: Troubled debt restructuring
Santander: Banco Santander, S.A.	TLAC: Total loss-absorbing capacity
Santander BanCorp: Santander BanCorp and its subsidiaries	Trusts: Securitization trusts
SAM: Santander Asset Management, LLC	UPB: Unpaid principal balance
Santander NY: New York branch of Santander	VIE: Variable interest entity
Santander UK: Santander UK plc	VOE: Voting rights entity

3

PART I. FINANCIAL INFORMATION

ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

	June 30, 2019			December 31, 2018
	(in thousands)
ASSETS
Cash and cash equivalents	$	8,019,284		$	7,790,593
Investment securities:
Available-for-sale ("AFS") at fair value	11,902,455			11,632,987
Held-to-maturity ("HTM") (fair value of $2,969,488 and $2,676,049 as of June 30, 2019 and December 31, 2018, respectively)	2,955,751			2,750,680
Other investments (includes Trading securities of $2,302 and $10 as of June 30, 2019 and December 31, 2018, respectively)	955,811			805,357
Loans held-for-investment ("LHFI")(1) (5)	89,972,067			87,045,868
Allowance for loan and lease losses ("ALLL") (5)	(3,783,833		)	(3,897,130		)
Net LHFI	86,188,234			83,148,738
Loans held-for-sale ("LHFS") (2)	2,523,688			1,283,278
Premises and equipment, net (3)	772,319			805,940
Operating lease assets, net (5)(6)	15,418,163			14,078,793
Goodwill	4,444,389			4,444,389
Intangible assets, net	445,687			475,193
Bank-owned life insurance ("BOLI")	1,846,056			1,833,290
Restricted cash (5)	3,417,993			2,931,711
Other assets (4) (5)	5,020,601			3,653,336
TOTAL ASSETS	$	143,910,431		$	135,634,285
LIABILITIES
Accrued expenses and payables	$	4,188,536		$	3,035,848
Deposits and other customer accounts (includes $507.4 million and zero of deposits held for sale as of June 30, 2019 and December 31, 2018, respectively)	63,720,054			61,511,380
Borrowings and other debt obligations (5)	48,906,752			44,953,784
Advance payments by borrowers for taxes and insurance	181,989			160,728
Deferred tax liabilities, net	1,416,993			1,212,538
Other liabilities (5)	991,287			912,775
TOTAL LIABILITIES	119,405,611			111,787,053
Commitments and contingencies (Note 16)
STOCKHOLDER'S EQUITY
Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both June 30, 2019 and December 31, 2018)	17,945,636			17,859,304
Accumulated other comprehensive loss	(96,519		)	(321,652		)
Retained earnings	4,114,659			3,783,405
TOTAL SANTANDER HOLDINGS USA, INC. ("SHUSA") STOCKHOLDER'S EQUITY	21,963,776			21,321,057
Noncontrolling interest ("NCI")	2,541,044			2,526,175
TOTAL STOCKHOLDER'S EQUITY	24,504,820			23,847,232
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	143,910,431		$	135,634,285

(1) LHFI includes $104.2 million and $126.3 million of loans recorded at fair value at June 30, 2019 and December 31, 2018, respectively.

(2) Includes $259.2 million and $209.5 million of loans recorded at the fair value option ("FVO") at June 30, 2019 and December 31, 2018, respectively.

(3) Net of accumulated depreciation of $1.5 billion and $1.4 billion at June 30, 2019 and December 31, 2018, respectively.

(4) Includes mortgage servicing rights ("MSRs") of $129.9 million and $149.7 million at June 30, 2019 and December 31, 2018, respectively, for which the Company has elected the FVO. See Note 14 to these Condensed Consolidated Financial Statements for additional information.

(5) The Company has interests in certain securitization trusts ("Trusts") that are considered variable interest entities ("VIEs") for accounting purposes. At June 30, 2019 and December 31, 2018, LHFI included $25.2 billion and $24.1 billion, Operating leases assets, net included $15.3 billion and $14.0 billion, restricted cash included $1.7 billion and $1.6 billion, other assets included $604.4 million and $685.4 million, Borrowings and other debt obligations included $33.3 billion and $31.9 billion, and Other liabilities included $99.9 million and $122.0 million of assets or liabilities that were included within VIEs, respectively. See Note 6 to these Condensed Consolidated Financial Statements for additional information.

(6) Net of accumulated depreciation of $3.7 billion and $3.5 billion at June 30, 2019 and December 31, 2018, respectively.

See accompanying notes to Condensed Consolidated Financial Statements.

