sov-20210630

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 June 30, 2021


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

Commission File Number: 001-16581

SANTANDER HOLDINGS USA, INC.

(Exact name of registrant as specified in its charter)


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

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

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

Not applicable

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

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

Title of each class

Trading Symbols

Name of each exchange on which registered

Not Applicable

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

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

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

Large accelerated filer ☐

Accelerated filer ☐

Emerging growth company ☐

Non-accelerated Filer ☑

Smaller reporting company ☐

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

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

Number of shares of common stock outstanding at July 31, 2021: 530,391,043 shares

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INDEX



			Page

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020			5

Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2021 and 2020			6

Condensed Consolidated Statements of Comprehensive Income for the three-month and six-month periods ended June 30, 2021 and 2020			7

Condensed Consolidated Statements of Stockholder's Equity for the three-month and six-month periods ended June 30, 2021 and 2020			8

Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2021 and 2020			10

Notes to Condensed Consolidated Financial Statements			11

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			74

Item 3. Quantitative and Qualitative Disclosures About Market Risk			108

Item 4. Controls and Procedures			108

PART II. OTHER INFORMATION			109

Item 1. Legal Proceedings			109

Item 1A. Risk Factors			109

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			109

Item 3. Defaults upon Senior Securities			109

Item 4. Mine Safety Disclosures			109

Item 5. Other Information			109

Item 6. Exhibits			111

SIGNATURES			113


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,” “looking forward,” “will,” “would,” “believes,” “expects,” “hope,” “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, actions related to COVID-19, as well as the impact of changes in and interpretations of GAAP, including adoption of the FASB's CECL credit reserving framework, the failure to adhere to which could subject SHUSA and/or its subsidiaries to formal or informal regulatory compliance and enforcement actions and result in fines, penalties, restitution and other costs and expenses, changes in our business practice, and reputational harm;

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

•adverse economic conditions in the United States and worldwide, including the extent of recessionary conditions in the U.S. related to COVID-19 and the strength of the U.S. economy in general and regional and local economies in which SHUSA conducts operations in particular, which may affect, among other things, the level of non-performing assets, charge-offs, and credit loss expense;

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

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

•acts of God, including pandemics and other significant public health emergencies, and other natural or man-made disasters and SHUSA’s ability to deal with disruptions caused by such acts, emergencies and disasters;

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

•economic instability and recessionary conditions in Europe and negative economic effects related to the exit of the United Kingdom from the European Union;

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

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

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

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

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

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

•competitors of SHUSA may have greater financial resources or lower costs, or be subject to different regulatory requirements than SHUSA, may innovate more effectively, or may develop products and technology that enable those

competitors to compete more successfully than SHUSA and cause SHUSA to lose business or market share and impact our net income adversely;

•SC's agreement with Stellantis N.V. may not result in currently anticipated levels of growth and is subject to certain conditions that could result in termination of the agreement;

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

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

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

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

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

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

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


ABS: Asset-backed securities						CRA NPR: The NPR related to the CRA issued by the OCC and FDIC on December 12, 2019
ACL: Allowance for credit losses						CRE: Commercial Real Estate
AFS: Available-for-sale						CRE & VF: Commercial Real Estate and Vehicle Finance
ALLL: Allowance for loan and lease losses						DCF: Discounted cash flow
AOCI: Accumulated other comprehensive income						DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act
ARRC: Alternative Reference Rate Committee						DOJ: Department of Justice
ASC: Accounting Standards Codification						DPD: Days past due
ASU: Accounting Standards Update						DRIVE: Drive Auto Receivables Trust, a securitization platform
ATM: Automated teller machine						DTI: Debt-to-income
BHC: Bank holding company						EAD: Exposure at default
BHCA: Bank Holding Company Act of 1956, as amended						Economic Growth Act: The Economic Growth, Regulatory Relief, and Consumer Protection Act
BOLI: Bank-owned life insurance						EIP: Economic impact payments
BSI: Banco Santander International						EIR: Effective interest rate
BSPR: Banco Santander Puerto Rico						EPS: Enhanced Prudential Standards
C&I: Commercial & industrial						ETR: Effective tax rate
CARES Act: Coronavirus Aid, Relief, and Economic Security Act						Evaluation Date: March 31, 2021
CBB: Consumer and Business Banking						Exchange Act: Securities Exchange Act of 1934, as amended
CBP: Citizens Bank of Pennsylvania						FASB: Financial Accounting Standards Board
CCAR: Comprehensive Capital Analysis and Review						FBO: Foreign banking organization
CD: Certificate of deposit						FDIC: Federal Deposit Insurance Corporation
CECL: Current expected credit losses as defined by ASU 2016-13, ASU 2019-04, and ASU 2019-11, Financial Instruments - Credit Losses						Federal Reserve: Board of Governors of the Federal Reserve System
CEF: Closed-end fund						FHLB: Federal Home Loan Bank
CEO: Chief Executive Officer						FHLMC: Federal Home Loan Mortgage Corporation
CET1: Common Equity Tier 1						FICO®: Fair Isaac Corporation credit scoring model
CEVF: Commercial equipment vehicle financing						FINRA: Financial Industrial Regulatory Authority
CFPB: Consumer Financial Protection Bureau						FNMA: Federal National Mortgage Association
CFO: Chief Financial Officer						FRB: Federal Reserve Bank
CCAP: Chrysler Capital; trade name used in providing services under the MPLFA						FVO: Fair value option
CIB: Corporate and Investment Banking						GAAP: Accounting principles generally accepted in the United States of America
CID: Civil investigative demand						GBP: British pound sterling
CLTV: Combined loan-to-value						GDP: Gross domestic product
CMO: Collateralized mortgage obligation						GNMA: Government National Mortgage Association
CODM: Chief Operating Decision Maker						GSIB: Global systemically important bank
Company: Santander Holdings USA, Inc.						HFI: Held for investment
Covered Fund: a hedge fund or private equity fund						HFS: Held for sale
COVID-19: a novel strain of coronavirus, declared a pandemic by the World Health Organization in March 2020						HPI: Housing Price Index
CPR: Constant prepayment rate						HTM: Held to maturity
CRA: Community Reinvestment Act						IBOR: Inter-bank offered rate
CRA Final Rule: the final rule relating to the CRA issued by the OCC on July 20, 2020						IDI: Insured depository institution

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IHC: U.S. intermediate holding company						RWA: Risk-weighted asset
Interim Policy: Policy issued by the Federal Reserve for the third quarter of 2020 and extended through the first quarter of 2021 prohibiting share repurchases and limiting dividends by CCAR institutions						S&P: Standard & Poor's
IPO: Initial public offering						SAF: Santander Auto Finance
IRS: Internal Revenue Service						SAM: Santander Asset Management, LLC
ISDA: International Swaps and Derivatives Association, Inc.						Santander: Banco Santander, S.A.
IT: Information technology						Santander UK: Santander UK plc
LCR: Liquidity coverage ratio						SBNA: Santander Bank, National Association
LGD: Loss given default						SBC: Santander BanCorp and its subsidiaries
LHFI: Loans held for investment						SC: Santander Consumer USA Holdings Inc. and its subsidiaries
LHFS: Loans held for sale						SCB: Stress capital buffer
LIBOR: London Interbank Offered Rate						SC Common Stock: Common shares of SC
LIHTC: Low income housing tax credit						SCART: Santander Consumer Auto Receivables Trust
LTD: Long-term debt						SCF: Statement of cash flows
LTV: Loan-to-value						SCRA: Servicemembers' Civil Relief Act
MBS: Mortgage-backed securities						SDART: Santander Drive Auto Receivables Trust
MD&A: Management's Discussion and Analysis of Financial Condition and Results of Operations						SDGT: Specially Designated Global Terrorist
Moody's: Moody's Investor Service, Inc.						SEC: Securities and Exchange Commission
MPLFA: Ten-year master private-label financing agreement with Stellantis N.V. signed in May 2013						Securities Act: Securities Act of 1933, as amended
MSPA: Master Securities Purchase Agreement						Securities Financing Agreements: Resale, repurchase securities borrowed and securities lending agreements
MSR: Mortgage servicing right						SFS: Santander Financial Services, Inc.
MVE: Market value of equity						SHUSA: Santander Holdings USA, Inc.
NCI: Non-controlling interest						SIS: Santander Investment Securities Inc.
NMDs: Non-maturity deposits						SOFR: Secured overnight financing rate
NMTC: New market tax credits						SPAIN: Santander Private Auto Issuing Note
NPL: Non-performing loan						SPE: Special purpose entity
NPR: Notice of proposed rule-making						SRT: Santander Retail Auto Lease Trust
NSFR: Net stable funding ratio						SSLLC: Santander Securities LLC
NYSE: New York Stock Exchange						Stellantis N.V.: Fiat Chrysler Automobiles US LLC parent Stellantis N.V. and/or any affiliates
OCC: Office of the Comptroller of the Currency						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.
OCI: Other comprehensive income						TALF: Term asset-backed securities loan facility
OIS: Overnight indexed swap						TDR: Troubled debt restructuring
OREO: Other real estate owned						TLAC: Total loss-absorbing capacity
Parent Company: The parent holding company of SBNA and other consolidated subsidiaries						TLAC Rule: The Federal Reserve's total loss-absorbing capacity rule
PCI: purchased credit-impaired						Trusts: Securitization trusts
PD: Probability of default						UPB: Unpaid principal balance
REIT: Real estate investment trust						USD: United States dollar
RIC: Retail installment contract						VIE: Variable interest entity
ROU: Right-of-use						VOE: Voting rights entity
RV: Recreational vehicle						YTD: Year-to-date

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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)


	June 30, 2021		December 31, 2020

ASSETS
Cash and cash equivalents	$	16,541,091	$	12,621,281
Federal funds sold and securities purchased under resale agreements or similar arrangements	552,826		—
Investment securities:
AFS at fair value	11,602,112		11,313,489

HTM (fair value of $6,712,989 and $5,677,929 as of June 30, 2021 and December 31, 2020, respectively)	6,662,308		5,504,685
Other investments (includes trading securities of $36,419 and $40,435 as of June 30, 2021 and December 31, 2020, respectively)	1,529,791		1,553,862
LHFI(1) (5)	93,130,515		92,133,182
ALLL (5)	(6,889,315)		(7,338,493)
Net LHFI	86,241,200		84,794,689
LHFS (2)	686,491		2,226,196
Premises and equipment, net (3)	792,266		787,341
Operating lease assets, net (5)(6)	16,122,005		16,412,929


Goodwill	2,596,161		2,596,161
Intangible assets, net	372,478		357,547
BOLI	1,923,581		1,908,806
Restricted cash (5)	6,029,951		5,303,460

Other assets (4) (5)	3,533,382		4,052,230
TOTAL ASSETS	$	155,185,643	$	149,432,676
LIABILITIES
Accounts payables and Accrued expenses	$	5,584,750	$	4,700,349
Deposits and other customer accounts	80,868,397		75,303,707
Federal funds purchased and securities loaned or sold under repurchase agreements	576,000		—
Borrowings and other debt obligations (5)	42,940,006		46,359,467
Advance payments by borrowers for taxes and insurance	164,583		144,214
Deferred tax liabilities, net	533,531		182,353
Other liabilities (5)	1,415,055		1,479,874
TOTAL LIABILITIES	132,082,322		128,169,964
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, 2021 and December 31, 2020)	17,875,938		17,876,818
AOCI/(loss), net of taxes	(11,520)		166,295
Retained earnings	3,549,434		1,843,765
TOTAL SHUSA STOCKHOLDER'S EQUITY	21,413,852		19,886,878
NCI	1,689,469		1,375,834
TOTAL STOCKHOLDER'S EQUITY	23,103,321		21,262,712
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	155,185,643	$	149,432,676

(1) LHFI includes $39.4 million and $50.4 million of loans recorded at fair value at June 30, 2021 and December 31, 2020, respectively.

(2) Includes $196.6 million and $265.4 million of loans recorded at the FVO at June 30, 2021 and December 31, 2020, respectively.

(3) Net of accumulated depreciation of $1.7 billion and $1.6 billion at June 30, 2021 and December 31, 2020, respectively.

(4) Includes MSRs of $79.7 million and $77.5 million at June 30, 2021 and December 31, 2020, respectively, for which the Company has elected the FVO. See Note 13 to these Condensed Consolidated Financial Statements for additional information.

(5) The Company has interests in certain Trusts that are considered VIEs for accounting purposes. At June 30, 2021 and December 31, 2020, LHFI included $21.8 billion and $22.6 billion, Operating leases assets, net included $16.1 billion and $16.4 billion, restricted cash included $2.0 billion and $1.7 billion, Other assets included $777.4 million and $791.3 million, Borrowings and other debt obligations included $29.6 billion and $31.7 billion, and Other liabilities included $23.7 million and $84.9 million of assets or liabilities that were included within VIEs, respectively. See Note 7 to these Condensed Consolidated Financial Statements for additional information.

(6) Net of accumulated depreciation of $4.3 billion and $4.8 billion at June 30, 2021 and December 31, 2020, respectively.

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

unaudited (In thousands)


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
	2021		2020		2021		2020

INTEREST INCOME:
Loans	$	1,756,852	$	1,879,262	$	3,622,563	$	3,857,010
Interest-earning deposits	6,478		8,272		11,661		40,421
Investment securities:
AFS	24,568		51,631		50,622		121,654
HTM	24,829		23,130		50,264		46,775
Other investments	2,201		5,494		4,725		11,904
TOTAL INTEREST INCOME	1,814,928		1,967,789		3,739,835		4,077,764
INTEREST EXPENSE:
Deposits and other customer accounts	21,986		69,122		51,772		197,735
Borrowings and other debt obligations	261,107		359,877		536,896		755,263
TOTAL INTEREST EXPENSE	283,093		428,999		588,668		952,998
NET INTEREST INCOME	1,531,835		1,538,790		3,151,167		3,124,766
Credit loss expense / (benefit)	(317,282)		977,373		(241,216)		2,162,983
NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE	1,849,117		561,417		3,392,383		961,783

NON-INTEREST INCOME:
Consumer and commercial fees	106,926		108,826		226,145		233,074




Lease income	732,892		755,006		1,505,784		1,526,666
Miscellaneous income, net(1) (2)	337,099		(100,030)		619,610		21,943
TOTAL FEES AND OTHER INCOME	1,176,917		763,802		2,351,539		1,781,683


Net gain(loss) on sale of investment securities	5,370		22,516		15,243		31,795

TOTAL NON-INTEREST INCOME	1,182,287		786,318		2,366,782		1,813,478
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES:
Compensation and benefits	488,201		440,521		953,459		929,794
Occupancy and equipment expenses	168,415		164,875		340,491		311,786
Technology, outside service, and marketing expense	139,618		126,991		274,370		261,981


Loan expense	70,505		58,423		182,086		152,344
Lease expense	517,646		641,270		1,077,985		1,231,631
Impairment of goodwill	—		1,848,228		—		1,848,228
Other expenses	108,497		149,382		212,919		277,727
TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES	1,492,882		3,429,690		3,041,310		5,013,491







INCOME / (LOSS) BEFORE INCOME TAX (BENEFIT)/PROVISION	1,538,522		(2,081,955)		2,717,855		(2,238,230)
Income tax (benefit)/provision	371,644		(186,151)		658,473		(219,512)
NET INCOME / (LOSS) INCLUDING NCI	1,166,878		(1,895,804)		2,059,382		(2,018,718)
LESS: NET INCOME / (LOSS) ATTRIBUTABLE TO NCI	208,256		(23,377)		353,713		(19,614)
NET INCOME / (LOSS) ATTRIBUTABLE TO SHUSA	$	958,622	$	(1,872,427)	$	1,705,669	$	(1,999,104)

(1) Netted down by impact of lower of cost or market adjustments on a portion of the Company's LHFS portfolio $268.4 million and $331.3 million for the three-month and six-month periods ended June 30, 2020, respectively. This portfolio was sold in the first quarter of 2021.

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

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

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


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
	2021		2020		2021		2020

NET INCOME / (LOSS) INCLUDING NCI	$	1,166,878	$	(1,895,804)	$	2,059,382	$	(2,018,718)
OCI, NET OF TAX
Net unrealized changes in cash flow hedge derivative financial instruments, net of tax (1)	(3,482)		7,348		(66,157)		155,653
Net unrealized (losses) / gains on AFS investment securities, net of tax(1)	9,000		(15,203)		(113,156)		191,120
Pension and post-retirement actuarial gains, net of tax	561		560		1,498		1,120
TOTAL OCI / (LOSS), NET OF TAX	6,079		(7,295)		(177,815)		347,893
COMPREHENSIVE INCOME	1,172,957		(1,903,099)		1,881,567		(1,670,825)
NET INCOME ATTRIBUTABLE TO NCI	208,256		(23,377)		353,713		(19,614)
COMPREHENSIVE INCOME ATTRIBUTABLE TO SHUSA	$	964,701	$	(1,879,722)	$	1,527,854	$	(1,651,211)

(1) Excludes $1.1 million and $2.8 million of OCI/(loss) attributable to NCI for the three-month and six-month periods ended June 30, 2021, respectively, compared to $27 thousand and $(10.1) million for the corresponding periods in 2020, respectively.

See accompanying unaudited notes to 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 Income / (Loss)		Retained Earnings		Noncontrolling Interest		Total Stockholder's Equity
Balance, April 1, 2021	530,391	17,875,938		(17,599)		2,590,812		1,491,515		21,940,666
Cumulative-effect adjustment upon adoption of new accounting standards (Note 1)	—	—		—		—		—		—
Comprehensive income attributable to SHUSA	—	—		6,079		958,622		—		964,701
Other comprehensive (OCI) income attributable to NCI	—	—		—		—		1,056		1,056
Net income attributable to NCI	—	—		—		—		208,256		208,256
Impact of SC stock option activity	—	—		—		—		1,944		1,944






Dividends paid to NCI	—	—		—		—		(13,302)		(13,302)





Balance, June 30, 2021	530,391	$	17,875,938	$	(11,520)	$	3,549,434	$	1,689,469	$	23,103,321


Balance, April 1, 2020	530,391	17,870,442		266,981		2,557,302		1,529,248		22,223,973
Cumulative-effect adjustment upon adoption of new accounting standards (Note 1)	—	—		—		150		(282)		(132)
Comprehensive income attributable to SHUSA	—	—		(7,295)		(1,872,427)		—		(1,879,722)
OCI/(loss) attributable to NCI	—	—		—		—		27		27
Net income attributable to NCI	—	—		—		—		(23,377)		(23,377)
Impact of SC stock option activity	—	—		—		—		1,001		1,001




Dividends paid to NCI	—	—		—		—		(16,619)		(16,619)
Stock repurchase attributable to NCI	—	19,739		—		—		(98,113)		(78,374)


Balance, June 30, 2020	530,391	$	17,890,181	$	259,686	$	685,025	$	1,391,885	$	20,226,777

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






























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

Comprehensive income/(loss) attributable to SHUSA	—	—		(177,815)		1,705,669		—		1,527,854
Other comprehensive income/(loss) attributable to NCI	—	—		—		—		2,848		2,848
Net income attributable to NCI	—	—		—		—		353,713		353,713
Impact of SC stock option activity	—	—		—		—		5,564		5,564








Dividends paid to NCI	—	—		—		—		(39,896)		(39,896)
Stock repurchase attributable to NCI	—	(880)		—		—		(8,594)		(9,474)


Balance, June 30, 2021	530,391	$	17,875,938	$	(11,520)	$	3,549,434	$	1,689,469	$	23,103,321


Balance, January 1, 2020	530,391	17,954,441		(88,207)		4,155,226		2,377,370		24,398,830
Cumulative-effect adjustment upon adoption of ASU 2016-02	—	—		—		(1,346,097)		(439,367)		(1,785,464)
Comprehensive income/(loss) attributable to SHUSA	—	—		347,893		(1,999,104)		—		(1,651,211)
OCI/(loss) attributable to NCI	—	—		—		—		(10,106)		(10,106)
Net income attributable to NCI	—	—		—		—		(19,614)		(19,614)
Impact of SC stock option activity	—	—		—		—		3,394		3,394



Dividends declared and paid on common stock	—	—		—		(125,000)		—		(125,000)
Dividends paid to NCI	—	—		—		—		(37,212)		(37,212)
Stock repurchase attributable to NCI	—	(64,260)		—		—		(482,580)		(546,840)


Balance, June 30, 2020	530,391	$	17,890,181	$	259,686	$	685,025	$	1,391,885	$	20,226,777

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

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SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)


	Six-Month Period Ended June 30,
	2021		2020

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) including NCI	$	2,059,382	$	(2,018,718)
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of goodwill	—		1,848,228

Credit loss (benefit)/expense	(241,216)		2,162,983
Deferred tax expense/(benefit)	422,638		(296,146)
Depreciation, amortization and accretion	1,109,851		1,497,903
Net (gain)/loss on sale of loans	(19,829)		209,763
Net gain on sale of investment securities	(15,243)		(31,795)



Loss on debt extinguishment	—		1,026
Net (gain)/loss on real estate owned, premises and equipment, and other	(3,008)		2,907
Stock-based compensation	—		23
Equity loss on equity method investments	16,990		11,947
Originations of LHFS	(1,948,094)		(2,276,446)

Proceeds from sales of and collections on LHFS (1)	2,420,095		739,416


Net change in:
Revolving personal loans	34,247		(25,598)
Other assets, BOLI and trading securities	500,073		(1,101,777)
Other liabilities	406,540		1,655,112

NET CASH PROVIDED BY OPERATING ACTIVITIES	4,742,426		2,378,828

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS investment securities	1,326,299		1,553,560
Proceeds from prepayments and maturities of AFS investment securities	2,553,165		4,882,810
Purchases of AFS investment securities	(4,139,774)		(3,691,813)
Proceeds from prepayments and maturities of HTM investment securities	992,041		366,372
Purchases of HTM investment securities	(2,096,485)		(1,534,595)
Proceeds from sales of other investments	37,865		176,010
Proceeds from maturities of other investments	250,000		85
Purchases of other investments	(292,859)		(868,969)
Net change in federal funds sold and securities purchased under resale agreements	(552,826)		—

Proceeds from sales of LHFI (2)	2,404,935		570,510

Distributions from equity method investments	3,763		4,239
Contributions to equity method and other investments	(60,724)		(70,911)
Proceeds from settlements of BOLI policies	16,157		4,400
Purchases of LHFI	(981,368)		(77,136)
Net change in loans other than purchases and sales	(1,561,461)		(2,959,233)
Purchases and originations of operating leases	(4,280,352)		(3,022,996)
Proceeds from the sale and termination of operating leases	3,608,952		1,766,412
Manufacturer incentives	90,334		216,057
Proceeds from sales of real estate owned and premises and equipment	28,845		21,357
Purchases of premises and equipment	(108,847)		(96,094)




NET CASH USED IN INVESTING ACTIVITIES	(2,762,340)		(2,759,935)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits and other customer accounts	5,564,690		6,636,542
Net change in short-term borrowings	(187,385)		(244,149)
Net proceeds from long-term borrowings	16,330,875		22,047,223
Repayments of long-term borrowings	(19,289,478)		(21,228,029)
Proceeds from FHLB advances (with terms greater than 3 months)	—		2,500,000
Repayments of FHLB advances (with terms greater than 3 months)	(300,000)		(3,885,882)
Net change in federal funds purchased and securities loaned or sold under repurchase agreements	576,000		—
Net change in advance payments by borrowers for taxes and insurance	20,369		12,778

Dividends paid on common stock	—		(125,000)
Dividends paid to NCI	(39,896)		(37,212)
Stock repurchase attributable to NCI	(9,474)		(546,840)
Proceeds from the issuance of common stock	514		396


NET CASH PROVIDED BY FINANCING ACTIVITIES	2,666,215		5,129,827

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	4,646,301		4,748,720
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	17,924,741		11,526,252
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (3)	$	22,571,042	$	16,274,972





NON-CASH TRANSACTIONS
Loans transferred to/(from) OREO	(30,812)		(121,561)
Loans transferred from/(to) LHFI (from)/to LHFS, net	96,711		2,764,872
Unsettled purchases of investment securities	343,824		345,978

(1) Included in this balance is sales proceeds from Bluestem portfolio sale of $608 million for loans originated as HFS for the six-month period ended June 30, 2021.

(2) Included in this balance is sales proceeds from Bluestem portfolio sale of $188 million for loans originated as HFI for the six-month period ended June 30, 2021.

(3) The six-month periods ended June 30, 2021 and 2020 include cash and cash equivalents balances of $16.5 billion and $11.1 billion, respectively, and restricted cash balances of $6.0 billion, and $5.2 billion, respectively.

See accompanying unaudited notes to Condensed Consolidated Financial Statements.

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

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

As of June 30, 2021, SC was owned approximately 80.2% by SHUSA and 19.8% by other shareholders. SC Common Stock is listed on the NYSE under the trading symbol "SC."

Acquisitions and Divestitures

On September 1, 2020 the Company sold its investment in SBC, a financial holding company headquartered in Puerto Rico that offered a full range of financial services through its wholly-owned banking subsidiary, BSPR.

Acquisition of Credit Agricole Miami Wealth Management Business

In May 2021, BSI closed an agreement with Crédit Agricole Corporate and Investment Bank, S.A. to take over management of $3.1 billion in global wealth management client assets and liabilities for consideration of $188 million. The Company has recorded assets acquired of $565 million (including loans of $528 million and definite-lived intangible assets of approximately $37 million) and liabilities assumed, comprised of deposits of $377 million, at fair value. Intangible assets will be amortized over the estimated useful life of six years.

Agreement to Acquire Pierpont Capital Holdings LLC

In July 2021, SHUSA announced that it has reached an agreement to acquire Pierpont Capital Holdings LLC, parent company of Amherst Pierpont Securities, a market-leading independent fixed-income broker dealer, through the acquisition of its parent holding company, Pierpont Capital Holdings LLC, for a total consideration of approximately $450 million and a net book value of approximately $300 million. Amherst Pierpont Securities has approximately 230 employees serving more than 1,300 active institutional clients from its headquarters in New York and offices in Chicago, San Francisco, Austin, other U.S. locations and Hong Kong. The transaction is expected to close by the end of the first quarter of 2022, subject to regulatory approvals and customary closing conditions.

Proposal to Acquire SC Shares

In July 2021, SHUSA submitted a proposal to the SC Board of Directors to acquire all outstanding shares of common stock of SC not already owned by SHUSA for $39.00 per share in cash. The proposal represented a 30.4% premium to SC’s average share price since January 1, 2021. If the transaction is completed, SC would become a wholly-owned subsidiary of SHUSA.

Core Business

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

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

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

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

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

Basis of Presentation

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

These Condensed Consolidated Financial Statements have been prepared in accordance with GAAP and pursuant to SEC regulations. In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments of a normal and recurring nature necessary for a fair statement of the Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholder's Equity and Statement of Cash Flow for the periods indicated, and contain adequate disclosure to make the information presented not misleading. Results of operations for the periods presented herein are not necessarily indicative of results of operations for the entire year. These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2020.

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

Use of Estimates

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

Accounting Policies

There have been no changes in the Company's accounting policies from those disclosed in the 2020 Annual Report on Form 10-K.

Subsequent Events

The Company evaluated events from the date of these Condensed Consolidated Financial Statements on June 30, 2021 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 ended June 30, 2021 except as noted above.

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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:


	June 30, 2021								December 31, 2020
(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	$	98,989	$	1,653	$	—	$	100,642	$	168,075	$	2,578	$	—	$	170,653
Corporate debt securities	246,298		247		(3)		246,542		155,610		114		(9)		155,715
ABS	469,579		383		(728)		469,234		109,888		686		(1,236)		109,338

MBS:
GNMA - Residential	4,420,426		43,647		(12,984)		4,451,089		3,467,611		69,864		(1,350)		3,536,125
GNMA - Commercial	2,000,034		4,166		(22,488)		1,981,712		1,706,648		26,949		(235)		1,733,362
FHLMC and FNMA - Residential	4,283,435		32,306		(30,372)		4,285,369		5,464,821		77,813		(4,351)		5,538,283
FHLMC and FNMA - Commercial	62,528		4,997		(1)		67,524		63,732		6,283		(2)		70,013
Total investments in debt securities AFS	$	11,581,289	$	87,399	$	(66,576)	$	11,602,112	$	11,136,385	$	184,287	$	(7,183)	$	11,313,489

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:


	June 30, 2021								December 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value



ABS	$	115,672	$	642	$	—	$	116,314	$	44,841	$	765	$	—	$	45,606

MBS:
GNMA - Residential	2,679,327		26,344		(14,476)		2,691,195		1,966,247		51,417		(1,819)		2,015,845
GNMA - Commercial	3,867,309		63,649		(25,478)		3,905,480		3,493,597		124,429		(1,548)		3,616,478


Total investments in debt securities HTM	$	6,662,308	$	90,635	$	(39,954)	$	6,712,989	$	5,504,685	$	176,611	$	(3,367)	$	5,677,929

As of June 30, 2021 and December 31, 2020, the Company had investment securities with an estimated carrying value of $5.2 billion and $3.5 billion, respectively, pledged as collateral, which were comprised of the following: $1.4 billion and $754.1 million, respectively, were pledged as collateral for the Company's borrowing capacity with the FRB; $3.3 billion and $2.2 billion, respectively, were pledged to secure public fund deposits; $75.1 million and $103.4 million, respectively, were pledged to various independent parties to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; and $324.9 million and $388.0 million, respectively, were pledged to secure the Company's customer overnight sweep product. The Company also participates in Securities Financing Arrangements discussed further in Note 11 to these Condensed Consolidated Financial Statements.

