EDGAR 10-K Filing

Company CIK: 811830
Filing Year: 2025
Filename: 811830_10-K_2025_0000811830-25-000012.json

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ITEM 1. BUSINESS
ITEM 1 - BUSINESS
General
SHUSA is the parent holding company of SBNA, a national banking association; SC, a consumer finance company headquartered in Dallas, Texas; BSI, a financial services company headquartered in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; SanCap, an institutional broker-dealer headquartered in New York, which has significant capabilities in market-making via an experienced fixed-income sales and trading team and a focus on structuring and advisory services for asset originators in the real estate and specialty finance markets; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC is a registered investment adviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.
The Company specializes in consumer financing focused on vehicle finance, servicing of third-party vehicle financing, and delivering service to dealers and customers across the full credit spectrum. This includes indirect origination and servicing of vehicle loans and leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers, origination of vehicle loans through a web-based direct lending program, purchases of vehicle loans from other lenders, and servicing of automobile and recreational and marine vehicle portfolios for other lenders. The Company sells consumer vehicle loans and leases through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer vehicle loans and leases.
Since May 2013, under the MPLFA with Stellantis, the Company has operated as Stellantis' preferred provider for consumer loans, leases and dealer loans and provides services to Stellantis customers and dealers under the CCAP brand. In the second quarter of 2022, the Company announced it had reached an agreement with Stellantis to amend and extend the MPLFA through December 2025. In June 2022, the Company launched a preferred lender, full spectrum financing program in partnership with MMNA to provide customer and dealer financing programs that will help MMNA achieve its goal of improving the car-buying experience.
During the second half of 2023, the Company entered into numerous new lending agreements with various auto OEMs. These new agreements reinforce the Company’s leadership in the U.S. auto finance market and commitment to forging deep, multi-geography relationships with automotive manufacturers catering to customers across the credit spectrum. These various OEMs have a diverse product lineup, including an increased focus on electric vehicles. In addition, the Company has been chosen by LendingClub to be its primary loan servicer for its auto refinance program.
In addition to specialized consumer finance, the Company also attracts deposits and provides other retail banking services through its network of retail branches with locations in Connecticut, Delaware, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island and originates small business, middle market, large and global commercial loans, multifamily loans, and other consumer loans and leases throughout the Mid-Atlantic and Northeastern areas of the United States. The Company also acquires deposits nationally through SBNA's online Openbank platform. For large institutional investors, the Company provides structured products, emerging markets credit and U.S. investment grade credit, U.S. rates, short-term fixed-income, debt and equity capital markets, investment banking, exchange-traded derivatives, and cash equities, benefiting from a combination of Santander’s global reach and access to financial hubs together with extensive local market knowledge and regional expertise.
The Company uses its deposits, public and private borrowings, as well as other financing sources, to fund its loan and investment portfolios.
Acquisition of SC Common Stock
In August 2021, SHUSA entered into a definitive agreement whereby SHUSA agreed to acquire all of the outstanding shares of SC Common Stock not already owned by SHUSA. Under the terms of the definitive agreement, a wholly-owned subsidiary of SHUSA commenced a tender offer to acquire all outstanding shares of SC Common Stock that SHUSA did not already own at a price of $41.50 per share in cash. The transaction was completed on January 31, 2022, at which time SHUSA acquired the remaining 19.8% NCI in SC for approximately $2.5 billion and SC became a wholly-owned subsidiary of SHUSA. As a result of the acquisition, Additional paid-in capital decreased by $591.3 million for the difference between the carrying value of the NCI and the amount paid to acquire it.
Acquisition of PCH
On April 11, 2022, SHUSA acquired 100% ownership of PCH, parent company of APS, an institutional fixed-income broker dealer and a designated primary dealer by the FRB of New York, for approximately $448 million. With the addition of PCH, the Company significantly enhanced its infrastructure and capabilities with respect to U.S. fixed-income capital markets. The transaction provides the Company a platform for self-clearing of fixed-income securities, growing its institutional client footprint, and expanding its structuring and advisory capabilities for asset originators. APS had approximately 230 employees serving more than 1,300 active institutional clients from its headquarters in New York and offices in Chicago, San Francisco, Austin, other U.S. locations and Hong Kong.
The acquisition was accounted for as a business combination, with the assets and liabilities of PCH recorded at fair value. Goodwill of approximately $171 million was recorded and assigned to the CIB reporting unit. In addition to goodwill, the Company recorded $39 million of amortizing intangible assets, primarily related to customer relationships and acquired technology. Intangibles are amortized over their estimated useful lives of nine and three years for customer relationships and technology, respectively.
In February 2023, the Company completed the merger of SIS into APS, with the resulting company renamed SanCap. Following the merger, SanCap, along with SSLLC, now comprise the Broker-Dealers.
Segments
The Company’s reportable segments are focused principally around the customers the Company serves. The Company has identified the following reportable segments: Auto, CBB, C&I, CRE, CIB, and Wealth Management.
•The Auto segment includes the Company's consumer and commercial auto loans and leases and the Company's commercial loans to dealers and dealer floorplan financing products. This includes the Company's specialized consumer finance subsidiary focused on vehicle finance and third-party servicing. The specialized consumer finance subsidiary'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. The Company offers a full spectrum of auto financing products and services to captive financing companies. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. The Company also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders.
•The CBB segment includes the products and services provided to consumer and small business banking customers, including consumer deposit, small business banking, unsecured lending, and investment services. This segment offers a wide range of products and services to consumers and business banking customers, including demand and interest-bearing demand deposit accounts, money market and savings accounts, CDs, and retirement savings products. It also offers lending products such as unsecured personal loans, credit cards, and small business loans such as business lines of credit. In addition, the Company makes investment services available to its retail customers, including products such as annuities, mutual funds, managed accounts, and insurance products through a networking agreement with a consolidated affiliate.
•The C&I segment currently provides commercial lines, loans, letters of credit, receivables financing, commercial credit cards, and cash management and deposit services to lower middle market commercial customers and to medium- and large-sized commercial customers, as well as financing and deposits for government entities. This segment also provides niche product financing for specific industries.
•The CRE segment offers CRE loans, CEVF, and multifamily loans, as well as cash management and deposit services to customers. This category also includes community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.
•The CIB segment serves the needs of global corporate and institutional customers by leveraging the international footprint of Santander to provide financing and banking services to corporations with over $500 million in annual revenues. CIB's offerings and strategy are based on Santander's local and global capabilities in wholesale banking. CIB also includes the Company's institutional broker-dealer that provides services in investment banking, sales, trading, and equity research reports.
•The Wealth Management segment consists of the Company's international private banking and financial operations Services and includes the full range of banking and asset management services to foreign individuals and corporations based primarily in Latin America.
People and Environment
Our responsible growth strategy includes a focus on addressing global sustainability challenges. We are committed to compliance with all applicable federal, state, and local laws, while contributing to the effective transition towards an efficient and sustainable economy by reducing our environmental footprint, and identifying, assessing, and managing climate-change-related risks and opportunities applicable to us and our clients in order to build a comprehensive sustainable financial proposition.
Our strategy includes:
•Empowering people and business by expanding access to capital, financial education, and training opportunities.
•Supporting our customers with their climate and sustainability-related goals and achieving our sustainability goals; and
•Fostering inclusive communities by meeting the needs of underserved individuals and communities and by championing a culture that benefits our employees, customers and communities.
Our three most significant climate-related opportunities are:
•Continued financing of renewable energy sources;
•Development of products and services that provide solutions that assist our clients as they seek to meet their goals to transition to a low-carbon economy, and that result in greater diversification, competitive advantage, and increased revenue; and
•Resource efficiencies to reduce environmental impact, operational costs, and increase the value of fixed assets.
We are committed to supporting a more sustainable economy by seeking to reduce the environmental impact of our operations and cultivating sustainable business practices. Our efforts include, but are not limited to, providing competitive compensation and benefits to our employees and supporting our communities through our $13.6 billion Community Plan investments through 2025. We continue to make progress towards meeting our goals in these areas.
Human Capital Management
Our employees are central to our Company’s success. Our Company invests significant resources to maintain a company culture that is Simple, Personal and Fair and to attract, develop and retain the high-caliber workforce needed to meet our corporate goals. We invest in our employees by seeking to create an engaging and collaborative work environment, providing competitive compensation and benefits, quality training and development opportunities, and ensuring a safe and healthy workplace.
Human Resources Teams
Our HR teams are responsible for:
•Culture and Employee Engagement - responsible for employee experience, employee engagement, strategy and best practices, corporate events, and HR communications that promote a unified “One Santander” culture.
•Total Rewards - responsible for compensation and benefits strategy and consulting with the business on compensation matters and compensation governance, as well as payroll, benefits, and human capital management support.
•Talent Acquisition - sources, hires, and onboards the best-qualified candidates, from within or outside of our organization.
•Talent Management - develops, engages, and retains the right talent to ensure the Company operates as a high-performing organization and achieves business objectives.
•Learning & Development - partners with business areas to design, develop, and implement learning solutions that provide employees with the knowledge, skills, and abilities to meet and exceed the organization’s goals and objectives.
•Employee Relations - supports the Company to assist with conflict resolution, internal investigations, and questions on HR policies and procedures for all employees.
Culture and Employee Engagement
We promote organizational success at the Company by cultivating an employee-centric and growth-oriented culture. Our corporate values, Simple, Personal and Fair, are reflected in our five corporate behaviors - Think Customer, Embrace Change, Act Now, Move Together and Speak Up. These corporate behaviors serve as our foundation for maintaining a respectful environment for our employees as they encompass accountability, engagement and collaboration. We focus on supporting the employee journey through events, activities and milestones, highlighting moments that matter, and ensuring that employees have the resources and support they need to continue to grow and thrive at the Company.
Total Rewards
We provide competitive compensation, benefits, and services that help attract, retain and incentivize our employees. Our compensation and benefits package includes competitive pay, healthcare, retirement benefits, as well as paid time off and holidays, parental leave, disability benefits, military leave, and paid development and volunteer time off, along with other benefits and employee resources. We design our incentive compensation to reward pay for performance while appropriately mitigating risk in line with our corporate behaviors and ethical principles.