4

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
	2019		2018		2019		2018
	(in thousands)				(in thousands)
INTEREST INCOME:
Loans	$	2,035,148	$	1,868,323	$	4,034,486	$	3,670,452
Interest-earning deposits	47,899		33,939		91,917		66,452
Investment securities:
AFS	71,137		77,031		145,567		150,536
HTM	15,789		17,181		33,111		34,245
Other investments	6,117		4,599		12,051		9,848
TOTAL INTEREST INCOME	2,176,090		2,001,073		4,317,132		3,931,533
INTEREST EXPENSE:
Deposits and other customer accounts	145,145		92,333		275,433		167,758
Borrowings and other debt obligations	409,220		316,654		817,089		621,344
TOTAL INTEREST EXPENSE	554,365		408,987		1,092,522		789,102
NET INTEREST INCOME	1,621,725		1,592,086		3,224,610		3,142,431
Provision for credit losses	480,632		433,803		1,080,843		987,683
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	1,141,093		1,158,283		2,143,767		2,154,748
NON-INTEREST INCOME:
Consumer and commercial fees	146,499		136,165		279,517		276,337
Lease income	705,835		569,306		1,380,720		1,110,202
Miscellaneous income, net(1) (2)	108,271		113,283		197,815		234,085
TOTAL FEES AND OTHER INCOME	960,605		818,754		1,858,052		1,620,624
Net gain/(loss) on sale of investment securities	2,379		419		379		(244		)
Net gain/(loss) recognized in earnings	2,379		419		379		(244		)
TOTAL NON-INTEREST INCOME	962,984		819,173		1,858,431		1,620,380
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES:
Compensation and benefits	470,247		427,728		946,810		896,505
Occupancy and equipment expenses	142,646		163,171		285,040		322,511
Technology, outside service, and marketing expense	152,425		156,010		304,131		308,292
Loan expense	102,784		97,679		209,500		194,493
Lease expense	513,780		436,795		993,084		861,061
Other expenses	160,504		168,366		346,236		308,246
TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES	1,542,386		1,449,749		3,084,801		2,891,108
INCOME BEFORE INCOME TAX PROVISION	561,691		527,707		917,397		884,020
Income tax provision	155,326		168,151		271,540		264,213
NET INCOME INCLUDING NCI	406,365		359,556		645,857		619,807
LESS: NET INCOME ATTRIBUTABLE TO NCI	110,743		104,141		183,255		179,280
NET INCOME ATTRIBUTABLE TO SHUSA	$	295,622	$	255,415	$	462,602	$	440,527

(1) Includes impact of $104.4 million and $172.0 million for the three-month and six-month periods endedJune 30, 2019, respectively, compared to $79.2 million and $149.7 million for the corresponding periods in 2018 of lower of cost or market adjustments on a portion of the Company's LHFS portfolio.

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

See accompanying notes to Condensed Consolidated Financial Statements.

5

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(unaudited)

	Three-Month Period Ended June 30,					Six-Month Period Ended June 30,
	2019		2018			2019		2018
	(in thousands)					(in thousands)
NET INCOME INCLUDING NCI	$	406,365	$	359,556		$	645,857	$	619,807
OTHER COMPREHENSIVE INCOME ("OCI"), NET OF TAX
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments, net of tax (1) (2)	1,133		(4,739		)	8,137		(12,474		)
Net unrealized gains/(losses) on AFS and HTM investment securities, net of tax (2)	113,290		(35,054		)	204,794		(160,700		)
Pension and post-retirement actuarial gains, net of tax (2)	6,091		625			12,202		1,250
TOTAL OTHER COMPREHENSIVE GAIN / (LOSS), NET OF TAX	120,514		(39,168		)	225,133		(171,924		)
COMPREHENSIVE INCOME	526,879		320,388			870,990		447,883
NET INCOME ATTRIBUTABLE TO NCI	110,743		104,141			183,255		179,280
COMPREHENSIVE INCOME ATTRIBUTABLE TO SHUSA	$	416,136	$	216,247		$	687,735	$	268,603

(1) Excludes $(10.2) million, and $(16.5) million of OCI attributable to NCI for the three-month and six-month periods endedJune 30, 2019, respectively, compared to $(0.2) million and $5.8 million for the corresponding periods in 2018.

(2) Excludes $39.1 million impact of OCI reclassified to Retained earnings as a result of the adoption of Accounting Standards Update ("ASU 2018-02") for the six-month period endedJune 30, 2018.

See accompanying notes to Condensed Consolidated Financial Statements.