At June 30, 2021 and December 31, 2020, the Company had $29.0 million and $34.6 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 June 30, 2021 or December 31, 2020.

There were no transfers of securities between AFS and HTM during the periods ended June 30, 2021 or December 31, 2020.

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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 June 30, 2021 were as follows:



(in thousands)	Amortized Cost		Fair Value
Due within one year	$	257,803	$	258,561
Due after 1 year but within 5 years	192,078		195,982
Due after 5 years but within 10 years	280,123		291,170
Due after 10 years	10,851,285		10,856,399
Total	$	11,581,289	$	11,602,112

Contractual maturities of the Company’s investments in debt securities HTM at June 30, 2021 were as follows:



(in thousands)	Amortized Cost		Fair Value
Due within one year	$	—	$	—
Due after 1 year but within 5 years	55,115		55,461
Due after 5 years but within 10 years	60,557		60,853
Due after 10 years	6,546,636		6,596,675
Total	$	6,662,308	$	6,712,989

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

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

The following table presents the aggregate amount of unrealized losses as of June 30, 2021 and December 31, 2020 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:


	June 30, 2021								December 31, 2020
	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

Corporate debt securities	$	55,938	$	(3)	$	—	$	—	$	98,800	$	(9)	$	—	$	—
ABS	—		—		26,493		(728)		—		—		49,033		(1,236)

MBS:
GNMA - Residential	1,953,144		(12,984)		—		—		347,821		(1,334)		8,875		(16)
GNMA - Commercial	1,817,758		(22,488)		—		—		103,891		(235)		—		—
FHLMC and FNMA - Residential	2,508,097		(30,159)		26,045		(213)		1,040,474		(4,165)		22,749		(186)
FHLMC and FNMA - Commercial	—		—		414		(1)		—		—		420		(2)
Total investments in debt securities AFS	$	6,334,937	$	(65,634)	$	52,952	$	(942)	$	1,590,986	$	(5,743)	$	81,077	$	(1,440)

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NOTE 2. INVESTMENT SECURITIES (continued)

The following table presents the aggregate amount of unrealized losses as of June 30, 2021 and December 31, 2020 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, 2021								December 31, 2020
	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




MBS:
GNMA - Residential	$	1,556,312	$	(14,476)	$	—	$	—	$	212,471	$	(1,819)	$	—	$	—
GNMA - Commercial	1,764,445		(25,478)		—		—		155,263		(1,548)		—		—


Total investments in debt securities HTM	$	3,320,757	$	(39,954)	$	—	$	—	$	367,734	$	(3,367)	$	—	$	—

Allowance for credit-related losses on AFS securities

The Company did not record an allowance for credit-related losses on AFS and HTM securities at June 30, 2021 or December 31, 2020. As discussed in Note 1 of the Company's 2020 Annual Report on Form 10-K, securities for which management has an expectation that nonpayment of the amortized cost basis is zero do not have a reserve.

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

Gains (Losses) and Proceeds on Sales of Investments in Debt Securities

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


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
(in thousands)	2021		2020		2021		2020
Proceeds from the sales of AFS securities	$	819,209	$	631,459	$	1,326,299	$	1,553,560

Gross realized gains	$	8,196	$	22,516	$	18,267	$	32,829
Gross realized losses	(2,826)		—		(3,024)		(1,034)
Net realized gains/(losses) (1)	$	5,370	$	22,516	$	15,243	$	31,795

(1) Includes net realized gain/(losses) on trading securities of $(0.5) million, and $(0.7) million for the three-month and six-month periods ended June 30, 2021, respectively, and $0.5 million and $(0.9) million for the three-month and six-month periods ended June 30, 2020, respectively.

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

Other Investments

Other investments consisted of the following as of:


(in thousands)	June 30, 2021		December 31, 2020
FHLB of Pittsburgh and FRB stock	$	419,266	$	435,330
LIHTC investments	308,711		313,603
Equity securities not held for trading (1)	15,395		14,494
Interest-bearing deposits with an affiliate bank	750,000		750,000
Trading securities	36,419		40,435
Total	$	1,529,791	$	1,553,862

(1) Includes $3.2 million and $1.4 million of equity certificates related to an off-balance sheet securitization as of June 30, 2021 and December 31, 2020, respectively.

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NOTE 2. INVESTMENT SECURITIES (continued)

Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the FRB. These stocks do not have readily determinable fair values because their ownership is restricted and there is no market for their sale. The stocks can be sold back only at their par value of $100 per share, and FHLB stock can be sold back only to the FHLB or to another member institution. Accordingly, these stocks are carried at cost. During the three-month and six-month periods ended June 30, 2021, the Company purchased $1.2 million and $3.5 million of FHLB stock at par, and redeemed $4.9 million and $18.8 million of FHLB stock at par. The Company redeemed zero and $0.7 million of FRB stock at par during the three-month and six-month periods ended June 30, 2021. The Company did not purchase any FRB stock during the six-month period ended June 30, 2021. There was no gain or loss associated with these redemptions.

The Company's LIHTC investments are accounted for using the proportional amortization method. Equity securities are measured at fair value as of June 30, 2021, 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.

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.

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 $47.2 billion at June 30, 2021 and $52.0 billion at December 31, 2020.

Loans that the Company intends to sell are classified as LHFS. The LHFS portfolio balance at June 30, 2021 was $686.5 million, compared to $2.2 billion at December 31, 2020. For a discussion on the valuation of LHFS at fair value, see Note 13 to these Condensed Consolidated Financial Statements. LHFS in the residential mortgage portfolio that were originated with the intent to sell were $196.6 million as of June 30, 2021 and are reported at either estimated fair value (if the FVO is elected) or the lower of cost or fair value.

Interest on loans is credited to income as it is earned. Loan origination fees and certain direct loan origination costs are deferred and recognized as adjustments to interest income in the Condensed Consolidated Statements of Operations over the contractual life of the loan utilizing the interest method. Loan origination costs and fees and premiums and discounts on RICs are deferred and recognized in interest income over their estimated lives using estimated prepayment speeds, which are updated on a monthly basis. At June 30, 2021 and December 31, 2020, accrued interest receivable on the Company's loans was $506.9 million and $589.2 million, respectively.

During the six months ended June 30, 2021, SBNA approved and executed purchases of performing personal unsecured loans with a UPB of approximately $400.0 million.

Also during the first quarter of 2021, SC sold RICs with a UPB of approximately $2.4 billion to third-parties in three separate transactions. Two of these transactions were accounted for as off-balance sheet securitizations.

During the second quarter of 2021, SFS sold the majority of its commercial and consumer loan and REO HFS portfolios to third parties at their approximate fair values with no material gain or loss. In addition, during the second quarter of 2021, SC sold RICs with a UPB of approximately $310 million to a third party.

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

Sale of the Personal Lending Portfolio

During the first quarter of 2021, SC completed the sale of $1.3 billion in UPB of its Bluestem personal lending portfolio to a third party. In addition, SC executed a forward flow sale agreement with a third party to purchase all personal lending receivables that SC purchases from Bluestem through the term of the agreement with Bluestem. Prior to the sale, these loans were classified as LHFS.

Loan and Lease Portfolio Composition

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


	June 30, 2021				December 31, 2020

(dollars in thousands)	Amount		Percent		Amount		Percent
Commercial LHFI:
CRE loans	$	7,410,298	8.0	%	$	7,327,853	8.0	%
C&I loans	15,941,764		17.1	%	16,537,899		17.9	%
Multifamily loans	8,139,694		8.7	%	8,367,147		9.1	%
Other commercial(2)(4)	7,997,606		8.6	%	7,455,504		8.1	%
Total commercial LHFI	39,489,362		42.4	%	39,688,403		43.1	%
Consumer loans secured by real estate:
Residential mortgages	5,901,546		6.3	%	6,590,168		7.2	%
Home equity loans and lines of credit	3,768,489		4.0	%	4,108,505		4.5	%
Total consumer loans secured by real estate	9,670,035		10.3	%	10,698,673		11.7	%
Consumer loans not secured by real estate:
RICs and auto loans	42,666,918		45.8	%	40,698,642		44.1	%
Personal unsecured loans	1,126,365		1.2	%	824,430		0.9	%
Other consumer(3)	177,835		0.3	%	223,034		0.2	%
Total consumer loans	53,641,153		57.6	%	52,444,779		56.9	%
Total LHFI(1)	$	93,130,515	100.0	%	$	92,133,182	100.0	%
Total LHFI:
Fixed rate	$	65,717,718	70.6	%	$	64,036,154	69.5	%
Variable rate	27,412,797		29.4	%	28,097,028		30.5	%
Total LHFI(1)	$	93,130,515	100.0	%	$	92,133,182	100.0	%

(1)Total LHFI includes deferred loan fees, net of deferred origination costs and unamortized purchase premiums, net of discounts as well as purchase accounting adjustments. These items resulted in a net increase in the loan balances of $3.0 billion and $3.1 billion as of June 30, 2021 and December 31, 2020, respectively.

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

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

(4)Includes loans with a carrying value of $24.3 million for which a fair value hedge resulting in a fair value adjustment of ($0.1) million.

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 as well as indirect auto loans.

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

During the six-month periods ended June 30, 2021 and 2020, SC originated $8.3 billion and $7.3 billion, respectively, in CCAP loans (including through the SBNA originations program), which represented 56% and 62%, respectively, of the UPB of SC's total RIC originations (including the SBNA originations program).

ACL Rollforward by Portfolio Segment

The ACL is comprised of the ALLL and the reserve for unfunded lending commitments. The activity in the ACL by portfolio segment for the three-month and six-month periods ended June 30, 2021 and 2020 was as follows:


	Three-Month Period Ended June 30, 2021
(in thousands)	Commercial		Consumer		Total
ALLL, beginning of period (1)	$	716,347	$	6,443,808	$	7,160,155
Credit loss expense / (benefit)	(47,609)		(269,568)		(317,177)


Charge-offs	(40,058)		(561,326)		(601,384)
Recoveries	12,835		634,886		647,721
Charge-offs, net of recoveries	(27,223)		73,560		46,337
ALLL, end of period	$	641,515	$	6,247,800	$	6,889,315

Reserve for unfunded lending commitments, beginning of period (1)	$	100,317	$	24,072	$	124,389
Credit loss expense / (benefit) on unfunded lending commitments	1,160		(1,265)		(105)

Reserve for unfunded lending commitments, end of period	101,477		22,807		124,284
Total ACL, end of period	$	742,992	$	6,270,607	$	7,013,599

	Six-Month Period Ended June 30, 2021
(in thousands)	Commercial		Consumer		Total
ALLL, beginning of period	$	752,196	$	6,586,297	$	7,338,493
Credit loss expense / (benefit)	(69,458)		(149,586)		(219,044)


Charge-offs	(79,687)		(1,388,715)		(1,468,402)
Recoveries	38,464		1,199,804		1,238,268
Charge-offs, net of recoveries	(41,223)		(188,911)		(230,134)
ALLL, end of period	$	641,515	$	6,247,800	$	6,889,315

Reserve for unfunded lending commitments, beginning of period	$	119,129	$	27,326	$	146,455
Credit loss expense / (benefit) on unfunded lending commitments	(17,652)		(4,519)		(22,171)

Reserve for unfunded lending commitments, end of period	101,477		22,807		124,284
Total ACL, end of period	$	742,992	$	6,270,607	$	7,013,599

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


	Three-Month Period Ended June 30, 2020
(in thousands)	Commercial		Consumer		Unallocated		Total
ALLL, beginning of period	$	678,705	$	5,945,031	$	—	$	6,623,736
Credit loss expense (benefit)(1)	116,724		907,846		—		1,024,570
Charge-offs	(43,446)		(899,773)		—		(943,219)
Recoveries	7,617		400,035		—		407,652
Charge-offs, net of recoveries	(35,829)		(499,738)		—		(535,567)
ALLL, end of period	$	759,600	$	6,353,139	$	—	$	7,112,739

Reserve for unfunded lending commitments, beginning of period	$	129,740	$	40,200	$	—	$	169,940
Credit loss expense / (release of) credit loss expense on unfunded lending commitments	(34,718)		(12,479)		—		(47,197)

Reserve for unfunded lending commitments, end of period	95,022		27,721		—		122,743
Total ACL, end of period	$	854,622	$	6,380,860	$	—	$	7,235,482

	Six-Month Period Ended June 30, 2020
(in thousands)	Commercial		Consumer		Unallocated		Total
ALLL, beginning of period	$	399,829	$	3,199,612	$	46,748	$	3,646,189
Day 1: Adjustment to allowance for adoption of ASU 2016-13	198,920		2,383,710		(46,748)		2,535,882
Credit loss expense (benefit) (1)	239,467		1,903,011		—		2,142,478
Charge-offs	(96,909)		(2,144,485)		—		(2,241,394)
Recoveries	18,293		1,011,291		—		1,029,584
Charge-offs, net of recoveries	(78,616)		(1,133,194)		—		(1,211,810)
ALLL, end of period	$	759,600	$	6,353,139	$	—	$	7,112,739

Reserve for unfunded lending commitments, beginning of period	$	85,934	$	5,892	$	—	$	91,826
Day 1: Adjustment to allowance for adoption of ASU 2016-13	10,081		330		—		10,411

Credit loss expense / (release of) credit loss expense on unfunded lending commitments (1)	(993)		21,499		—		20,506
Reserve for unfunded lending commitments, end of period	95,022		27,721		—		122,743
Total ACL, end of period	$	854,622	$	6,380,860	$	—	$	7,235,482

(1) Includes a correction for the classification of ACL balances and certain activity between Commercial and Consumer from January 1, 2020 through June 30, 2020. This resulted in a cumulative $322.0 million reclassification required at June 30, 2020 increasing the Consumer and decreasing the Commercial ACL.

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.

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

The Company estimates CECL based on prospective information as well as account-level models based on historical data. Unemployment, HPI, GDP, 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). To estimate the loss in the event of a default (the LGD), the models use unemployment, HPI, CRE and used vehicle indices, along with loan level characteristics as key inputs.

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 utilizes qualitative factors to capture any additional risks that may not be captured in either the economic forecasts or in the historical data, including consideration of the portfolio metrics and collateral value.

The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustments for macroeconomic uncertainty and considers adjustments to macroeconomic inputs and outputs based on market volatility.

The Company's allowance for loan losses decreased by $270.8 million and $449.2 million for the three-month and six-month periods ended June 30, 2021, primarily due to an improved macroeconomic outlook and decrease of lifetime expected credit losses for non-TDR loans mainly due to increased used car prices.

Non-accrual loans by Class of Financing Receivable

The amortized cost basis of financial instruments that are either non-accrual with related expected credit loss or nonaccrual without related expected credit loss disaggregated by class of financing receivables and other non-performing assets is as follows:


	Non-accrual loans as of:				Non-accrual loans with no allowance		Interest Income recognized on nonaccrual loans
(in thousands)	June 30, 2021		December 31, 2020		June 30, 2021		June 30, 2021

Non-accrual loans:
Commercial:
CRE	$	97,952	$	106,751	$	88,518	$	—
C&I	100,682		107,053		55,699		386
Multifamily	120,747		72,392		118,133		—
Other commercial	14,700		20,019		8,533		—
Total commercial loans	334,081		306,215		270,883		386
Consumer:
Residential mortgages	119,883		160,172		46,687		—
Home equity loans and lines of credit	96,277		91,606		40,627		—
RICs and auto loans	937,264		1,174,317		194,293		46,326
Personal unsecured loans	—		—		—		—
Other consumer	5,733		6,325		63		—
Total consumer loans	1,159,157		1,432,420		281,670		46,326
Total non-accrual loans	1,493,238		1,738,635		552,553		46,712

OREO	4,276		29,799		—		—
Repossessed vehicles	229,477		204,653		—		—
Foreclosed and other repossessed assets	1,644		3,247		—		—
Total OREO and other repossessed assets	235,397		237,699		—		—
Total non-performing assets	$	1,728,635	$	1,976,334	$	552,553	$	46,712

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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 age of amortized cost in past due loans and accruing loans 90 days or greater past due disaggregated by class of financing receivables is summarized as follows:


	As of:
		June 30, 2021
(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(3)		$	43,140	$	32,924	$	76,064	$	7,343,189	$	7,419,253	$	—
C&I(1)		34,128		21,487		55,615		15,975,894		16,031,509		—
Multifamily		48,261		34,058		82,319		8,057,375		8,139,694		—
Other commercial		37,232		4,200		41,432		7,956,174		7,997,606		173
Consumer:
Residential mortgages(2)		56,956		80,580		137,536		5,960,592		6,098,128		—
Home equity loans and lines of credit		17,687		64,361		82,048		3,686,441		3,768,489		—
RICs and auto loans(4)		2,639,469		188,716		2,828,185		40,229,942		43,058,127		—
Personal unsecured loans		7,913		5,400		13,313		1,113,052		1,126,365		2,137
Other consumer		3,991		1,235		5,226		172,609		177,835		—
Total		$	2,888,777	$	432,961	$	3,321,738	$	90,495,268	$	93,817,006	$	2,310

(1) C&I loans includes $89.7 million of LHFS at June 30, 2021.

(2) Residential mortgages includes $196.6 million of LHFS at June 30, 2021.

(3) CRE loans include $9.0 million of LHFS at June 30, 2021.

(4) RICs and auto loans includes $391.2 million of LHFS at June 30, 2021.


	As of
		December 31, 2020
(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		$	41,320	$	70,304	$	111,624	$	7,244,247	$	7,355,871	$	—
C&I (1)		59,759		45,883		105,642		16,654,606		16,760,248		—
Multifamily		47,116		66,664		113,780		8,257,122		8,370,902		—
Other commercial		80,993		9,214		90,207		7,365,629		7,455,836		56
Consumer:
Residential mortgages(2)		209,274		111,698		320,972		6,673,411		6,994,383		—
Home equity loans and lines of credit		31,488		72,197		103,685		4,004,820		4,108,505		—
RICs and auto loans		2,944,376		284,985		3,229,361		38,143,329		41,372,690		—
Personal unsecured loans(3)		56,041		56,582		112,623		1,605,286		1,717,909		52,807
Other consumer		5,358		1,688		7,046		215,988		223,034		—
Total		$	3,475,725	$	719,215	$	4,194,940	$	90,164,438	$	94,359,378	$	52,863

(1)C&I loans included $222.3 million of LHFS at December 31, 2020.

(2) Residential mortgages included $404.2 million of LHFS at December 31, 2020.

(3) Personal unsecured loans included $893.5 million of LHFS at December 31, 2020.

(4) RICs and auto loans includes $674.0 million of LHFS at December 31, 2020.

(5) Multifamily loans includes $3.8 million of LHFS at December 31, 2020.

(6) Other Commercial loans includes $0.3 million of LHFS at December 31, 2020.

(7) CRE loans include $28.0 million of LHFS at December 31, 2020.

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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:


June 30, 2021	Commercial Loan Portfolio (1)
(dollars in thousands)	Amortized Cost by Origination Year
Regulatory Rating:	2021(3)		2020		2019		2018		2017		Prior		Total
CRE
Pass	$	229,212	$	956,493	$	1,599,341	$	1,223,797	$	617,515	$	1,880,511	$	6,506,869
Special mention	—		30,227		18,669		120,075		111,279		67,193		347,443
Substandard	—		3,379		125,112		141,644		51,976		242,830		564,941
Doubtful	—		—		—		—		—		—		—
N/A	—		—		—		—		—		—		—
Total CRE	$	229,212	$	990,099	$	1,743,122	$	1,485,516	$	780,770	$	2,190,534	$	7,419,253
C&I
Pass	$	2,590,641	$	3,827,844	$	2,638,896	$	1,610,770	$	710,143	$	2,647,226	$	14,025,520
Special mention	44,919		31,694		138,140		94,925		34,297		204,284		548,259
Substandard	17,033		41,067		15,286		128,931		37,577		255,380		495,274
Doubtful	—		—		—		—		—		—		—
N/A(2)	305,676		338,603		238,686		56,964		10,277		12,250		962,456
Total C&I	$	2,958,269	$	4,239,208	$	3,031,008	$	1,891,590	$	792,294	$	3,119,140	$	16,031,509
Multifamily
Pass	$	555,367	$	777,771	$	1,779,416	$	1,205,373	$	940,033	$	1,433,694	$	6,691,654
Special mention	—		46,223		42,715		94,965		187,418		48,163		419,484
Substandard	4,200		53,614		225,341		332,545		173,136		239,720		1,028,556
Doubtful	—		—		—		—		—		—		—
N/A	—		—		—		—		—		—		—
Total Multifamily	$	559,567	$	877,608	$	2,047,472	$	1,632,883	$	1,300,587	$	1,721,577	$	8,139,694
Remaining commercial
Pass	$	2,322,328	$	2,475,720	$	1,179,584	$	594,958	$	341,299	$	1,041,999	$	7,955,888
Special mention	—		46		1,853		6,470		756		8,804		17,929
Substandard	502		2,230		4,093		3,635		2,535		10,576		23,571
Doubtful	173		—		—		45		—		—		218
N/A	—		—		—		—		—		—		—
Total Remaining commercial	$	2,323,003	$	2,477,996	$	1,185,530	$	605,108	$	344,590	$	1,061,379	$	7,997,606
Total Commercial loans
Pass	$	5,697,548	$	8,037,828	$	7,197,237	$	4,634,898	$	2,608,990	$	7,003,430	$	35,179,931
Special mention	44,919		108,190		201,377		316,435		333,750		328,444		1,333,115
Substandard	21,735		100,290		369,832		606,755		265,224		748,506		2,112,342
Doubtful	173		—		—		45		—		—		218
N/A(2)	305,676		338,603		238,686		56,964		10,277		12,250		962,456
Total commercial loans	$	6,070,051	$	8,584,911	$	8,007,132	$	5,615,097	$	3,218,241	$	8,092,630	$	39,588,062

(1)Includes $98.7 million of LHFS at June 30, 2021.

(2)Consists of loans that have not been assigned a regulatory rating.

(3)Loans originated during the year-to-date ended June 30, 2021.

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


December 31, 2020	Commercial Loan Portfolio (1)
(dollars in thousands)	Amortized Cost by Origination Year
Regulatory Rating:	2020(3)		2019		2018		2017		2016		Prior		Total
CRE
Pass	$	722,210	$	1,424,392	$	1,656,560	$	816,607	$	542,979	$	1,536,812	$	6,699,560
Special mention	28,876		15,480		81,167		43,368		79,555		83,751		332,197
Substandard	8,259		16,609		29,761		33,833		45,936		189,716		324,114
Doubtful	—		—		—		—		—		—		—
N/A	—		—		—		—		—		—		—
Total CRE	$	759,345	$	1,456,481	$	1,767,488	$	893,808	$	668,470	$	1,810,279	$	7,355,871
C&I
Pass	$	4,661,409	$	3,365,828	$	2,798,209	$	868,373	$	585,083	$	2,305,305	$	14,584,207
Special mention	11,000		136,413		134,388		49,601		99,042		254,102		684,546
Substandard	60,034		15,309		173,900		59,814		84,642		213,908		607,607
Doubtful	3,153		145		80		1,616		1,282		11,226		17,502
N/A(2)	411,319		294,652		75,091		15,101		15,388		54,835		866,386
Total C&I	$	5,146,915	$	3,812,347	$	3,181,668	$	994,505	$	785,437	$	2,839,376	$	16,760,248
Multifamily
Pass	$	880,199	$	1,938,271	$	1,361,178	$	1,198,819	$	503,267	$	1,365,066	$	7,246,800
Special mention	—		39,433		147,872		110,906		31,348		59,072		388,631
Substandard	5,355		104,945		203,437		148,251		49,445		224,038		735,471
Doubtful	—		—		—		—		—		—		—
N/A	—		—		—		—		—		—		—
Total Multifamily	$	885,554	$	2,082,649	$	1,712,487	$	1,457,976	$	584,060	$	1,648,176	$	8,370,902
Remaining commercial
Pass	$	3,530,625	$	1,416,704	$	766,454	$	443,244	$	199,297	$	1,038,584	$	7,394,908
Special mention	53		11,096		11,271		105		83		8,102		30,710
Substandard	2,115		3,974		4,181		4,246		5,983		9,160		29,659
Doubtful	351		—		99		—		101		8		559
N/A	—		—		—		—		—		—		—
Total Remaining commercial	$	3,533,144	$	1,431,774	$	782,005	$	447,595	$	205,464	$	1,055,854	$	7,455,836
Total Commercial loans
Pass	$	9,794,443	$	8,145,195	$	6,582,401	$	3,327,043	$	1,830,626	$	6,245,767	$	35,925,475
Special mention	39,929		202,422		374,698		203,980		210,028		405,027		1,436,084
Substandard	75,763		140,837		411,279		246,144		186,006		636,822		1,696,851
Doubtful	3,504		145		179		1,616		1,383		11,234		18,061
N/A(2)	411,319		294,652		75,091		15,101		15,388		54,835		866,386
Total commercial loans	$	10,324,958	$	8,783,251	$	7,443,648	$	3,793,884	$	2,243,431	$	7,353,685	$	39,942,857

(1)Includes $254.5 million of LHFS at December 31, 2020.

(2)Consists of loans that have not been assigned a regulatory rating.

(3)Loans originated during the year ended December 31, 2020.

Table of Contents

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 June 30, 2021	RICs and auto loans
(dollars in thousands)	Amortized Cost by Origination Year(3)
Credit Score Range	2021(2)		2020		2019		2018		2017		Prior		Total		Percent
No FICO(1)	$	913,313	$	1,014,763	$	616,930	$	335,925	$	321,124	$	206,838	$	3,408,893	8.0	%
<600	4,318,538		4,954,403		3,421,888		2,022,609		825,967		841,067		16,384,472		38.4	%
600-639	2,047,137		2,134,995		1,428,973		741,789		238,456		239,475		6,830,825		16.0	%
>=640	5,669,217		5,373,028		3,622,485		1,011,873		183,689		182,436		16,042,728		37.6	%
Total	$	12,948,205	$	13,477,189	$	9,090,276	$	4,112,196	$	1,569,236	$	1,469,816	$	42,666,918	100.0	%

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

(2) Loans originated during the year-to-date ended June 30, 2021.

(3) Excludes LHFS.


As of December 31, 2020	RICs and auto loans
(dollars in thousands)	Amortized Cost by Origination Year(3)
Credit Score Range	2020(2)		2019		2018		2017		2016		Prior		Total		Percent
No FICO(1)	$	1,326,026	$	839,412	$	450,539	$	484,975	$	230,382	$	142,746	$	3,474,080	8.5	%
<600	6,056,260		4,373,991		2,648,215		1,126,742		685,830		634,480		15,525,518		38.2	%
600-639	2,782,566		1,912,731		1,001,985		335,111		229,690		173,501		6,435,584		15.8	%
>=640	8,427,478		4,832,173		1,382,133		264,635		200,430		156,611		15,263,460		37.5	%
Total	$	18,592,330	$	11,958,307	$	5,482,872	$	2,211,463	$	1,346,332	$	1,107,338	$	40,698,642	100.0	%

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

(2) Loans originated during the year ended December 31, 2020.

(3) Excludes LHFS.