Our workforce across SHUSA was approximately 10,700 employees at December 31, 2024. None of our employees are represented by a collective bargaining agreement. At December 31, 2024, the Company's 12-month rolling voluntary attrition rate was 10.2%.
Learning and Development & Talent Management
The Company invests significant resources to train and develop our employees. Our programs provide employees with the resources they need to help achieve their career goals, build management skills, and lead their organization. We deliver numerous learning opportunities to aid in employee development, ensure compliance, and improve business acumen including quarterly compliance curriculums, workplace safety awareness, specialized job role training, and information security training.
Health and Wellness
The Company is committed to the health and safety of our employees. As such, we invest in programs designed to improve physical, mental, and financial well-being. During 2024, the Company sponsored three medical plans that provide comprehensive medical coverage, telemedicine and wellness tools, and condition management and support. To help ensure that healthcare is accessible for all employees, the Company maintains a lower cost medical plan that is entirely co-pay based, has no deductible and includes inclusive family planning benefits.
Competition
The Company’s primary competitors are:
•national and regional banks, credit unions, and independent financial institutions;
•digital and virtual banks;
•the affiliated finance companies of automotive manufacturers; and
•trust companies, full service banks, asset managers, investment advisors, securities dealers, and mutual fund companies.
The Company is subject to substantial competition in attracting and retaining deposits and in lending funds. The primary factors in competing for deposits include the ability to offer attractive rates, the convenience of office locations, the availability of alternate channels of distribution, and servicing capabilities. Direct competition for deposits comes primarily from other national, regional, and state banks, digital banks, thrift institutions, and broker-dealers. Competition for deposits also comes from money market mutual funds, corporate and government securities dealers and credit unions.
The primary factors driving competition for commercial and consumer loans are interest rates, loan origination fees, service levels and the range of products and services offered. Competition for originating loans normally comes from thrift institutions, national and state banks, mortgage bankers, mortgage brokers, finance companies, and insurance companies.
The automotive finance industry is highly competitive. While the used car financing market is fragmented with no single lender accounting for more than 10% of the market, there are a number of competitors in both the new and used car markets that have substantial positions nationally or in the markets in which they operate. The Company competes on the pricing offered on loans and leases as well as the customer service provided to automotive dealer customers. Pricing for these loans and leases is transparent because the Company, like its industry competitors, posts pricing for loans and leases on web-based credit application aggregation platforms. When dealers submit applications for consumers acquiring vehicles, they can compare the Company's pricing against its competitors’ pricing. Dealer relationships are important in the automotive finance industry. Vehicle finance providers tailor product offerings to meet each individual dealer's needs.
The Company seeks to compete effectively through its proprietary credit-scoring system and industry experience, which are used to establish appropriate risk pricing. The Company has built and seeks to develop strong dealer relationships through a nationwide sales force and a long history in the automotive finance space. Further, the Company expects to continue deepening dealer relationships through the captive financing product offerings and believes it can compete effectively by continuing to expand those relationships.
Supervision and Regulation
The U.S. banking industry is highly regulated under various federal laws, including the Truth-in-Lending Act, Equal Credit Opportunity Act, Electronic Fund Transfer Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Consumer Leasing Act, Servicemembers Civil Relief Act, Telephone Consumer Protection Act, Financial Institutions Reform, Recovery, and Enforcement Act, the DFA and the GLBA, as well as various state laws. The Company is subject to inspections, examinations, supervision, and regulation by the SEC, the CFPB, the Federal Trade Commission, and the DOJ and by regulatory agencies in each state in which the Company and its subsidiaries transact business.
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. SHUSA is a BHC pursuant to the BHC Act. As a BHC, the Company is subject to consolidated supervision by the Federal Reserve, including the FRB of Boston.
SBNA is a national bank chartered under the National Bank Act and subject to supervision by the OCC, which has the ability to limit certain of its activities, such as the timing and amount of dividends and certain transactions that it might otherwise desire to enter into, such as merger and acquisition opportunities, or to impose other limitations on the Bank’s growth and is insured by the FDIC.
The Broker-Dealers are subject to regulation under FINRA as well as state regulatory authorities.
In addition, the Company is directly and indirectly, through its relationship with Santander, subject to certain other banking and financial services regulations, including oversight by the European Central Bank.
Refer to the "Regulatory Matters" section within Item 7 - MD&A for discussion of current regulatory matters impacting the Company. Additional legal and regulatory matters affecting the Company’s activities are further discussed in Part I, Item 1A - Risk Factors of this Annual Report on Form 10-K.
BHC Activity and Acquisition Restrictions
Federal laws restrict the types of activities in which BHCs may engage, and subject them to a range of supervisory requirements, including regulatory enforcement actions for violations of laws and policies. BHCs may engage in the business of banking and managing and controlling banks, as well as closely related activities.
The Company would be required to obtain approval from the Federal Reserve if the Company were to acquire 5% or more of any class of voting shares of any depository institution or any holding company of a depository institution.
Control of the Company or the Bank
Under the Change in Bank Control Act, individuals, corporations or other entities acquiring SHUSA's common stock may, alone or together with other investors, be deemed to control the Company and thereby the Bank. Ownership of more than 10% of SHUSA’s capital stock may be deemed to constitute “control” if certain other control factors are present. If deemed to control the Company, those persons or groups would be required to obtain the Federal Reserve's approval to acquire the Company’s common stock and could be subject to certain ongoing reporting procedures and restrictions under federal law and regulations.
Standards for Safety and Soundness
The federal banking agencies adopted certain operational and managerial standards for depository institutions, including internal audit system components, loan documentation requirements, asset growth parameters, IT and data security practices, and compensation standards for officers, directors and employees.
Insurance of Accounts and Regulation by the FDIC
SBNA is a member of the DIF, which is administered by the FDIC. SBNA's deposits are insured up to applicable limits by the FDIC. The FDIC assesses deposit insurance premiums and is authorized to conduct examinations of, and require reporting by, FDIC-insured institutions like SBNA. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the DIF. The FDIC also has the authority to initiate enforcement actions against banking institutions and may terminate an institution’s deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.
The FDIC charges financial institutions deposit premium assessments to ensure it has reserves to cover deposits that are under FDIC-insured limits, which is currently $250,000 per depositor per ownership category for each ownership deposit account category.
The FDIC published a final rule on November 16, 2023 to charge certain banks a special assessment to recover the costs associated with protecting uninsured depositors following the bank closures during 2023. Based on the final rule, SBNA is required to pay a total of $61.5 million over the course of eight consecutive quarters beginning in the first quarter of 2024. SBNA accrued for the full amount of the special assessment during the fourth quarter of 2023. Refer to the “Regulatory Matters” section of the MD&A for further details.
FDIC insurance premium expenses, inclusive of the special assessment above, were $64.3 million and $139.6 million for the years ended December 31, 2024 and 2023, respectively. Refer to the Deposit Insurance and Assessments Section of "Regulatory Matters" for additional details on the FDIC special assessment.
Restrictions on Dividends and Subsidiary Banking Institution Capital Distributions
Under the FDIA, IDIs must be classified in one of five defined tiers (well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized). Under OCC regulations, an institution is considered “well-capitalized” if it (i) has a total risk-based capital ratio of 10% or greater, (ii) has a Tier 1 risk-based capital ratio of 8% or greater, (iii) has a CET1 capital ratio of 6.5% or greater, (iv) has a Tier 1 leverage ratio of 5% or greater and (v) is not subject to any order or written directive to meet and maintain a specific capital level. As of December 31, 2024, SBNA met the criteria to be classified as “well capitalized.”
If capital levels fall to significantly or critically undercapitalized levels, further material restrictions can be imposed, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver or conservator. Critically undercapitalized institutions generally may not, beginning 60 days after becoming critically undercapitalized, make any payment of principal or interest on their subordinated debt. All but well-capitalized institutions are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to FDIC 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 and repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the institution’s capital account.
Federal banking laws, regulations and policies 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 the Company within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years; (2) the Bank would not meet capital levels imposed by the OCC in connection with any order, (3) the Bank has negative retained earnings, or (4) the Bank is not adequately capitalized at the time. In addition, the OCC's prior approval is required if the OCC deems the Bank to be in troubled condition or a problem institution.
Any dividends declared and paid have the effect of reducing SBNA’s Tier 1 capital to average consolidated assets and risk-based capital ratios. During 2024, 2023, and 2022, SBNA did not pay dividends to SHUSA.
Federal Reserve Regulation
Under Federal Reserve regulations, the Bank generally has been required to maintain a reserve against its transaction accounts (primarily interest-bearing and non-interest-bearing checking accounts). Because reserves must generally be maintained in cash or in low-interest-bearing accounts, the effect of the reserve requirements is to reduce an institution’s asset yields.
FHLB System
The FHLB system was created in 1932 and consists of 11 regional FHLBs. FHLBs are federally-chartered but privately owned institutions created by Congress. Each FHLB is owned by its member institutions. As a member, the Bank is required to make minimum investments in FHLB stock based on its level of borrowings from the FHLB. The Bank is a member of and held investments in the FHLB of Pittsburgh which totaled $211.2 million as of December 31, 2024, compared to $287.1 million at December 31, 2023. The Bank utilizes advances from the FHLB to fund balance sheet growth, provide liquidity and for asset and liability management purposes. The Bank had access to advances with the FHLB of up to $16.0 billion at December 31, 2024, and had outstanding advances from the FHLB of $4.7 billion. The level of borrowing capacity the Bank has with the FHLB of Pittsburgh is contingent upon the level of qualified collateral the Bank holds at a given time.
The Bank received $17.0 million and $22.4 million in dividends on its stock in the FHLB of Pittsburgh in 2024 and 2023, respectively.
Anti-Money Laundering and the USA Patriot Act
Several federal laws, including the Bank Secrecy Act, the Money Laundering Control Act, and the USA Patriot Act require all financial institutions to, among other things, implement policies and procedures relating to anti-money laundering, compliance, suspicious activities, currency transaction reporting and due diligence on customers. The USA Patriot Act substantially broadened existing anti-money laundering legislation and the extraterritorial jurisdiction of the U.S., imposed compliance and due diligence obligations, created criminal penalties, compelled the production of documents located both inside and outside the U.S., including those of non-U.S. institutions that have a correspondent relationship in the U.S., and clarified the safe harbor from civil liability to clients. The U.S. Treasury has issued a number of regulations that further clarify the USA Patriot Act’s requirements and provide more specific guidance on their application.