6

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
(unaudited) (In thousands)

	Common Shares Outstanding	Preferred Stock		Common Stock and Paid-in Capital		Accumulated Other Comprehensive (Loss)/Income			Retained Earnings			Noncontrolling Interest			Total Stockholder's Equity
Balance, April 1, 2019	530,391	—		17,899,170		(217,033		)	3,894,037			2,552,231			24,128,405
Comprehensive income attributable to SHUSA	—	—		—		120,514			295,622			—			416,136
Other comprehensive (OCI) income attributable to NCI	—	—		—		—			—			(10,180		)	(10,180		)
Net income attributable to NCI	—	—		—		—			—			110,743			110,743
Impact of SC stock option activity	—	—		—		—			—			1,255			1,255
Contribution from shareholder	—	—		41,570		—			—			—			41,570
Dividends declared and paid on common stock	—	—		—		—			(75,000		)	—			(75,000		)
Dividends paid to NCI	—	—		—		—			—			(21,245		)	(21,245		)
Stock repurchase attributable to NCI	—	—		4,896		—			—			(91,760		)	(86,864		)
Balance, June 30, 2019	530,391	$	—	$	17,945,636	$	(96,519	)	$	4,114,659		$	2,541,044		$	24,504,820

	Common Shares Outstanding	Preferred Stock		Common Stock and Paid-in Capital		Accumulated Other Comprehensive (Loss)/Income			Retained Earnings			Noncontrolling Interest			Total Stockholder's Equity
Balance, April 1, 2018	530,391	195,445		17,732,184		(370,281		)	3,677,968			2,595,283			23,830,599
Comprehensive income attributable to SHUSA	—	—		—		(39,168		)	255,415			—			216,247
OCI attributable to NCI	—	—		—		—			—			(245		)	(245		)
Net income attributable to NCI	—	—		—		—			—			104,141			104,141
Impact of SC stock option activity	—	—		—		—			—			4,075			4,075
Dividends declared and paid on common stock	—	—		—		—			(5,000		)	—			(5,000		)
Dividends paid to NCI	—	—		—		—			—			(5,787		)	(5,787		)
Dividends paid on preferred stock	—	—		—		—			(3,650		)	—			(3,650		)
Balance, June 30, 2018	530,391	$	195,445	$	17,732,184	$	(409,449	)	$	3,924,733		$	2,697,467		$	24,140,380

7

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
(unaudited) (In thousands)

	Common Shares Outstanding	Preferred Stock		Common Stock and Paid-in Capital		Accumulated Other Comprehensive (Loss)/Income			Retained Earnings			Noncontrolling Interest			Total Stockholder's Equity
Balance, January 1, 2019	530,391	—		17,859,304		(321,652		)	3,783,405			2,526,175			23,847,232
Cumulative-effect adjustment upon adoption of ASU 2016-02	—	—		—		—			18,652			—			18,652
Comprehensive income attributable to SHUSA	—	—		—		225,133			462,602			—			687,735
OCI attributable to NCI	—	—		—		—			—			(16,523		)	(16,523		)
Net income attributable to NCI	—	—		—		—			—			183,255			183,255
Impact of SC stock option activity	—	—		—		—			—			5,606			5,606
Contribution from shareholder (Note 17)	—	—		75,901		—			—			—			75,901
Dividends declared and paid on common stock	—	—		—		—			(150,000		)	—			(150,000		)
Dividends paid to NCI	—	—		—		—			—			(42,394		)	(42,394		)
Stock repurchase attributable to NCI	—	—		10,431		—			—			(115,075		)	(104,644		)
Balance, June 30, 2019	530,391	$	—	$	17,945,636	$	(96,519	)	$	4,114,659		$	2,541,044		$	24,504,820

	Common Shares Outstanding	Preferred Stock		Common Stock and Paid-in Capital		Accumulated Other Comprehensive (Loss)/Income			Retained Earnings			Noncontrolling Interest			Total Stockholder's Equity
Balance, January 1, 2018	530,391	195,445		17,723,010		(198,431		)	3,453,957			2,516,851			23,690,832
Cumulative-effect adjustment upon adoption of new ASUs and other (Note 1)	—	—		—		(39,094		)	47,549			—			8,455
Comprehensive income attributable to SHUSA	—	—		—		(171,924		)	440,527			—			268,603
OCI attributable to NCI	—	—		—		—			—			5,797			5,797
Net income attributable to NCI	—	—		—		—			—			179,280			179,280
Impact of SC stock option activity	—	—		—		—			—			7,074			7,074
Contribution from shareholder and related tax impact (Note 17)	—	—		9,174		—			—			—			9,174
Dividends declared and paid on common stock	—	—		—		—			(10,000		)	—			(10,000		)
Dividends paid to NCI	—	—		—		—			—			(11,535		)	(11,535		)
Dividends paid on preferred stock	—	—		—		—			(7,300		)	—			(7,300		)
Balance, June 30, 2018	530,391	$	195,445	$	17,732,184	$	(409,449	)	$	3,924,733		$	2,697,467		$	24,140,380

See accompanying notes to Condensed Consolidated Financial Statements.