Consumer Lending Asset Quality Indicators-FICO and LTV Ratio

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

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

Table of Contents

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

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


As of June 30, 2021	Residential Mortgages(1)(3)
(dollars in thousands)	Amortized Cost by Origination Year
FICO Score	2021(4)		2020		2019		2018		2017		Prior		Grand Total
N/A(2)
LTV <= 70%	$	—	$	734	$	—	$	—	$	493	$	2,640	$	3,867
70.01-80%	—		—		—		—		—		—		—
80.01-90%	—		—		—		—		—		—		—
90.01-100%	—		—		—		—		—		—		—
100.01-110%	—		—		—		—		—		—		—
LTV>110%	—		—		—		—		—		—		—
LTV - N/A(2)	28,009		3,018		2,354		1,241		1,672		6,709		43,003


<600
LTV <= 70%	$	—	$	754	$	7,893	$	6,876	$	9,429	$	95,722	$	120,674
70.01-80%	—		2,141		2,863		8,661		7,997		2,357		24,019
80.01-90%	—		1,873		7,598		2,740		176		428		12,815
90.01-100%	—		—		—		—		—		366		366
100.01-110%	—		—		—		—		—		70		70
LTV>110%	—		—		—		—		—		—		—
LTV - N/A(2)	—		—		—		—		—		56		56


600-639
LTV <= 70%	$	1,003	$	2,415	$	9,599	$	6,589	$	11,464	$	78,267	$	109,337
70.01-80%	422		3,193		2,679		3,955		4,041		1,627		15,917
80.01-90%	401		4,394		9,382		1,225		—		276		15,678
90.01-100%	971		1,056		—		—		—		308		2,335
100.01-110%	—		—		—		—		—		—		—
LTV>110%	—		—		—		—		—		—		—
LTV - N/A(2)	—		—		—		—		—		—		—


640-679
LTV <= 70%	$	2,054	$	14,058	$	16,537	$	16,531	$	18,661	$	139,227	$	207,068
70.01-80%	1,984		5,754		13,840		11,799		7,880		1,893		43,150
80.01-90%	337		5,940		13,579		5,149		—		1,337		26,342
90.01-100%	2,948		2,365		—		—		—		614		5,927
100.01-110%	—		—		—		—		—		691		691
LTV>110%	—		—		—		—		—		1,472		1,472
LTV - N/A(2)	—		—		—		—		—		28		28


680-719
LTV <= 70%	$	21,723	$	40,269	$	57,747	$	26,760	$	62,979	$	223,966	$	433,444
70.01-80%	16,382		20,678		26,966		16,873		10,395		4,694		95,988
80.01-90%	1,757		18,216		32,416		5,241		—		1,717		59,347
90.01-100%	12,289		11,627		—		—		—		924		24,840
100.01-110%	—		—		—		—		—		818		818
LTV>110%	—		—		—		—		—		353		353
LTV - N/A(2)	—		—		—		—		—		65		65


720-759
LTV <= 70%	$	92,290	$	116,368	$	106,311	$	81,082	$	100,504	$	340,422	$	836,977
70.01-80%	70,003		65,488		34,940		28,186		18,795		4,739		222,151
80.01-90%	3,707		31,953		52,597		7,444		339		1,311		97,351
90.01-100%	17,793		13,945		—		—		—		163		31,901
100.01-110%	—		—		—		—		—		94		94
LTV>110%	—		—		—		—		—		73		73
LTV - N/A(2)	—		—		—		—		—		111		111


>=760
LTV <= 70%	$	229,249	$	480,261	$	296,105	$	168,049	$	336,315	$	1,249,342	$	2,759,321
70.01-80%	109,589		197,860		106,441		50,188		31,294		7,160		502,532
80.01-90%	9,260		63,769		77,187		13,979		78		3,199		167,472
90.01-100%	16,525		16,235		—		—		564		333		33,657
100.01-110%	—		—		—		—		—		414		414
LTV>110%	—		—		—		—		—		1,498		1,498
LTV - N/A(2)	—		—		—		—		—		324		324
Total - All FICO Bands
LTV <= 70%	$	346,319	$	654,859	$	494,192	$	305,887	$	539,845	$	2,129,586	$	4,470,688
70.01-80%	198,380		295,114		187,729		119,662		80,402		22,470		903,757
80.01-90%	15,462		126,145		192,759		35,778		593		8,268		379,005
90.01-100%	50,526		45,228		—		—		564		2,708		99,026
100.01-110%	—		—		—		—		—		2,087		2,087
LTV>110%	—		—		—		—		—		3,396		3,396
LTV - N/A(2)	28,009		3,018		2,354		1,241		1,672		7,293		43,587
Grand Total	$	638,696	$	1,124,364	$	877,034	$	462,568	$	623,076	$	2,175,808	$	5,901,546

(1) Excludes LHFS.

(2) Balances in the "N/A" range for LTV or FICO score 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) Loans originated during the year-to-date ended June 30, 2021.

Table of Contents

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


As of June 30, 2021	Home Equity Loans and Lines of Credit(2)
(in thousands)	Amortized Cost by Origination Year
FICO Score	2021(4)		2020		2019		2018		2017		Prior		Total		Revolving
N/A(2)
LTV <= 70%	$	—	$	166	$	163	$	252	$	474	$	875	$	1,930	$	1,847
70.01-90%	21		—		—		—		—		—		21		21
90.01-110%	—		—		—		—		—		—		—		—
LTV>110%	—		—		—		—		—		—		—		—
LTV - N/A(2)	1,084		3,559		4,923		6,076		5,725		78,805		100,172		51,107

<600
LTV <= 70%	$	—	$	240	$	2,428	$	8,922	$	12,497	$	116,698	$	140,785	$	121,937
70.01-90%	—		174		1,066		1,987		418		5,974		9,619		8,597
90.01-110%	—		—		—		—		—		1,061		1,061		980
LTV>110%	—		—		—		—		—		861		861		848
LTV - N/A(2)	—		—		—		—		15		489		504		504

600-639
LTV <= 70%	$	108	$	1,339	$	3,521	$	9,128	$	14,346	$	95,298	$	123,740	$	116,680
70.01-90%	—		626		2,576		1,594		613		6,511		11,920		11,083
90.01-110%	—		—		—		—		—		1,692		1,692		1,666
LTV>110%	—		—		—		—		—		2,783		2,783		2,698
LTV - N/A(2)	—		—		—		—		100		50		150		150

640-679
LTV <= 70%	$	260	$	7,712	$	12,673	$	25,945	$	20,918	$	161,560	$	229,068	$	220,653
70.01-90%	—		1,211		6,198		5,159		1,199		12,651		26,418		24,964
90.01-110%	—		—		56		—		—		4,700		4,756		4,063
LTV>110%	—		42		—		—		—		2,234		2,276		2,261
LTV - N/A(2)	—		—		—		—		—		78		78		58

680-719
LTV <= 70%	$	5,994	$	25,729	$	31,718	$	51,940	$	53,408	$	279,319	$	448,108	$	434,981
70.01-90%	1,003		4,630		12,727		6,901		2,390		17,650		45,301		44,653
90.01-110%	—		—		—		—		—		4,572		4,572		4,092
LTV>110%	141		—		—		—		—		4,649		4,790		4,576
LTV - N/A(2)	—		—		—		—		—		152		152		152

720-759
LTV <= 70%	$	18,183	$	40,990	$	51,279	$	75,175	$	84,684	$	365,405	$	635,716	$	624,459
70.01-90%	3,599		12,343		17,488		10,618		3,510		25,538		73,096		71,848
90.01-110%	648		—		—		—		—		5,086		5,734		5,250
LTV>110%	80		—		—		—		—		4,856		4,936		4,813
LTV - N/A(2)	—		24		51		—		—		136		211		201

>=760
LTV <= 70%	$	38,757	$	128,490	$	157,319	$	203,816	$	198,098	$	982,100	$	1,708,580	$	1,676,594
70.01-90%	5,477		22,509		40,521		20,785		5,236		59,670		154,198		150,859
90.01-110%	—		405		32		—		—		15,762		16,199		15,069
LTV>110%	790		741		50		—		—		6,567		8,148		8,062
LTV - N/A(2)	320		3		—		124		66		401		914		914

Total - All FICO Bands
LTV <= 70%	$	63,302	$	204,666	$	259,101	$	375,178	$	384,425	$	2,001,255	$	3,287,927	$	3,197,151
LTV 70.01 - 90%	10,100		41,493		80,576		47,044		13,366		127,994		320,573		312,025
LTV 90.01 - 110%	648		405		88		—		—		32,873		34,014		31,120
LTV>110%	1,011		783		50		—		—		21,950		23,794		23,258
LTV - N/A(2)	1,404		3,586		4,974		6,200		5,906		80,111		102,181		53,086
Grand Total	$	76,465	$	250,933	$	344,789	$	428,422	$	403,697	$	2,264,183	$	3,768,489	$	3,616,640

(1) - (4) Refer to corresponding notes above.

Table of Contents

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


As of December 31, 2020	Residential Mortgages(1)(3)
(dollars in thousands)	Amortized Cost by Origination Year
FICO Score	2020(4)		2019		2018		2017		2016		Prior		Grand Total
N/A(2)
LTV <= 70%	$	750	$	—	$	521	$	500	$	—	$	3,148	$	4,919
70.01-80%	—		—		—		—		—		—		—
80.01-90%	—		—		—		—		—		—		—
90.01-100%	—		—		—		—		—		—		—
100.01-110%	—		—		—		—		—		—		—
LTV>110%	—		—		—		—		—		—		—
LTV - N/A(2)	109,388		2,170		1,200		1,547		1,485		4,410		120,200


<600
LTV <= 70%	$	876	$	3,988	$	6,255	$	13,646	$	13,775	$	109,076	$	147,616
70.01-80%	1,053		5,235		4,603		7,707		3,406		2,832		24,836
80.01-90%	221		8,801		8,442		1,577		—		1,102		20,143
90.01-100%	292		2,792		—		—		219		690		3,993
100.01-110%	—		—		—		—		—		353		353
LTV>110%	—		—		—		—		—		1,445		1,445
LTV - N/A(2)	—		—		—		—		—		92		92


600-639
LTV <= 70%	$	3,058	$	3,923	$	4,275	$	11,593	$	10,710	$	81,496	$	115,055
70.01-80%	1,585		4,839		3,901		5,300		2,040		2,935		20,600
80.01-90%	1,233		6,910		5,693		1,870		249		581		16,536
90.01-100%	2,321		2,364		—		—		—		193		4,878
100.01-110%	—		—		—		—		—		707		707
LTV>110%	—		—		—		—		—		333		333
LTV - N/A(2)	—		—		—		—		—		—		—


640-679
LTV <= 70%	$	11,264	$	21,946	$	17,039	$	24,447	$	26,992	$	124,559	$	226,247
70.01-80%	12,585		18,756		8,079		7,117		1,377		2,426		50,340
80.01-90%	2,385		18,975		12,715		1,265		—		1,108		36,448
90.01-100%	7,256		4,501		—		—		—		573		12,330
100.01-110%	—		—		—		—		—		240		240
LTV>110%	—		—		—		—		—		432		432
LTV - N/A(2)	—		—		—		—		—		—		—


680-719
LTV <= 70%	$	34,802	$	49,625	$	41,447	$	56,362	$	54,836	$	196,173	$	433,245
70.01-80%	38,582		37,546		20,202		18,615		5,047		4,556		124,548
80.01-90%	7,616		39,239		22,510		2,195		—		3,025		74,585
90.01-100%	29,050		8,147		—		—		—		526		37,723
100.01-110%	101		—		—		—		—		475		576
LTV>110%	—		—		—		—		—		802		802
LTV - N/A(2)	—		—		—		—		—		73		73


720-759
LTV <= 70%	$	105,769	$	89,140	$	88,485	$	145,301	$	132,720	$	285,308	$	846,723
70.01-80%	81,595		62,488		29,767		25,421		8,163		5,334		212,768
80.01-90%	16,714		57,807		30,850		2,754		355		1,566		110,046
90.01-100%	37,846		12,066		—		—		—		563		50,475
100.01-110%	—		—		—		—		—		68		68
LTV>110%	—		—		—		—		—		206		206
LTV - N/A(2)	—		—		—		—		—		227		227


>=760
LTV <= 70%	$	381,713	$	335,559	$	224,505	$	456,792	$	527,624	$	1,066,295	$	2,992,488
70.01-80%	221,896		227,139		71,681		48,411		17,893		8,473		595,493
80.01-90%	42,464		134,309		50,128		7,977		—		3,886		238,764
90.01-100%	37,279		21,057		—		—		74		1,419		59,829
100.01-110%	—		—		—		571		—		1,008		1,579
LTV>110%	—		—		—		—		92		1,734		1,826
LTV - N/A(2)	—		—		—		—		—		381		381
Total - All FICO Bands
LTV <= 70%	$	538,232	$	504,181	$	382,527	$	708,641	$	766,657	$	1,866,055	$	4,766,293
70.01-80%	357,296		356,003		138,233		112,571		37,926		26,556		1,028,585
80.01-90%	70,633		266,041		130,338		17,638		604		11,268		496,522
90.01-100%	114,044		50,927		—		—		293		3,964		169,228
100.01-110%	101		—		—		571		—		2,851		3,523
LTV>110%	—		—		—		—		92		4,952		5,044
LTV - N/A(2)	109,388		2,170		1,200		1,547		1,485		5,183		120,973
Grand Total	$	1,189,694	$	1,179,322	$	652,298	$	840,968	$	807,057	$	1,920,829	$	6,590,168

(1) Excludes LHFS.

(2) Balances in the "N/A" range for LTV or FICO score 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) Loans originated during the year ended December 31, 2020.

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


As of December 31, 2020	Home Equity Loans and Lines of Credit(2)
(in thousands)	Amortized Cost by Origination Year
FICO Score	2020(4)		2019		2018		2017		2016		Prior		Total		Revolving
N/A(2)
LTV <= 70%	$	—	$	—	$	—	$	—	$	77	$	531	$	608	$	608
70.01-90%	8		—		—		—		—		—		8		8
90.01-110%	—		—		—		—		—		—		—		—
LTV>110%	—		—		—		—		—		—		—		—
LTV - N/A(2)	2,840		4,407		5,504		5,514		4,083		83,060		105,408		53,654

<600
LTV <= 70%	$	727	$	3,389	$	7,255	$	10,780	$	15,566	$	121,240	$	158,957	$	137,921
70.01-90%	238		1,901		4,029		2,727		1,698		13,383		23,976		21,484
90.01-110%	—		—		—		—		—		2,389		2,389		2,017
LTV>110%	—		—		—		—		—		2,391		2,391		2,369
LTV - N/A(2)	—		—		—		15		—		562		577		555

600-639
LTV <= 70%	$	1,265	$	2,589	$	8,921	$	13,240	$	11,873	$	100,148	$	138,036	$	128,515
70.01-90%	728		3,149		5,618		2,491		433		8,812		21,231		19,784
90.01-110%	—		—		—		—		—		1,803		1,803		1,706
LTV>110%	—		—		—		—		—		3,235		3,235		2,858
LTV - N/A(2)	—		—		—		—		—		51		51		29

640-679
LTV <= 70%	$	4,983	$	15,432	$	23,718	$	26,211	$	19,167	$	152,823	$	242,334	$	231,152
70.01-90%	2,166		8,599		10,455		5,391		1,377		17,425		45,413		44,187
90.01-110%	—		53		—		—		—		6,279		6,332		5,784
LTV>110%	48		—		—		—		—		723		771		533
LTV - N/A(2)	95		—		—		100		—		70		265		265

680-719
LTV <= 70%	$	26,177	$	31,112	$	49,618	$	53,778	$	49,893	$	249,565	$	460,143	$	444,254
70.01-90%	8,483		17,515		19,442		11,250		2,996		24,541		84,227		82,534
90.01-110%	90		—		—		—		—		7,810		7,900		7,128
LTV>110%	—		—		—		—		—		5,756		5,756		5,477
LTV - N/A(2)	—		144		—		63		—		149		356		351

720-759
LTV <= 70%	$	39,927	$	49,716	$	62,795	$	79,821	$	68,503	$	348,679	$	649,441	$	634,206
70.01-90%	14,064		28,552		30,553		15,094		5,386		35,066		128,715		126,755
90.01-110%	—		69		—		—		—		8,270		8,339		7,128
LTV>110%	—		—		—		—		—		7,611		7,611		7,313
LTV - N/A(2)	35		56		—		253		—		122		466		466

>=760
LTV <= 70%	$	112,532	$	149,381	$	178,602	$	188,693	$	156,633	$	896,901	$	1,682,742	$	1,646,127
70.01-90%	30,306		61,647		60,023		34,640		11,120		86,265		284,001		280,811
90.01-110%	396		21		—		—		—		22,839		23,256		22,252
LTV>110%	710		62		—		—		—		9,700		10,472		9,899
LTV - N/A(2)	185		554		129		68		—		359		1,295		1,284

Total - All FICO Bands
LTV <= 70%	$	185,611	$	251,619	$	330,909	$	372,523	$	321,712	$	1,869,887	$	3,332,261	$	3,222,783
LTV 70.01 - 90%	55,993		121,363		130,120		71,593		23,010		185,492		587,571		575,563
LTV 90.01 - 110%	486		143		—		—		—		49,390		50,019		46,015
LTV>110%	758		62		—		—		—		29,416		30,236		28,449
LTV - N/A(2)	3,155		5,161		5,633		6,013		4,083		84,373		108,418		56,604
Grand Total	$	246,003	$	378,348	$	466,662	$	450,129	$	348,805	$	2,218,558	$	4,108,505	$	3,929,414

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

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

TDR Loans

The following table summarizes the Company’s performing and non-performing TDRs at the dates indicated:


(in thousands)	June 30, 2021		December 31, 2020

Performing	$	4,232,242	$	3,850,622
Non-performing	557,579		473,507
Total (1)	$	4,789,821	$	4,324,129

(1) Excludes LHFS.

The increase in total TDRs was primarily due to the resumption of the pre-COVID-19 method of determining whether or not a modification qualifies as a TDR for RICs effective January 1, 2021.

TDR Activity by Class of Financing Receivable

The Company's modifications consist primarily of term extensions. The following tables detail the activity of TDRs for the three-month and six-month periods ended June 30, 2021 and 2020:


	Three-Month Period Ended June 30, 2021
	Number of Contracts	Pre-TDR Amortized Cost(1)		Post-TDR Amortized Cost(2)
	(dollars in thousands)
Commercial:
CRE	8	$	36,053	$	36,053
C&I	59	28,077		28,079
Multi-family	2	29,370		29,370
Other commercial	16	1,018		1,018
Consumer:
Residential mortgages(3)	250	74,617		74,500
Home equity loans and lines of credit	323	49,310		49,555
RICs and auto loans	11,772	226,011		226,574
Personal unsecured loans	52	751		743
Other consumer	7	182		172
Total	12,489	$	445,389	$	446,064

	Six-Month Period Ended June 30, 2021
	Number of Contracts	Pre-TDR Amortized Cost(1)		Post-TDR Amortized Cost(2)
	(dollars in thousands)
Commercial:
CRE	11	$	44,005	$	44,005
C&I	370	43,589		43,647
Multi-family	2	29,370		29,370
Other commercial	180	14,653		14,653
Consumer:
Residential mortgages(3)	343	94,726		94,490
Home equity loans and lines of credit	366	53,852		54,303
RICs and auto loans	57,437	1,179,830		1,185,882
Personal unsecured loans	77	999		987
Other consumer	16	590		580
Total	58,802	$	1,461,614	$	1,467,917

(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)


	Three-Month Period Ended June 30, 2020
	Number of Contracts	Pre-TDR Recorded Investment(1)		Post-TDR Recorded Investment(2)
	(dollars in thousands)
Commercial:
CRE	9	$	13,047	$	13,047
C&I	354	27,130		27,226
Multi-family	5	51,466		51,466
Other commercial	4	72		72
Consumer:
Residential mortgages(3)	15	1,811		1,809
Home equity loans and lines of credit	22	2,693		2,939
RICs and auto loans	45,816	923,560		939,530
Personal unsecured loans	1	—		—
Other consumer	9	16		—
Total	46,235	$	1,019,795	$	1,036,089


	Six-Month Period Ended June 30, 2020
	Number of Contracts	Pre-TDR Recorded Investment(1)		Post-TDR Recorded Investment(2)
	(dollars in thousands)
Commercial:
CRE	11	$	14,974	$	14,974
C&I	389	27,965		28,063
Multi-family	5	51,466		51,466
Other commercial	5	117		117
Consumer:
Residential mortgages(3)	28	3,672		3,814
Home equity loans and lines of credit	50	4,767		5,034
RICs and auto loans	55,642	1,101,075		1,117,422
Personal unsecured loans	2	—		—
Other consumer	11	73		56
Total	56,143	$	1,204,109	$	1,220,946

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

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

(3)The post-TDR modification outstanding recorded investment 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 three-month and six-month periods ended June 30, 2021 and 2020, respectively.


	Three-Month Period Ended June 30,						Six-Month Period Ended June 30,
	2021			2020			2021			2020
	Number of Contracts	Recorded Investment(1)		Number of Contracts	Recorded Investment(1)		Number of Contracts	Recorded Investment(1)		Number of Contracts	Recorded Investment(1)
	(dollars in thousands)						(dollars in thousands)
Commercial
CRE	—	$	—	14	$	2,909	—	$	—	32	$	5,114
C&I	24	901		5	1,045		54	2,073		16	8,260
Multifamily							—	—		—	—
Other commercial	—	—		—	—		1	17		1	45
Consumer:
Residential mortgages	10	1,484		22	3,640		10	1,484		30	4,880
Home equity loans and lines of credit	3	152		10	1,142		4	765		22	3,104
RICs and auto loans	4,149	82,949		2,035	32,960		9,805	193,729		6,121	102,200
Personal unsecured loans	6	83		—	—		6	83		—	—
Other consumer	—	—		—	—		—	—		1	44
Total	4,192	$	85,569	2,086	$	41,696	9,880	$	198,151	6,223	$	123,647

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

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NOTE 4. OPERATING LEASE ASSETS, NET

The Company has operating leases, including leased vehicles and commercial equipment vehicles and aircraft which are included in the Company's Condensed Consolidated Balance Sheets as Operating lease assets, net. The leased vehicle portfolio consists primarily of leases originated under the MPLFA.

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

Operating lease assets, net consisted of the following as of June 30, 2021 and December 31, 2020:


(in thousands)	June 30, 2021		December 31, 2020

Leased vehicles	$	21,085,807	$	22,056,063
Less: accumulated depreciation	(4,249,968)		(4,796,595)
Depreciated net capitalized cost	16,835,839		17,259,468
Manufacturer Subvention payments, net of accretion	(813,508)		(934,381)
Origination fees and other costs	97,720		66,020
Leased vehicles, net	16,120,051		16,391,107

Commercial equipment vehicles and aircraft, gross	2,677		28,661
Less: accumulated depreciation	(723)		(6,839)
Commercial equipment vehicles and aircraft, net	1,954		21,822

Total operating lease assets, net	$	16,122,005	$	16,412,929

The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of June 30, 2021 (in thousands):


2021	$	1,564,462
2022	1,932,825
2023	1,151,995
2024	153,851
2025	8,519
Thereafter	813
Total	$	4,812,465

During the three-month and six-month periods ended June 30, 2021, the Company recognized $178.5 million and $286.8 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 $23.1 million and $50.1 million for the corresponding periods in 2020. 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 Company's goodwill by its reporting units as of June 30, 2021:


(in thousands)	CBB		C&I		CRE & VF		CIB		SC		Total





Goodwill at June 30, 2021	$	297,802	$	52,198	$	1,095,071	$	131,130	$	1,019,960	$	2,596,161

During the three-month and six-month periods ended June 30, 2021, there were no disposals, additions, impairments or re-allocations of goodwill.

The Company evaluates goodwill for impairment at the reporting unit level. The Company completes its annual goodwill impairment test as of October 1 each year. The Company conducted its last annual goodwill impairment tests as of October 1, 2020 using generally accepted valuation methods. As a result of that impairment test, no goodwill impairment was identified.

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NOTE 5. GOODWILL AND OTHER INTANGIBLES (continued)

During the second quarter of 2020, primarily due to the ongoing economic impacts of the COVID-19 pandemic, the Company determined that a goodwill triggering event occurred for the CBB, C&I, and CRE & VF reporting units. Based on its goodwill impairment analysis performed as of June 30, 2020, the Company concluded that a goodwill impairment charge of $1.6 billion and $0.3 billion was required for the CBB and C&I reporting units, respectively. The CRE & VF reporting unit’s estimated fair value exceeded its carrying value by less than 5%. The goodwill allocated to these reporting units has become more sensitive to impairment as the valuation is highly correlated with forecasted interest rates, credit costs, and other factors.

During the fourth quarter of 2020, the Company implemented organizational changes which resulted in the transfer of Upper Business Banking customers into the C&I segment from the CBB segment. Refer to Note 18 to these Consolidated Financial Statements for additional details on the Company's reportable segments. As a result of the re-organization, the Company re-allocated approximately $25.1 million of goodwill from the CBB reporting unit to the C&I reporting unit. Upon re-allocation, the Company performed a post evaluation for impairment on the CBB and C&I reporting units utilizing assumptions consistent with our October 1, 2020 impairment test and noted no impairment.

Other Intangible Assets

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


	June 30, 2021				December 31, 2020
(in thousands)	Net Carrying Amount		Accumulated Amortization		Net Carrying Amount		Accumulated Amortization
Intangibles subject to amortization:
Dealer networks	$	295,708	$	(284,292)	$	308,768	$	(271,232)
Chrysler relationship	27,500		(111,250)		35,000		(103,750)
Trade name	11,700		(6,300)		12,300		(5,700)
Other intangibles(1)	37,570		(56,567)		1,479		(55,694)
Total intangibles subject to amortization	$	372,478	$	(458,409)	$	357,547	$	(436,376)

(1) Includes approximately $37 million of intangible assets added in connection with the close of its agreement with Crédit Agricole Corporate and Investment Bank, S.A.to take over management of global wealth management client assets and liabilities. This intangible asset will be amortized over a six year useful life.

At June 30, 2021 and December 31, 2020, the Company did not have any intangibles, other than goodwill, that were not subject to amortization.

Amortization expense on intangible assets was $10.7 million and $22.0 million for the three-month and six-month periods ended June 30, 2021, respectively, and $14.7 million and $29.5 million for the corresponding periods in 2020, respectively.

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NOTE 5. GOODWILL AND OTHER INTANGIBLES (continued)

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)
2021	$	43,760	$	22,033	$	21,727
2022	46,072		—		46,072
2023	34,821		—		34,821
2024	30,964		—		30,964
2025	30,929		—		30,929
Thereafter	207,965		—		207,965

NOTE 6. OTHER ASSETS

The following is a detail of items that comprised Other assets at June 30, 2021 and December 31, 2020:


(in thousands)	June 30, 2021		December 31, 2020
Operating lease ROU assets	$	516,155	$	540,222
Deferred tax assets	3,696		11,114
Accrued interest receivable	542,106		634,509
Derivative assets at fair value	884,408		1,219,090
Other repossessed assets	231,121		207,900
Equity method investments	252,924		272,633
MSRs	79,730		77,545
OREO	4,276		29,799
Income tax receivables	138,542		225,736
Prepaid expense	290,867		225,251
Miscellaneous assets and receivables	589,557		608,431
Total Other assets	$	3,533,382	$	4,052,230

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 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-month and six-month periods ended June 30, 2021, operating lease expenses were $37.1 million and $76.8 million, respectively, compared to $40.7 million and $75.8 million for the corresponding periods in 2020. Sublease income was $1.2 million and $2.3 million, respectively, for the three-month and six-month periods ended June 30, 2021 compared to $1.2 million and $2.6 million for the corresponding periods in 2020. 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 June 30, 2021	Total Operating leases
	(in thousands)
2021	$	69,209
2022	132,038
2023	115,465
2024	100,028
2025	74,212
Thereafter	145,948
Total lease liabilities	$	636,900
Less: Interest	(53,539)
Present value of lease liabilities	$	583,361


Supplemental Balance Sheet Information	June 30, 2021	December 31, 2020
Operating lease ROU assets	$516,155	$540,222
Other liabilities	583,361	606,000
Weighted-average remaining lease term (years)	6.1	6.5
Weighted-average discount rate	2.9%	2.9%


	Six-Month Period Ended June 30,
Other Information	2021		2020
	(in thousands)
Operating cash flows from operating leases(1)	$	(70,260)	$	(72,177)
Leased assets obtained in exchange for new operating lease liabilities	$	32,257	$	(19,001)

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

The remainder of Other assets is comprised of:

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

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

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

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

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

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

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

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NOTE 7. VIEs

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

For further description of the Company’s securitization activities, involvement with VIEs and accounting policies regarding consolidation of VIEs, see Part II, Item 8 - Financial Statements and Supplementary Data (Note 8) in the 2020 Annual Report on Form 10-K.

On-balance sheet VIEs

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


(in thousands)	June 30, 2021		December 31, 2020
Assets
Restricted cash	$	1,977,541	$	1,737,021
LHFS	269,168		581,938
LHFI	21,773,401		22,572,549
Operating lease assets, net	16,120,051		16,391,107
Various other assets	777,437		791,306
Total Assets	$	40,917,598	$	42,073,921
Liabilities
Notes payable	$	29,589,557	$	31,700,709
Various other liabilities	23,707		84,922
Total Liabilities	$	29,613,264	$	31,785,631

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

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

As of June 30, 2021 and December 31, 2020, the Company was servicing $26.3 billion and $27.7 billion, respectively, of gross RICs that have been transferred to consolidated Trusts. The remainder of the Company’s RICs remains unpledged.