Financial Privacy and Cyber Security
U.S. banking agencies and other federal and state government agencies have increased their attention on cybersecurity and data privacy risks and have proposed enhanced risk management standards that would apply to us. Under the GLBA, financial institutions are required to disclose to their retail customers their policies and practices with respect to sharing nonpublic customer information with their affiliates and non-affiliates, how they maintain customer confidentiality, and how they secure customer information. Customers are required under the GLBA to be provided with the opportunity to “opt out” of information sharing with non-affiliates, subject to certain exceptions.
The Company and its subsidiaries use credit bureau data in their underwriting activities. Use of such data is regulated under the Fair Credit Reporting Act which regulates reporting information to credit bureaus, prescreening individuals for credit offers, sharing of information between affiliates, and using affiliate data for marketing purposes.
In 2020, the California Consumer Privacy Act took effect, requiring for-profit businesses which conduct business in California to, among other things, notify affected individuals when there has been a security breach of their personal data, and imposes increased privacy and security obligations of entities handling certain personal information of individuals. Other states are considering analogous legislation.
Effective in April 2022, federal banking regulators imposed a rule which requires a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after it has been determined that a cyber incident has occurred. That rule defines a significant computer-security incident as an incident that has materially affected or is reasonably likely to materially affect, the viability of a banking organization’s key operations or its ability to deliver banking products and services, or the stability of the financial sector.
In July 2023, the SEC adopted new rules relating to disclosure of cybersecurity risk management, strategy, governance, and incidents by public companies. These new rules have two primary requirements for domestic public companies: (1) disclosure of material cybersecurity incidents on Form 8-K within four business days of determining that a cybersecurity matter is material and (2) annual disclosure of a company’s risk management, strategy, and governance relating to cybersecurity matters on Form 10-K, included within Item 1C - Cybersecurity.
Environmental Laws
Environmentally-related hazards are a source of high risk and potentially significant liability for financial institutions related to their loans. Environmentally contaminated properties owned by an institution’s borrowers may result in a drastic reduction in the value of the collateral securing the institution’s loans to such borrowers, high environmental cleanup costs to the borrower affecting its ability to repay its loans, the subordination of any lien in favor of the institution to a state or federal lien securing clean-up costs, and liability to the institution for cleanup costs if it forecloses on the contaminated property or becomes involved in the management of the borrower. In addition to property examinations, the Company performs environmental reviews of its clients in oil & gas, metals, mining, and other industries with an environmental impact. To minimize this risk, SBNA may require an environmental examination of, and reports with respect to, the property of any borrower or prospective borrower if circumstances affecting the property indicate a potential for contamination, taking into consideration the potential loss to the institution in relation to the burdens to the borrower. Such examination must be performed by an engineering firm experienced in environmental risk studies and acceptable to the institution, and the costs of such examinations and reports are the responsibility of the borrower. These costs may be substantial and may deter a prospective borrower from entering into a loan transaction with SBNA. The Company is not aware of any borrower which is currently subject to any environmental investigation or clean-up proceeding or any other environmental matter that is likely to have a material adverse effect on the financial condition or results of operations of SHUSA or its subsidiaries.
Securities and Investment Regulation
The Company conducts its securities and investment business activities through its subsidiaries SanCap and SSLLC. SanCap and SSLLC are registered broker-dealers with the SEC and members of FINRA. SanCap's activities include investment banking, acting as a market maker of U.S. fixed-income securities and self-clearing fixed-income securities, and trading and offering research reports of Latin American and European equity and fixed income securities. SSLLC is also a registered investment adviser with the SEC. BSI conducts certain securities transactions exempt from SEC registration on behalf of its clients.
Written Agreements and Regulatory Actions
See the “Regulatory Matters” section of the MD&A and Note 22 of the Consolidated Financial Statements in this Annual Report on Form 10-K for a description of current regulatory actions.
Corporate Information
All reports filed electronically by the Company with the SEC, including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those reports, are accessible on the SEC’s website at www.sec.gov. Our filings are also accessible through our website at: https://www.santanderus.com/us/investorshareholderrelations. The information contained on our website is not being incorporated herein and is provided for the information of the reader.

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ITEM 1A. RISK FACTORS
ITEM 1A - RISK FACTORS
Summary Risk Factors
The Company is subject to a number of risks that if realized could affect its business, financial condition, results of operations, cash flows and access to liquidity materially. As a financial services organization, certain elements of risk are inherent in our businesses. Accordingly, the Company encounters risk as part of the normal course of its businesses. Some of the Company’s more significant challenges and risks include the following:
•We are vulnerable to disruptions and volatility in the global financial markets. Disruptions and volatility in financial markets can have a material adverse effect on our ability to access capital and liquidity on acceptable financial terms. Negative and fluctuating economic conditions, such as a changing interest rate environment, may cause our lending margins to decrease and reduce customer demand for our higher margin products and services.
•We are subject to substantial regulation. As a financial institution, we are subject to extensive regulation by government agencies, including limitations on permissible activities, required financial stress tests, required non-objection to certain actions, investigations and other regulatory proceedings. If we are unable to meet the expectations of our regulators fully, we may need to divert significant resources to remedial actions, be unable to take planned capital actions, and/or be subject to fines or other enforcement actions, among other things. These circumstances could affect our revenues and expenses and other aspects of our business and operations adversely.
•We may not be able to detect money laundering or other illegal or improper activities fully or on a timely basis. We work regularly to improve our policies, procedures and capabilities to detect and prevent financial crimes. However, such crimes are evolving continually, and there will be instances in which we may be used by other parties to engage in money laundering or other illegal or improper activities. These instances may result in regulatory fines, sanctions and/or legal enforcement, which could have a material adverse effect on our operating results, financial condition and prospects.
•Credit risk is inherent in our business. Our customers’ and counterparties’ financial condition, repayment abilities, repayment intentions, the value of their collateral, and government economic policies, market interest rates and other factors affect the quality of our loan portfolio. Many of these factors are beyond our control, and there can be no assurance that our current or future loan and lease loss reserves will be sufficient to cover actual losses.
•Liquidity and funding risks are inherent in our business. Changes in market interest rates and our credit spreads occur continuously, may be unpredictable and highly volatile and can significantly increase our cost of funding. We rely primarily on deposits to fund lending activities. However, our ability to maintain or grow deposits depends on factors outside our control, such as general economic conditions and confidence of depositors in the economy and the financial services industry. If deposit withdrawals increase significantly in a short period of time, it could have a material adverse effect on our operating results, financial condition and prospects.
•We are subject to fluctuations in interest rates. Interest rates are highly sensitive to factors beyond our control, such as increased regulation of the financial sector, monetary policies, economic and political conditions, and other factors. Variations in interest rates could impact net interest income, which comprises the majority of our revenue, reducing our growth and potentially resulting in losses.
•We are subject to significant competition. We compete with banks that are larger than us and non-traditional providers of banking services who may not be subject to the same regulatory or legislative requirements to which we are subject. If we are unable to compete successfully with current and new competitors and anticipate changing banking industry trends, our business may be affected adversely.
•Pandemics and public health emergencies can affect our business. Pandemics and public health emergencies can affect our business. Closures, disruptions to businesses and other actions that could restrict economic activity in the U.S. due to pandemics or other public health emergencies may result in adverse effects on our customers and our business.
•Risks relating to data collection, processing, storage systems and data security. Proper functioning of financial controls, accounting and other data collection and processing systems is critical to our businesses and our ability to compete effectively. Inadequate personnel, inadequate or failed internal control processes or systems, or external events that interrupt normal business operations could each impair our data collection, processing, storage systems and data security and result in losses.
•We and others in our industry face cybersecurity risks. We take protective measures and monitor and develop our systems continuously to protect our technology infrastructure and data from cyberattacks. However, cybersecurity risks continue to increase for our industry, and the proliferation of new technologies and the increased sophistication and activities of parties behind such attacks present risks for compromised data, theft of funds or theft or destruction of corporate information and assets.
•We utilize AI, which could expose us to liability or otherwise adversely affect our business.
•The financial results of our auto lending business could impact our results. Our auto lending business has historically been a significant source of earnings for the Company. Factors that could negatively affect the auto lending business's financial results could consequently affect SHUSA’s financial results.
The above list is not exhaustive, and we face additional challenges and risks. Please carefully consider all of the information in this Form-K including matters set forth in this "Risk Factors" section.
Risk Factors
Risk management and mitigation are important parts of the Company's business model and integrated into the Company's day-to-day operations. The success of the Company's business is dependent on management's ability to identify, understand, manage and mitigate the risks presented by business activities in light of the Company's strategic and financial objectives. These risks include credit risk, market risk, capital risk, liquidity risk, operational risk, model risk, investment risk, compliance and legal risk, and strategic and reputational risk. We discuss our principal risk management processes in the Risk Management section included in Item 7 of this Annual Report on Form 10-K.
The following are the most significant risk factors that affect the Company. Any one or more of these could have a material adverse impact on the Company's business, financial condition, results of operations, or cash flows, in addition to presenting other possible adverse consequences, many of which are described below. These risk factors and other risks we may face are also discussed further in other sections of this Annual Report on Form 10-K.
Macro-Economic and Political Risks
Given that our loan portfolios are concentrated in the United States, adverse changes affecting the economy of the United States could adversely affect our financial condition.
Our loan portfolios are concentrated in the United States. Accordingly, the recoverability of our loan portfolios and our ability to increase the amount of loans outstanding and our results of operations and financial condition in general are dependent to a significant extent on the level of economic activity in the United States. Recessionary conditions in the United States economy would likely have a significant adverse impact on our business, financial condition, and results of operations.
We are vulnerable to disruptions and volatility in the global financial markets.
We face, among others, the following risks in the event of an economic downturn or another recession:
•Increased regulation of our industry. Compliance with such regulation has increased our costs and may affect the pricing of our products and services and limit our ability to pursue business opportunities.
•Reduced demand for our products and services.
•Inability of our borrowers to timely or fully comply with their existing obligations.
•The process we use to estimate losses inherent in our credit exposure requires complex judgments, including forecasts of economic conditions and how those economic conditions might impair the ability of our borrowers to repay their loans.