8

SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six-Month Period Ended June 30,
	2019			2018
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including NCI	$	645,857		$	619,807
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	1,080,843			987,683
Deferred tax expense	216,264			242,773
Depreciation, amortization and accretion	1,131,787			889,219
Net loss on sale of loans	150,147			148,838
Net (gain)/loss on sale of investment securities	(379		)	244
Loss on debt extinguishment	1,127			3,413
Net loss on real estate owned and premises and equipment	2,820			3,288
Stock-based compensation	266			501
Equity income on equity method investments	(322		)	(3,392		)
Originations of LHFS, net of repayments	(568,633		)	(2,369,626		)
Purchases of LHFS	(229		)	(620		)
Proceeds from sales of LHFS	614,783			3,256,748
Net change in:
Revolving personal loans	(72,723		)	(72,921		)
Other assets, BOLI and trading securities	(479,589		)	(401,695		)
Other liabilities	260,283			704,392
NET CASH PROVIDED BY OPERATING ACTIVITIES	2,982,302			4,008,652
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS investment securities	285,263			39,446
Proceeds from prepayments and maturities of AFS investment securities	1,546,071			1,118,084
Purchases of AFS investment securities	(2,172,170		)	(1,194,315		)
Proceeds from prepayments and maturities of HTM investment securities	146,505			175,806
Purchases of HTM investment securities	(25,938		)	(135,898		)
Proceeds from sales of other investments	148,339			63,024
Proceeds from maturities of other investments	13,673			—
Purchases of other investments	(241,707		)	(64,678		)
Proceeds from sales of LHFI	602,325			826,085
Distributions from equity method investments	2,526			2,189
Contributions to equity method and other investments	(110,953		)	(52,341		)
Proceeds from settlements of BOLI policies	17,486			10,888
Purchases of LHFI	(625,435		)	(559,358		)
Net change in loans other than purchases and sales	(5,423,963		)	(3,624,591		)
Purchases and originations of operating leases	(4,527,626		)	(4,804,003		)
Proceeds from the sale and termination of operating leases	1,840,648			2,212,897
Manufacturer incentives	431,294			443,905
Proceeds from sales of real estate owned and premises and equipment	33,367			27,782
Purchases of premises and equipment	(88,014		)	(70,756		)
Upfront fee paid to FCA	(60,000		)	—
NET CASH USED IN INVESTING ACTIVITIES	(8,208,309		)	(5,585,834		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits and other customer accounts	2,208,674			725,445
Net change in short-term borrowings	671,956			571,142
Net proceeds from long-term borrowings	21,916,766			23,140,364
Repayments of long-term borrowings	(19,882,995		)	(22,560,831		)
Proceeds from Federal Home Loan Bank ("FHLB") advances (with terms greater than 3 months)	3,375,000			—
Repayments of FHLB advances (with terms greater than 3 months)	(2,150,000		)	(1,400,000		)
Net change in advance payments by borrowers for taxes and insurance	21,261			31,283
Cash dividends paid to preferred stockholders	—			(7,300		)
Dividends paid on common stock	(150,000		)	(10,000		)
Dividends paid to NCI	(42,394		)	(11,535		)
Stock repurchase attributable to NCI	(104,644		)	—
Proceeds from the issuance of common stock	1,455			4,911
Capital contribution from shareholder	75,901			5,741
NET CASH PROVIDED BY FINANCING ACTIVITIES	5,940,980			489,220
NET INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	714,973			(1,087,962		)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	10,722,304			10,338,774
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (1)	$	11,437,277		$	9,250,812
NON-CASH TRANSACTIONS
Loans transferred from/(to) held-for-investment ("HFI") (from)/to held-for-sale, net ("HFS")	1,600,445			724,616
Unsettled purchases of investment securities	333,498			—
Unsettled sales of investment securities	342,401			—
AFS investment securities transferred to HTM investment securities	—			1,167,189
Adoption of lease accounting standard:
Right-of-use assets	664,057			—
Accrued expenses and payables	705,650			—

(1) The six-month periods ended June 30, 2019 and 2018 include cash and cash equivalents balances of $8.0 billion and $6.1 billion, respectively, and restricted cash balances of $3.4 billion and $3.1 billion, respectively.

See accompanying notes to Condensed Consolidated Financial Statements.

9

NOTE 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Introduction

Santander Holdings USA, Inc. ("SHUSA" or the "Company") is the parent company (the "Parent Company") of Santander Bank, National Association (the "Bank" or "SBNA"), a national banking association; Santander Consumer USA Holdings Inc. (together with its subsidiaries, "SC"), a consumer finance company; Santander BanCorp (together with its subsidiaries, "Santander BanCorp"), a financial holding company headquartered in Puerto Rico that offers a full range of financial services through its wholly-owned banking subsidiary, Banco Santander Puerto Rico ("BSPR"); Santander Securities LLC ("SSLLC"), a broker-dealer headquartered in Boston, Massachusetts; Banco Santander International ("BSI"), an Edge corporation located in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; and Santander Investment Securities Inc. ("SIS"), a registered broker-dealer located in New York providing services in investment banking, institutional sales, and trading and offering research reports of Latin American and European equity and fixed income securities; as well as several other subsidiaries. SSLLC, SIS, and another SHUSA subsidiary, Santander Asset Management, LLC (“SAM”), are registered investment advisers with the Securities and Exchange Commission (the “SEC”). SHUSA is headquartered in Boston and the Bank's home office is in Wilmington, Delaware. SHUSA is a wholly-owned subsidiary of Banco Santander, S.A. ("Santander"). The Parent Company's two largest subsidiaries by asset size and revenue are the Bank and SC.