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NOTE 7. VIEs (continued)

A summary of the cash flows received from the consolidated Trusts for the three-month and six-month periods ended June 30, 2021, and 2020 is as follows:


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
(in thousands)	2021		2020		2021		2020
Assets securitized	$	7,238,608	$	3,887,075	$	11,361,659	$	10,562,806

Net proceeds from new securitizations (1)	$	5,990,485	$	2,932,117	$	9,576,609	$	6,808,647
Net proceeds from sale of retained bonds	132,186		1,526		195,967		55,993
Cash received for servicing fees (2)	230,408		246,545		458,595		493,288

Net distributions from Trusts (2)	1,903,257		621,708		3,043,634		1,557,381
Total cash received from Trusts	$	8,256,336	$	3,801,896	$	13,274,805	$	8,915,309

(1) Includes additional advances on existing securitizations.

(2) These amounts are not reflected in the accompanying Condensed Consolidated SCF because the cash flows are between the VIEs and other entities included in the consolidation.

Off-balance sheet VIEs

During the six-month periods ended June 30, 2021, and 2020, SC sold $1.9 billion and $512.3 million, respectively, of gross RICs to third-party investors in off-balance sheet securitizations for a gain of $7.2 million and a loss of $26.9 million, respectively. The gains and losses were recorded in Miscellaneous income, net, in the accompanying Condensed Consolidated Statements of Income.

As of June 30, 2021 and December 31, 2020, the Company was servicing $3.2 billion and $2.2 billion, respectively, of gross RICs that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call. The portfolio was comprised as follows:


(in thousands)	June 30, 2021		December 31, 2020
Related party SPAIN securitizations	$	840,143	$	1,214,644


Third party SCART serviced securitizations	2,338,472		929,429
Third party CCAP securitizations	46,561		82,713


Total serviced for other portfolio	$	3,225,176	$	2,226,786

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

A summary of cash flows received from Trusts for the three-month and six-month periods ended June 30, 2021 and 2020, respectively, were as follows:


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
(in thousands)	2021		2020		2021		2020
Receivables securitized (1)	$	—	$	512,286	$	1,891,278	$	512,286

Net proceeds from new securitizations	—		460,086		1,779,532		460,086
Cash received for servicing fees	9,294		5,079		16,021		11,258
Total cash received from Trusts	$	9,294	$	465,165	$	1,795,553	$	471,344

(1) Represents the unpaid principal balance at the time of original securitization.

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NOTE 8. DEPOSITS AND OTHER CUSTOMER ACCOUNTS

Deposits and other customer accounts are summarized as follows:


	June 30, 2021				December 31, 2020
(dollars in thousands)	Balance		Percent of total deposits		Balance		Percent of total deposits
Interest-bearing demand deposits	$	12,684,578	15.7	%	$	11,097,595	14.7	%
Non-interest-bearing demand deposits	24,766,564		30.6	%	21,800,278		28.9	%
Savings	5,483,011		6.8	%	4,827,065		6.4	%
Customer repurchase accounts	270,744		0.3	%	323,398		0.4	%
Money market	34,816,096		43.1	%	33,358,315		44.4	%
CDs	2,847,404		3.5	%	3,897,056		5.2	%
Total deposits (1)	$	80,868,397	100.0	%	$	75,303,707	100.0	%

(1) Includes foreign deposits, as defined by the FRB, of $6.5 billion and $5.8 billion at June 30, 2021 and December 31, 2020, respectively.

Deposits collateralized by investment securities, loans, and other financial instruments totaled $3.3 billion and $2.2 billion at June 30, 2021 and December 31, 2020, respectively.

Demand deposit overdrafts that have been reclassified as loan balances were $219.2 million and $110.5 million at June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021 and December 31, 2020, the Company had $632.8 million and $768.2 million, respectively, of CDs greater than $250 thousand.

NOTE 9. BORROWINGS

Total borrowings and other debt obligations at June 30, 2021 were $42.9 billion, compared to $46.4 billion at December 31, 2020. The Company's debt agreements impose certain limitations on dividend payments and other transactions. The Company is currently in compliance with these limitations.

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

SBNA

SBNA had no securities issuances during the six-month periods ended June 30, 2021 or 2020 and no repurchases during the six-month period ended June 30, 2021.

During the six-month period ended June 30, 2020, the Bank repurchased the following borrowings and other debt obligations:

• $126.4 million of its REIT preferred debt.

• $1.0 billion prepayment of FHLB advances.

SHUSA

SHUSA had no securities issuances during the six-month period ended June 30, 2021.

During the six-month period ended June 30, 2021, SHUSA called $427.9 million of its senior floating-rate notes due June 2022.

During the six-month period ended June 30, 2020, the Company issued $2.1 billion of debt, consisting of:

•$500.0 million 5.83% senior fixed rate note due March 2023 to Santander, an affiliate.

•$447.1 million of its senior fixed-rate notes due April 2023.

•$1.0 billion 3.45% senior fixed-rate notes due June 2025.

•$125.0 million 2.0% short-term borrowing due February 2021 to an affiliate.

During the six-month period ended June 30, 2020, the Company repurchased the following borrowings and other debt obligations:

•$1.0 billion of its 2.65% senior notes due April 2020.

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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:


	June 30, 2021				December 31, 2020
(dollars in thousands)	Balance		Effective Rate		Balance		Effective Rate
Parent Company

4.45% senior notes due December 2021	$	491,799	4.61 %		$	491,411	4.61 %
3.70% senior notes due March 2022	706,696		3.67 %		707,896		3.67	%
3.40% senior notes due January 2023	997,943		3.54 %		997,298		3.54 %
3.50% senior notes due June 2024	997,145		3.60 %		996,687		3.60 %
4.50% senior notes due July 2025	1,097,367		4.56 %		1,097,074		4.56 %
4.40% senior notes due July 2027	1,049,547		4.40 %		1,049,531		4.40 %
2.88% senior notes due January 2024 (3)	750,000		2.88 %		750,000		2.88 %
5.83% senior notes due March 2023 (3)	500,000		5.83 %		500,000		5.83 %
3.24% senior notes due November 2026	916,017		3.97 %		913,239		3.97 %
3.45% senior notes, due June 2025	995,422		3.58 %		994,871		3.58 %
3.50% senior notes, due April 2023	447,073		3.52 %		447,039		3.52 %

Senior notes due June 2022(1)	—		—	%	427,925		1.84 %
Senior notes due January 2023 (2)	720,926		1.33 %		720,904		2.06 %
Senior notes due July 2023 (2)	439,053		1.33 %		439,022		2.04 %
Short-term borrowing due within one year, with an affiliate			—	%	123,453		2.00 %
Subsidiaries
2.00% subordinated debt maturing through 2021	11		2.00	%	11		2.00	%
Short-term borrowing with an affiliate, maturing January 2021	—		—	%	200,000		0.10	%
Short-term borrowing due within one year, maturing July 2021	28,365		0.05	%	15,750		0.05	%
Total Parent Company and subsidiaries' borrowings and other debt obligations	$	10,137,364	3.65 %		$	10,872,111	3.57	%

(1) These notes bear interest at a rate equal to the three-month LIBOR plus 100 basis points per annum.

(2) This note will bear interest at a rate equal to the three-month LIBOR plus 110 basis points per annum.

(3) These notes are with SHUSA's parent company, Santander.

SBNA Borrowings and Debt Obligations

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


	June 30, 2021				December 31, 2020
(dollars in thousands)	Balance		Effective Rate		Balance		Effective Rate
FHLB advances, maturing through May 2022	$	850,000	0.63	%	$	1,150,000	0.64 %

SBNA had outstanding irrevocable letters of credit totaling $153.5 million from the FHLB of Pittsburgh at June 30, 2021 used to secure uninsured deposits placed with SBNA by state and local governments and their political subdivisions.

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NOTE 9. BORROWINGS (continued)

SC Credit Facilities

The following tables present information regarding SC's credit facilities as of June 30, 2021 and December 31, 2020, respectively:


	June 30, 2021
(dollars in thousands)	Balance		Committed Amount		Effective Rate		Assets Pledged		Restricted Cash Pledged
Warehouse line due June 2023	$	—	$	500,000	—	%	$	257,653	$	—
Warehouse line due March 2023	61,045		1,250,000		1.49	%	642,823		1
Warehouse line due October 2022	—		1,500,000		—	%	352,012		—
Warehouse line due October 2022	—		3,500,000		10.64	%	356,412		—
Warehouse line due October 2022	—		500,000		—	%	20,859		500
Warehouse line due October 2022	—		2,100,000		—	%	464,045		64
Warehouse line due January 2023	700,000		1,000,000		1.29	%	1,408,652		—
Warehouse line due November 2022	—		500,000		—	%	326,272		—
Warehouse line due July 2022	—		900,000		—	%	—		1,684

Total facilities with third parties	$	761,045	$	11,750,000	1.31	%	$	3,828,728	$	2,249

Promissory note with Santander due June 2022	$	2,000,000	$	2,000,000	1.34	%	$	—	$	—
Promissory note with Santander due September 2022	2,000,000		2,000,000		1.04	%	—		—
Total facilities with related parties	$	4,000,000	$	4,000,000	1.19	%	$	—	$	—

Total SC credit facilities	$	4,761,045	$	15,750,000	1.21	%	$	3,828,728	$	2,249


	December 31, 2020
(dollars in thousands)	Balance		Committed Amount		Effective Rate		Assets Pledged		Restricted Cash Pledged
Warehouse line due March 2022	$	942,845	$	1,250,000	1.34	%	$	1,621,206	$	1
Warehouse line due November 2022	177,600		500,000		1.18	%	371,959		—
Warehouse line due October 2022	168,300		500,000		3.07	%	243,649		1,201
Warehouse line due October 2022	845,800		2,100,000		3.29	%	1,156,885		—
Warehouse line due August 2022	—		500,000		1.50	%	159,348		—
Warehouse line due January 2022	415,700		1,000,000		1.81	%	595,518		—
Warehouse line due July 2022	—		900,000		1.46	%	—		1,684
Warehouse line due October 2022	1,000,600		1,500,000		1.85	%	639,875		—
Warehouse line due October 2022	441,143		3,500,000		3.45	%	2,057,758		—
Repurchase facility due January 2021	167,967		167,967		1.64	%	217,200		—

Total facilities with third parties	$	4,159,955	$	11,917,967	2.21	%	$	7,063,398	$	2,886

Promissory note with Santander due June 2022	$	2,000,000	$	2,000,000	1.40	%	$	—	$	—
Promissory note with Santander due September 2022	2,000,000		2,000,000		1.04	%	—		—
Total facilities with related parties	$	4,000,000	$	4,000,000	1.22	%	$	—	$	—

Total SC credit facilities	$	8,159,955	$	15,917,967	1.72	%	$	7,063,398	$	2,886

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

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NOTE 9. BORROWINGS (continued)

Secured Structured Financings

The following tables present information regarding SC's secured structured financings as of June 30, 2021 and December 31, 2020, respectively:


	June 30, 2021
(dollars in thousands)	Balance		Initial Note Amounts Issued(3)		Initial Weighted Average Interest Rate Range	Collateral(2)		Restricted Cash
SC public securitizations maturing on various dates between July 2022 and January 2029(1)	$	22,039,067	$	46,887,755	0.50% - 3.42%	$	28,185,538	$	1,958,958
SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027 (3)	5,152,530		8,761,563		1.28% - 3.90%	8,014,025		16,335
Total SC secured structured financings	$	27,191,597	$	55,649,318	0.50% - 3.90%	$	36,199,563	$	1,975,293

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

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

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


	December 31, 2020
(dollars in thousands)	Balance		Initial Note Amounts Issued		Initial Weighted Average Interest Rate Range	Collateral		Restricted Cash
SC public securitizations maturing on various dates between May 2022 and May 2028	$	18,942,160	$	44,775,735	0.60% - 3.42%	$	25,022,577	$	1,710,351
SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027	7,235,241		10,747,563		1.28% - 3.90%	11,232,123		23,785
Total SC secured structured financings	$	26,177,401	$	55,523,298	0.60% - 3.90%	$	36,254,700	$	1,734,136

Most of SC's secured structured financings are in the form of public, SEC-registered securitizations. SC also executes private securitizations under Rule 144A of the Securities Act, and periodically issues private term amortizing notes, which are structured similarly to securitizations but are acquired by banks and conduits. SC's securitizations and private issuances are collateralized by vehicle RICs and loans or leases. As of June 30, 2021 and December 31, 2020, SC had private issuances of notes backed by vehicle leases outstanding totaling $8.0 billion and $8.7 billion, respectively.

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NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)

The following table presents the components of AOCI, net of related tax, for the three-month and six-month periods ended June 30, 2021, and 2020, respectively.


		Total Other Comprehensive Income/(Loss)									Total Accumulated Other Comprehensive (Loss)/Income
		Three-Month Period Ended June 30, 2021									March 31, 2021						June 30, 2021
(in thousands)	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity			Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments		$	(3,121)		$	(468)		$	(3,589)
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)		142			(35)			107
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments		(2,979)			(503)			(3,482)			$	15,491		$	(3,482)		$	12,009

Change in unrealized (losses) on investments in debt securities AFS		17,336			(4,297)			13,039
Reclassification adjustment for (gains) included in net income/(expense) on debt securities AFS (2)		(5,370)			1,331			(4,039)


Net unrealized gains on investments in debt securities AFS		11,966			(2,966)			9,000			(4,893)			9,000			4,107


Pension and post-retirement actuarial gain(3)		757			(196)			561			(28,197)			561			(27,636)

As of June 30, 2021		$	9,744		$	(3,665)		$	6,079		$	(17,599)		$	6,079		$	(11,520)


	Total Other Comprehensive (Loss)/Income						Total Accumulated Other Comprehensive Loss
	Three-Month Period Ended June 30, 2020						March 31, 2020				June 30, 2020
(in thousands)	Pretax Activity		Tax Effect		Net Activity		Beginning Balance		Net Activity		Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments	$	4,230	$	3,014	$	7,244
Reclassification adjustment for net losses on cash flow hedge derivative financial instruments(1)	137		(33)		104
Net unrealized gains on cash flow hedge derivative financial instruments	4,367		2,981		7,348		$	128,191	$	7,348	$	135,539

Change in unrealized gains on investment securities	4,716		(688)		4,028
Reclassification adjustment for net (gains) included in net income/(expense) on non-OTTI securities (2)	(22,516)		3,285		(19,231)


Net unrealized (losses) on investment securities AFS	(17,800)		2,597		(15,203)		183,443		(15,203)		168,240

Pension and post-retirement actuarial gain(3)	753		(193)		560		(44,653)		560		(44,093)

As of June 30, 2020	$	(12,680)	$	5,385	$	(7,295)	$	266,981	$	(7,295)	$	259,686

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


		Total OCI/(Loss)									Total AOCI/(Loss)
		Six-Month Period Ended June 30, 2021									December 31, 2020						June 30, 2021
(in thousands)	Pretax Activity			Tax Effect			Net Activity			Beginning Balance			Net Activity			Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments		$	(90,241)		$	23,842		$	(66,399)
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1)		283			(41)			242
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments		(89,958)			23,801			(66,157)			$	78,166		$	(66,157)		$	12,009



Change in unrealized gains/(losses) on investments in debt securities		(137,690)			35,812			(101,878)
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)		(15,243)			3,965			(11,278)


Net unrealized gains/(losses) on investments in debt securities		(152,933)			39,777			(113,156)			117,263			(113,156)			4,107


Pension and post-retirement actuarial gain(3)		1,981			(483)			1,498			(29,134)			1,498			(27,636)


As of June 30, 2021		$	(240,910)		$	63,095		$	(177,815)		$	166,295		$	(177,815)		$	(11,520)

(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 AFS.

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


	Total OCI/(Loss)						Total AOCI/(Loss)
	Six-Month Period Ended June 30, 2020						December 31, 2019				June 30, 2020
(in thousands)	Pretax Activity		Tax Effect		Net Activity		Beginning Balance		Net Activity		Ending Balance
Change in AOCI on cash flow hedge derivative financial instruments	$	214,924	$	(59,482)	$	155,442
Reclassification adjustment for net loss/(gains) on cash flow hedge derivative financial instruments(1)	273		(62)		211
Net unrealized gains on cash flow hedge derivative financial instruments	215,197		(59,544)		155,653		$	(20,114)	$	155,653	$	135,539



Change in unrealized gains/(losses) on investments in debt securities	282,702		(67,363)		215,339
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)	(31,795)		7,576		(24,219)


Net unrealized gains/(losses) on investment securities	250,907		(59,787)		191,120		(22,880)		191,120		168,240


Pension and post-retirement actuarial gain(3)	1,506		(386)		1,120		(45,213)		1,120		(44,093)



As of June 30, 2020	$	467,610	$	(119,717)	$	347,893	$	(88,207)	$	347,893	$	259,686

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

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NOTE 11. SECURITIES FINANCING AGREEMENTS

The Company may enter into Securities Financing Agreements primarily to deploy the Company’s excess cash and investment positions. Securities Financing Agreements 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. Resale and repurchase agreements are generally carried at the amounts at which the securities will be subsequently sold or repurchased. These agreements are generally carried at the amount of cash collateral advanced or received plus accrued interest. Where appropriate under applicable accounting guidance, Securities Financing Agreements with the same counterparty are reported on a net basis. Refer to Note 1 for further discussion of the offsetting of assets and liabilities.

Securities transferred to counterparties under repurchase agreements and securities lending transactions continue to be recognized on the Condensed Consolidated Balance Sheets, are measured at fair value, and are included in Investment securities AFS on the Company’s Condensed Consolidated Balance Sheets. Securities received from counterparties under reverse repurchase agreements and securities borrowed transactions are not recognized on the Condensed Consolidated Balance Sheets unless the counterparty defaults. The securities transferred under Securities Financing Agreements typically are U.S. Treasury and agency securities or residential agency MBS. In general, the securities transferred can be sold, re-pledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. The Company may be exposed to counterparty risk, with such risk managed by performing assessments independent of business line managers, and establishing concentration limits on each counterparty. Additionally, these transactions include collateral arrangements that require the fair values of the underlying securities to be determined daily, resulting in cash being obtained or refunded to counterparties to maintain specified collateral levels. These financing transactions do not create material credit risk given the collateral provided and the related monitoring process.

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


(in thousands)	June 30, 2021		December 31, 2020
Securities purchased under agreements to resell	$	552,826	$	—
Deposits paid for securities borrowed	—		—
Total	$	552,826	$	—

The Company received $3.4 million in securities borrowed that are eligible to be re-pledged as collateral.

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


(in thousands)	June 30, 2021		December 31, 2020
Securities loaned or sold under agreements to repurchase	$	576,000	$	—
Deposits received for securities loaned	—		—
Total	$	576,000	$	—

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NOTE 11. SECURITIES FINANCING AGREEMENTS (continued)

Securities Financing Agreements are generally executed under standard industry agreements, including master agreements that create a single contract under which all transactions between two counterparties are executed, allowing for trade aggregation of receivables and payables into a single net payment or settlement. At June 30, 2021, there were no Securities Financing Agreement assets or liabilities which qualified for offset in the Condensed Consolidated Balance Sheets.

The following tables present the gross amounts of liabilities associated with Securities Financing Agreements by remaining contractual maturity:


	June 30, 2021
(in thousands)	Open and overnight		Up to 30 days		31-90 days		Greater than 90 days		Total
Securities sold under agreements to repurchase	$	576,000	$	—	$	—	$	—	$	576,000
Total	$	576,000	$	—	$	—	$	—	$	576,000

The following tables present the gross amounts of liabilities associated with Securities Financing Agreements by class of underlying collateral as of June 30, 2021:


(in thousands)	Repurchase agreements		Securities lending agreements		Total
U.S. Treasury and federal agency securities	$	576,000	$	—	$	576,000

Total	$	576,000	$	—	$	576,000

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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 asset is typically a referenced interest rate (commonly the OIS rate or LIBOR), security, credit spread or index.

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

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

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 June 30, 2021, derivatives in this category had a fair value of $0.5 million. The credit ratings of the Company and SBNA are currently considered investment grade. During the second quarter of 2021, 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 June 30, 2021 and December 31, 2020, 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 $13.3 million and $9.9 million, respectively. The Company had $12.5 million and $3.9 million in cash and securities collateral posted to cover those positions as of June 30, 2021 and December 31, 2020, respectively.

Hedge Accounting

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

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

Fair Value Hedges

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

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NOTE 12. DERIVATIVES (continued)

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 June 30, 2021, the Company estimated that approximately $27.4 million of unrealized gains included in AOCI to 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 at June 30, 2021 and December 31, 2020 included:


(dollars in thousands)	Notional Amount		Asset		Liability		Weighted Average Receive Rate		Weighted Average Pay Rate		Weighted Average Life (Years)
June 30, 2021
Fair value hedges:

Interest rate swaps	$	24,300	$	70	$	—	0.05	%	0.61	%	4.59
Cash flow hedges:
Pay fixed — receive variable interest rate swaps	$	2,150,000	$	704	$	52,065	0.11 %		1.52 %		1.66
Pay variable - receive fixed interest rate swaps	11,495,000		99,403		37,360		1.03 %		0.09 %		2.29
Interest rate floor	1,225,000		1,311		—		0.44 %		—	%	1.65
Total	$	14,894,300	$	101,488	$	89,425	0.85 %		0.29 %		2.15

December 31, 2020



Cash flow hedges:
Pay fixed — receive variable interest rate swaps	$	2,450,000	$	124	$	70,589	0.18 %		1.50 %		1.90
Pay variable - receive fixed interest rate swaps	8,745,000		150,206		182		1.16 %		0.14 %		2.12
Interest rate floor	3,525,000		27,507		—		1.28 %		—	%	1.10
Total	$	14,720,000	$	177,837	$	70,771	1.03 %		0.33 %		1.84

Other Derivative Activities

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

Mortgage Banking Derivatives

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

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NOTE 12. DERIVATIVES (continued)

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

Customer-related derivatives

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

Other derivative activities

The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts as well as cross-currency swaps, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date and may or may not be physically settled depending on the Company’s needs. Exposure to gains and losses on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.

Other derivative instruments primarily include forward contracts related to certain investment securities sales, an OIS, a total return swap on Visa, Inc. Class B common shares, and equity options, which manage the Company's market risk associated with certain investments and customer deposit products.

Derivatives Not Designated in Hedge Relationships – Notional and Fair Values

Other derivative activities at June 30, 2021 and December 31, 2020 included:


	Notional				Asset derivatives Fair value				Liability derivatives Fair value
(in thousands)	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Mortgage banking derivatives:
Forward commitments to sell loans	$	373,221	$	520,299	$	—	$	—	$	122	$	3,835
Interest rate lock commitments	194,823		262,471		5,515		13,202		—		—
Mortgage servicing	546,000		495,000		22,714		33,419		9,798		13,402
Total mortgage banking risk management	1,114,044		1,277,770		28,229		46,621		9,920		17,237

Customer-related derivatives:
Swaps receive fixed	15,450,128		15,350,026		593,445		901,509		45,245		8,778
Swaps pay fixed	15,820,153		15,749,590		58,474		14,644		576,086		874,260

Other	4,893,318		3,781,316		23,613		15,446		22,760		13,782
Total customer-related derivatives	36,163,599		34,880,932		675,532		931,599		644,091		896,820

Other derivative activities:

Foreign exchange contracts	5,284,175		4,258,869		61,825		52,530		56,225		62,616
Interest rate swap agreements	250,000		250,000		—		—		9,615		12,934
Interest rate cap agreements	8,640,189		10,199,134		16,867		4,617		—		—
Options for interest rate cap agreements	8,640,189		10,199,134		—		—		16,867		4,617

Other	121,446		240,083		467		5,886		2,013		7,031

Total	$	60,213,642	$	61,305,922	$	782,920	$	1,041,253	$	738,731	$	1,001,255

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NOTE 12. DERIVATIVES (continued)

Gains (Losses) on All Derivatives

The following Condensed Consolidated Statement of Operations line items were impacted by the Company’s derivative activities for the three-month and six-month periods ended June 30, 2021 and 2020:


(in thousands)		Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
	Line Item	2021		2020		2021		2020

Fair value hedges:



Interest rate swaps	Net interest income	$	70	$	—	$	70	$	—



Cash flow hedges:
Pay fixed-receive variable interest rate swaps	Interest expense on borrowings	(7,651)		(7,497)		(15,308)		(8,321)
Pay variable receive-fixed interest rate swap	Interest income on loans	25,987		26,079		49,103		22,924
Interest rate floors	Interest income on loans	6,762		—		18,077		—
Other derivative activities:
Forward commitments to sell loans	Miscellaneous income, net	(7,002)		7,741		3,713		(3,090)
Interest rate lock commitments	Miscellaneous income, net	(314)		1,395		(7,687)		13,392
Mortgage servicing	Miscellaneous income, net	4,388		2,727		(5,344)		32,113
Customer-related derivatives	Miscellaneous income, net	6,138		23,739		13,793		8,120

Foreign exchange	Miscellaneous income, net	832		1,783		6,194		12,805
Interest rate swaps, caps, and options	Miscellaneous income, net	(214)		(1,028)		30		(10,686)


Other	Miscellaneous income, net	(1,827)		(4,149)		(409)		(3,919)

(1) Gains are disclosed as positive numbers while losses are shown as a negative number regardless of the line item being affected.

The net amount of change recognized in OCI for cash flow hedge derivatives was a loss of $3.6 million and $66.4 million, net of tax, for the three-month and six-month periods ended June 30, 2021, respectively, and gains of $7.2 million and $155.4 million, net of tax, for the three-month and six-month periods ended June 30, 2020, respectively.

The net amount of changes reclassified from OCI into earnings for cash flow hedge derivatives were losses of $0.1 million and $0.2 million, net of tax, for the three-month and six-month periods ended June 30, 2021, respectively, and losses of $0.1 million and $0.2 million, net of tax, for the three-month and six-month periods ended June 30, 2020, respectively.

Disclosures about Offsetting Assets and Liabilities

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

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

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NOTE 12. DERIVATIVES (continued)

Information about financial assets and liabilities that are eligible for offset on the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, respectively, is presented in the following tables:


	Offsetting of Financial Assets
							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
(in thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheets		Collateral Received (3)		Net Amount
June 30, 2021
Fair value hedges	$	70	$	—	$	70			$	70
Cash flow hedges	101,418		—		101,418		$	704	100,714
Other derivative activities(1)	777,405		—		777,405		21,245		756,160
Total derivatives subject to a master netting arrangement or similar arrangement	878,893		—		878,893		21,949		856,944
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	5,515		—		5,515		45		5,470
Total Derivative Assets	$	884,408	$	—	$	884,408	$	21,994	$	862,414




December 31, 2020

Cash flow hedges	$	177,837	$	—	$	177,837	$	85,065	$	92,772
Other derivative activities(1)	1,028,051		—		1,028,051		7,771		1,020,280
Total derivatives subject to a master netting arrangement or similar arrangement	1,205,888		—		1,205,888		92,836		1,113,052
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	13,202		—		13,202		—		13,202
Total Derivative Assets	$	1,219,090	$	—	$	1,219,090	$	92,836	$	1,126,254

(1)Includes customer-related and other derivatives.

(2)Includes mortgage banking derivatives.

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

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NOTE 12. DERIVATIVES (continued)


	Offsetting of Financial Liabilities
							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
(in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets		Collateral Pledged (3)		Net Amount
June 30, 2021

Cash flow hedges	$	89,425	$	—	$	89,425	$	71,882	$	17,543
Other derivative activities(1)	738,609		3,100		735,509		348,729		386,780
Total derivatives subject to a master netting arrangement or similar arrangement	828,034		3,100		824,934		420,611		404,323
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	122		—		122		—		122
Total Derivative Liabilities	$	828,156	$	3,100	$	825,056	$	420,611	$	404,445




December 31, 2020

Cash flow hedges	$	70,771	$	—	$	70,771	$	70,589	$	182
Other derivative activities(1)	997,420		3,517		993,903		584,971		408,932
Total derivatives subject to a master netting arrangement or similar arrangement	1,068,191		3,517		1,064,674		655,560		409,114
Total derivatives not subject to a master netting arrangement or similar arrangement(2)	3,835		—		3,835		2,382		1,453
Total Derivative Liabilities	$	1,072,026	$	3,517	$	1,068,509	$	657,942	$	410,567

(1)Includes customer-related and other derivatives.

(2)Includes mortgage banking derivatives.

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

NOTE 13. FAIR VALUE

The fair value hierarchy categorizes the underlying assumptions and inputs to valuation techniques that are used to measure fair value into three levels. The three fair value hierarchy classification levels are defined as follows:

•Level 1 inputs are quoted prices in active markets for identical assets or liabilities that can be accessed as of the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

•Level 2 inputs are those other than quoted prices included in Level 1 that are observable for the assets or liabilities, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•Level 3 inputs are those that are unobservable or not readily observable for the asset or liability and are used to measure fair value to the extent relevant observable inputs are not available.