•The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the sufficiency of our ALLL.
•The value and liquidity of the portfolio of investment securities that we hold may be adversely affected.
•Any worsening of economic conditions may delay the recovery of the financial industry and impact our financial condition and results of operations.
•Macroeconomic shocks may impact the household income of our retail customers negatively and adversely affect the recoverability of our retail loans, resulting in increased loan and lease losses.
Despite the long-term expansion of the U.S. economy, some uncertainty remains regarding U.S. monetary policy and the future economic environment. There can be no assurance that economic conditions will continue to improve. Such economic uncertainty could have an adverse effect on our business and results of operations. A downturn of the economic expansion or failure to sustain the economic recovery would likely aggravate the adverse effects of these difficult economic and market conditions on us and on others in the financial services industry. In addition, dislocations in international trade such as interruptions in international supply chains or implementation of tariffs may impact prices and demand for goods and services and lead to lower levels of business and possible declining creditworthiness of customers. Growing protectionism and trade tensions could have a negative impact on the U.S. and global economies, and impact our operating results, financial condition and prospects.
These concerns continue even as the global economy recovers. If countries with significant economies default on their debt or experience a significant widening of credit spreads, it may delay or weaken economic recovery, adversely affect financial institutions and bank systems related to that region, result in the exit of member states from organizations such as the Eurozone or contribute to other more severe economic and financial conditions. If realized, these risk scenarios could contribute to severe stress and adverse consequences for global financial markets, likely affecting the economy and capital markets in the United States as well. In addition, public concern related to the ability of the U.S. government to agree on federal budgetary matters, or that the government may have a total or partial shutdown, may adversely affect the U.S. economy and increase the risk of economic instability or market volatility.
Increased disruption and volatility in the financial markets could have a material adverse effect on us, including our ability to access capital and liquidity on financial terms acceptable to us, if at all. If capital markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits to attract more customers and become unable to maintain certain liability maturities. Any such decrease in capital markets funding availability or increased costs or in deposit rates could have a material adverse effect on our net interest margins and liquidity.
If some or all of the foregoing risks were to materialize, they could have a material adverse effect on our business, financial condition and results of operations.
Our growth, asset quality and profitability may be adversely affected by volatile macroeconomic and political conditions.
While the United States economy has performed well overall, it has experienced volatility in recent periods, characterized by slow or regressive growth. This volatility has resulted in fluctuations in the levels of deposits at depository institutions and in the relative economic strength of various segments of the economy to which we lend.
Negative and fluctuating economic conditions, such as a changing interest rate environment, impact our profitability by causing lending margins to decrease and leading to decreased demand for higher margin products and services. Negative and fluctuating economic conditions could also result in government defaults on public debt. This could affect us in two ways: directly, through portfolio losses, and indirectly, through instabilities that a default on public debt could cause to the banking system as a whole, particularly since commercial banks' exposure to government debt is high in certain Latin American and European regions or countries.
In addition, our revenues are subject to risk of loss from unfavorable political and diplomatic developments, social instability, and changes in governmental policies, international ownership legislation, interest rate caps and tax policies. For example, in 2025 a new U.S. presidential administration took office. In recent months, commentary by certain people associated with the new administration suggests that it may seek to reduce or eliminate incentives for manufacturers and consumers of electric vehicles and the building of new wind farms for the production of wind energy. Our businesses include financing the sale of electric vehicles and financing the creation of renewable energy developments such as wind farms. Governmental policies that disincentivize these industries and projects could therefore lead to reductions in our revenue. In general, growth, asset quality and profitability may be affected by volatile macroeconomic and political conditions.
Risks Relating to Our Business
Legal, Regulatory and Compliance Risks
We are subject to substantial regulation which could adversely affect our business and operations.
As a financial institution, the Company is subject to extensive regulation, which materially affects our businesses. The statutes, regulations, and policies to which the Company is subject may change at any time. In addition, regulators' interpretation and application of the laws and regulations to which the Company is subject may change from time to time. Extensive legislation affecting the financial services industry has been adopted in the United States, and regulations have been and are in the process of being implemented. The manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. Any legislative or regulatory actions and any required or other changes to our business operations resulting from such legislation and regulations could result in significant loss of revenue, limit our ability to pursue business opportunities or provide certain products and services, affect the value of assets we hold, compel us to increase our prices and therefore reduce demand for our products, impose additional compliance and other costs on us or otherwise adversely affect our businesses. Accordingly, there can be no assurance that future changes in regulations or their interpretation or application will not affect us adversely.
Regulation of the Company as a BHC includes limitations on permissible activities. Moreover, the Company and SBNA are required to perform stress tests and submit capital plans to the Federal Reserve and the OCC. The Federal Reserve may also impose substantial fines and other penalties and enforcement actions for violations we may commit and has the authority to disallow acquisitions we or our subsidiaries may contemplate, which may limit our future growth plans. Such constraints currently applicable to the Company and its subsidiaries and/or regulatory actions could have an adverse effect on our business, financial condition and results of operations.
Other regulations that significantly affect the Company, or that could significantly affect the Company in the future, relate to capital requirements, liquidity and funding, taxation of the financial sector, and development of regulatory reforms in the United States.
In addition, inconsistency among federal, state and local regulatory requirements could make our continuing ability to comply with all of the regulatory requirements to which we are or may become subject more challenging.
Moreover, the volume, granularity, frequency and scale of regulatory and other reporting requirements necessitate a clear data strategy to enable consistent data aggregation, reporting and management. Inadequate management information systems or processes, including those relating to risk data aggregation and risk reporting, could lead to a failure to meet regulatory reporting requirements or other internal or external information demands that may result in supervisory measures.
Significant United States Regulation
From time to time, we are or may become subject to or involved in formal and informal reviews, investigations, examinations, proceedings, and information gathering requests by federal and state government agencies, including, among others, the FRB, the OCC, the CFPB, the FDIC, the DOJ, the SEC, FINRA, the Federal Trade Commission and various state regulatory and enforcement agencies.
The DFA resulted in significant structural reforms affecting the financial services industry. This legislation provided for, among other things, the establishment of the CFPB with broad authority to regulate the credit, savings, payment and other consumer financial products and services we offer, the creation of a structure to regulate systemically important financial companies, more comprehensive regulation of the OTC derivatives market, prohibitions on engaging in certain proprietary trading activities, restrictions on ownership of, investment in or sponsorship of hedge funds and private equity funds and restrictions on interchange fees earned through debit card transactions.
Our resolution in a bankruptcy proceeding could result in losses for holders of our debt and equity securities.
Under regulations issued by the Federal Reserve and the FDIC, and as required by Section 165(d) of the DFA, we and Santander must provide to the Federal Reserve and the FDIC a Section 165(d) Resolution Plan that requires substantial effort, time, and cost to prepare. The purpose of this DFA provision is to provide regulators with plans that would enable them to resolve failing financial companies that pose a significant risk to the financial stability of the United States in a manner that mitigates such risk. The most recently filed Section 165(d) Resolution Plan by Santander, dated as of June 30, 2022, provides a roadmap for the orderly resolution of the material U.S. operations of Santander under hypothetical stress scenarios and the failure of one or more of its U.S. MEs. MEs are defined as subsidiaries or foreign offices of Santander that are significant to the activities of a critical operation or core business line. The U.S. MEs identified in the 2022 Resolution Plan include, among other entities, the Company, SBNA and SC.
The 2022 Resolution Plan describes a strategy for resolving Santander’s U.S. operations, including its U.S. MEs and the core business lines that operate within those U.S. MEs, in a manner that would substantially mitigate the risk that the resolutions would have serious adverse effects on U.S. or global financial stability. Under the 2022 Resolution Plan’s hypothetical resolutions of the U.S. MEs, SBNA would be placed into FDIC receivership and the Company and SC would be placed into bankruptcy under Chapter 7 and Chapter 11 of the U.S. Bankruptcy Code, respectively. In such a scenario, holders of our LTD and other debt securities would be junior to the claims of priority (as determined by statute) and secured creditors of the Company.
If after reviewing our Section 165(d) Resolution Plan and any related submissions, the Federal Reserve and the FDIC jointly determine that we failed to cure identified deficiencies, they may jointly impose more stringent capital, leverage or liquidity requirements, restrictions on our growth, activities or operations, or even divestitures, which could have an adverse effect on our business.
The Company, the Federal Reserve and the FDIC are not obligated to follow the Company’s preferred resolution strategy for resolving its U.S. operations under its resolution plan. In addition, Santander could in the future change its resolution strategy for resolving its U.S. operations. In an alternative scenario, the Company alone could enter bankruptcy under the U.S. Bankruptcy Code, and the Company’s subsidiaries would be recapitalized as needed, using assets of the Company, so that they could continue normal operations as going concerns or subsequently be wound down in an orderly manner. As a result, the losses incurred by the Company and its subsidiaries would be imposed first on the holders of the Company’s equity securities and thereafter on unsecured creditors, including holders of our LTD and other debt securities. Holders of our LTD and other debt securities would be junior to the claims of creditors of the Company’s subsidiaries and to the claims of priority (as determined by statute) and secured creditors of the Company. Under either of these scenarios, in a resolution of the Company under the U.S. Bankruptcy Code, holders of our LTD and other debt securities would realize value only to the extent available to the Company as a shareholder of SBNA, SC and its other subsidiaries, and only after any claims of priority and secured creditors of the Company have been fully repaid.
The resolution of the Company under the orderly liquidation authority could result in greater losses for holders of our equity and debt securities.
The ability of holders of our LTD and other debt securities to recover the full amount that would otherwise be payable on those securities in a resolution proceeding under Chapter 11 of the U.S. Bankruptcy Code may be impaired by the exercise of the FDIC’s powers under the “orderly liquidation authority” under Title II of the DFA.
The DFA created a new resolution regime known as the “orderly liquidation authority” to which financial companies, including the Company, can be subjected. Under the orderly liquidation authority, the FDIC may be appointed as receiver to liquidate a financial company if, upon the recommendation of applicable regulators, the United States Secretary of the Treasury determines that the entity is in severe financial distress, the entity’s failure would have serious adverse effects on the U.S. financial system, and resolution under the orderly liquidation authority would avoid or mitigate those effects, among other things.