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

SC is a specialized consumer finance company focused on vehicle finance and third-party servicing. SC's primary business is the indirect origination and securitization of retail installment contracts ("RICs") principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers.

In conjunction with a ten-year private label financing agreement with Fiat Chrysler Automobiles US LLC ("FCA") that became effective May 1, 2013 (the "Chrysler Agreement"), SC offers a full spectrum of auto financing products and services to FCA customers and dealers under the Chrysler Capital brand. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. Refer to Note 16 for additional details.

On June 28, 2019, SC entered into an amendment to the Chrysler Agreement, with FCA, which modified the Chrysler Agreement to, among other things, adjust certain performance metrics, exclusivity commitments and payment provisions under the Chrysler Agreement. The amendment also terminated the previously disclosed tolling agreement dated July 2018, between SC and FCA.

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

As of June 30, 2019, SC was owned approximately 70.5% by SHUSA and 29.5% by other shareholders. SC Common Stock is listed on the New York Stock Exchange (the "NYSE") under the trading symbol "SC."

On April 22, 2019, SBNA entered into an agreement with First Commonwealth Bank for the sale of 14 bank branches and four automated teller machines ("ATMs") located in central Pennsylvania, together with approximately $507 million of deposits and $113 million of retail and business loans (outstanding balances as of June 30, 2019). This transaction aligns with SHUSA’s strategy to reallocate capital to investments in core markets that will drive growth. The transaction is expected to close in the third quarter of 2019, with the recognition of an immaterial gain on sale.

10

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

Intermediate Holding Company ("IHC")

The enhanced prudential standards ("EPS") mandated by Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "DFA")(the “Final Rule") were enacted by the Federal Reserve System (the "Federal Reserve") to strengthen regulatory oversight of foreign banking organizations ("FBOs"). Under the Final Rule, FBOs with over $50 billion of U.S. non-branch assets, including Santander, are required to consolidate U.S. subsidiary activities under an IHC. Due to its U.S. non-branch total consolidated asset size, Santander is subject to the Final Rule. As a result of this rule, Santander transferred substantially all of its equity interests in U.S. bank and non-bank subsidiaries previously outside the Company to the Company, which became an IHC effective July 1, 2016. These subsidiaries included Santander BanCorp, BSI, SIS and SSLLC, as well as several other subsidiaries. On July 1, 2017, an additional Santander subsidiary, SFS, a finance company located in Puerto Rico, was transferred to the Company. Additionally, effective July 2, 2018, Santander transferred SAM to the IHC. The contribution of SAM to the Company transferred approximately $5.4 million of assets, $1.0 million of liabilities, and $4.4 million of equity to the Company.

Although SAM is an entity under common control, its results of operations, financial condition, and cash flows are immaterial to the historical financial results of the Company. As a result, the Company elected to report the results of SAM on a prospective basis beginning July 2, 2018. As a result of the contribution of SAM, SHUSA's net income is understated by $0.6 million and $1.0 million for the three- and six-month periods ended June 30, 2018. These amounts are immaterial to the overall presentation of the Company's financial statements for each of the periods presented.

Basis of Presentation

These Condensed Consolidated Financial Statements include accounts of the Company and its consolidated subsidiaries, and certain special purpose financing trusts that are considered VIEs. The Company generally consolidates VIEs for which it is deemed to be the primary beneficiary and voting interest entities ("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 accounting principles generally accepted in the United States ("GAAP") and pursuant to SEC regulations. Additionally, where applicable, the Company's accounting policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. 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 Condensed Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholder's Equity and Statements of Cash Flows ("SCF") for the periods indicated, and contain adequate disclosure to make the information presented not misleading. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Corrections to Previously Reported Amounts

We have made certain corrections to previously disclosed amounts to correct for immaterial errors related to our RIC portfolio.

Certain accounting for RICs and auto loans

As discussed in Note 1 - "Basis of Presentation and Accounting Policies" in the 2018 Annual Report on Form 10-K, the Company identified and corrected two immaterial errors. The Company has revised its comparative Condensed Consolidated Financial Statements as of June 30, 2018 included within this Quarterly Report on Form 10-Q.