Assets and liabilities measured at fair value, by their nature, result in a higher degree of financial statement volatility. See Note 1 of the 2020 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 is responsible for determining and approving the fair values of all assets and liabilities valued at 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 June 30, 2021 and December 31, 2020:


(in thousands)	Level 1		Level 2		Level 3		Balance at June 30, 2021		Level 1		Level 2		Level 3		Balance at December 31, 2020
Financial assets:
U.S. Treasury securities	$	—	$	100,642	$	—	$	100,642	$	—	$	170,653	$	—	$	170,653
Corporate debt	—		246,542		—		246,542		—		155,715		—		155,715
ABS	—		419,171		50,063		469,234		—		58,945		50,393		109,338

MBS	—		10,785,694		—		10,785,694		—		10,877,783		—		10,877,783
Investment in debt securities AFS(2)	—		11,552,049		50,063		11,602,112		—		11,263,096		50,393		11,313,489
Other investments - trading securities	—		36,419		—		36,419		—		40,435		—		40,435
RICs HFI(3)	—		—		39,436		39,436		—		—		50,391		50,391
LHFS (1)(4)	—		196,582		—		196,582		—		265,428		—		265,428
MSRs	—		—		79,730		79,730		—		—		77,545		77,545
Other assets - derivatives (2)	—		878,794		5,614		884,408		—		1,205,690		13,400		1,219,090










Total financial assets (5)	$	—	$	12,663,844	$	174,843	$	12,838,687	$	—	$	12,774,649	$	191,729	$	12,966,378
Financial liabilities:
Other liabilities - derivatives (2)	—		826,212		1,944		828,156		—		1,068,074		3,952		1,072,026










Total financial liabilities	$	—	$	826,212	$	1,944	$	828,156	$	—	$	1,068,074	$	3,952	$	1,072,026

(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 $174.8 million of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 1.4% of total assets measured at fair value on a recurring basis and approximately 0.1% of total consolidated assets.

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NOTE 13. FAIR VALUE (continued)

Valuation Processes and Techniques - Recurring Fair Value Assets and Liabilities

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

Investments in debt securities AFS

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

The classification of securities within the fair value hierarchy is based upon the activity level in the market for the security type and the observability of the inputs used to determine their fair values. Actively traded quoted market prices for debt securities AFS, such as U.S. Treasury and 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.

Realized gains and losses on investments in debt securities are recognized in the Condensed Consolidated Statements of Operations through Net gain(loss) on sale of investment securities.

RICs HFI

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

LHFS

The Company's LHFS portfolios that are measured at fair value on a recurring basis consist primarily of residential mortgage LHFS. The fair values of LHFS are estimated using published forward agency prices to agency buyers such as FNMA and FHLMC. The majority of the residential mortgage LHFS portfolio is sold to these two agencies. The fair value is determined using current secondary market prices for portfolios with similar characteristics, adjusted for servicing values and market conditions.

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

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NOTE 13. FAIR VALUE (continued)

MSRs

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

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 $3.8 million and $7.3 million, respectively, at June 30, 2021.

•A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $2.4 million and $4.6 million, respectively, at June 30, 2021.

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.

The Company incorporates credit valuation adjustments in the fair value measurement of its derivatives to reflect the counterparty's nonperformance risk in the fair value measurement of its derivatives, except for those derivative contracts with associated credit support annexes which provide credit enhancements, such as collateral postings and guarantees.

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NOTE 13. FAIR VALUE (continued)

The Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy. Certain of the Company's derivatives utilize Level 3 inputs, which are primarily related to mortgage banking derivatives-interest rate lock commitments and total return settlement derivative contracts.

The DCF model is utilized to determine the fair value of the mortgage banking derivatives-interest rate lock commitments and the total return settlement derivative contracts. The significant unobservable inputs for mortgage banking derivatives used in the fair value measurement of the Company's loan commitments are "pull through" percentage and the MSR value that is inherent in the underlying loan value. The pull through percentage is an estimate of loan commitments that will result in closed loans. The significant unobservable inputs for total return settlement derivative contracts used in the fair value measurement of the Company's liabilities are discount percentages, which are based on comparable financial instruments. Significant increases (decreases) in any of these inputs in isolation would result in significantly higher (lower) fair value measurements. Significant increases (decreases) in the fair value of a mortgage banking derivative asset (liability) results when the probability of funding increases (decreases). Significant increases (decreases) in the fair value of a mortgage loan commitment result when the embedded servicing value increases (decreases).

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

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

The tables below present the changes in Level 3 balances for the three-month and six-month periods ended June 30, 2021 and 2020, respectively, for those assets and liabilities measured at fair value on a recurring basis.


	Three-Month Period Ended June 30, 2021								Three-Month Period Ended June 30, 2020
(in thousands)	Investments AFS		RICs HFI		MSRs		Derivatives, net		Total		Investments AFS		RICs HFI		MSRs		Derivatives, net		Total
Balances, beginning of period	$	50,237	$	44,568	$	86,653	$	4,269	$	185,727	$	62,827	$	87,384	$	97,697	$	4,897	$	252,805
Losses in OCI	(175)		—		—		—		(175)		(88)		—		—		—		(88)
Gains/(losses) in earnings	—		—		(4,925)		(798)		(5,723)		—		4,059		(3,341)		4,990		5,708
Additions/Issuances	—		—		4,015		—		4,015		—		—		2,521		—		2,521
Settlements(1)	1		(5,132)		(6,013)		—		(11,144)		(12,075)		(18,581)		(8,203)		83		(38,776)
Balances, end of period	$	50,063	$	39,436	$	79,730	$	3,471	$	172,700	$	50,664	$	72,862	$	88,674	$	9,970	$	222,170
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period	$	—	$	—	$	(4,925)	$	(484)	$	(5,409)	$	—	$	4,059	$	(3,341)	$	3,596	$	4,314

	Six-Month Period Ended June 30, 2021								Six-Month Period Ended June 30, 2020
(in thousands)	Investments AFS		RICs HFI		MSRs		Derivatives, net		Total		Investments AFS		RICs HFI		MSRs		Derivatives, net		Total
Balances, beginning of period	$	50,393	$	50,391	$	77,545	$	9,448	$	187,777	$	63,235	$	84,334	$	130,855	$	255	$	278,679
Losses in OCI	(331)		—		—		—		(331)		(319)		—		—		—		(319)
Gains/(losses) in earnings	—		—		8,653		(5,977)		2,676		—		6,950		(35,623)		9,550		(19,123)
Additions/Issuances	—		—		7,626		—		7,626		—		2,512		6,423		—		8,935
Transfer from level 2(3)	—		—		—		—		—		—		17,634		—		—		17,634
Settlements(1)	1		(10,955)		(14,094)		—		(25,048)		(12,252)		(38,568)		(12,981)		165		(63,636)
Balances, end of period	$	50,063	$	39,436	$	79,730	$	3,471	$	172,700	$	50,664	$	72,862	$	88,674	$	9,970	$	222,170
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period	$	—	$	—	$	8,653	$	1,710	$	10,363	$	—	$	6,950	$	(35,623)	$	(3,843)	$	(32,516)

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

(2) The Company transferred RICs from Level 2 to Level 3 during 2020 because the fair value for these assets cannot be determined by using readily observable inputs. There were no other transfers into or out of Level 3 during the three-month and six-month periods ended June 30, 2021 or 2020.

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NOTE 13. FAIR VALUE (continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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


(in thousands)	Level 1		Level 2		Level 3		Balance at June 30, 2021		Level 1		Level 2		Level 3		Balance at December 31, 2020
Impaired commercial LHFI	$	—	$	20,262	$	791	$	21,053	$	—	$	32,609	$	11,925	$	44,534
Foreclosed assets	—		3,413		—		3,413		—		8,232		23,528		31,760
Vehicle inventory	—		306,324		—		306,324		—		313,754		—		313,754
LHFS(1)	—		—		489,909		489,909		—		—		1,960,768		1,960,768
Auto loans impaired due to bankruptcy	—		194,731		—		194,731		—		191,785		—		191,785

(1) These amounts include zero and $0.9 billion of personal LHFS that were impaired as of June 30, 2021 and December 31, 2020, respectively. On March 16, 2021 the Company sold the personal lending portfolio. Refer to Note 1 for more information.

Valuation Processes and Techniques - Nonrecurring Fair Value Assets and Liabilities

Impaired commercial LHFI in the table above represents the recorded investment of impaired commercial loans for which the Company measures impairment during the period based on the fair value of the underlying collateral supporting the loan. Written offers to purchase a specific impaired loan are considered observable market inputs, which are considered Level 1 inputs. Appraisals are obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and are considered Level 2 inputs. Loans for which the value of the underlying collateral is determined using a combination of real estate appraisals, field examinations and internal calculations are classified as Level 3. The inputs in the internal calculations may include the loan balance, estimation of the collectability of the underlying receivables held by the customer used as collateral, sale and liquidation value of the inventory held by the customer used as collateral and historical loss-given-default parameters. In cases in which the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized. The net carrying value of these loans was $16.1 million and $33.2 million at June 30, 2021 and December 31, 2020, respectively. Loans previously impaired which were not marked to fair value during the periods presented are excluded from this table.

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

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

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

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

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NOTE 13. FAIR VALUE (continued)

The estimated fair value of goodwill is valued using unobservable inputs and is classified as Level 3 at October 1 annually or more frequently if impairment indicators are present at an interim date. 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-Month Period Ended June 30,				Six-Month Period Ended June 30,
(in thousands)	Statement of Operations Location	2021		2020		2021		2020
Impaired LHFI	Credit loss expense	$	(25,771)	$	2,461	$	(32,354)	$	6,153
Foreclosed assets	Miscellaneous income, net (1)	(263)		(1,171)		(321)		(3,121)
LHFS	Miscellaneous income	—		(268,364)		—		(331,302)

Auto loans impaired due to bankruptcy	Credit loss expense	—		4,953		—		—

(1) Gains are disclosed as positive numbers while losses are shown as a negative number regardless of the line item being affected.

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 June 30, 2021 and December 31, 2020, respectively:

(dollars in thousands)

Fair Value at

June 30, 2021 (4)

Valuation Technique

Unobservable Inputs

Range
(Weighted Average)

Financial Assets:

ABS

Financing bonds

50,063

DCF

Discount rate (1)

0.93 %

RICs HFS

391,209

DCF

Discount rate

1.00 % - 2.00 % (2.00 %)

Default rate

4.00 % - 10.00 % (6.00 %)

Prepayment rate

15.00 % - 20.00 % (17.00 %)

Loss severity rate

50.00 % - 55.00 % (52.00 %)

MSRs

79,730

DCF

CPR (2)

[0.00% - 59.72%] (14.13%)

Discount rate (3)

9.36 %

(1) Based on the applicable term and discount index. The Company owns one financing bond security.

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

(3) Average discount rate from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the associated relative unpaid principal balances.

(4) Excluded insignificant level 3 assets and liabilities.

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NOTE 13. FAIR VALUE (continued)


(dollars in thousands)	Fair Value at December 31, 2020		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Financial Assets:
ABS
Financing bonds	$	50,393	DCF	Discount rate (1)	0.22%




Personal LHFS (4)	893,479		Lower of market or income approach	Market participant view	60.00% - 70.00%
				Discount rate	20.00% - 30.00%
				Default rate	35.00% - 45.00%
				Net principal & interest payment rate	65.00% - 75.00%
				Loss severity rate	90.00% - 95.00%
RICs HFS	$	674,048	DCF	Discount Rate	1.5% - 2.5% (2.0%)
				Default Rate	2.0% - 4.0% (3.0%)
				Prepayment Rate	10.0% - 20.0% (15.0%)
				Loss Severity Rate	50.0% - 60.0% (55.0%)
MSRs	77,545		DCF	CPR (2)	7.66% - 45.35% (16.11%)
				Discount rate (3)	9.37	%

(1), (2), (3) - See corresponding footnotes to the June 30, 2021 Level 3 significant inputs table above.

(4) Excludes non-significant Level 3 LHFS portfolios. The estimated fair value for personal LHFS (Bluestem) is calculated based on the lower of market participant view, a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, and also considers the possible outcomes of the Bluestem bankruptcy process.

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:


	June 30, 2021										December 31, 2020
(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	$	16,541,091	$	16,541,091	$	16,541,091	$	—	$	—	$	12,621,281	$	12,621,281	$	12,621,281	$	—	$	—
Federal funds sold and securities purchased under resale agreements or similar arrangements(3)	552,826		579,350		—		579,350		—		—		—		—		—		—
Investments in debt securities AFS	11,581,289		11,602,112		—		11,552,049		50,063		11,313,489		11,313,489		—		11,263,096		50,393
Investments in debt securities HTM	6,662,308		6,712,989		—		6,712,989		—		5,504,685		5,677,929		—		5,677,929		—
Other investments (2)	786,419		788,589		—		788,589		—		790,435		801,056		—		801,056		—
LHFI, net	86,241,200		89,777,450		—		20,262		89,757,188		84,794,689		89,395,086		—		32,609		89,362,477
LHFS	686,491		686,491		—		286,327		400,164		2,226,196		2,226,196		—		265,428		1,960,768
Restricted cash	6,029,951		6,029,951		6,029,951		—		—		5,303,460		5,303,460		5,303,460		—		—
MSRs	79,730		79,730		—		—		79,730		77,545		77,545		—		—		77,545
Derivatives	884,408		884,408		—		878,794		5,614		1,219,090		1,219,090		—		1,205,690		13,400

Financial liabilities:
Deposits (1)	2,847,404		2,856,898		—		2,856,898		—		3,897,056		3,920,096		—		3,920,096		—
Federal funds purchased and securities loaned or sold under repurchase agreements(3)	576,000		579,350		—		579,350		—		—		—		—		—		—
Borrowings and other debt obligations	42,940,006		43,969,174		—		33,616,026		10,353,148		46,359,467		47,081,852		—		30,538,951		16,542,901
Derivatives	828,156		828,156		—		826,212		1,944		1,072,026		1,072,026		—		1,068,074		3,952

(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.

(3) Represents the fair value of the underlying collateral.

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NOTE 13. FAIR VALUE (continued)

Valuation Processes and Techniques - Financial Instruments

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

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

Cash, cash equivalents and restricted cash

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

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

Investments in debt securities HTM

Investments in debt securities HTM are recorded at amortized cost and are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.

LHFI, net

The fair values of loans are estimated based on groupings of similar loans, including but not limited to stratifications by type, interest rate, maturity, and borrower creditworthiness. Discounted future cash flow analyses are performed for these loans incorporating assumptions of current and projected voluntary prepayment speeds. Discount rates are determined using the Company's current origination rates on similar loans, adjusted for changes in current liquidity and credit spreads (if necessary). Because the current liquidity spreads are generally not observable in the market and the expected loss assumptions are based on the Company's experience, these are Level 3 valuations. Impaired loans are valued at fair value on a nonrecurring basis. See further discussion under the section captioned "Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis" above.

LHFS

The Company has LHFS portfolios that are accounted for at the lower of cost or market. This primarily consists of RICs HFS for which the estimated fair value is based on prices obtained in recent market transactions or expected to be obtained in the subsequent sales for similar assets.

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.

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NOTE 13. FAIR VALUE (continued)

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.

Residential MSRs

The Company maintains an MSR asset for sold residential real estate loans serviced for others. The Company elected to account for the majority of its existing portfolio of MSRs at fair value. This election created greater flexibility with regard to risk management of the asset by aligning the accounting for the MSRs with the accounting for risk management instruments, which are also generally carried at fair value. At June 30, 2021 and December 31, 2020, the balance of these loans serviced for others accounted for at fair value was $11.2 billion and $12.5 billion, respectively. Changes in fair value are recorded through Miscellaneous income, net on the Condensed Consolidated Statements of Operations. 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. The remainder of the MSRs are accounted for using the lower of cost or fair value and are presented above in the section captioned "Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis."

FVO for Financial Assets and Financial Liabilities

LHFS

The Company's LHFS portfolios that are measured using the FVO consist of residential mortgage LHFS. The adoption of the FVO for residential mortgage loans classified as HFS allows the Company to record the mortgage LHFS portfolio at fair market value compared to the lower of cost, net of deferred fees, deferred origination costs, or market. The Company economically hedges its residential LHFS portfolio, which is reported at fair value. A lower of cost or market accounting treatment would not allow the Company to record the excess of the fair market value over book value, but would require the Company to record the corresponding reduction in value on the hedges. Both the loans and related hedges are carried at fair value, which reduces earnings volatility, as the amounts more closely offset.

RICs HFI

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

The following table summarizes the differences between the fair value and the principal balance of LHFS and RICs measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020:


	June 30, 2021						December 31, 2020
(in thousands)	Fair Value		Aggregate UPB		Difference		Fair Value		Aggregate UPB		Difference
LHFS(1)	$	196,582	$	190,640	$	5,942	$	265,428	$	250,822	$	14,606

RICs HFI	39,436		39,571		(135)		50,391		50,624		(233)
Nonaccrual loans	435		450		(15)		1,474		2,178		(704)

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

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NOTE 14. NON-INTEREST INCOME AND OTHER EXPENSES

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


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
(in thousands)	2021		2020		2021		2020
Non-interest income:
Consumer and commercial fees	$	106,926	$	108,826	$	226,145	$	233,074
Lease income	732,892		755,006		1,505,784		1,526,666
Miscellaneous income, net
Mortgage banking income, net	675		17,038		21,413		33,127
BOLI	15,387		13,815		30,933		28,909
Capital market revenue	60,146		84,184		141,935		122,468
Net gain on sale of operating leases	178,544		23,145		286,807		50,096
Asset and wealth management fees	58,744		50,941		117,471		103,592

Gain / (loss) on sale of non-mortgage loans	14,831		(122,533)		(23,185)		(184,640)
Other miscellaneous income / (loss), net	8,772		(166,620)		44,236		(131,609)
Net gain on sale of investment securities	5,370		22,516		15,243		31,795
Total Non-interest income	$	1,182,287	$	786,318	$	2,366,782	$	1,813,478

Disaggregation of Revenue from Contracts with Customers

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


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
(in thousands)	2021		2020		2021		2020
Non-interest income:
In-scope of revenue from contracts with customers:
Depository services(1)	$	43,505	$	41,825	$	86,540	$	99,029
Commission and trailer fees(2)	53,525		45,552		108,064		97,264
Interchange income, net(2)	18,253		15,599		34,762		31,919
Underwriting service fees(2)	35,846		49,200		94,919		75,407
Asset and wealth management fees(2)	31,507		26,271		63,749		69,291
Other revenue from contracts with customers(2)	8,953		15,504		21,033		38,592
Total in-scope of revenue from contracts with customers	191,589		193,951		409,067		411,502
Out-of-scope of revenue from contracts with customers:
Consumer and commercial fees(3)	47,386		59,027		109,335		113,388
Lease income	732,892		755,006		1,505,784		1,526,666
Other miscellaneous income / (loss), net (3)	205,050		(244,182)		327,353		(269,873)
Net gain/(loss) on sale of investment securities	5,370		22,516		15,243		31,795
Total out-of-scope of revenue from contracts with customers	990,698		592,367		1,957,715		1,401,976
Total non-interest income	$	1,182,287	$	786,318	$	2,366,782	$	1,813,478

(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-Month Period Ended June 30,				Six-Month Period Ended June 30,
(in thousands)	2021		2020		2021		2020
Other expenses:
Amortization of intangibles	$	10,746	$	14,744	$	22,033	$	29,487
Deposit insurance premiums and other expenses	9,648		13,766		18,969		26,320
Loss on debt extinguishment	—		890		—		1,026

Other administrative expenses	82,466		111,655		155,442		199,485
Other miscellaneous expenses	5,637		8,327		16,475		21,409
Total Other expenses	$	108,497	$	149,382	$	212,919	$	277,727

NOTE 15. INCOME TAXES

An income tax expense of $371.6 million and a benefit of $186.2 million were recorded for the three-month periods ended June 30, 2021 and 2020, respectively. An income tax expense of $658.5 million and a benefit of $219.5 million were recorded for the six-month periods ended June 30, 2021 and 2020, respectively. This resulted in an ETR of 24.2% and 8.9% for the three-month periods ended June 30, 2021 and 2020, respectively, and 24.2% and 9.8% for the six-month periods ended June 30, 2021 and 2020, respectively. The increase in the ETR for the three-month and six-month periods ended June 30, 2021, compared to the three-month and six-month periods ended June 30, 2020, was primarily the result of expected pre-tax income for 2021, compared to a pre-tax loss in 2020, and the impairment of goodwill in 2020 that was non-deductible for tax purposes.

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

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

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NOTE 15. INCOME TAXES (continued)

With few exceptions, the Company is no longer subject to federal, state and non-U.S. income tax examinations by tax authorities 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 $529.8 million at June 30, 2021 (consisting of a deferred tax asset balance of $3.7 million and a deferred tax liability balance of $533.5 million with respect to jurisdictional netting), compared to a net deferred tax liability balance of $171.2 million at December 31, 2020 (consisting of a deferred tax asset balance of $11.1 million and a deferred tax liability balance of $182.4 million). The $358.6 million increase in net deferred liability for the six-month period ended June 30, 2021 was primarily due to the impact of depreciation from leasing transactions and a decrease in net operating loss carryforwards.

NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES

Off-Balance Sheet Risk - Financial Instruments

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

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

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

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


Other Commitments	June 30, 2021		December 31, 2020
	(in thousands)
Commitments to extend credit	$	28,113,863	$	30,883,502
Letters of credit	1,361,595		1,432,764
Commitments to sell loans	30,401		49,791

Recourse exposure on sold loans	23,434		26,362
Total commitments	$	29,529,293	$	32,392,419

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 June 30, 2021 and December 31, 2020 are $3.5 billion and $5.4 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 June 30, 2021 was 14.5 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 June 30, 2021 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 June 30, 2021. 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 June 30, 2021 and December 31, 2020, the liability related to unfunded lending commitments was $124.3 million and $146.5 million, respectively.

Unsecured Revolving Lines of Credit

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

Loans Sold with Recourse

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

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

Commitments to Sell Loans

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

Securities Borrowed and Lending Subject to Repurchase or Resale Agreements

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

SC Commitments

The following table summarizes liabilities recorded for commitments and contingencies as of June 30, 2021 and December 31, 2020, all of which are included in Accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets:


Agreement or Legal Matter	Commitment or Contingency	June 30, 2021		December 31, 2020
		(in thousands)
MPLFA	Revenue-sharing and gain/(loss), net-sharing payments	$	102,191	$	43,778
Agreement with Bank of America	Servicer performance fee	(154)		1,200
Agreement with CBP	Loss-sharing payments	(6)		181
Other contingencies	Consumer arrangements	28,408		22,155

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

MPLFA

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

Agreement with Bank of America

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

Agreement with CBP

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

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

Agreements

Bluestem

SC is party to agreements with Bluestem whereby SC is committed to purchase certain new advances on personal revolving financings receivables, along with existing balances on accounts with new advances, originated by Bluestem through April 2022.

During the first quarter in 2021, SC completed the sale of the Bluestem personal lending portfolio to a third party. In addition, SC executed a forward flow sale agreement with a third party to purchase all personal lending receivables that SC purchases from Bluestem through the term of the agreement with Bluestem.

As of December 31, 2020, the total unused credit available to customers was $2.7 billion. In 2021, SC purchased $0.3 billion of receivables out of the $2.7 billion unused credit available to customers as of December 31, 2020. In 2020, SC purchased $1.2 billion of receivables out of the $3.0 billion unused credit available to customers as of December 31, 2019. In addition, SC purchased $24.9 million and $78.8 million of receivables related to newly-opened customer accounts during the six-month periods ended June 30, 2021 and 2020, respectively.

Each customer account generated under the agreements generally is approved with a credit limit higher than the amount of the initial purchase, with each subsequent purchase automatically approved as long as it does not cause the account to exceed its limit and the customer is in good standing.

Others

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

In connection with the sale of RICs through securitizations and other sales, SC has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require SC to repurchase loans previously sold to on- or off-balance sheet Trusts or other third parties. As of June 30, 2021, 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 RICs sale agreements is not expected to have a material adverse effect on the Company's or SC’s business, consolidated financial position, results of operations, or cash flows.

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

In November 2015, SC executed a forward flow asset sale agreement with a third party under the terms of which SC is committed to sell $350.0 million in charged-off loan receivables in bankruptcy status on a quarterly basis. However, any sale of more than $275.0 million is subject to a market price check. The remaining aggregate commitment as of June 30, 2021 and December 31, 2020 not subject to a market price check was $6.2 million and $15.3 million.

Other Off-Balance Sheet Risk

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

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

Legal and Regulatory Proceedings

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

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

As of June 30, 2021 and December 31, 2020, the Company accrued aggregate legal and regulatory liabilities of approximately $52.0 million and $109.5 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 $14.7 million as of June 30, 2021. Set forth below are descriptions of the material lawsuits, regulatory matters and other legal proceedings to which the Company is subject.

SBNA Matters

Mortgage Escrow Interest Putative Class Action

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

Overtime Putative Class Action

SBNA is a defendant in a putative class action lawsuit in the United States District Court, District of New Jersey, captioned Crystal Sanchez, et. Al. v. Santander Bank, N.A., No. 17-cv-5775. The lawsuit alleges that SBNA failed to pay overtime to current and former branch operations managers. The Court denied SBNA’s motion to dismiss. Plaintiff's motion seeking to amend its complaint to add additional state law claims is fully briefed.

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

SC Matters

Shareholder Derivative Lawsuit

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

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.

Regulatory Investigations and Proceedings

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

Currently, such matters include, but are not limited to, the following:

Mississippi Attorney General Lawsuit: In January 2017, Mississippi Attorney General filed a lawsuit against SC in the Chancery Court of the First Judicial District of Hinds County, Mississippi, captioned State of Mississippi ex rel. Jim Hood, Attorney General of the State of Mississippi v. Santander Consumer USA Inc., C.A. # G-2017-28. In July 2021, SC and the state of Mississippi entered into a settlement agreement resolving this matter for a monetary payment of $3.7 million to the state of Mississippi.

IHC Matters

Periodically, SSLLC is party to pending and threatened legal actions and proceedings, including FINRA arbitration actions and class action claims.

Puerto Rico FINRA Arbitrations

As of June 30, 2021, SSLLC had received 773 FINRA arbitration cases related to Puerto Rico bonds and Puerto Rico CEFs that SSLLC previously recommended and/or sold to clients. Most of these cases are based upon concerns regarding the local Puerto Rico securities market. The statements of claims allege, among other things, fraud, negligence, breach of fiduciary duty, breach of contract, unsuitability, over-concentration and failure to supervise. There were 47 arbitration cases pending as of June 30, 2021. The Company has experienced a decrease in the volume of claims since September 30, 2019 and does not expect to see a significant increase in claims in future periods.

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

Puerto Rico Putative Class Action: SSLLC, SBC, BSPR, the Company and Santander are defendants in a putative class action alleging federal securities and common law claims relating to the solicitation and purchase of more than $180.0 million of Puerto Rico bonds and $101.0 million of CEFs during the period from December 2012 to October 2013. The case is pending in the United States District Court for the District of Puerto Rico and is captioned Jorge Ponsa-Rabell, et. al. v. SSLLC, Civ. No. 3:17-cv-02243. The amended complaint alleges that defendants acted in concert to defraud purchasers in connection with the underwriting and sale of Puerto Rico municipal bonds, CEFs and open-end funds. In May 2019, the defendants filed a motion to dismiss the amended complaint. On July 22, 2020, the District Court dismissed the complaint. Plaintiffs have appealed to the United States Court of Appeals for the First Circuit.

Puerto Rico Municipal Bond Insurer Litigation: On August 8, 2019, bond insurers National Public Finance Guarantee Corporation and MBIA Insurance Corporation filed suit in Puerto Rico state court against eight Puerto Rico municipal bond underwriters, including SSLLC, alleging that the underwriters made misrepresentations in connection with the issuance of the debt and that the bond insurers relied on such misrepresentations in agreeing to insure certain of the bonds. The complaint alleges damages of not less than $720.0 million. On September 16, 2020, the defendants moved to dismiss the complaint. On June 2, 2021, the court denied the defendants’ motion to dismiss. Defendants are seeking to appeal the decision..

On October 28, 2020, bond insurer Ambac Assurance Corporation filed an amended complaint in Puerto Rico state court adding SSLLC and four other Puerto Rico municipal bond underwriters to a pending suit against seven underwriters, alleging that the underwriters made misrepresentations in connection with the issuance of the debt and that Ambac relied on such misrepresentations in agreeing to insure certain of the bonds. The amended complaint alleges damages of not less than $508 million. On December 8, 2020, the defendants moved to dismiss the amended complaint.

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

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

NOTE 17. RELATED PARTY TRANSACTIONS

The Company and its affiliates have various debt and derivative agreements with Santander. For further details of these agreements, see Note 10 and Note 20 to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. The Company and its affiliates also entered into or were subject to various service agreements with Santander and its affiliates. Each of these agreements was made in the ordinary course of business and on market terms.