If the FDIC were appointed as receiver under the orderly liquidation authority, then the orderly liquidation authority, rather than the U.S. Bankruptcy Code, would determine the powers of the receiver and the rights and obligations of creditors and other parties who have transacted with the Company. There are substantial differences between the rights available to creditors under the orderly liquidation authority and under the U.S. Bankruptcy Code. The FDIC may disregard the strict priority of creditor claims in some circumstances, and an administrative claims procedure rather than a judicial procedure would be used to determine creditors’ claims. Furthermore, the FDIC has the right to transfer assets or liabilities of the failed company to a third party or “bridge” entity under the orderly liquidation authority.
Regardless of what resolution strategy Santander might prefer to resolve its U.S. operations, the FDIC could resolve the Company in a manner that would impose losses on the Company’s shareholder, unsecured debtholders (including holders of our LTD) and other creditors, while permitting the Company’s subsidiaries to continue to operate. The application of such an entry strategy in which the Company would be the only legal entity in the U.S. to enter resolution proceedings could result in greater losses to holders of our LTD and other debt securities than the losses that would result from a bankruptcy proceeding or a different resolution strategy for the Company. Assuming the Company entered resolution proceedings and support from the Company to its subsidiaries was sufficient to enable the subsidiaries to remain solvent, losses at the subsidiary level could be transferred to the Company and ultimately borne by the Company’s securityholders (including holders of our LTD and other debt securities), with the result that third-party creditors of the Company’s subsidiaries would receive full recoveries on their claims, while the Company’s securityholders (including holders of our LTD) and other unsecured creditors could face significant losses. In addition, in a resolution under the orderly liquidation authority, holders of our LTD and other debt securities of the Company could face losses ahead of other similarly situated creditors if the FDIC exercised its right, to disregard the strict priority of creditor claims.
The orderly liquidation authority also requires that creditors and shareholders of the financial company in receivership must bear all losses before taxpayers are exposed to any losses, and amounts owed by the financial company or the receivership to the U.S. government would generally receive a statutory payment priority over the claims of private creditors, including holders of our LTD and other debt securities. In addition, under the orderly liquidation authority, claims of creditors (including holders of our LTD and other debt securities) could be satisfied through the issuance of equity or other securities in a bridge entity to which the Company’s assets are transferred. If securities were to be delivered in satisfaction of claims, there can be no assurance that the value of the securities of the bridge entity would be sufficient to repay all or any part of the creditor claims for which the securities were exchanged.
United States stress testing, capital planning, and related supervisory actions
The Company is subject to stress testing and capital planning requirements under regulations implementing the DFA and other banking laws and policies. Under such rules, the Federal Reserve expects BHCs such as the Company to have sufficient capital to withstand a highly adverse operating environment and to be able to continue operations, maintain ready access to funding, meet obligations to creditors and counterparties, and serve as credit intermediaries. In addition, the Federal Reserve evaluates the planned capital actions of BHCs, including capital distributions such as dividend payments or stock repurchases. As a Category IV IHC under Federal Reserve regulations, we are required to submit a capital plan to the Federal Reserve on an annual basis. We are also subject to supervisory stress testing on a two-year cycle. Our categorization as a Category IV IHC could change depending on the scope and composition of our activities. If this categorization changes, we would be subject to enhance prudential standards tailored to our risk profile.
In March 2020, the Federal Reserve finalized the SCB rule, under which the Federal Reserve uses the results of its supervisory stress tests to establish the size of a firm’s SCB requirement, subject to a floor of 2.5 percent. The Company must maintain capital ratios above the sum of the minimum capital requirements and any applicable capital buffers, including the SCB, in order to avoid restrictions on the distribution of capital, including in the form of dividends and share repurchases.
The Company is subject to the Federal Reserve’s rule implementing the Financial Stability Board's TLAC standard, which established certain TLAC long-term debt and clean holding company requirements for U.S. BHCs. Compliance with the TLAC rule has resulted in increased funding expense for the Company.
Other supervisory actions and restrictions on U.S. activities
In addition to the foregoing, U.S. bank regulatory agencies from time to time take supervisory actions under certain circumstances that restrict or limit a financial institution’s activities. In many instances, we are subject to significant legal restrictions on our ability to disclose these actions or the full details of these actions publicly. In addition, as part of the regular examination process, certain U.S. subsidiaries’ regulators may advise the subsidiary to operate under various restrictions as a prudential matter. Under the BHC Act, the Federal Reserve has the authority to disallow us and certain of our U.S. subsidiaries from engaging in certain categories of new activities in the United States or acquiring shares or control of other companies in the United States. Such actions and restrictions currently applicable to us or certain of our U.S. subsidiaries could adversely affect our costs and revenues. Moreover, efforts to comply with nonpublic supervisory actions or restrictions could require material investments in additional resources and systems, as well as a significant commitment of managerial time and attention. As a result, such supervisory actions or restrictions could have a material adverse effect on our business and results of operations, and we may be subject to significant legal restrictions on our ability to publicly disclose these matters or the full details of these actions.
In recent years, certain U.S. financial institutions have failed and become administered by the FDIC as receiver. Under FDIC receivership, aspects of failed banks may be auctioned or sold to other financial institutions, increasing risks related to consolidation in the banking industry described in greater detail in the "Business and Industry Risks" section below. Such failures may also lead the FDIC to request higher FDIC assessments from banks due to the DIF falling below minimum required levels, or the FDIC requiring special FDIC assessments related to specific bank failures, and lead to banking regulators introducing new or more stringent regulatory requirements and expectations.
We are subject to potential intervention by any of our regulators or supervisors, particularly in response to customer complaints.
As noted above, our business and operations are subject to significant rules and regulations relating to the banking and financial services business. These apply to business operations, affect financial returns, include reserve and reporting requirements, and the conduct of our business. These requirements are established by the relevant central banks and regulatory authorities that authorize, regulate and supervise us in the jurisdictions in which we operate. The relationship between the Company and its customers is also regulated extensively under federal and state consumer protection laws. Among other things, these laws prohibit unfair, deceptive and abusive trading practices, require disclosures of the cost of credit, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, and restrict our ability to raise interest rates.
In their supervisory roles, regulators seek to maintain the safety and soundness of financial institutions with the aim of strengthening, but not guaranteeing, the protection of customers and the financial system. Supervisors' continuing supervision of financial institutions is conducted through a variety of regulatory tools, including the collection of information by way of reports obtained from skilled persons, visits to firms and regular meetings with management to discuss issues such as performance, risk management and strategy. In general, regulators have an outcome-focused regulatory approach that involves proactive enforcement and penalties for infringement. As a result, we face increased supervisory intrusion and scrutiny (resulting in increasing internal compliance costs and supervision fees), and in the event of a breach of our regulatory obligations we are likely to face more stringent regulatory fines.
Some of the regulators focus strongly on consumer protection and on conduct risk. This has included a focus on the design and operation of products, the behavior of customers and the operation of markets. Some of the laws in the relevant jurisdictions in which we operate give regulators the power to make temporary product intervention rules either to improve a company's systems and controls in relation to product design, product management and implementation, or address problems identified with financial products. These problems may potentially cause significant detriment to consumers because of certain product features, governance flaws or distribution strategies. Such rules may prevent institutions from entering into product agreements with customers until such problems have been solved. Some regulators in the jurisdictions in which we operate also require us to be in compliance with training, authorization and supervision of personnel, systems, processes and documentation requirements. Sales practices with retail customers, including incentive compensation structures related to such practices, have recently been a focus of various regulatory and governmental agencies. If we fail to be compliant with such regulations, there would be a risk of an adverse impact on our business from sanctions, fines or other actions imposed by regulatory authorities.
Customers may seek redress if they consider that they have suffered loss as a result of mis-selling of a particular product, or through incorrect application of the terms and conditions of a particular product. In light of the inherent unpredictability of litigation and the evolution of judgments by the relevant authorities, it is possible that an adverse outcome in some matters could harm our reputation or have a material adverse effect on our operating results, financial condition and prospects arising from any penalties imposed or compensation awarded, together with the costs of defending such actions, reducing our profitability.
We are exposed to risk of loss from legal and regulatory proceedings.
As noted above, we face risk of loss from legal and regulatory proceedings, including tax proceedings that could subject us to monetary judgments, regulatory enforcement actions, fines and penalties. The current regulatory environment reflects an increased supervisory focus on enforcement, combined with uncertainty about the evolution of the regulatory regime, and may lead to material operational and compliance costs. In general, amounts financial institutions pay in settlements of regulatory proceedings or investigations and the severity of terms of regulatory settlements have been increasing. In certain cases, regulatory authorities have required criminal pleas, admissions of wrongdoing, limitations on asset growth, managerial changes, and other extraordinary terms as part of such settlements, all of which could have significant economic consequences for a financial institution.
We are subject to civil and tax claims and party to certain legal proceedings incidental to the normal course of our business from time to time, including in connection with lending activities, relationships with our employees and other commercial, data protection, or tax matters. In view of the inherent difficulty of predicting the outcome of legal matters, particularly when the claimants seek very large or indeterminate damages, or when the cases present novel legal theories, involve a large number of parties or are in the early stages of investigation or discovery, we cannot state with confidence what the eventual outcome of these pending matters will be or what the eventual loss, fines or penalties related to each pending matter may be. We believe that we have established adequate reserves related to the costs anticipated to be incurred in connection with these various claims and legal proceedings. However, the amount of these provisions is substantially less than the total amount of the claims asserted against us and, in light of the uncertainties involved in such claims and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves we have currently accrued. As a result, the outcome of a particular matter may materially and adversely affect our business, financial condition and results of operations for a particular period, depending upon, among other factors, the size of the loss or liability imposed and our level of income for that period.
In addition, from time to time, the Company is, or may become, the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations and proceedings and other forms of regulatory inquiry, including by the SEC and law enforcement authorities.
Often, the announcement or other publication of claims or actions that may arise from such litigation and regulatory proceedings or of any related settlement may spur the initiation of similar claims by other customers, clients or governmental entities. In any such claim or action, demands for substantial monetary damages may be asserted against us and may result in financial liability, changes in our business practices or an adverse effect on our reputation or client demand for our products and services. In regulatory settlements since the financial crisis, fines imposed by regulators have increased substantially and may in some cases exceed the profit earned or harm caused by the breach.