11

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

The following tables summarize the impacts of the corrections on the Company's Condensed Consolidated Statement of Operations for the periods indicated:

	For the three-month period ended						For the six-month period ended
	June 30, 2018						June 30, 2018
	As Reported		Corrections		As Revised		As Reported		Corrections		Revised
INTEREST INCOME
Loans	$	1,813,853	$	54,470	$	1,868,323	$	3,561,579	$	108,873	$	3,670,452
TOTAL INTEREST INCOME	1,946,603		54,470		2,001,073		3,822,660		108,873		3,931,533
NET INTEREST INCOME	1,537,616		54,470		1,592,086		3,033,558		108,873		3,142,431
Provision for credit losses	379,834		53,969		433,803		882,368		105,315		987,683
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	1,157,782		501		1,158,283		2,151,190		3,558		2,154,748
Income tax provision / (benefit)	168,035		116		168,151		263,356		857		264,213
NET INCOME including NCI	359,171		385		359,556		617,107		2,700		619,807
Less: Net income attributable to NCI	104,018		123		104,141		178,416		864		179,280
NET INCOME ATTRIBUTABLE TO SHUSA	$	255,153	$	262	$	255,415	$	438,691	$	1,836	$	440,527

The following table summarizes the impacts of the corrections on the Company's Condensed Consolidated SCF for the period indicated:

	For the six-month period ended
	June 30, 2018
	As Reported			Corrections			As Revised
Net cash provided by operating activities	$	3,909,460		$	99,192		$	4,008,652
Net cash provided by (used in) investing activities	$	(5,486,642	)	$	(99,192	)	$	(5,585,834	)

In addition to the revision of the Company's Consolidated Financial Statements, information within the Notes to the Consolidated Financial Statements has been revised to reflect the correction of the errors discussed above. The following tables summarize the impacts of the correction of those items:

	June 30, 2018
	As Reported		Corrections			As Revised
Non-performing - RICs and auto loans - originated	$	1,924,294	$	(946,334	)	$	977,960
Total non-performing loans	2,901,957		(946,334		)	1,955,623
Total non-performing assets	3,169,101		(946,334		)	2,222,767

	June 30, 2018
	As Reported						Corrections							As Revised
	30-89 DPD(1)		90+ DPD		Current		30-89 DPD		90+ DPD		Current			30-89 DPD		90+ DPD		Current
RICs and auto loans - originated	$	3,038,768	$	229,528	$	22,416,117	$	174,294	$	20,269	$	(56,027	)	$	3,213,062	$	249,797	$	22,360,090
Total loans	$	3,787,412	$	814,165	$	80,095,126	$	174,294	$	20,269	$	(56,027	)	$	3,961,706	$	834,434	$	80,039,099

(1) Days past due ("DPD").

Significant Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities, as of the date of the financial statements, and the amount of revenue and expenses during the reporting periods. Actual results could differ from those estimates, and those differences may be material.

12

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

Management has identified (i) the allowance for loan losses and the reserve for unfunded lending commitments, (ii) estimates of expected residual values of leases vehicles subject to operating leases, (iii) accretion of discounts and subvention on RICs, (iv) goodwill, (v) fair value of financial instruments, and (vi) income taxes as the Company's significant accounting policies and estimates, in that they are important to the portrayal of the Company's financial condition, results of operations and cash flows and the accounting estimates related thereto require management's most difficult, subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain.

As of June 30, 2019, with the exception of the items noted in the section captioned "Recently Adopted Accounting Standards" below, there have been no significant changes to the Company's accounting policies as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018.

Recently Adopted Accounting Standards

Since January 1, 2019, the Company adopted the following Financial Accounting Standards Board ("FASB") Accounting Standards Updates (“ASUs"):

• ASU 2016-02, Leases (Topic 842). The Company adopted this standard as of January 1, 2019, resulting in the recognition of a right of-use (“ROU”) asset ($664.1 million) and lease liability ($705.7 million) in the Consolidated Balance Sheet for all operating leases with a term greater than 12 months. The Company adopted the ASU using the modified retrospective approach, with application at the adoption date and a cumulative-effect adjustment to the opening balance of retained earnings. Under this approach, comparative periods were not adjusted. We elected the package of practical expedients permitted under transition guidance, which allowed us to carry forward the historical lease classification. We also elected not to recognize a lease liability and associated ROU asset for short-term leases. We did not elect (1) the hindsight practical expedient when determining the lease term and (2) the practical expedient to not separate non-lease components from lease components. The ASU required the Company to accelerate the recognition of $18.7 million of previously deferred gains on sale-leaseback transactions, with such impact recorded to the opening balance of Retained earnings.

The ROU asset and lease liability will subsequently be de-recognized in a manner that effectively yields a straight-line lease expense over the lease term. Lessee accounting requirements for finance leases (previously described as capital leases) and lessor accounting requirements for operating, sales-type, and direct financing leases (sales-type and direct financing leases were both previously referred to as capital leases) are largely unchanged. This standard did not materially affect our Consolidated Statements of Operations or SCF.

• In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The capitalized costs will be presented with Other assets on the balance sheet, and the amortization expense will be presented in the Technology, outside service, and marketing expense line of the Statement of Operations. The Company has early adopted this standard effective January 1, 2019 and it did not have a material impact on the Company's Condensed Consolidated Financial Statements and related disclosures.