SC had a MSPA with Santander, whereby it has the option to sell a contractually determined amount of eligible prime loans to Santander through the SPAIN trust securitization platform for a term that ended in December 2018. SC provides servicing on all loans originated under this arrangement. For the three-month and six-month periods ended June 30, 2021, servicing fee income of $2.4 million and $5.3 million, respectively, was recognized in the Condensed Consolidated Statements of Operations compared to $5.2 million and $11.2 million for the three-month and six-month periods ended June 30, 2020, respectively. SC had $6.0 million and $6.2 million of collections due to Santander as of June 30, 2021 and December 31, 2020, respectively.

Beginning in 2018, SC agreed to provide SBNA with origination support services in connection with the processing, underwriting, and purchase of RICs, primarily from Stellantis N. dealers. In addition, SC agreed to perform the servicing for any RICs originated on SBNA's behalf. For the three-month and six-month periods ended June 30, 2021, SC facilitated the purchase of RICs of $2.6 billion and $4.5 billion, respectively. For the three-month and six-month periods ended June 30, 2020, SC facilitated the purchase of RICs of $1.7 billion and $2.8 billion, respectively. SC recognizes referral fee income and servicing fee income related to this agreement that eliminates in the consolidation of SHUSA.

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NOTE 17. RELATED PARTY TRANSACTIONS (continued)

Banco Santander (Brasil) S.A. had deposits with the Bank of $2.6 billion and $2.0 billion as of June 30, 2021 and December 31, 2020, respectively. Banco Santander-Chile had deposits with the Bank of $1.2 billion and $0.8 billion as of June 30, 2021 and December 31, 2020, respectively. Banco Santander Rio S.A. had deposits with the Bank of $105.0 million and zero as of June 30, 2021 and December 31, 2020, respectively. These transactions do not eliminate in the consolidation of SHUSA.

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: CBB, C&I, CRE & VF, CIB, and SC.

•The CBB segment includes the products and services provided to Bank consumer and business banking customers, including consumer deposit, business banking, residential mortgage, unsecured lending and investment services. This segment offers a wide range of products and services to consumers and business banking customers, including demand and interest-bearing demand deposit accounts, money market and savings accounts, CDs and retirement savings products. It also offers lending products such as credit cards, mortgages, home equity lines of credit, and business loans such as business lines of credit and commercial cards. SBNA also finances indirect consumer automobile RICs through an intercompany agreement with SC. In addition, SBNA provides investment services to its retail customers, including annuities, mutual funds, and insurance products. Santander Universities, which provides grants and scholarships to universities and colleges as a way to foster education through research, innovation and entrepreneurship, is the last component of this segment.

•The C&I segment currently provides commercial lines, loans, letters of credit, receivables financing and deposits 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 & VF segment offers CRE loans and multifamily loans to customers. This segment also offers commercial loans to dealers and financing for commercial equipment and vehicles. This category also includes SBNA’s community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.

•The CIB segment serves the needs of global commercial 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 SIS, a registered broker-dealer located in New York that provides services in investment banking, institutional sales, and trading and offering research reports of Latin American and European equity and fixed-income securities. CIB's offerings and strategy are based on Santander's local and global capabilities in wholesale banking.

•SC is a specialized consumer finance company focused on vehicle finance and third-party servicing. SC’s 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. In conjunction with the MPLFA, SC offers a full spectrum of auto financing products and services to Stellantis N.V. customers and dealers under the CCAP brand. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. SC also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders. During 2015, SC announced its intention to exit the personal lending business. SC has entered into a number of intercompany agreements with the Bank as described above as part of the Other segment. All intercompany revenue and fees between SBNA and SC are eliminated in the consolidated results of the Company.

SBNA also offers customer-related derivatives to hedge interest rate risk, and for C&I and CIB offers derivatives relating to foreign exchange and lending arrangements. See Note 11 to the Consolidated Financial Statements for additional details.

The Other category includes certain immaterial subsidiaries such as BSI, SSLLC, and several other 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, excluding SC and the entities that have been transferred to the Company as the IHC, 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.

During the fourth quarter of 2020, the Company implemented organizational changes to meet the evolving needs of its business customers including the re-alignment of Upper Business Banking with the C&I segment from the CBB segment. In addition, the Company moved the assets associated with its Community Development Finance business from its “Other” category to the CRE&VF segment to align its LIHTC assets with similar CRE assets and liabilities. All prior period results have been revised for these segment changes.

The CODM manages SC on a historical basis by reviewing the results of SC on a pre-Change in Control basis. The Results of Segments table below discloses SC's operating information on the same basis that it is reviewed by the CODM. The adjustments column includes adjustments to reconcile SC's GAAP results to SHUSA's consolidated results.

Results of Segments

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


For the Three-Month Period Ended	SHUSA Reportable Segments
June 30, 2021	CBB		C&I		CRE & VF		CIB(4)		Other(1)		SC(2)		SC Purchase Price Adjustments(3)		Eliminations(3)		Total
	(in thousands)
Net interest income	$	367,195	$	71,842	$	91,360	$	30,244	$	(54,760)	$	1,020,062	$	315	$	5,577	$	1,531,835
Non-interest income	71,481		19,040		15,415		53,911		98,168		941,170		—		(16,898)		1,182,287
Provision for/(release of) credit losses	(17,437)		(20,721)		(866)		(13,633)		(874)		(263,751)		—		—		(317,282)
Total expenses	373,470		63,897		37,131		63,272		123,579		834,361		5,875		(8,703)		1,492,882
Income/(loss) before income taxes	82,643		47,706		70,510		34,516		(79,297)		1,390,622		(5,560)		(2,618)		1,538,522
Intersegment revenue/(expense)	(214)		3,568		409		(3,762)		(1)		—		—		—		—

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NOTE 18. BUSINESS SEGMENT INFORMATION (continued)


For the Year-to-Date Ended	SHUSA Reportable Segments
June 30, 2021	CBB		C&I		CRE & VF		CIB(4)		Other(1)		SC(2)		SC Purchase Price Adjustments(3)		Eliminations(3)		Total
	(in thousands)
Net interest income	$	719,703	$	145,061	$	187,962	$	57,656	$	(98,461)	$	2,129,029	$	73	$	10,144	$	3,151,167
Non-interest income	147,791		35,717		21,010		131,275		214,116		1,845,282		—		(28,409)		2,366,782
Credit loss expense / (Recovery of) credit loss expense	(36,592)		(52,062)		920		(22,327)		(3,613)		(127,542)		—		—		(241,216)
Total expenses	741,921		127,563		72,678		130,969		234,462		1,735,119		13,060		(14,462)		3,041,310
Income/(loss) before income taxes	162,165		105,277		135,374		80,289		(115,194)		2,366,734		(12,987)		(3,803)		2,717,855
Intersegment revenue/(expense)	(471)		6,225		1,122		(6,875)		(1)		—		—		—		—
Total assets	23,223,301		7,477,639		19,841,903		11,788,209		44,608,657		48,245,934		—		—		155,185,643

(1) Other includes the results of the entities transferred to the IHC, with the exception of SIS, 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.

(2) Management of SHUSA manages SC by analyzing the historical results of SC, which are presented in this column.

(3) SC Purchase Price Adjustments represents the impact that SC purchase marks had on the results of SC included within the consolidated operations of SHUSA, while eliminations eliminate intercompany transactions.

(4) Includes results and assets of SIS.


For the Three-Month Period Ended	SHUSA Reportable Segments
June 30, 2020	CBB		C&I		CRE & VF		CIB(4)		Other(1)		SC(2)		SC Purchase Price Adjustments(3)		Eliminations(3)		Total
	(in thousands)
Net interest income	$	337,310	$	91,544	$	91,366	$	33,435	$	(1,904)	$	984,745	$	(201)	$	2,495	$	1,538,790
Non-interest income	68,629		15,016		(320)		90,374		(46,659)		667,242		3,168		(11,132)		786,318
Provision for/(release of) credit losses	178,601		44,822		16,987		15,314		(140,473)		861,896		226		—		977,373
Total expenses	1,933,865		356,261		35,116		62,965		118,583		919,626		9,804		(6,530)		3,429,690
Income/(loss) before income taxes	(1,706,527)		(294,523)		38,943		45,530		(26,673)		(129,535)		(7,063)		(2,107)		(2,081,955)
Intersegment revenue/(expense)	(132)		3,055		1,019		(3,941)		(1)		—		—		—		—


For the Year-to-Date Ended	SHUSA Reportable Segments
June 30, 2020	CBB		C&I		CRE & VF		CIB(4)		Other(1)		SC(2)		SC Purchase Price Adjustments(3)		Eliminations(3)		Total
	(in thousands)
Net interest income	$	669,117	$	167,677	$	192,107	$	67,517	$	26,060	$	1,996,152	$	(423)	$	6,559	$	3,124,766
Non-interest income	148,877		32,104		4,365		140,509		66,167		1,441,074		5,021		(24,639)		1,813,478
Credit loss expense / (Recovery of) credit loss expense	331,608		92,054		66,837		33,455		(131,186)		1,769,783		432		—		2,162,983
Total expenses	2,300,911		424,984		70,235		126,199		280,318		1,803,423		19,593		(12,172)		5,013,491
Income/(loss) before income taxes	(1,814,525)		(317,257)		59,400		48,372		(56,905)		(135,980)		(15,427)		(5,908)		(2,238,230)
Intersegment revenue/(expense)	(392)		6,297		2,753		(8,658)		—		—		—		—		—
Total assets	22,650,349		8,529,379		20,252,082		12,419,110		41,234,172		47,268,695		—		—		152,353,787

Intersegment revenue/(expense)

(1)- (4) Refer to corresponding notes above.

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

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

EXECUTIVE SUMMARY

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

As of June 30, 2021, SC was owned approximately 80.2% by SHUSA and 19.8% by other shareholders. SC Common Stock is listed on the NYSE under the trading symbol "SC." Refer to Note 1 of the Condensed Consolidated Financial Statements for additional information on SHUSA's proposal to acquire the remainder of SC's outstanding shares.

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

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

CCAP

Since May 2013, under the MPLFA, SC has operated as Stellantis N.V.’s preferred provider for consumer loans, leases and dealer loans and provides services to Stellantis N.V. customers and dealers under the CCAP brand. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit.

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

CCAP continues to be a focal point of SC's strategy. Since May 2013, the MPLFA with Stellantis N.V., the Company has operated as Stellantis N.V.'s preferred provider for consumer loans, leases and dealer loans and provides services to Stellantis N.V. customers and dealers under the CCAP brand. The Company's average penetration rate under the MPLFA for the six-month period ended June 30, 2021 was 34%, a decrease from 37% for the six-month period ended December 31, 2020.

SC has dedicated financing facilities in place for its CCAP business and has worked strategically and collaboratively with Stellantis N.V. to continue to strengthen its relationship and create value within the CCAP program. During the six-month period ended June 30, 2021, SC originated $8.3 billion in CCAP loans, which represented 56% of the UPB of its total RIC originations, as well as $4.2 billion in CCAP leases. Additionally, all of the leases originated by SC during six-month period ended June 30, 2021 were under the MPLFA.

ECONOMIC AND BUSINESS ENVIRONMENT

Overview

The unemployment rate at June 30, 2021 was 5.9% compared to 6.0% at March 31, 2021 and 11.1% one year ago, which represented an improvement off the April 2020 peak of unemployment associated with the COVID-19 outbreak. According to the U.S. Bureau of Labor Statistics, the improvement from March 2021 reflects the continuing resumption of economic activity, particularly in the leisure and hospitality, public and private education, professional and business services, retail trade and other services.

Market year-to-date returns for the following indices based on closing prices at June 30, 2021 were:


						June 30, 2021
Dow Jones Industrial Average						12.7%
S&P 500						14.4%
NASDAQ Composite						12.5%

In light of the effects the COVID-19 pandemic continues to have on economic activity, at its June 2021 meeting, the Federal Open Market Committee decided to maintain the federal funds rate target range at 0.00% to 0.25%. The Committee expects to maintain this target rate until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability. This action will help support economic activity, strong labor market conditions and inflation to remain at the targeted rate of 2.0%.

The ten-year Treasury bond rate at June 30, 2021 was 1.44%, up from 0.92% at December 31, 2020. Within the industry, changes in this metric are often considered to correspond to changes in 15-year and 30-year mortgage rates.

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

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 rating:

SANTANDER (1)

SHUSA

SBNA (2)

Overall Outlook

Fitch

BBB+

Stable

Moody's

Baa3

Baa1

Stable

S&P

BBB+

A-

Stable

(1) Senior preferred rating

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

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

At this time, SC is not rated by the major credit rating agencies.

COVID-19 Summary

In March 2020, the novel strain of coronavirus, or COVID-19, had materially impacted our business. Similar to many other financial institutions, we took measures to mitigate our customers’ COVID-19-related economic challenges. We experienced an increase in requests for extensions and modifications related to COVID-19 nationwide and a significant number of such extensions and modifications have been granted as detailed in the section of this MD&A captioned "TDRs". The Bank also joined other U.S. banks in providing overdrawn customers full access to their EIPs by providing a temporary credit in the amount of their overdrawn balance as of the end of the day prior to receipt of their EIP (up to a limit of $5,000) for each of the three rounds of EIP.

Please refer to Item 7 of the 2020 Annual Report on Form 10-K for additional details regarding COVID-19.

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

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 NYDFS.

Payment of Dividends

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

In response to COVID-19, from June 2020 through June 30, 2021 the Federal Reserve implemented the Interim Policy which restricted capital distributions to various measures of prior earnings.

On April 27, 2021, the Company received written notification from the FRB that the FRB has approved SHUSA’s request for an exception from the prohibition in the Interim Policy restricting the payment of certain dividends in the second quarter of 2021. On April 30, 2021, the SC’s Board of Directors declared a dividend of $0.22 per share for shareholders as of May 10, 2021 and payable on May 20, 2021.

On March 25, 2021, the Federal Reserve announced that the temporary restrictions imposed by the Interim Policy would end June 30, 2021. Beginning July 1, 2021 firms are subject to the SCB capital rules. SHUSA’s 2020 SCB was 2.5% equating to a 7% minimum limit under the SCB rules.

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

Regulatory Capital Requirements

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

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

As described in Note 1, 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. As also described Note 1, the U.S. banking agencies in December 2018 approved a final rule to address the impact of CECL on regulatory capital by allowing banking organizations, including the Company, the option to phase in the day-one impact of CECL until the first quarter of 2023. On March 26, 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. This interim rule was subsequently updated with technical amendments in a final rule dated September 30, 2020. The Company has elected this alternative option instead of the one described in the December 2018 rule.

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

Material restrictions can be imposed on SBNA, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver or conservator. Critically undercapitalized banks generally may not make any payment of principal or interest on their subordinated debt and all but well-capitalized banks are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to the FDIA and OCC regulations, institutions which are not categorized as well-capitalized or adequately-capitalized are restricted from making capital distributions, which include cash dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the capital account of the institution. At June 30, 2021, SBNA met the criteria to be classified as “well-capitalized.”

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

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

Liquidity Rules

The Federal Reserve, the FDIC, and the OCC have established a rule to implement the Basel III LCR for certain internationally active banks and nonbank financial companies, and a modified version of the LCR for certain depository institution holding companies that are not internationally active. The LCR is designed to ensure that a banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to its expected net cash outflow for a 30-day time horizon. Smaller covered companies (more than $50 billion in assets) such as the Company were required to calculate the LCR monthly beginning January 2016.

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

Resolution Planning

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

TLAC

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

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

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

Volcker Rule

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

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

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

In October 2019, the joint agencies responsible for administering the Volcker Rule finalized revisions to Volcker Rule. The final rule tailors the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of a trading account, clarify certain key provisions in the Volcker Rule, and simplify the information companies are required to provide the banking agencies.

In July 2020, the joint agencies finalized a rule that revised the Volcker Rule further. The 2020 revisions provide an exemption for activities of qualifying foreign excluded funds, revise the exclusions from the definition of a “covered fund”, create new exclusions from the definition of a covered fund, and modify the definition of an ownership interest. The new rule became effective on October 1, 2020, and the Company is in the process of transitioning to the requirements of this revised rule.

Risk Retention Rule

The Federal Reserve's final credit risk retention rule generally requires sponsors of ABS to retain at least five percent of the credit risk of the assets collateralizing ABS. SHUSA, primarily through SC, is an active participant in the structured finance markets and complies with these retention requirements.

Market Risk Rule

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

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

A bank is subject to the market risk capital rules if its consolidated trading activity, defined as the sum of trading assets and liabilities as reported in its FFIEC 031 and FR Y-9C for the previous quarter, equals the lesser of: (1) 10 percent or more of the bank's total assets as reported in its Call Report and FR Y-9C for the previous quarter, or (2) $1 billion or more. At September 30, 2019, SBNA reported aggregate trading exposure in excess of the market risk threshold and, as a result, both the Company and SBNA began holding the market risk component within RWAs of the risk-based capital ratios, and submitted the FFIEC 102 - Market Risk Regulatory Report beginning for the period ended December 31, 2019. The incorporation of market risk within regulatory capital has resulted in a decrease in the risk-based capital ratios.

Heightened Standards

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

Transactions with Affiliates

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

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

Regulation AB II

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

CRA

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

On May 20, 2020, the OCC issued the CRA Final Rule implementing many of the provisions of the CRA NPR. The CRA NPR generally focuses on clarifying and expanding the activities that qualify for CRA consideration, allowing the OCC to evaluate a bank’s CRA performance through quantitative measures intended to assess the volume and value of activity, updating how assessment areas are determined to account for institutions such as internet-based banks that receive a substantial portion of their deposits outside physical branch locations, and increasing transparency and timeliness in reporting. In connection with promulgating the CRA Final Rule, the OCC issued a publicly available, non-exhaustive list of activities that would automatically receive CRA consideration. and a process for confirming that particular activities meet the qualifying activities criteria. In addition, the CRA Final Rule allows banks to receive consideration for certain qualifying activities conducted outside their assessment areas. While the CRA Final Rule took effect on October 1, 2020, SBNA will have until January 1, 2023 to bring its operations into compliance with the rule. Although SBNA will be required to comply with the CRA Final Rule in 2023, the OCC has deferred to a future rulemaking process how to calibrate the key thresholds and benchmarks used in the rule to determine the level of performance necessary to achieve a performance rating.

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

Reference Rate Reform

The March 5, 2021, announcement by the U.K.’s Financial Conduct Authority confirmed the unavailability of LIBOR rates beyond June 30, 2023 and cessation of one-week and two-month LIBOR by December 31, 2021. ISDA announced these statements are an “Index Cessation Event” under the IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol, which in turn triggers a “Spread Adjustment Fixing Date” under the Bloomberg IBOR Fallback Rate Adjustments Rule Book. As a result, when LIBOR tenors cease and the fallback rates apply, fallbacks for derivatives under ISDA’s documentation shift to forms of the SOFR plus the fixed spread adjustment.

The regulatory agencies also confirmed that the March 5, 2021 announcements constitute a “Benchmark Transition Event” with respect to all LIBOR settings.

We hold loans, derivatives, and other financial instruments that use LIBOR as a reference rate and that will be impacted by the cessation of LIBOR. 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 June 30, 2021, the Company had approximately $22 billion of loans and approximately $7 billion of borrowings with LIBOR exposure. We also had approximately $69 billion in notional amounts of derivative contracts with LIBOR exposure.

Under the guidance of our cross-functional LIBOR transition program, the Company is on track to offer products linked to alternative reference rates and to remediate existing contracts that use the LIBOR reference rate. We have progressed on the following aspects of the LIBOR transition to date:

•Created an inventory of clients and contracts that have a dependency on LIBOR

•Maintained quarterly LIBOR exposure reporting

•Completed the first cycle to update and validate technology systems required to support alternative reference rates

•Created an inventory and plan for remediation of models potentially impacted by the LIBOR cessation

•Launched SOFR-based conforming adjustable rate mortgages (in line with FNMA and FHLMC requirements) in the third quarter of 2020

•Utilized LIBOR amendment fallback language for new or re-negotiated contracts

•Adhered to the ISDA IBOR Fallbacks Protocol

•Created employee and customer-facing LIBOR Transition web pages

•Started analysis of the accounting and tax impacts based on FASB and IRS guidance

•System updating and validation to support alternative reference rates

•Communicated with clients through available channels about the LIBOR transition

•Started development and validation of models impacted by the transition to alternative reference rates

•Began accounting and tax analysis and testing related to back-book migration to alternative reference rates

•Remediation of existing LIBOR contracts

•Usage of hardwired fallback language for new contracts

Planned efforts include:

•Cessation of new LIBOR originations by December 2021

•Delivery of risk training to client-facing staff

•Updating and validating controls and procedures

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

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN



CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
	THREE-MONTH PERIODS ENDED JUNE 30, 2021 AND 2020
	2021 (1)						2020 (1)						Interest		Change due to
(dollars in thousands)	Average Balance		Interest		Yield/ Rate(2)		Average Balance		Interest		Yield/ Rate(2)		Increase/(Decrease)		Volume		Rate
EARNING ASSETS
INVESTMENTS AND INTEREST EARNING DEPOSITS(3)	$	30,779,243	$	58,076	0.75	%	$	28,429,283	$	88,527	1.25	%	$	(30,451)	$	7,932	$	(38,383)
LOANS(4):
Commercial loans	31,409,228		244,313		3.11	%	34,420,465		293,222		3.41	%	(48,909)		(24,386)		(24,523)
Multifamily	7,986,605		65,754		3.29	%	8,455,070		72,686		3.44	%	(6,932)		(3,879)		(3,053)
Total commercial loans	39,395,833		310,067		3.15	%	42,875,535		365,908		3.41	%	(55,841)		(28,265)		(27,576)
Consumer loans:
Residential mortgages	6,275,860		49,367		3.15	%	8,669,723		80,253		3.70	%	(30,886)		(20,076)		(10,810)
Home equity loans and lines of credit	3,839,731		28,315		2.95	%	4,542,745		36,984		3.26	%	(8,669)		(5,370)		(3,299)
Total consumer loans secured by real estate	10,115,591		77,682		3.07	%	13,212,468		117,237		3.55	%	(39,555)		(25,446)		(14,109)
RICs and auto loans	42,154,262		1,339,797		12.71	%	37,974,160		1,251,951		13.19	%	87,846		131,233		(43,387)
Personal unsecured	955,937		25,748		10.77	%	2,411,976		139,204		23.09	%	(113,456)		(60,222)		(53,234)
Other consumer(5)	189,414		3,558		7.51	%	282,811		4,962		7.02	%	(1,404)		(1,780)		376
Total consumer	53,415,204		1,446,785		10.83	%	53,881,415		1,513,354		11.23	%	(66,569)		43,785		(110,354)
Total loans	92,811,037		1,756,852		7.57	%	96,756,950		1,879,262		7.77	%	(122,410)		15,520		(137,930)
Intercompany investments	—		—		—	%	—		—		—	%	—		—		—
TOTAL EARNING ASSETS	123,590,280		1,814,928		5.87	%	125,186,233		1,967,789		6.29	%	(152,861)		23,452		(176,313)
Allowance for loan losses (6)	(7,134,776)						(6,620,331)
Other assets(7)	33,333,043						35,573,456
TOTAL ASSETS	$	149,788,547					$	154,139,358
INTEREST BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits	$	12,479,038	$	1,496	0.05	%	$	11,810,121	$	2,820	0.10	%	$	(1,324)	$	169	$	(1,493)
Savings	5,433,275		524		0.04	%	6,103,704		2,429		0.16	%	(1,905)		(243)		(1,662)
Money market	34,546,669		14,039		0.16	%	29,272,445		38,233		0.52	%	(24,194)		8,511		(32,705)
CDs	3,056,179		5,927		0.78	%	6,593,071		25,640		1.56	%	(19,713)		(10,203)		(9,510)
TOTAL INTEREST-BEARING DEPOSITS	55,515,161		21,986		0.16	%	53,779,341		69,122		0.51	%	(47,136)		(1,766)		(45,370)
BORROWED FUNDS:
FHLB advances, federal funds purchased, and repurchase agreements	1,207,618		1,368		0.45	%	7,142,297		23,333		1.31	%	(21,965)		(12,270)		(9,695)
Other borrowings	42,720,806		259,739		2.43	%	44,848,829		336,544		3.00	%	(76,805)		(15,346)		(61,459)
TOTAL BORROWED FUNDS (8)	43,928,424		261,107		2.38	%	51,991,126		359,877		2.77	%	(98,770)		(27,616)		(71,154)
TOTAL INTEREST-BEARING FUNDING LIABILITIES	99,443,585		283,093		1.14	%	105,770,467		428,999		1.62	%	(145,906)		(29,382)		(116,524)
Noninterest bearing demand deposits	20,179,520						18,309,976
Other liabilities(9)	7,438,125						7,600,050
TOTAL LIABILITIES	127,061,230						131,680,493
STOCKHOLDER’S EQUITY	22,727,317						22,458,865
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	149,788,547					$	154,139,358

NET INTEREST SPREAD (10)					4.73	%					4.67	%
NET INTEREST MARGIN (11)					4.96	%					4.92	%
NET INTEREST INCOME (12)			$	1,531,835					$	1,538,790

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



CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
	SIX-MONTH PERIODS ENDED JUNE 30, 2021 AND 2020
	2021 (1)						2020 (1)								Change due to
(dollars in thousands)	Average Balance		Interest		Yield/ Rate(2)		Average Balance		Interest		Yield/ Rate(2)		Increase/(Decrease)		Volume		Rate
EARNING ASSETS
INVESTMENTS AND INTEREST-EARNING DEPOSITS(3)	$	29,576,921	$	117,272	0.79	%	$	27,162,206	$	220,754	1.63	%	$	(103,482)	$	21,576	$	(125,058)
LOANS(4):
Commercial loans	31,385,059		487,766		3.11	%	33,488,826		609,168		3.64	%	(121,402)		(36,591)		(84,811)
Multifamily	8,094,772		136,651		3.38	%	8,493,807		155,893		3.67	%	(19,242)		(7,175)		(12,067)
Total commercial loans	39,479,831		624,417		3.16	%	41,982,633		765,061		3.64	%	(140,644)		(43,766)		(96,878)
Consumer loans:
Residential mortgages	6,510,326		101,284		3.11	%	8,806,806		166,386		3.78	%	(65,102)		(38,755)		(26,347)
Home equity loans and lines of credit	3,926,178		60,571		3.09	%	4,597,439		87,698		3.82	%	(27,127)		(11,749)		(15,378)
Total consumer loans secured by real estate	10,436,504		161,855		3.10	%	13,404,245		254,084		3.79	%	(92,229)		(50,504)		(41,725)
RICs and auto loans	41,723,321		2,661,689		12.76	%	37,382,043		2,524,460		13.51	%	137,229		262,903		(125,674)
Personal unsecured	1,304,724		167,638		25.70	%	2,329,078		303,040		26.02	%	(135,402)		(131,719)		(3,683)
Other consumer(5)	201,098		6,964		6.93	%	293,972		10,365		7.05	%	(3,401)		(3,227)		(174)
Total consumer	53,665,647		2,998,146		11.17	%	53,409,338		3,091,949		11.58	%	(93,803)		77,453		(171,256)
Total loans	93,145,478		3,622,563		7.78	%	95,391,971		3,857,010		8.09	%	(234,447)		33,687		(268,134)
Intercompany investments			—		—	%	—		—		—	%	—		—		—
TOTAL EARNING ASSETS	122,722,399		3,739,835		6.09	%	122,554,177		4,077,764		6.65	%	(337,929)		55,263		(393,192)
Allowance for loan losses(6)	(7,225,153)						(6,324,985)
Other assets(7)	33,271,699						34,877,861
TOTAL ASSETS	$	148,768,945					$	151,107,053
INTEREST-BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits	$	12,118,987	$	2,904	0.05	%	$	11,351,363	$	19,915	0.35	%	$	(17,011)	$	1,458	$	(18,469)
Savings	5,217,059		1,007		0.04	%	5,868,215		5,359		0.18	%	(4,352)		(544)		(3,808)
Money market	34,248,835		31,939		0.19	%	28,208,387		110,301		0.78	%	(78,362)		30,945		(109,307)
CDs	3,315,076		15,922		0.96	%	7,569,060		62,160		1.64	%	(46,238)		(26,610)		(19,628)
TOTAL INTEREST-BEARING DEPOSITS	54,899,957		51,772		0.19	%	52,997,025		197,735		0.75	%	(145,963)		5,249		(151,212)
BORROWED FUNDS:
FHLB advances, federal funds purchased, and repurchase agreements	1,125,642		3,024		0.54	%	6,963,137		58,185		1.67	%	(55,161)		(30,526)		(24,635)
Other borrowings	43,531,609		533,872		2.45	%	44,508,110		697,078		3.13	%	(163,206)		(14,966)		(148,240)
TOTAL BORROWED FUNDS (8)	44,657,251		536,896		2.40	%	51,471,247		755,263		2.93	%	(218,367)		(45,492)		(172,875)
TOTAL INTEREST-BEARING FUNDING LIABILITIES	99,557,208		588,668		1.18	%	104,468,272		952,998		1.82	%	(364,330)		(40,243)		(324,087)
Noninterest bearing demand deposits	19,635,303						16,714,359
Other liabilities(9)	7,407,399						7,220,157
TOTAL LIABILITIES	126,599,910						128,402,788
STOCKHOLDER’S EQUITY	22,169,035						22,704,265
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	148,768,945					$	151,107,053

NET INTEREST SPREAD (10)					4.91	%					4.83	%
NET INTEREST MARGIN (11)					5.14	%					5.10	%
NET INTEREST INCOME (12)			$	3,151,167					$	3,124,766

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

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

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

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

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

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

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

(8)Refer to Note 9 to the Condensed Consolidated Financial Statements for further discussion.