Regular and ongoing inspection by our banking and other regulators may result in the need to enhance our regulatory compliance or risk management practices. Such remedial actions may entail significant costs, management attention, and systems development, and such efforts may affect our ability to expand our business until those remedial actions are completed. In some instances, we are subjected to significant legal restrictions on our ability to disclose these types of actions or the full detail of these actions publicly. Our failure to implement enhanced compliance and risk management procedures in a manner and timeframe deemed to be responsive by the applicable regulatory authority could adversely impact our relationship with that regulatory authority and lead to restrictions on our activities or other sanctions.
The magnitude and complexity of projects required to address the Company’s regulatory and legal proceedings, in addition to the challenging macroeconomic environment and pace of regulatory change, may result in execution risk and adversely affect the successful execution of such regulatory or legal priorities.
In many cases, we are required to self-report inappropriate or non-compliant conduct to regulatory authorities, and our failure to do so may represent an independent regulatory violation. Even when we promptly bring matters to the attention of appropriate authorities, we may nonetheless experience regulatory fines, liabilities to clients, harm to our reputation or other adverse effects in connection with self-reported matters.
We may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis, which could expose us to additional liability and have a material adverse effect on us.
We are required to comply with anti-money laundering, anti-terrorism and other laws and regulations in the jurisdictions in which we operate. These laws and regulations require us, among other things, to adopt and enforce “know-your-customer” policies and procedures and to report suspicious and large transactions to applicable regulatory authorities. These laws and regulations have become increasingly complex and detailed, require improved systems and sophisticated monitoring and compliance personnel, and have become the subject of enhanced government supervision.
While we maintain updated policies and procedures aimed at detecting and preventing the use of our banking network for money laundering and related activities, those policies and procedures may not completely eliminate instances in which we may be used by other parties to engage in money laundering and other illegal or improper activities. Emerging technologies, such as cryptocurrencies and other innovative payment methodologies, could limit our ability to track the movement of funds. Our ability to comply with legal requirements depends on our ability to improve detection and reporting capabilities and reduce variation in control processes and oversight accountability.
These require implementing and embedding effective controls and monitoring within our business and on-going changes to systems and operations. Financial crime is continually evolving and subject to increasingly stringent regulatory oversight and focus. Even known threats can never be fully eliminated, and there will be instances in which we may be used by other parties to engage in money laundering or other illegal or improper activities. To the extent we fail to fully comply with applicable laws and regulations, the relevant government agencies to which we report have the authority to impose fines and other penalties on us. Further, U.S. bank regulators are required, when reviewing bank and BHC acquisition or merger applications, to take into account the effectiveness of our compliance with anti-money laundering regulations. In addition, our business and reputation could suffer if customers use our banking network for money laundering or other illegal or improper purposes.
We may be subject to negative coverage in the media about us or our clients, including with respect to alleged conduct such as failure to detect and/or prevent financial crime activities or comply with the foregoing requirements. Negative media coverage of this type about us, whether it has merit or not, could materially and adversely affect our reputation and perception among current and potential clients, investors, vendors, partners, regulators and other third parties, which in turn could have a material adverse effect on our operating results, financial condition and prospects as well as damage our customers’ and investors’ confidence.
While we review our relevant counterparties’ internal policies and procedures with respect to such matters, to a large degree we rely on our counterparties to maintain and properly apply their own appropriate anti-money laundering procedures. Such measures, procedures and compliance may not be completely effective in preventing third parties from using our and our counterparties’ services as conduits for money laundering (including illegal cash operations) or other illegal activities without our and our counterparties’ knowledge. If we are associated with, or even accused of being associated with, or become a party to, money laundering or other illegal activities, our reputation could suffer and/or we could become subject to fines, sanctions and/or legal enforcement (including being added to any “watch lists” that would prohibit certain parties from engaging in transactions with us), any one of which could have a material adverse effect on our business, financial condition and results of operations.
An incorrect interpretation of tax laws and regulations may adversely affect us.
The preparation of our tax returns requires the use of estimates and interpretations of complex tax laws and regulations and is subject to review by taxing authorities. We are subject to the income tax laws of the United States and certain foreign countries. These tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxing authorities, which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense and filing returns, we must make judgments and interpretations about the application of these inherently complex tax laws. If the judgments, estimates, and assumptions we use in preparing our tax returns are subsequently found to be incorrect, there could be a material effect on our results of operations.
Changes in taxes and other assessments may adversely affect us.
The legislatures and tax authorities in the jurisdictions in which we operate regularly enact reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in the rate of assessments and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. The effects of these changes and any other changes that result from enactment of additional tax reforms cannot be quantified and there can be no assurance that such reforms would not have an adverse effect upon our business. Aspects of recent U.S. federal income tax reform such as the Tax Cuts and Jobs Act of 2017 limit or eliminate certain income tax deductions, including the home mortgage interest deduction, the deduction of interest on home equity loans and a limitation on the deductibility of property taxes. These limitations and eliminations could affect demand for some of our retail banking products and the valuation of assets securing certain of our loans adversely, increasing our credit loss expense and reducing profitability.
Credit Risks
If the level of our NPLs increases or our credit quality deteriorates in the future, or if our loan and lease loss reserves are insufficient to cover loan and lease losses, this could have a material adverse effect on us.
Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of our businesses. Non-performing or low credit quality loans have in the past negatively impacted and can continue to
negatively impact our results of operations. In particular, the amount of our reported NPLs may increase in the future as a result of growth in our total loan portfolio, including as a result of loan portfolios we may acquire in the future, or factors beyond our control, such as adverse changes in the credit quality of our borrowers and counterparties or a general deterioration in economic conditions in the United States, the impact of political events, events affecting certain industries or events affecting financial markets. There can be no assurance that we will be able to effectively control the level of the NPLs in our loan portfolio.
Our loan and lease loss reserves are based on our current assessment of and expectations concerning various factors affecting the quality of our loan portfolio. These factors include, among other things, our borrowers’ financial condition, repayment abilities and repayment intentions, the realizable value of any collateral, the prospects for support from any guarantor, government macroeconomic policies, interest rates and the legal and regulatory environment. Our loan and lease loss reserves may also be influenced by other factors such as the degree that our loan portfolios are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral. Such concentrations could increase the possibility that similarly situated borrowers and their collateral may collectively be affected by certain economic or market conditions or events such as, for example natural or man-made disasters. Many of these factors are beyond our control. As a result, there is no precise method for predicting loan and credit losses, and there can be no assurance that our current or future loan and lease loss reserves will be sufficient to cover actual losses. If our assessment of and expectations concerning the above-mentioned factors differ from actual developments, if the quality of our total loan portfolio deteriorates for any reason, including an increase in lending to individuals and small and medium enterprises, a volume increase in our credit card portfolio or the introduction of new products, or if future actual losses exceed our estimates of expected losses, we may be required to increase our loan and lease loss reserves, which may adversely affect us. If we were unable to control or reduce the level of our non-performing or poor credit quality loans, this also could have a material adverse effect on us.
In addition, the FASB’s Topic 326 Financial Instruments - Credit Losses, establishes a single allowance framework for financial assets carried at amortized cost. Under this standard, companies must recognize credit losses on these assets equal to management’s estimate of credit losses over the assets’ remaining expected lives. It is possible that our ongoing reported earnings and lending activity will be impacted negatively as a result of the application of this accounting standard. See “Changes in accounting standards could impact reported earnings” below.
Our loan and investment portfolios are subject to risk of prepayment, which could have a material adverse effect on us.
Our fixed-rate loan and investment portfolios are subject to prepayment risk, which results from the ability of a borrower or issuer to pay a debt obligation prior to maturity. Generally, in a low interest rate environment, prepayment activity increases, and this reduces the weighted average life of our earning assets and could have a material adverse effect on us. We would also be required to amortize net premiums into income over a shorter period of time, thereby reducing the corresponding asset yield and net interest income. Prepayment risk also has a significant adverse impact on credit card and collateralized mortgage loans, since prepayments could shorten the weighted average life of these assets, which may result in a mismatch in our funding obligations and reinvestment at lower yields. Prepayment risk is inherent in our commercial activity, and an increase in prepayments could have a material adverse effect on us.
The value of the collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.
The value of the collateral securing our loan portfolio may fluctuate or decline due to factors beyond our control, including as a result of macroeconomic factors affecting the United States. The value of the collateral securing our loan portfolio may be adversely affected by force majeure events such as natural disasters (including as a result of climate change), particularly in locations in which a significant portion of our loan portfolio is composed of real estate loans. Natural disasters such as earthquakes and floods may cause widespread damage, which could impair the asset quality of our loan portfolio and have an adverse impact on the economy of the affected region. We also may not have sufficiently recent information on the value of collateral, which may result in an inaccurate assessment of impairment losses of our loans secured by such collateral. If any of the above were to occur, we may need to make additional provisions to cover actual impairment losses on our loans, which may materially and adversely affect our results of operations and financial condition.
In addition, auto industry technology changes, accelerated by environmental rules, could affect our auto consumer business, particularly the residual values of leased vehicles, which could have a material adverse effect on our operating results, financial condition and prospects.
We are subject to counterparty risk in our banking business.
We are exposed to counterparty risk in addition to credit risks associated with lending activities. Counterparty risk may arise from, for example, investing in securities of third parties, entering into derivatives contracts under which counterparties have obligations to make payments to us or executing securities, futures, currency or commodity trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, clearinghouses or other financial intermediaries.
We routinely transact with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual funds, hedge funds and other institutional clients. We rely on information provided by or on behalf of counterparties, such as financial statements, and we may rely on representations of our counterparties as to the accuracy and completeness of that information. Defaults by, and even rumors or questions about the solvency of, certain financial institutions and the financial services industry generally have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. Many routine transactions we enter into expose us to significant credit risk in the event of default by one of our significant counterparties.
Liquidity and Financing Risks
Liquidity and funding risks are inherent in our business and could have a material adverse effect on us.