The adoption of the following ASUs did not have an impact on the Company's financial position or results of operations:

• ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.

• ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.

• ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.

• ASU 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.

13

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

Subsequent Events

The Company evaluated events from the date of the Condensed Consolidated Financial Statements on June 30, 2019 through the issuance of these Condensed Consolidated Financial Statements, and has determined that there have been no material events that would require recognition in its Condensed Consolidated Financial Statements or disclosure in the Notes to the Condensed Consolidated Financial Statements for the three-month and six-month periods endedJune 30, 2019 other than the events disclosed in Note 10.

NOTE 2. RECENT ACCOUNTING DEVELOPMENTS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidance significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For AFS debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the OTTI model. The standard also simplifies the accounting model for purchased credit-impaired debt securities and loans. The guidance will be effective for the Company for the first reporting period beginning after December 15, 2019, including interim periods within that year. The Company does not intend to adopt this ASU early and is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows; however, it is expected that the new current expected credit loss model will alter the assumptions used in calculating the Company's allowance for credit losses ("ACL"), given the change to estimated losses for the estimated life of the financial asset, and will likely result in material increases to the Company's ACL and related decreases to capital ratios.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. This ASU requires disclosure of changes in unrealized gains and losses for the period included in OCI (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This new guidance will be effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect the new guidance will have on its Consolidated Financial Statements and related disclosures.

In addition to those described in detail above, the Company is in the process of evaluating ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, but does not expect it to have a material impact on the Company's financial position, results of operations, or disclosures.

14

NOTE 3. INVESTMENT SECURITIES

Summary of Investment in Debt Securities - AFS and HTM

The following tables present the amortized cost, gross unrealized gains and losses and approximate fair values of debt securities AFS at the dates indicated:

	June 30, 2019									December 31, 2018
(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	$	3,122,838	$	4,514	$	(3,176	)	$	3,124,176	$	1,815,914	$	560	$	(11,729	)	$	1,804,745
Corporate debt securities	158,446		87		(33		)	158,500		160,164		12		(62		)	160,114
Asset-backed securities (“ABS”)	417,401		2,054		(1,531		)	417,924		435,464		3,517		(2,144		)	436,837
State and municipal securities	13		—		—			13		16		—		—			16
Mortgage-backed securities (“MBS”):
GNMA - Residential (1)	2,526,247		4,856		(17,651		)	2,513,452		2,829,075		861		(85,675		)	2,744,261
GNMA - Commercial	745,871		8,374		(429		)	753,816		954,651		1,250		(19,515		)	936,386
FHLMC and FNMA - Residential (2)	4,889,480		13,461		(41,731		)	4,861,210		5,687,221		267		(188,515		)	5,498,973
FHLMC and FNMA - Commercial	70,700		2,670		(6		)	73,364		51,808		384		(537		)	51,655
Total investments in debt securities AFS	$	11,930,996	$	36,016	$	(64,557	)	$	11,902,455	$	11,934,313	$	6,851	$	(308,177	)	$	11,632,987

(1) Government National Mortgage Association ("GNMA")

(2) Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA")

The following tables present the amortized cost, gross unrealized gains and losses and approximate fair values of debt securities HTM at the dates indicated:

	June 30, 2019									December 31, 2018
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss			Fair Value
MBS:
GNMA - Residential	$	1,729,543	$	11,782	$	(13,044	)	$	1,728,281	$	1,718,687	$	1,806	$	(54,184	)	$	1,666,309
GNMA - Commercial	1,226,208		15,951		(952		)	1,241,207		1,031,993		1,426		(23,679		)	1,009,740
Total investments in debt securities HTM	$	2,955,751	$	27,733	$	(13,996	)	$	2,969,488	$	2,750,680	$	3,232	$	(77,863	)	$	2,676,049

The Company continuously evaluates its investment strategies in light of changes in the regulatory and market environments that could have an impact on capital and liquidity. Based on this evaluation, it is reasonably possible that the Company may elect to pursue other strategies relative to its investment securities portfolio.

As of June 30, 2019 and December 31, 2018, the Company had investment securities with an estimated carrying value of $6.8 billion and $6.6 billion, respectively, pledged as collateral, which were comprised of the following: $2.3 billion and $3.0 billion, respectively, were pledged as collateral for the Company's borrowing capacity with the Federal Reserve Bank (the "FRB"); $3.6 billion and $2.7 billion, respectively, were pledged to secure public fund deposits; $185.5 million and $78.0 million, respectively, were pledged to various independent parties to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; $424.1 million and $423.3 million, respectively, were pledged to deposits with clearing organizations; and $273.0 million and $415.1 million, respectively, were pledged to secure the Company's customer overnight sweep product.

At June 30, 2019 and December 31, 2018, the Company had $40.3 million and $40.2 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.