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

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

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

(12)Intercompany investment income is eliminated from this line item.

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

Net interest income decreased $7.0 million and increased $26.4 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to 2020. The most significant factors contributing to the six-month change were as follows:

•Interest income on investment securities and interest-earning deposits decreased $103.5 million for the six-month period ended June 30, 2021 compared to 2020, attributable to an increase in average balances of $21.6 million and a decrease in average rates of $125.1 million. The decrease in rate was attributable Federal Reserve actions in response to the COVID-19 pandemic.

•Interest income on loans decreased $234.4 million for the six-month period ended June 30, 2021 compared to 2020, attributable to an increase in average loan balances of $33.7 million and a decrease in average rates of $268.1 million. This was the result of a lower overall interest rate environment offset by continued growth in RIC volume.

•Interest expense on deposits and related customer accounts decreased $146.0 million for the six-month period ended June 30, 2021 compared to 2020, attributable to an increase in average interest-bearing deposit balances of $5.2 million and a decrease in average rates of $151.2 million. This was the result of lower deposit rates from the Federal Reserve setting overnight rates at zero in response to the economic uncertainty from COVID-19. The increased balances are a result of stimulus programs.

•Interest expense on borrowed funds decreased $218.4 million for the six-month period ended June 30, 2021 compared to 2020, attributable to a decrease in average interest-bearing borrowings balances of $45.5 million and a decrease in average rates of $172.9 million. This was the result of an overall lower interest rate environment and a higher deposit base.

CREDIT LOSS EXPENSE (BENEFIT)

The Company had a Credit loss (benefit) of $(317.3) million and $(241.2) million for the three-month and six-month periods ended June 30, 2021, respectively, compared to Credit loss expense $977.4 million and $2.2 billion for the comparative periods in 2020. The change year-over-year was primarily driven by additional reserves to address credit risk associated with the COVID-19 outbreak and associated economic recession during the first quarter of 2020.

NON-INTEREST INCOME


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,				QTD Change				YTD Change
(dollars in thousands)	2021		2020		2021		2020		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Consumer fees	$	72,983	$	78,145	$	156,675	$	166,715	$	(5,162)	(6.6)	%	$	(10,040)	(6.0)	%
Commercial fees	33,943		30,681		69,470		66,359		3,262		10.6	%	3,111		4.7	%
Lease income	732,892		755,006		1,505,784		1,526,666		(22,114)		(2.9)	%	(20,882)		(1.4)	%
Miscellaneous income, net	337,099		(100,030)		619,610		21,943		437,129		437.0	%	597,667		2,723.7	%
Net gains recognized in earnings	5,370		22,516		15,243		31,795		(17,146)		(76.2)	%	(16,552)		(52.1)	%
Total non-interest income	$	1,182,287	$	786,318	$	2,366,782	$	1,813,478	$	395,969	50.4	%	$	553,304	30.5	%

Total non-interest income increased $396.0 million and $553.3 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to the corresponding periods in 2020. The increases for the three-month and six-month periods ended June 30, 2021 were primarily due to an increase in miscellaneous income, net discussed further below.

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

Miscellaneous income


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,				QTD Change				YTD Change
(dollars in thousands)	2021		2020		2021		2020		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Mortgage banking income, net	$	675	$	17,038	$	21,413	$	33,127	$	(16,363)	(96.0)	%	$	(11,714)	(35.4)	%
BOLI	15,387		13,815		30,933		28,909		1,572		11.4	%	2,024		7.0	%
Capital market revenue	60,146		84,184		141,935		122,468		(24,038)		(28.6)	%	19,467		15.9	%
Net gain on sale of operating leases	178,544		23,145		286,807		50,096		155,399		671.4	%	236,711		472.5	%
Asset and wealth management fees	58,744		50,941		117,471		103,592		7,803		15.3	%	13,879		13.4	%
Loss on sale of non-mortgage loans	14,831		(122,533)		(23,185)		(184,640)		137,364		112.1	%	161,455		87.4	%
Other miscellaneous income / (loss), net	8,772		(166,620)		44,236		(131,609)		175,392		105.3	%	175,845		133.6	%
Total miscellaneous income	$	337,099	$	(100,030)	$	619,610	$	21,943	$	437,129	437.0	%	$	597,667	2,723.7	%

Miscellaneous income increased $437.1 million and $597.7 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to the corresponding period in 2020. This increase was primarily related to:

•Gain on sale of operating leases increased for the three-month and six-month periods ended June 30, 2021 compared to 2020, driven by an increase in liquidated units.

•Loss on sale of non-mortgage loans decreased for the three-month and six-month periods ended June 30, 2021 compared to 2020.

•Other miscellaneous income / (loss), net increased for the three-month and six-month periods ended June 30, 2021, compared to the comparative periods in 2020, primarily due to $268.4 million and $331.3 million in market value adjustments which netted down prior year income related to the Bluestem portfolio which was sold in Q1 2021.

GENERAL, ADMINISTRATIVE AND OTHER EXPENSES


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,				QTD Change				YTD Change
(dollars in thousands)	2021		2020		2021		2020		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Compensation and benefits	$	488,201	$	440,521	$	953,459	$	929,794	$	47,680	10.8	%	$	23,665	2.5	%
Occupancy and equipment expenses	168,415		164,875		340,491		311,786		3,540		2.1	%	28,705		9.2	%
Technology, outside services, and marketing expense	139,618		126,991		274,370		261,981		12,627		9.9	%	12,389		4.7	%
Loan expense	70,505		58,423		182,086		152,344		12,082		20.7	%	29,742		19.5	%
Lease expense	517,646		641,270		1,077,985		1,231,631		(123,624)		(19.3)	%	(153,646)		(12.5)	%
Impairment of goodwill	—		1,848,228		—		1,848,228		(1,848,228)		(100.0)	%	(1,848,228)		(100.0)	%
Other expenses	108,497		149,382		212,919		277,727		(40,885)		(27.4)	%	(64,808)		(23.3)	%
Total general, administrative and other expenses	$	1,492,882	$	3,429,690	$	3,041,310	$	5,013,491	$	(1,936,808)	(56.5)	%	$	(1,972,181)	(39.3)	%

Total general, administrative and other expenses decreased $1.9 billion and $2.0 billion for the three-month and six-month periods ended June 30, 2021, respectively, compared to 2020. The most significant contributing factors were as follows:

•Lease expense decreased for the three-month and six-month periods ended June 30, 2021 due to receipt of lease subvention payments which reduce lease expense related to depreciation.

•The Company recorded no goodwill impairment in the three-month and six-month periods ended June 30, 2021, compared to $1.8 billion during the second quarter of 2020.

•Other expenses decreased $64.8 million for the six-month period ended June 30, 2021 compared to 2020 mainly due to lower operational risk expense and legal fees, as well as lower employee expenses such as travel and entertainment.

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

INCOME TAX PROVISION

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.

Refer to Note 15 to the Condensed Consolidated Financial Statements for the year-to-year comparison of the ETR.

LINE OF BUSINESS RESULTS

General

The Company's segments at June 30, 2021 and 2020 consisted of CBB, C&I, CRE & VF, CIB and SC.

Results Summary

CBB


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,				QTD Change				YTD Change
(dollars in thousands)	2021		2020		2021		2020		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	367,195	$	337,310	$	719,703	$	669,117	$	29,885	8.9	%	$	50,586	7.6	%
Total non-interest income	71,481		68,629		147,791		148,877		2,852		4.2	%	(1,086)		(0.7)	%
Credit loss expense / (release of) credit loss expenses	(17,437)		178,601		(36,592)		331,608		(196,038)		(109.8)	%	(368,200)		(111.0)	%
Total expenses	373,470		1,933,865		741,921		2,300,911		(1,560,395)		(80.7)	%	(1,558,990)		(67.8)	%
Income / (Loss) before income taxes	82,643		(1,706,527)		162,165		(1,814,525)		1,789,170		104.8	%	1,976,690		108.9	%
Intersegment revenue / (expense)	(214)		(132)		(471)		(392)		(82)		(62.1)	%	(79)		(20.2)	%
Total assets	23,223,301		22,650,349		23,223,301		22,650,349		572,952		2.5	%	572,952		2.5	%

CBB reported income before income taxes of $82.6 million and $162.2 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to a loss before income taxes of $1.7 billion and $1.8 billion for the three-month and six-month periods ended June 30, 2020, respectively. Factors contributing to this change were:

•Credit loss expense decreased $196.0 million and $368.2 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to the corresponding period of 2020. These decreases were due to an improved credit outlook and lower realized loan losses than were projected due to the COVID-19 pandemic.

•Total expenses decreased $1.6 billion for the three-month and six-month periods ended June 30, 2021, respectively, compared to the corresponding periods of 2020. These decreases were mainly due to goodwill impairment recorded during the second quarter of 2020.

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

C&I Banking


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,				QTD Change				YTD Change
(dollars in thousands)	2021		2020		2021		2020		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	71,842	$	91,544	$	145,061	$	167,677	$	(19,702)	(21.5)	%	$	(22,616)	(13.5)	%
Total non-interest income	19,040		15,016		35,717		32,104		4,024		26.8	%	3,613		11.3	%
Credit loss expense / (release of) credit loss expenses	(20,721)		44,822		(52,062)		92,054		(65,543)		(146.2)	%	(144,116)		(156.6)	%
Total expenses	63,897		356,261		127,563		424,984		(292,364)		(82.1)	%	(297,421)		(70.0)	%
Income / (Loss) before income taxes	47,706		(294,523)		105,277		(317,257)		342,229		116.2	%	422,534		133.2	%
Intersegment revenue / (expense)	3,568		3,055		6,225		6,297		513		16.8	%	(72)		(1.1)	%
Total assets	7,477,639		8,529,379		7,477,639		8,529,379		(1,051,740)		(12.3)	%	(1,051,740)		(12.3)	%

C&I reported income before income taxes of $47.7 million and $105.3 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to a loss before income taxes of $294.5 million and $317.3 million for the corresponding periods in 2020. Factors contributing to these changes were:

•Credit loss expense decreased $65.5 million and $144.1 million for the three-month and six-month periods ended June 30, 2021 compared to the corresponding periods of 2020. These decreases were due to an improved credit outlook and lower realized loan losses than were projected due to the COVID-19 pandemic.

•Total expenses decreased $292.4 million and $297.4 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to the corresponding periods of 2020. These decreases were mainly due to goodwill impairment recorded during the second quarter of 2020.

•Total assets decreased $1.1 billion from the second quarter of 2020 to the second quarter of 2021. This decrease was due to the payback of lines of credit that were drawn down in the first quarter of 2020 in response to COVID-19 economic uncertainty as well as the forgiveness of Paycheck Protection Program loans.

CRE & VF


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,				QTD Change				YTD Change
(dollars in thousands)	2021		2020		2021		2020		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	91,360	$	91,366	$	187,962	$	192,107	$	(6)	—	%	$	(4,145)	(2.2)	%
Total non-interest income	15,415		(320)		21,010		4,365		15,735		4,917.2	%	16,645		381.3	%
Credit loss expense / (Release of) credit loss expense	(866)		16,987		920		66,837		(17,853)		(105.1)	%	(65,917)		(98.6)	%
Total expenses	37,131		35,116		72,678		70,235		2,015		5.7	%	2,443		3.5	%
Income / (Loss) before income taxes	70,510		38,943		135,374		59,400		31,567		81.1	%	75,974		127.9	%
Intersegment revenue / (expense)	409		1,019		1,122		2,753		(610)		(59.9)	%	(1,631)		(59.2)	%
Total assets	19,841,903		20,252,082		19,841,903		20,252,082		(410,179)		(2.0)	%	(410,179)		(2.0)	%

CRE & VF reported income before income taxes of $70.5 million and $135.4 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to income before income taxes of $38.9 million and $59.4 million for the corresponding periods in 2020. Factors contributing to these changes were:

•Credit loss expense decreased $17.9 million and $65.9 million for the six-month period ended June 30, 2021 compared to the corresponding periods of 2020. These decreases were due to an improved credit outlook and lower realized loan losses than were projected due to the COVID-19 pandemic.

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

CIB


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,				QTD Change				YTD Change
(dollars in thousands)	2021		2020		2021		2020		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	30,244	$	33,435	$	57,656	$	67,517	$	(3,191)	(9.5)	%	$	(9,861)	(14.6)	%
Total non-interest income	53,911		90,374		131,275		140,509		(36,463)		(40.3)	%	(9,234)		(6.6)	%
Credit loss expense / (release of) credit loss expenses	(13,633)		15,314		(22,327)		33,455		(28,947)		(189.0)	%	(55,782)		(166.7)	%
Total expenses	63,272		62,965		130,969		126,199		307		0.5	%	4,770		3.8	%
Income / (Loss) before income taxes	34,516		45,530		80,289		48,372		(11,014)		(24.2)	%	31,917		66.0	%
Intersegment expense	(3,762)		(3,941)		(6,875)		(8,658)		179		4.5	%	1,783		20.6	%
Total assets	11,788,209		12,419,110		11,788,209		12,419,110		(630,901)		(5.1)	%	(630,901)		(5.1)	%

CIB reported income before income taxes of $34.5 million and $80.3 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to income before income taxes of $45.5 million and $48.4 million for 2020. Factors contributing to these changes were:

•Credit loss expense decreased $28.9 million and $55.8 million for the three-month and six-month periods ended June 30, 2021 compared to the corresponding periods of 2020. This decrease was due to an improved credit outlook and lower realized loan losses than were projected due to the COVID-19 pandemic.

Other


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,				QTD Change				YTD Change
(dollars in thousands)	2021		2020		2021		2020		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	(54,760)	$	(1,904)	$	(98,461)	$	26,060	$	(52,856)	(2,776.1)	%	$	(124,521)	(477.8)	%
Total non-interest income	98,168		(46,659)		214,116		66,167		144,827		310.4	%	147,949		223.6	%
Credit loss expense / (release of) credit loss expenses	(874)		(140,473)		(3,613)		(131,186)		139,599		99.4	%	127,573		97.2	%
Total expenses	123,579		118,583		234,462		280,318		4,996		4.2	%	(45,856)		(16.4)	%
Income / (Loss) before income taxes	(79,297)		(26,673)		(115,194)		(56,905)		(52,624)		(197.3)	%	(58,289)		(102.4)	%

Total assets	44,608,657		41,234,172		44,608,657		41,234,172		3,374,485		8.2	%	3,374,485		8.2	%

The Other category reported a loss before income taxes of $79.3 million and $115.2 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to a loss before income taxes of $26.7 million and $56.9 million for 2020. Factors contributing to these changes were:

•Net interest income decreased $52.9 million and $124.5 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to the corresponding periods of 2020, due to lower rates and the sale of SBC in 2020.

•Total non-interest income increased $144.8 million and $147.9 million for the three-month and six-month periods ended June 30, 2021, respectively, compared to the corresponding periods of 2020, due to the transfer of SBC loans to HFS at fair value in the second quarter of 2020.

•Release of credit loss expense was lower for the three-month and six-month periods ended June 30, 2021, compared to the corresponding periods of 2020, due to the release of provision on loans moved to HFS during the second quarter of 2020.

•Total expenses decreased $45.9 million for the six-month period ended June 30, 2021 compared to the corresponding period of 2020, due to lower operational risk expenses and the sale of SBC.

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


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,				QTD Change				YTD Change
(dollars in thousands)	2021		2020		2021		2020		Dollar increase/(decrease)		Percentage		Dollar increase/(decrease)		Percentage
Net interest income	$	1,020,062	$	984,745	$	2,129,029	$	1,996,152	$	35,317	3.6	%	$	132,877	6.7	%
Total non-interest income	941,170		667,242		1,845,282		1,441,074		273,928		41.1	%	404,208		28.0	%
Credit loss expense / (release of) credit loss expenses	(263,751)		861,896		(127,542)		1,769,783		(1,125,647)		(130.6)	%	(1,897,325)		(107.2)	%
Total expenses	834,361		919,626		1,735,119		1,803,423		(85,265)		(9.3)	%	(68,304)		(3.8)	%
Income / (Loss) before income taxes	1,390,622		(129,535)		2,366,734		(135,980)		1,520,157		1,173.5	%	2,502,714		1,840.5	%
Intersegment revenue	—		—		—		—		—		0.0%		—		0.0%
Total assets	48,245,934		47,268,695		48,245,934		47,268,695		977,239		2.1	%	977,239		2.1	%

SC reported income before income taxes of $1.4 billion and $2.4 billion for the three-month and six-month periods ended June 30, 2021, respectively, compared to a loss before income taxes of $129.5 million and $136.0 million for the comparable periods in 2020. Contributing to this change was:

•Non-interest income increased $273.9 million and $404.2 million for the three-month and six-month periods ended June 30, 2021 compared to the corresponding period of 2020, primarily driven by an increase in residual value of liquidated leased vehicles and the sale of the personal lending portfolio.

•Credit loss expense decreased $1.1 billion and $1.9 billion for the three-month and six-month periods ended June 30, 2021 compared to the corresponding period of 2020, primarily driven by the additional reserve to address credit risk associated with the COVID-19 outbreak during the first and second quarter of 2020, and an increase in recoveries, and decrease in charge-offs due to the increase in used car prices in 2021.

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

FINANCIAL CONDITION

LOAN PORTFOLIO

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


	June 30, 2021				December 31, 2020				Dollar Increase / (Decrease)		Percent Increase (Decrease)

(dollars in thousands)	Amount		Percent		Amount		Percent
Commercial LHFI:
CRE	$	7,410,298	8.0	%	$	7,327,853	8.0	%	$	82,445	1.1	%
C&I	15,941,764		17.1	%	16,537,899		17.9	%	(596,135)		(3.6)	%
Multifamily	8,139,694		8.7	%	8,367,147		9.1	%	(227,453)		(2.7)	%
Other commercial	7,997,606		8.6	%	7,455,504		8.1	%	542,102		7.3	%
Total commercial loans (1)	39,489,362		42.4	%	39,688,403		43.1	%	(199,041)		(0.5)	%

Consumer loans secured by real estate:
Residential mortgages	5,901,546		6.3	%	6,590,168		7.2	%	(688,622)		(10.4)	%
Home equity loans and lines of credit	3,768,489		4.0	%	4,108,505		4.5	%	(340,016)		(8.3)	%
Total consumer loans secured by real estate	9,670,035		10.3	%	10,698,673		11.7	%	(1,028,638)		(9.6)	%

Consumer loans not secured by real estate:
RICs and auto loans	42,666,918		45.8	%	40,698,642		44.1	%	1,968,276		4.8	%
Personal unsecured loans	1,126,365		1.2	%	824,430		0.9	%	301,935		36.6	%
Other consumer	177,835		0.3	%	223,034		0.2	%	(45,199)		(20.3)	%

Total consumer loans	53,641,153		57.6	%	52,444,779		56.9	%	1,196,374		2.3	%
Total LHFI	$	93,130,515	100.0	%	$	92,133,182	100.0	%	$	997,333	1.1	%

Total LHFI with:
Fixed	$	65,717,718	70.6	%	$	64,036,154	69.5	%	$	1,681,564	2.6	%
Variable	27,412,797		29.4	%	28,097,028		30.5	%	(684,231)		(2.4)	%
Total LHFI	$	93,130,515	100.0	%	$	92,133,182	100.0	%	$	997,333	1.1	%

(1) As of June 30, 2021, the Company had $201.4 million of commercial loans that were denominated in a currency other than the U.S. dollar.

Commercial

Commercial loans decreased approximately $199.0 million, or 0.5%, from December 31, 2020 to June 30, 2021. This decrease was comprised of increases in the Other commercial of $542.1 million due to BSI's acquisition of Crédit Agricole and an increase in CRE of $82.4 million. These increases were offset by a decrease in C&I loans of $596.1 million due to the forgiveness of Paycheck Protection Program loans and a decrease in multifamily loans of $227.5 million.



	At June 30, 2021, Maturing
(in thousands)	In One Year Or Less		One to Five Years		After Five Years		Total (1)
CRE loans	$	1,915,040	$	4,681,455	$	822,758	$	7,419,253
C&I and other commercial	11,248,541		11,309,801		1,470,773		24,029,115
Multifamily loans	1,050,377		4,776,392		2,312,925		8,139,694
Total	$	14,213,958	$	20,767,648	$	4,606,456	$	39,588,062
Loans with:
Fixed rates	$	5,509,969	$	8,873,233	$	2,780,055	$	17,163,257
Variable rates	8,703,989		11,894,415		1,826,401		22,424,805
Total	$	14,213,958	$	20,767,648	$	4,606,456	$	39,588,062

(1) Includes LHFS.

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

Consumer Loans Secured By Real Estate

Consumer loans secured by real estate decreased $1.0 billion, or 9.6%, from December 31, 2020 to June 30, 2021. This decrease was comprised of decreases in the residential mortgage portfolio of $688.6 million, and decreases in the home equity loans and lines of credit portfolio of $340.0 million.

Consumer Loans Not Secured By Real Estate

RICs and auto loans

RICs and auto loans increased $2.0 billion, or 4.8%, from December 31, 2020 to June 30, 2021. The increase in the RIC and auto loan portfolio was primarily due to sold RICs of approximately $2.4 billion to third parties offset by increases in originations, net of securitizations, due to the Company's initiatives to improve our pricing, as well as, our dealer and customer experience, which have increased our competitive position in the market. RICs are collateralized by vehicle titles, and the lender has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. Most of the Company's RICs HFI are pledged against warehouse lines or securitization bonds. Refer to further discussion of these in Note 9 to the Condensed Consolidated Financial Statements.

As of June 30, 2021, 62.4% of the Company's RIC and auto loan portfolio balance was comprised of nonprime loans (defined by the Company as customers with a FICO score of below 640) with customers who did not qualify for conventional consumer finance products as a result of, among other things, a lack of or adverse credit history, low income levels and/or the inability to provide adequate down payments. This also includes 8.0% of loans for which no FICO score was available or legacy portfolios for which FICO is not considered in the ALLL model. While underwriting guidelines are designed to establish that the customer would be a reasonable credit risk, nonprime loans will nonetheless experience higher default rates than a portfolio of obligations of prime customers. Additionally, higher unemployment rates, higher gasoline prices, unstable real estate values, re-sets of adjustable rate mortgages to higher interest rates, the general availability of consumer credit, and other factors that impact consumer confidence or disposable income could lead to an increase in delinquencies, defaults, and repossessions, as well as decreased consumer demand for used automobiles and other consumer products, weaken collateral values and increase losses in the event of default. Because SC's historical focus for such credit has been predominantly on nonprime consumers, the actual rates of delinquencies, defaults, repossessions, and losses on these loans could be more dramatically affected by a general economic downturn.

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

At June 30, 2021, a typical RIC was originated with an average annual percentage rate of 14.7% and was purchased from the dealer at a premium of 2.0%. All of the Company's RICs and auto loans are fixed-rate loans.

Personal unsecured and other consumer loans

Personal unsecured and other consumer loans HFI increased from December 31, 2020 to June 30, 2021 by $256.7 million.

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)	June 30, 2021			December 31, 2020			Dollar		Percentage
Non-accrual loans:
Commercial:
CRE	$	97,952		$	106,751		$	(8,799)	(8.2)	%
C&I	100,682			107,053			(6,371)		(6.0)	%
Multifamily	120,747			72,392			48,355		66.8	%
Other commercial	14,700			20,019			(5,319)		(26.6)	%
Total commercial loans	334,081			306,215			27,866		9.1	%

Consumer loans secured by real estate:
Residential mortgages	119,883			160,172			(40,289)		(25.2)	%
Home equity loans and lines of credit	96,277			91,606			4,671		5.1	%
Consumer loans not secured by real estate:
RICs and auto loans	937,264			1,174,317			(237,053)		(20.2)	%

Other consumer	5,733			6,325			(592)		(9.4)	%
Total consumer loans	1,159,157			1,432,420			(273,263)		(19.1)	%
Total non-accrual loans	1,493,238			1,738,635			(245,397)		(14.1)	%

OREO	4,276			29,799			(25,523)		(85.7)	%
Repossessed vehicles	229,477			204,653			24,824		12.1	%
Other repossessed assets	1,644			3,247			(1,603)		(49.4)	%
Total OREO and other repossessed assets	235,397			237,699			(2,302)		(1.0)	%
Total non-performing assets	$	1,728,635		$	1,976,334		$	(247,699)	(12.5)	%

Past due 90 days or more as to interest or principal and accruing interest	$	2,310		$	52,863		$	(50,553)	(95.6)%
Annualized net loan charge-offs to average loans (1)	0.5		%	1.7		%	n/a		n/a
Non-performing assets as a percentage of total assets	1.1		%	1.3		%	n/a		n/a
NPLs as a percentage of total loans	1.6		%	1.8		%	n/a		n/a

ALLL as a percentage of total NPLs	461.4		%	422.1		%	n/a		n/a

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

Potential problem loans are loans not currently classified as NPLs for which management has doubts about the borrowers’ ability to comply with the present repayment terms. These assets are principally loans delinquent for more than 30 days but less than 90 days. Potential problem commercial loans totaled approximately $162.8 million and $229.2 million at June 30, 2021 and December 31, 2020, respectively.

Potential problem consumer loans amounted to $2.7 billion and $3.2 billion at June 30, 2021 and December 31, 2020, respectively. Management has included these loans in its evaluation of the Company's ACL and reserved for them during the respective periods.

Non-performing assets decreased to $1.7 billion, or 1.1% of total assets, at June 30, 2021, compared to $2.0 billion, or 1.3% of total assets, at December 31, 2020, primarily due to government stimulus payments and tax refunds provided to customers.

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

Commercial

Commercial NPLs increased $27.9 million from December 31, 2020 to June 30, 2021. Commercial NPLs accounted for 0.8% of commercial LHFI at June 30, 2021 and December 31, 2020, respectively. The increase in commercial NPLs was primarily comprised of an increase of $48.4 million in the Multifamily portfolio offset by decreases of $6.4 million in the C&I portfolio and $8.8 million in the CRE portfolios.

Consumer Loans Not Secured by Real Estate

RICs and amortizing personal loans 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. The accrual of interest on revolving personal loans continues until the loan is charged off.

RIC TDRs are placed on non-accrual status when the account becomes past due more than 60 days. For loans in non-accrual status, interest income is recognized on a cash basis. For loans on non-accrual status, the accrual of interest is resumed if a delinquent account subsequently becomes 60 days or less past due. NPLs in the RIC and auto loan portfolio decreased by $237.1 million from December 31, 2020 to June 30, 2021. Non-performing RICs and auto loans accounted for 2.2% and 2.9% of total RICs and auto loans at June 30, 2021 and December 31, 2020, respectively.

Consumer Loans Secured by Real Estate

The following table shows NPLs compared to total loans outstanding for the residential mortgage and home equity portfolios as of June 30, 2021 and December 31, 2020, respectively:


	June 30, 2021						December 31, 2020
(dollars in thousands)	Residential mortgages			Home equity loans and lines of credit			Residential mortgages			Home equity loans and lines of credit
NPLs - HFI	$	119,883		$	96,277		$	74,473		$	91,606
Total LHFI	5,901,546			3,768,489			6,590,168			4,108,505
NPLs as a percentage of total LHFI	2.0		%	2.6		%	1.1		%	2.2		%

The NPL ratio is usually higher for the Company's residential mortgage loan portfolio compared to the home equity loans and lines of credit portfolio due to a number of factors, including the prolonged workout and foreclosure resolution processes for residential mortgage loans, differences in risk profiles, and mortgage loans located outside the Northeast and Mid-Atlantic United States. Foreclosures on consumer loans secured by real estate were $40.3 million or 18.7% of non-performing consumer loans secured by real estate at June 30, 2021, compared to $46.2 million or 27.8% of consumer loans secured by real estate at December 31, 2020.