Liquidity risk is the risk that we either do not have sufficient financial resources available to meet our obligations as they become due, or we can secure them only at excessive cost. This risk is inherent in any banking business and can be heightened by a number of enterprise-specific factors, including over-reliance on a particular source of funding, changes in credit ratings or market-wide phenomena such as market dislocation. While we implement liquidity management processes to mitigate and control these risks, unforeseen systemic market factors in particular make it difficult to eliminate these risks completely. Adverse and continued constraints in the supply of liquidity, including inter-bank lending, may materially and adversely affect the cost of funding our business, and extreme liquidity constraints may affect our current operations and our ability to fulfill regulatory liquidity requirements as well as limit growth possibilities.
Our cost of obtaining funding is directly related to prevailing market interest rates and our credit spreads. Increases in interest rates and our credit spreads can significantly increase the cost of our funding. Changes in our credit spreads are market-driven and may be influenced by market perceptions of our creditworthiness. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile.
If wholesale markets financing ceases to be available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits, with a view to attracting more customers, and/or to sell assets, potentially at depressed prices. The persistence or worsening of these adverse market conditions or an increase in base interest rates could have a material adverse effect on our ability to access liquidity and cost of funding.
We rely, and will continue to rely, primarily on deposits to fund lending activities. The ongoing availability of this type of funding is directly related to our solvency and the success of our policies. It is also sensitive to a variety of factors outside our control, such as general economic conditions and the confidence of depositors in the economy in general, and the financial services industry in particular, as well as competition among banks and non-banks for deposits. Online and mobile banking services may allow customers to withdraw their deposits or send funds to other accounts with short notice. Additionally, account owners with uninsured deposits may be more likely to withdraw their deposits. Any of these factors could significantly increase the amount of significant deposit withdrawals in a short period of time, thereby reducing our ability to access deposit funding in the future on appropriate terms, or at all. If these circumstances were to arise, they could have a material adverse effect on our operating results, liquidity, financial condition and prospects.
Difficulties or liquidity issues faced by certain financial entities could cause withdrawals of deposits from those entities and volatility in U.S. and international markets. The spread or potential spread of these or other issues to the broader financial sector could have a material adverse impact on our operating results, financial condition and prospects.
We anticipate that our customers will continue to make deposits (particularly demand deposits and short-term time deposits) in the near future, and we intend to maintain our emphasis on the use of banking deposits as a source of funds. While we expect the implementation of SBNA’s new online banking platform Openbank will facilitate our acquisition of additional deposits, there can be no assurance that we will be able to implement and integrate this system with our other banking systems seamlessly and efficiently. Moreover, the short-term nature of some deposits could cause liquidity problems for us in the future if deposits are not made in the volumes we expect or are not renewed. If a substantial number of our depositors withdraw their demand deposits, or do not roll over their time deposits upon maturity, we may be materially and adversely affected.
There can be no assurance that, in the event of a sudden or unexpected shortage of funds in the banking system, we will be able to maintain levels of funding without incurring high funding costs, a reduction in the term of funding instruments, or the liquidation of certain assets. If this were to happen, we could be materially adversely affected.
Credit, market and liquidity risk may have an adverse effect on our credit ratings and our cost of funds. Any downgrading in our credit rating would likely increase our cost of funding, require us to post additional collateral or take other actions under some of our derivative contracts and adversely affect our interest margins and results of operations.
Credit ratings affect the cost and other terms upon which we are able to obtain funding. Rating agencies regularly evaluate us, and their ratings of our debt are based on internal methodologies dependent on a number of factors, including our financial strength and conditions affecting the financial services industry generally.
Any downgrade in our or Santander's debt credit ratings would likely increase our borrowing costs and require us to post additional collateral or take other actions under some of our derivative's contracts and could limit our access to capital markets and adversely affect our commercial business. For example, a ratings downgrade could adversely affect our ability to sell or market certain of our products, engage in certain longer-term and derivatives transactions and retain customers, particularly customers who need a minimum rating threshold in order to invest. In addition, under the terms of certain of our derivatives contracts, we may be required to maintain a minimum credit rating or terminate the contracts. Any of these results of a ratings downgrade, in turn, could reduce our liquidity and have an adverse effect on us, including our operating results and financial condition.
We conduct a significant number of our material derivatives activities through Santander and Santander UK. We estimate that, as of December 31, 2024, if all of the rating agencies were to downgrade Santander’s or Santander UK’s long-term senior debt ratings, we would be required to post additional collateral pursuant to derivatives and other financial contracts. Refer to further discussion in Note 14 of the Notes to the Consolidated Financial Statements.
While certain potential impacts of these downgrades are contractual and quantifiable, the full consequences of a credit rating downgrade are inherently uncertain, as they depend on numerous dynamic, complex and inter-related factors and assumptions, including market conditions at the time of any downgrade, whether any downgrade of a company's long-term credit rating precipitates downgrades to its short-term credit rating, and assumptions about the potential behaviors of various customers, investors and counterparties. Actual outflows could be higher or lower than this hypothetical example depending on certain factors, including which credit rating agency downgrades our credit rating, any management or restructuring actions that could be taken to reduce cash outflows and the potential liquidity impact from loss of unsecured funding (such as from money market funds) or loss of secured funding capacity. Although unsecured and secured funding stresses are included in our stress testing scenarios and a portion of our total liquid assets is held against these risks, it is still the case that a credit rating downgrade could have a material adverse effect on the Company, SBNA, and SC.
In addition, if we were required to cancel our derivatives contracts with certain counterparties and were unable to replace those contracts, our market risk profile could be altered.
There can be no assurance that the rating agencies will maintain their current ratings or outlooks. In general, the future evolution of our ratings will be linked, to a large extent, to the macroeconomic outlook and to the impact of significant events on our asset quality, profitability and capital. Failure to maintain favorable ratings and outlooks could increase the cost of funding and adversely affect net interest margins, which could have a material adverse effect on us.
Market Risks
We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect us.
Market risk refers to the probability of variations in our net interest income or in the market value of our assets and liabilities due to volatility of interest rates, exchange rates or equity prices. Economic activities exposed to market risk include (i) transactions where risk is assumed as a consequence of potential changes in interest rates, inflation rates, exchange rates, stock prices, credit spreads, commodity prices, volatility and other market factors; (ii) the liquidity risk from our products and markets; and (iii) the balance sheet liquidity risk. Market risk affects (i) our interest income / (charges); (ii) the market value of our assets and liabilities, in particular of our securities holdings, loans and deposits, and derivatives transactions; and (iii) other areas of our business such as the volume of loans originated or credit spreads.
Interest rate risk arises from movements in interest rates that reduce the value of a financial instrument or portfolio. It can affect loans, deposits, debt securities, most assets and liabilities held for trading, and derivatives. Interest rates are highly sensitive to many factors beyond our control, including increased regulation of the financial sector, monetary policies, domestic and international economic and political conditions, and other factors. Variations in interest rates could affect our net interest income, which comprises the majority of our revenue, reducing our growth rate and potentially resulting in losses. This is a result of the different effect a change in interest rates may have on the interest earned on our assets and the interest paid on our borrowings. In addition, we may incur costs (which, in turn, will impact our results) as we implement strategies to reduce future interest rate exposure.
Increases in interest rates may reduce the volume of loans we originate. Sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets. Increases in interest rates may also reduce the propensity of our customers to prepay or refinance fixed-rate loans. Increases in interest rates may reduce the value of our financial assets and the collateral used to secure our loans and may reduce gains or require us to record losses on sales of our loans or securities.
In addition, we may experience increased delinquencies in a low interest rate environment when such an environment is accompanied by high unemployment and recessionary conditions.
Some of our investment management services fees are based on financial market valuations of assets certain of our subsidiaries manage or hold in custody for clients. Changes in these valuations can affect noninterest income positively or negatively, and ultimately affect our financial results. Significant changes in the volume of activity in the capital markets, and in the number of assignments we are awarded, could also affect our financial results.
To the extent any of these risks materialize, our net interest income and the market value of our assets and liabilities could be materially adversely affected.
Recent government fiscal and monetary policies and other factors have led to increased inflation in the U.S. and globally
Governmental and regulatory authorities throughout the world implemented fiscal and monetary policies and initiatives to mitigate the effects of the pandemic on the economy and individual businesses and households. These fiscal and monetary policy measures accelerated the economic recovery in 2021, but in turn significantly increased public debt and introduced risks of economic overheating in certain countries. In 2022, inflationary pressures intensified due to a number of factors, including the revitalization of demand for consumer goods, labor shortages, supply chain issues, and the rise in the prices of energy, oil, gas and other commodities exacerbated by the war in Ukraine. In an effort to contain inflation, central banks increased interest rates during 2022 and 2023, contributing to a slowdown of the global economy. During 2023 and 2024, inflation slowly converged towards central banks' objectives, allowing central banks to reduce rates beginning in mid-2024. Prolonged periods of high inflation could result in higher operating costs, a decrease in the purchasing power of families with a consequent increase in delinquencies in our credit portfolios, and lower economic growth derived from the tightening of monetary and fiscal policies aimed at containing inflation, among other risks, any of which could have a material adverse effect on our operations, financial condition and prospects.
Market conditions have resulted, and could result, in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our business, financial condition and results of operations.
In recent years, financial markets have been subject to volatility and the resulting widening of credit spreads. We have material exposures to securities and other investments that are recorded at fair value and are therefore exposed to potential negative fair value adjustments. Asset valuations in future periods, reflecting then-prevailing market conditions, may result in negative changes in the fair values of our financial assets, and also may translate into increased impairments. In addition, the value we ultimately realize on disposal of the asset may be lower than its current fair value. Any of these factors could require us to record negative fair value adjustments, which may have a material adverse effect on our business, financial condition and results of operations.
In addition, to the extent fair values are determined using financial valuation models, such values may be inaccurate or subject to change, as the data used by such models may not be available or may become unavailable due to changes in market conditions, particularly for illiquid assets and in times of economic instability. In such circumstances, our valuation methodologies require us to make assumptions, judgments and estimates in order to establish fair value, and reliable assumptions are difficult to make and are inherently uncertain. In addition, valuation models are complex, making them inherently imperfect predictors of actual results. Any resulting impairments or write-downs could have a material adverse effect on our operating results, financial condition and prospects.
We are subject to market, operational and other related risks associated with our derivatives transactions that could have a material adverse effect on us.
We enter into derivatives transactions for trading purposes as well as for hedging purposes. We are subject to market, credit and operational risks associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its obligations thereunder, including providing sufficient collateral).