Contractual Maturity of Debt Securities

Contractual maturities of the Company’s AFS debt securities at June 30, 2019 were as follows:

(in thousands)	Amortized Cost		Fair Value
Due within one year	$	3,255,956	$	3,255,876
Due after 1 year but within 5 years	376,902		380,421
Due after 5 years but within 10 years	398,434		400,761
Due after 10 years	7,899,704		7,865,397
Total	$	11,930,996	$	11,902,455

15

NOTE 3. INVESTMENT SECURITIES (continued)

Contractual maturities of the Company’s HTM debt securities at June 30, 2019 were as follows:

(in thousands)	Amortized Cost		Fair Value
Due after 10 years	$	2,955,751	$	2,969,488
Total	$	2,955,751	$	2,969,488

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 Debt Securities AFS and HTM

The following tables present the aggregate amount of unrealized losses as of June 30, 2019 and December 31, 2018 on securities in the Company’s AFS investment portfolios classified according to the amount of time those securities have been in a continuous loss position:

	June 30, 2019										December 31, 2018
	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	$	—	$	—		$	897,154	$	(3,176	)	$	288,660	$	(315	)	$	914,212	$	(11,414	)
Corporate debt securities	114,826		(33		)	—		—			152,247		(62		)	13		—
ABS	—		—			67,419		(1,531		)	31,888		(249		)	77,766		(1,895		)
MBS:
GNMA - Residential	36,884		(91		)	1,946,255		(17,560		)	102,418		(2,014		)	2,521,278		(83,661		)
GNMA - Commercial	—		—			74,678		(429		)	199,495		(2,982		)	622,989		(16,533		)
FHLMC and FNMA - Residential	109,040		(181		)	3,000,434		(41,550		)	237,050		(5,728		)	5,236,028		(182,787		)
FHLMC and FNMA - Commercial	—		—			435		(6		)	—		—			21,819		(537		)
Total investments in debt securities AFS	$	260,750	$	(305	)	$	5,986,375	$	(64,252	)	$	1,011,758	$	(11,350	)	$	9,394,105	$	(296,827	)

The following tables present the aggregate amount of unrealized losses as of June 30, 2019 and December 31, 2018 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:

	June 30, 2019										December 31, 2018
	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
GNMA - Residential	$	30,535	$	(84	)	$	966,960	$	(12,960	)	$	205,573	$	(4,810	)	$	1,295,554	$	(49,374	)
GNMA - Commercial	—		—			172,593		(952		)	221,250		(5,572		)	629,847		(18,107		)
Total investments in debt securities HTM	$	30,535	$	(84	)	$	1,139,553	$	(13,912	)	$	426,823	$	(10,382	)	$	1,925,401	$	(67,481	)

OTTI

Management evaluates all investment securities in an unrealized loss position for OTTI on a quarterly basis. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. The OTTI assessment is a subjective process requiring the use of judgments and assumptions. During the securities-level assessments, consideration is given to (1) the intent not to sell and probability that the Company will not be required to sell the security before recovery of its cost basis to allow for any anticipated recovery in fair value, (2) the financial condition and near-term prospects of the issuer, as well as company news and current events, and (3) the ability to collect the future expected cash flows. Key assumptions utilized to forecast expected cash flows may include loss severity, expected cumulative loss percentage, cumulative loss percentage to date, weighted average Fair Isaac Corporation ("FICO^®") scores and weighted average loan-to-value ("LTV") ratio, rating or scoring, credit ratings and market spreads, as applicable.

The Company assesses and recognizes OTTI in accordance with applicable accounting standards. Under these standards, if the Company determines that impairment on its debt securities exists and it has made the decision to sell the security or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, it recognizes the entire portion of the unrealized loss in earnings. If the Company has not made a decision to sell the security and it does not expect that it will be required to sell the security prior to the recovery of the amortized cost basis but the Company has determined that OTTI exists, it recognizes the credit-related portion of the decline in value of the security in earnings.

16

NOTE 3. INVESTMENT SECURITIES (continued)

The Company did not record any OTTI related to its investment securities for the three-month and six-month periods endedJune 30, 2019 or 2018.

Management has concluded that the unrealized losses on its debt securities for which it has not recognized OTTI (which were comprised of 695 individual securities at June 30, 2019) are temporary in nature since (1) they reflect the increase in interest rates, which lowers the current fair value of the securities, (2) they are not related to the underlying credit quality of the issuers, (3) the entire contractual principal and interest due on these securities is currently expected to be recoverable, (4) the Company does not intend to sell these investments at a loss and (5) 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. Accordingly, the Company has concluded that the impairment on these securities is not other than temporary.

Gains (Losses) and Proceeds on Sales of Investment Securities

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

	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
(in thousands)	2019		2018		2019		2018
Proceeds from the sales of AFS securities	$	344,792	$	—	$	627,664