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

Delinquencies

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

Overall, total delinquencies decreased by $873.2 million, or 20.8%, from December 31, 2020 to June 30, 2021, most significantly within the RICs and auto loan portfolio, in which delinquencies decreased $401.2 million. Delinquent balances and nonaccrual balances overall were lower as of June 30, 2021, primarily due to the benefits of government stimulus payments and tax refunds provided to customers

TDRs

TDRs are loans that have been modified as the Company has agreed to make certain concessions to both meet the needs of customers and maximize its ultimate recovery on the loans. TDRs occur when a borrower is experiencing financial difficulties and the loan is modified with terms that would otherwise not be granted to the borrower. The types of concessions granted are generally interest rate reductions, limitations on accrued interest charged, term extensions, and deferments of principal.

TDRs are generally placed on nonaccrual status upon modification, unless the loan was performing immediately prior to modification. For most portfolios, TDRs may return to accrual status after a sustained period of repayment performance, as long as the Company believes the principal and interest of the restructured loan will be paid in full. RIC TDRs are placed on nonaccrual status when the Company believes repayment under the revised terms is not reasonably assured and, at the latest, when the account becomes more than 60 DPD. RIC TDRs are considered for return to accrual when the account becomes 60 days or less past due. To the extent the TDR is determined to be collateral-dependent and the source of repayment depends on the operation of the collateral, the loan may be returned to accrual status based on the foregoing parameters. To the extent the TDR is determined to be collateral-dependent and the source of repayment depends on disposal of the collateral, the loan may not be returned to accrual status.

The following table summarizes TDRs at the dates indicated:


	As of June 30, 2021
(in thousands)	Commercial			%		Consumer Loans Secured by Real Estate			%		RICs and Auto Loans			%		Other Consumer			%		Total TDRs
Performing	$	121,844		49.5	%	$	155,401		61.7	%	$	3,926,677		92.1	%	$	28,320		96.1	%	$	4,232,242
Non-performing	124,212			50.5	%	96,481			38.3	%	335,751			7.9	%	1,135			3.9	%	557,579
Total	$	246,056		100.0	%	$	251,882		100.0	%	$	4,262,428		100.0	%	$	29,455		100.0	%	$	4,789,821

% of loan portfolio	0.6		%	n/a		2.6		%	n/a		10.0		%	n/a		2.3		%	n/a		5.1		%
(1) Excludes LHFS.

	As of December 31, 2020
(in thousands)	Commercial			%		Consumer Loans Secured by Real Estate			%		RICs and Auto Loans			%		Other Consumer			%		Total TDRs
Performing	$	73,950		43.2	%	$	87,896		66.8	%	$	3,655,681		91.7	%	$	33,095		98.0	%	$	3,850,622
Non-performing	97,054			56.8	%	43,605			33.2	%	332,164			8.3	%	684			2.0	%	473,507
Total	$	171,004		100.0	%	$	131,501		100.0	%	$	3,987,845		100.0	%	$	33,779		100.0	%	$	4,324,129

% of loan portfolio	0.4		%	n/a		1.2		%	n/a		9.8		%	n/a		3.2		%	n/a		4.7		%

(1) Excludes LHFS.

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

The following table provides a summary of TDR activity:



	Six-Month Period Ended June 30, 2021				Six-Month Period Ended June 30, 2020
(in thousands)	RICs and Auto Loans		All Other Loans(1)(2)		RICs and Auto Loans		All Other Loans(1)
TDRs, beginning of period	$	3,987,845	$	336,284	$	3,847,819	$	472,312
New TDRs(1)	867,518		352,014		1,158,527		100,752
Charged-Off TDRs	202,819		(5,940)		(428,630)		(3,028)
Sold TDRs	67,622		—		(26,381)		(163,210)
Payments on TDRs	(863,376)		(154,965)		(592,073)		(65,993)
TDRs, end of period	$	4,262,428	$	527,393	$	3,959,262	$	340,833

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

In accordance with the Company’s policies and guidelines, the Company may offer extensions (deferrals) to consumers on its RICs, whereby the consumer is allowed to move a maximum of three payments per event to the end of the loan. The Company’s policies and guidelines limit the frequency of each new deferral to one deferral every six months, regardless of the length of any prior deferral. Further, the maximum number of lifetime months extended for all automobile RICs is eight, while some marine and RV contracts have a maximum of twelve months extended to reflect their longer term. Additionally, the Company generally limits the granting of deferrals on new accounts until a requisite number of months have passed since origination. During the deferral period, the Company continues to accrue and collect interest on the loan in accordance with the terms of the deferral agreement.

In March 2020, the Company began actively working with its borrowers impacted by COVID-19 and provided loan modification programs in accordance with the CARES Act and Interagency guidelines to mitigate the adverse effects of COVID-19 on modifications. These programs temporarily revised the practices noted above during 2020 and increased the volume of modifications provided to our customers. Effective January 1, 2021 at SC and April 1, 2021 at SBNA, the Company has generally returned to pre-pandemic servicing practices, with the exception of an increased limit on the total months of extensions allowed. As of June 30, 2021, the overall modification volumes were consistent with volumes experienced before the COVID-19 pandemic and the number and dollar amount of active COVID-19 modifications was immaterial.

The Company evaluates the results of its deferral strategies based upon the amount of cash installments that are collected on accounts after they have been deferred compared to the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, the Company believes that payment deferrals granted according to its policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.

Changes in deferral levels do not have a direct impact on the ultimate amount of consumer finance receivables charged-off. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent deferrals impact the ultimate timing of when an account is charged-off, historical charge-off ratios, loss confirmation periods, and cash flow forecasts used in the determination of the adequacy of the ALLL for loans classified as TDRs are also impacted. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the ALLL and related credit loss expense. Changes in these ratios and periods are considered in determining the appropriate level of the ALLL and related credit loss expense. For loans that are classified as TDRs, the Company generally compares the present value of expected cash flows to the outstanding recorded investment of TDRs to determine the amount of allowance and related credit loss expense that should be recorded. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated costs to sell.

CREDIT RISK

The risk inherent in the Company’s loan and lease portfolios is driven by credit and collateral quality, and is affected by borrower-specific and economy-wide facts such as changes in unemployment, GDP, HPI, CRE price index, used vehicle index growth rates, 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.

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

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.

Note 1 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K describes the methodology used to determine the ACL and reserve for unfunded lending commitments in the Consolidated Balance Sheets.

ACL

There were no significant changes to the ACL during the three and six months ended June 30, 2021. 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 $146.5 million at December 31, 2020 to $124.3 million at June 30, 2021. The decrease of the reserve for unfunded lending commitments was due to the ordinary course of business.

INVESTMENT SECURITIES

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


(in thousands)	June 30, 2021		December 31, 2020
Investment securities AFS:
U.S. Treasury securities and government agencies	$	6,533,443	$	5,440,140
FNMA and FHLMC securities	4,352,893		5,608,296

Other securities (1)	715,776		265,053
Total investment securities AFS	11,602,112		11,313,489


Total investment securities HTM	6,662,308		5,504,685

Other investments	1,529,791		1,553,862
Total investment portfolio	$	19,794,211	$	18,372,036

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

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

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


	June 30, 2021		December 31, 2020		Change		Percent
(in thousands)	Fair Value		Fair Value
U.S. Treasury securities	$	100,642	$	170,653	$	(70,011)	(41.03)	%
Corporate debt securities	246,542		155,715		90,827		58.33	%
ABS	469,234		109,338		359,896		329.16	%

MBS:
GNMA - Residential	4,451,089		3,536,125		914,964		25.87	%
GNMA - Commercial	1,981,712		1,733,362		248,350		14.33	%
FHLMC and FNMA - Residential	4,285,369		5,538,283		(1,252,914)		(22.62)	%
FHLMC and FNMA - Commercial	67,524		70,013		(2,489)		(3.56)	%
Total investments in debt securities AFS	$	11,602,112	$	11,313,489	$	288,623	2.55	%

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

The average life of the AFS investment portfolio (excluding certain ABS) at June 30, 2021 was approximately 4.16 years. The average effective duration of the investment portfolio (excluding certain ABS) at June 30, 2021 was approximately 2.75 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 168 investment securities classified as HTM as of June 30, 2021.


(in thousands)	June 30, 2021		December 31, 2020		Change in unrealized gain/(loss)
Total unrealized loss	$	(66,576)	$	(7,183)	$	(59,393)
Total unrealized gain	87,399		184,287		(96,888)
Total unrealized gain/(loss) position	$	20,823	$	177,104	$	(156,281)

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 June 30, 2021:


	June 30, 2021
(in thousands)	Amortized Cost		Fair Value
FNMA	$	2,020,704	$	2,028,193
FHLMC	2,325,259		2,324,700
GNMA (1)	12,967,096		13,029,476

Total	$	17,313,059	$	17,382,369

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

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

GOODWILL

The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired less the fair value of liabilities assumed as goodwill. Consistent with ASC 350, the Company does not amortize goodwill, and reviews the goodwill recorded for impairment on an annual basis or more frequently when events or changes in circumstances indicate the potential for goodwill impairment. At June 30, 2021, goodwill totaled $2.6 billion and represented 1.7% of total assets and 11.2% of total stockholder's equity. The following table shows goodwill by reporting units at June 30, 2021:


(in thousands)	CBB		C&I		CRE & VF		CIB		SC		Total



Goodwill at June 30, 2021	$	297,802	$	52,198	$	1,095,071	$	131,130	$	1,019,960	$	2,596,161

The Company conducted its most recent annual goodwill impairment tests as of October 1, 2020 using generally accepted valuation methods.

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 second quarter of 2021, 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

BANK REGULATORY CAPITAL

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

The Company is subject to the regulations of certain federal, state, and foreign agencies and undergoes periodic examinations by those regulatory authorities. At June 30, 2021 and December 31, 2020, 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 June 30, 2021 and December 31, 2020, based on the Company’s capital calculations, exceeded the required capital ratios for BHCs.

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

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

Any dividend declared and paid or return of capital has the effect of reducing capital ratios. During the six-month periods ended June 30, 2021 and 2020, the Company paid cash dividends of zero and $125.0 million, respectively, to its common stock shareholder.

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

The following schedule summarizes the actual capital balances of SHUSA and SBNA at June 30, 2021:


	SHUSA

	June 30, 2021		Well-capitalized Requirement(1)		Minimum Requirement(1)
CET1 capital ratio	17.56	%	6.50	%	4.50	%
Tier 1 capital ratio	19.30	%	8.00	%	6.00	%
Total capital ratio	20.70	%	10.00	%	8.00	%
Leverage ratio	14.77	%	5.00	%	4.00	%


	SBNA

	June 30, 2021		Well-capitalized Requirement(1)		Minimum Requirement(1)
CET1 capital ratio	16.25	%	6.50	%	4.50	%
Tier 1 capital ratio	16.25	%	8.00	%	6.00	%
Total capital ratio	17.44	%	10.00	%	8.00	%
Leverage ratio	11.96	%	5.00	%	4.00	%

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

LIQUIDITY AND CAPITAL RESOURCES

Overall

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

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

Sources of Liquidity

Company and Bank

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

As of June 30, 2021, SBNA has borrowed $1.0 billion from SHUSA. This transaction eliminates in consolidation.

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

SC requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. SC funds its operations through its lending relationships with 13 third-party banks, Santander and SHUSA, and through securitizations in the ABS market and third party flow agreements. SC seeks to issue debt that appropriately matches the cash flows of the assets that it originates. SC has more than $7.2 billion of stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements.

During the quarter ended June 30, 2021, SC completed on-balance sheet funding transactions totaling approximately $6.0 billion, including:

•securitization on its SDART platform for approximately $2.0 billion;

•securitizations on its DRIVE, deeper subprime platform, for approximately $1.6 billion;

•lease securitization on its SRT platform for approximately $1.7 billion; and

•private amortizing lease facilities for approximately $0.7 billion.

SC also completed approximately $0.3 billion in asset sales to third parties.

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

IHC

In 2017, SIS entered into a revolving subordinated loan agreement with SHUSA, not to exceed $290.0 million. This was subsequently increased to $895.0 million in 2018 to provide additional capital to the entity for its expanding Capital Markets program. Given additional liquidity needs from the program that now includes billing and delivery services for debt and equity issuances, the subordinated line with SIS was renegotiated in July 2021 to $750.0 million with an additional liquidity line of $750.0 million to support the new activity.

At June 30, 2021, there were no outstanding balances on the subordinated loan or the liquidity line.

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

Institutional borrowings

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

Available Liquidity

As of June 30, 2021, SBNA had approximately $16.5 billion in committed liquidity from the FHLB and the FRB. Of this amount, $15.5 billion was unused and therefore provides additional borrowing capacity and liquidity for the Company. At June 30, 2021 and December 31, 2020, liquid assets (cash and cash equivalents and LHFS) and securities AFS exclusive of securities pledged as collateral) totaled approximately $26.7 billion and $23.5 billion, respectively. These amounts represented 34.3% and 31.8% of total deposits at June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021, SBNA and BSI had $1.1 billion and $1.4 billion, respectively, in cash held at the FRB. Management believes that the Company has ample liquidity to fund its operations.

Cash, cash equivalents, and restricted cash


	Six-Month Period Ended June 30,
(in thousands)	2021		2020
Net cash flows from operating activities	$	4,742,426	$	2,378,828
Net cash flows from investing activities	(2,762,340)		(2,759,935)
Net cash flows from financing activities	2,666,215		5,129,827

100

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

Cash flows from operating activities

Net cash flow from operating activities increased by $2.4 billion from the six-month period ended June 30, 2020 to the six-month period ended June 30, 2021, primarily due to an increase in proceeds from sales of and collections on LHFS which includes the SC sale of its Bluestem personal lending portfolio.

Cash flows from investing activities

Net cash flow from investing activities decreased by $2.4 million from the six-month period ended June 30, 2020 to the six-month period ended June 30, 2021, primarily due to an increase in proceeds from sales of LHFI which includes SC sale of RICs and the SFS sale of its commercial and consumer loan portfolios and an increase in proceeds from the sale and termination of operating leases, offset by a decrease in purchases and originations of operating leases and a decrease in proceeds from prepayments and maturities of AFS investment securities.

Cash flows from financing activities

Net cash flow from financing activities decreased by $2.5 billion from the six-month period ended June 30, 2020 to the six-month period ended June 30, 2021, primarily due to a decrease in net borrowing activity.

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

Credit Facilities

Third-Party Revolving Credit Facilities

Warehouse Lines

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

SC has eight credit facilities with eleven banks providing an aggregate commitment of $8.3 billion for the exclusive use of providing short-term liquidity needs to support core and CCAP loan financing. As of June 30, 2021, there was an outstanding balance of approximately $0.8 billion on these facilities in the aggregate. These facilities reduced advance rates in the event of delinquency, credit loss, as well as various other metrics exceeding specific thresholds.

Repurchase Agreements

SC also obtains financing through investment management or repurchase agreements under which it pledges retained subordinate bonds on its own securitizations as collateral for repurchase agreements with various borrowers and at renewable terms ranging up to 365 days. As of June 30, 2021, there was no outstanding balance under any repurchase agreements.

Related Party Credit Facilities

The Company provides SC with $0.5 billion of committed revolving credit and $2.5 billion of contingent liquidity that can be drawn on an unsecured basis. The Company also provides SC with $6.3 billion of term financing with maturities ranging from August 2021 to May 2025. These loans eliminate in the consolidation of SHUSA. Santander provides SC with $4.0 billion of unsecured financing with maturities ranging from June 2022 and September 2022.

Secured Structured Financings

SC's secured structured financings primarily consist of both public, SEC-registered securitizations, as well as private securitizations under Rule 144A of the Securities Act, and privately issues amortizing notes. SC has on-balance sheet securitizations outstanding in the market with a cumulative ABS balance of approximately $27.0 billion.

101

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

Deficiency and Debt Forward Flow Agreement

In addition to SC's credit facilities and secured structured financings, SC has a flow agreement in place with a third party for charged-off assets. Loans and leases sold under these flow agreements are not on SC's balance sheet, but provide a stable stream of servicing fee income and may also provide a gain or loss on sale.

Off-Balance Sheet Financing

Beginning in 2017, SC had the option to sell a contractually determined amount of eligible prime loans to Santander through securitization platforms. As all of the notes and residual interests in the securitizations are acquired by Santander, SC recorded these transactions as true sales of the RICs securitized, and removed the sold assets from its Consolidated Balance Sheets. Beginning in 2018, this program was replaced with a new program with SBNA, whereby SC has agreed to provide SBNA with origination support services in connection with the processing, underwriting, and purchasing of retail loans, primarily from Stellantis N.V. dealers, all of which are serviced by SC.

SC also continues to periodically execute securitizations under Rule 144A of the Securities Act. After retaining the required credit risk retention via a 5% vertical interest, SC transfers all remaining notes and residual interests in these securitizations to third parties. SC subsequently records these transactions as true sales of the RICs securitized, and removes the sold assets from its Consolidated Balance Sheets.

Uses of Liquidity

The Company uses liquidity for debt service and repayment of borrowings, as well as for funding loan commitments and satisfying deposit withdrawal requests. SIS uses liquidity primarily to support underwriting transactions, as well as billing and delivery services. The primary use of liquidity for BSI is to meet customer liquidity requirements, such as maturing deposits, investment activities, funds transfers, and payment of operating expenses.

At June 30, 2021, the Company's liquidity to meet debt payments, debt service and debt maturities was in excess of 12 months.

Dividends, Contributions and Stock Issuances

As of June 30, 2021, the Company had 530,391,043 shares of common stock outstanding.

On March 31, 2021, SC paid a cash dividend of $0.22 per share and a special dividend of $0.22 per share of common stock for a total of $0.44 per share to shareholders of record as of the close of business on March 29, 2021. SC paid a cash dividend of $0.22 per share of common stock to shareholders in May 2021. Further, SC has declared a cash dividend of $0.22 per share, to be paid on August 19, 2021, to shareholders of record as of the close of business on August 9, 2021.

SC has paid a total of $202.0 million in dividends through June 30, 2021, of which $39.9 million has been paid to NCI and $162.1 million has been paid to the Company, which eliminates in the consolidated results of the Company.

Share Repurchases

In June 2019, SC announced that the SC Board of Directors had authorized purchases by SC of up to $1.1 billion, excluding commissions, of its outstanding common stock effective from the third quarter of 2019 through the end of the second quarter of 2020. During the three months ended March 31, 2020, SC purchased shares of SC Common Stock through a modified Dutch auction tender offer, and extended the share repurchase program through the end of the third quarter of 2020.

On July 31, 2020, SC announced that the Company’s request for certain exceptions to the Interim Policy, prohibiting share repurchases (other than repurchases relating to issuances of common stock under employee stock ownership plans) and limiting dividends paid by certain CCAR institutions to the average trailing four quarters' of net income, had been approved. Such exception approval permitted SC to continue its share repurchase program through the end of the third quarter of 2020. On August 10, 2020, SC announced that it had substantially exhausted the amount of shares SC was permitted to repurchase under the exception approval, and that SC expected to repurchase an immaterial number of shares remaining under the exception approval.

102

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

Subsequently, the Federal Reserve extended the Interim Policy through the second quarter of 2021. As a result of the extension of the Interim Policy, SC, consistent with the Interim Policy, could repurchase only a number of shares of SC Common Stock equal to the amount of share issuances related to SC’s expensed employee compensation through the second quarter of 2021.

Please find below the details of SC's tender offer and other share repurchase programs for the three-month and six-month periods ended June 30, 2021 and 2020:


	Three-Month Period Ended June 30,				Six-Month Period Ended June 30,
	2021		2020		2021		2020
Tender offer:(1)
Number of shares purchased	—		—		—		17,514,707
Average price per share	$	—	$	—	$	—	$	26.00
Cost of shares purchased(2)	$	—	$	—	$	—	$	455,382

Other share repurchases:
Number of shares purchased	—		4,911,300		357,747		5,757,761
Average price per share	$	—	$	17.08	$	26.46	$	16.60
Cost of shares purchased(2)	$	—	$	83,890	$	9,468	$	95,590

Total number of shares purchased	—		4,911,300		357,747		23,272,468
Average price per share	$	—	$	17.08	$	26.46	$	23.67
Total cost of shares purchased(2)	$	—	$	83,890	$	9,468	$	550,972

(1) During the three months ended March 31, 2020, SC purchased shares of SC Common Stock through a modified Dutch auction tender offer.

(2) Cost of shares exclude commissions

During the six-month period ended June 30, 2021, SHUSA's subsidiaries had the following capital activity which eliminated in consolidation:

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

•SIS declared and paid $8.0 million in dividends to SHUSA.

•SFS contributed $250.0 million to SHUSA.

OFF-BALANCE SHEET ARRANGEMENTS

See further discussion of the Company's off-balance sheet arrangements in Note 7 and Note 16 to the Condensed Consolidated Financial Statements, and the "Liquidity and Capital Resources" section of this MD&A.

For a discussion of the status of litigation with which the Company is involved with the IRS, please refer to Note 15 to the Condensed Consolidated Financial Statements.

103

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

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 detailed in the table below.


	Payments Due by Period
(in thousands)	Total		Less than 1 year		Over 1 year to 3 years		Over 3 years to 5 years		Over 5 years
Payments due for contractual obligations:
FHLB advances (1)	$	853,219	$	853,219	$	—	$	—	$	—
Notes payable - revolving facilities	761,045		761,045		—		—		—
Notes payable - secured structured financings	27,271,224		636,091		10,392,234		11,347,811		4,895,088
Other debt obligations (1) (2)	17,281,727		4,577,565		8,040,571		2,527,255		2,136,336
CDs (1)	2,863,202		2,070,633		689,460		99,697		3,412
Repurchase agreements(1)	577,680		577,680		—		—		—
Non-qualified pension and post-retirement benefits	68,988		7,235		14,336		13,958		33,459
Operating leases(3)	636,900		137,333		232,038		147,649		119,880
Total contractual cash obligations	$	50,313,985	$	9,620,801	$	19,368,639	$	14,136,370	$	7,188,175
Other commitments:
Commitments to extend credit	$	28,113,863	$	7,012,034	$	7,884,964	$	5,155,514	$	8,061,351
Letters of credit	1,361,595		1,064,686		180,532		41,560		74,817
Total Contractual Obligations and Other Commitments	$	79,789,443	$	17,697,521	$	27,434,135	$	19,333,444	$	15,324,343

(1)Includes interest on both fixed and variable rate obligations. The interest associated with variable rate obligations is based on interest rates in effect at June 30, 2021. The contractual amounts to be paid on variable rate obligations are affected by changes in market interest rates. Future changes in market interest rates could materially affect the contractual amounts to be paid.

(2)Includes all carrying value adjustments, such as unamortized premiums and discounts and hedge basis adjustments.

(3)Does not include future expected sublease income or interest of $53.5 million.

Excluded from the above table are deposits of $78.0 billion that are due on demand by customers.

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.

ASSET AND LIABILITY MANAGEMENT

Interest Rate Risk

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

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

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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 scenarios include both parallel and non-parallel rate shocks as well as other scenarios that are consistent with quantifying the four elements of risk described above. This information is used to develop proactive strategies to ensure that the Company’s risk position remains within SHUSA Board of Directors-approved limits so that future earnings are not significantly adversely affected by future interest rates.

The table below reflects the estimated sensitivity to the Company’s net interest income based on interest rate changes at June 30, 2021 and December 31, 2020:


	The following estimated percentage increase/(decrease) to net interest income would result
If interest rates changed in parallel by the amounts below	June 30, 2021		December 31, 2020
Down 100 basis points	(2.04)	%	(1.12)	%
Up 100 basis points	4.68 %		3.18 %
Up 200 basis points	8.86 %		6.25 %

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 June 30, 2021 and December 31, 2020.


	The following estimated percentage increase/(decrease) to MVE would result
If interest rates changed in parallel by the amounts below	June 30, 2021		December 31, 2020
Down 100 basis points	(3.26)	%	(6.18)	%
Up 100 basis points	(1.38)	%	1.62 %
Up 200 basis points	(4.79)	%	0.51 %

As of June 30, 2021, the Company’s profile reflected a decrease of MVE of 3.26% for downward parallel interest rate shocks of 100 basis points and a decrease of 1.38% for upward parallel interest rate shocks of 100 basis points. The asymmetrical sensitivity between up 100 and down 100 shock is due to the negative convexity as a result of the prepayment option embedded in mortgage-related products, the impact of which is not fully offset by the behavior of the funding base (largely NMDs).

In downward parallel interest rate shocks, mortgage-related products’ prepayments increase, their duration decreases and their market value appreciation is therefore limited. At the same time, with deposit rates remaining at comparatively low levels, the Company cannot effectively transfer interest rate declines to its NMD customers. For upward parallel interest rate shocks, extension risk weighs on a sizable portion of the Company’s mortgage-related products, which are predominantly long-term and fixed-rate; and for larger shocks, the loss in market value is not offset by the change in NMDs.

Limitations of Interest Rate Risk Analyses

Since the assumptions used are inherently uncertain, the Company cannot predict precisely the effect of higher or lower interest rates on net interest income or MVE. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes, the difference between actual experience and the assumed volume, characteristics of new business, behavior of existing positions, and changes in market conditions and management strategies, among other factors.

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

Uses of Derivatives to Manage Interest Rate and Other Risks

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

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

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

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

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

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

The Company also utilizes forward contracts to manage market risk associated with certain expected investment securities sales and equity options, which manage its market risk associated with certain customer deposit products.

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 as of the Evaluation Date. Based on that evaluation, our CEO and CFO have concluded that as of the Evaluation Date our disclosure controls and procedures; (a) are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms; and (b) include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Although a substantial portion of the Company’s workforce continues to work remotely due to the COVID-19 pandemic, this has not materially affected our internal controls over financial reporting. We continue to monitor and assess the COVID-19 situation to minimize potential impacts, if any, it may have on the design and operating effectiveness of our internal controls.

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PART II. OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

Refer to Note 15 to the Condensed Consolidated Financial Statements for disclosure regarding the lawsuit filed by SHUSA against the IRS and Note 16 to the Condensed Consolidated Financial Statements for SHUSA’s litigation disclosures, which are incorporated herein by reference.

ITEM 1A - RISK FACTORS

The Company is subject to a number of risks potentially impacting its business, financial condition, results of operations, and cash flows. There have been no material changes from the risk factors set forth under Part I, Item 1A, Risk Factors, in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

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

Not applicable.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4 - MINE SAFETY DISCLOSURES

None.

ITEM 5 - OTHER INFORMATION

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

(Amounts presented as actuals)

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

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

•Santander UK holds five blocked accounts for three customers, with the first customer holding one GBP savings account and one GBP current account, the second customer holding one GBP savings account, and the third customer holding two GBP current accounts. All three of the customers, who are resident in the UK, are currently designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander UK on these accounts in the six months ended June 30, 2021 were negligible relative to the overall profits of Banco Santander S.A.

•Santander UK holds two frozen current accounts for two UK nationals who are designated by the U.S. under the SDGT sanctions program. The accounts held by one customer were fully inaccessible at the time of the U.S. designation and were blocked at the time of the account going into a debit balance. The accounts held by the second customer were blocked immediately following the US designation and have remained frozen throughout six months ended June 30, 2021. These accounts are frozen in order to comply with Articles 2, 3 and 7 of Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the Al-Qaeda network, by virtue of Commission Implementing Regulation (EU) 2015/1815. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK's Collections and Recoveries Department. No revenues or profits were generated by Santander UK on these accounts in the six months ended June 30, 2021.

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•Santander Consumer Finance, S.A. holds through its Belgian branch seven blocked correspondent accounts for Bank Melli. Three USD accounts and four EUR accounts. The accounts have been blocked since 2008. Bank Melli is currently designated by the US under the SDGT sanctions program. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the six months ended June 30, 2021.

•Santander, also has certain legacy performance guarantees for the benefit of Bank Mellat (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 six months ended June 30, 2021 which were negligible relative to the overall revenues and profits of Santander. Santander has undertaken significant steps to withdraw from the Iranian market, such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. Santander is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, Santander intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

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ITEM 6 - EXHIBITS


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

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

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

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

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

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

(3.7)			Amended and Restated Bylaws of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 of Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 30, 2012) (Commission File Number 001-16581)

(3.8)			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.

(10.1)			Shareholders Agreement dated January 28, 2014 among the Company, Santander Consumer USA Holdings Inc., Sponsor Holdings, DDFS, Thomas G. Dundon and Banco Santander, S.A. (Incorporated by reference to Exhibit 1.2 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed January 28, 2014) (Commission File Number 001-16581)

(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)

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(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:	August 3, 2021	/s/ Juan Carlos Alvarez de Soto
		Juan Carlos Alvarez de Soto
		Chief Financial Officer and Senior Executive Vice President


Date:	August 3, 2021	/s/ David L. Cornish
		David L. Cornish
		Chief Accounting Officer, Corporate Controller and Executive Vice President

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