The execution and performance of derivatives transactions depend on our ability to maintain adequate control and administration systems and to hire and retain qualified personnel. Moreover, our ability to adequately monitor, analyze and report derivatives transactions continues to depend, to a great extent, on our IT systems. These factors further increase the risks associated with these transactions and could have a material adverse effect on us.
In addition, disputes with counterparties may arise regarding the terms or the settlement procedures of derivatives contracts, including with respect to the value of underlying collateral, which could cause us to incur unexpected costs, including transaction, operational, legal and litigation costs, or result in credit losses, all of which may impair our ability to manage our risk exposure from these products.
Risk Management
Failure to successfully implement and continue to improve our risk management policies, procedures and methods, including our credit risk management system, could materially and adversely affect us, and we may be exposed to unidentified or unanticipated risks.
Risk management is an integral part of our activities. We seek to monitor and manage our risk exposure through a variety of separate but complementary financial, credit, market, operational, compliance and legal reporting systems. We must also maintain a culture of risk management among our employees. Although we employ a broad and diversified set of risk monitoring and risk mitigation techniques, such techniques and strategies may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we fail to identify or anticipate.
Some of our tools and metrics for managing risk are based on our use of observed historical market behavior. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. These tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses therefore could be significantly greater than the historical measures indicate. In addition, our statistical models do not take all risks into account. Our approach to managing risks could prove insufficient, exposing us to material unanticipated losses. We could face adverse consequences as a result of decisions based on models that are poorly developed, implemented, or used, or as a result of a modeled outcome being misunderstood or used of for purposes for which it was not designed, or if the data or inputs of the models were incorrect or insufficient. In addition, if existing or potential customers believe our risk management is inadequate, they could take their business elsewhere or seek to limit transactions with us. This could have a material adverse effect on our reputation, operating results, financial condition, and prospects.
As a commercial bank, one of the main types of risks inherent in our business is credit risk. For example, an important feature of our credit risk management is to employ an internal credit rating to assess the particular risk profile of a customer. Since this process involves detailed analyses of the customer, taking into account both quantitative and qualitative factors, it is subject to human and IT systems errors. In exercising their judgment on the current and future credit risk of our customers, our employees may not always assign an accurate credit rating, which may result in a higher exposure to credit risks than indicated by our risk rating system.
We have been refining our credit policies and guidelines to address potential risks associated with particular industries or types of customers. However, we may not be able to timely detect all possible risks before they occur or, due to limited tools available to us, our employees may not be able to implement them effectively, which may increase our credit risk. Failure to effectively implement, consistently follow or continuously refine our credit risk management system may result in an increase in the level of NPLs and a higher risk exposure for us, which could have a material adverse effect on our business, financial condition and results of operations.
Model Risk
We rely on models for many of our decisions. Their inaccurate or incorrect use could have a material adverse effect on us.
We use models for approval (scoring/rating), capital calculation, behavior, provisions, market, operational risk, compliance and liquidity. A model is a system, approach or quantitative method that applies statistical, economic, financial or mathematical theories, techniques or hypotheses to transform input data into quantitative estimates. It involves simplified representations of real-world relationships between characteristics, values and observed assumptions that allows us to focus on specific aspects. Model risk is the negative consequence of decisions based on their inaccurate, improper or incorrect use. Sources of model risk include (1i) incorrect or incomplete data in the model itself or the modelling method used in systems; and (2ii) incorrect use or implementation of the model.
Model risk can cause financial loss, erroneous commercial and strategic decision-making and or damage to our transactions. In addition, the fair value of our financial assets, determined using financial valuation models, may be inaccurate or subject to change and, as a consequence, we may have to register impairments or write-downs that could have a material adverse effect on our operating results, financial condition and prospects. Market conditions have resulted and could result in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our operating results, financial condition and prospects.
Business and Industry Risks
The financial problems our customers face could adversely affect us.
Market turmoil and economic recession could materially and adversely affect the liquidity, businesses and/or financial condition of our borrowers, which could in turn increase our NPL ratios, impair our loan and other financial assets and result in decreased demand for borrowings in general. Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations.
Increased competition and industry consolidation may adversely affect our results of operations.
We face substantial competition in all parts of our business from numerous banks and non-bank providers of financial services, including in originating loans and attracting deposits, providing customer service, the quality and range of products and services, technology, interest rates and overall reputation, and we expect competitive conditions to continue to intensify. Our competition comes principally from other domestic and foreign banks, mortgage banking companies, consumer finance companies, insurance companies and other lenders and purchasers of loans.
There has been a trend towards consolidation in the banking industry, which has created larger banks with which we must now compete. Some of our competitors are substantially larger than we are, which may give those competitors advantages such as a more diversified product and customer base, the ability to reach more customers and potential customers, operational efficiencies, lower-cost funding and larger branch networks. Many competitors are also focused on cross-selling their products, which could affect our ability to maintain or grow existing customer relationships or require us to offer lower interest rates or fees on our lending products or higher interest rates on deposits. There can be no assurance that increased competition will not adversely affect our growth prospects and therefore our operations. We also face competition from non-bank competitors such as brokerage companies, department stores (for some credit products), leasing and factoring companies, mutual fund and pension fund management companies and insurance companies.
Non-traditional providers of banking services, such as financial technology companies, internet based e-commerce providers, mobile telephone companies and internet search engines, may offer and/or increase their offerings of financial products and services directly to customers. These non-traditional providers of banking services currently have an advantage over traditional providers because they are not subject to the same regulatory or legislative requirements to which we are subject. Several of these competitors may have long operating histories, large customer bases, strong brand recognition and significant financial, marketing and other resources. They may adopt more aggressive pricing and rates and devote more resources to technology, infrastructure and marketing.
New competitors may enter the market or existing competitors may adjust their services with unique product or service offerings or approaches to providing banking services. If we are unable to compete successfully with current and new competitors, or if we are unable to anticipate and adapt our offerings to changing banking industry trends, including technological changes, our business may be adversely affected. In addition, our failure to anticipate or adapt to emerging technologies or changes in customer behavior effectively, including among younger customers, could delay or prevent our access to new digital-based markets, which would in turn have an adverse effect on our competitive position and business. Furthermore, the widespread adoption of new technologies, including distributed ledger, artificial intelligence, and/or biometrics, to provide services such as cryptocurrencies and payments, could require substantial expenditures to modify or adapt our existing products and services as we continue to grow our internet and mobile banking capabilities. Our customers may choose to conduct business or offer products in areas that may be considered speculative or risky. Such new technologies and the rise in customer use of internet and mobile banking platforms in recent years could negatively impact the value of our investments in bank premises, equipment and personnel for our branch network. The persistence or acceleration of this shift in demand towards internet and mobile banking may necessitate changes to our retail distribution strategy, which may include closing and/or selling certain branches and restructuring our remaining branches and workforce. These actions could lead to losses on these assets and increased expenditures to renovate, reconfigure or close a number of our remaining branches or otherwise reform our retail distribution channel. Furthermore, our failure to keep pace with innovation or to swiftly and effectively implement such changes to our distribution strategy could have an adverse effect on our competitive position.
Increasing competition could also require that we increase the rates we offer on deposits or lower the rates we charge on loans, which could also have a material adverse effect on our business, financial condition and results of operations. It may also negatively affect our business results and prospects by, among other things, limiting our ability to increase our customer base and expand our operations and increasing competition for investment opportunities.
If our customer service levels were perceived by the market to be materially below those of our competitors, we could lose existing and potential business. If we are not successful in retaining and strengthening customer relationships, we may lose market share, incur losses on some or all of our activities or fail to attract new deposits or retain existing deposits, which could have a material adverse effect on our business, financial condition and results of operations.
Inability to manage the growth of our operations or to integrate our inorganic growth successfully could adversely impact profitability
We allocate management and planning resources to develop strategic plans for organic growth, and to identify possible acquisitions and disposals and areas for restructuring our businesses. From time to time, we evaluate acquisition and partnership opportunities that we believe offer additional value to our shareholders and are consistent with our business strategy. However, we may not be able to identify suitable acquisition or partnership candidates, and our ability to benefit from any such acquisitions or partnerships depend in part on our successful integration of those businesses. Any such integration entails significant risks, such as unforeseen difficulties in integrating operations and systems, unexpected liabilities or contingencies relating to the acquired businesses, and delivery and execution risks. We can give no assurances that our expectations with regards to integration and synergies of these businesses will materialize. We also cannot provide assurance that we will, in all cases, be able to manage our growth effectively or deliver our strategic growth objectives. Challenges that may result from our strategic growth decisions include our ability to:
•manage the operations and employees of expanding businesses efficiently;
•maintain or grow our existing customer base;
•assess the value, strengths and weaknesses of investment or acquisition candidates, including local regulation that can reduce or eliminate expected synergies;
•finance strategic investments or acquisitions;
•align our current IT systems adequately with those of an enlarged group;
•apply our risk management policies effectively to an enlarged group;
•manage a growing number of entities without over-committing management or losing key personnel; and
•operate and implement SBNA’s new online banking platform Openbank with our other banking systems seamlessly and efficiently.
Any failure to manage growth effectively could have a material adverse effect on our financial condition and results of operations.
Goodwill impairments may be required in relation to acquired businesses.
We have made business acquisitions for which it is possible that the goodwill which has been attributed to those businesses may have to be written down if our valuation assumptions are required to be reassessed as a result of any deterioration in the business’ underlying profitability, asset quality, interest rate environment, or other relevant matters. Impairment testing with respect to goodwill is performed annually, more frequently if impairment indicators are present, and includes a comparison of the carrying amount of the reporting unit with its fair value. If the carrying value of the reporting unit is higher than the fair value, the impairment is measured as this excess of carrying value over fair value. We did not recognize any impairments of goodwill in 2024, 2023, or 2022; however, based on future market conditions and the Company's financial performance, it is possible we may be required to record additional impairment of goodwill of up to $2.8 billion attributable to one or more of the Company's reporting units in the future. There can be no assurance that we will not have to write down the value attributed to goodwill further in the future, which would not impact risk-based capital ratios adversely but would adversely affect our results of operations and stockholder's equity.
We rely on recruiting, retaining and developing appropriate senior management and skilled personnel.
Our continued success depends in part on the continued service of key members of our management team. The ability to continue to attract, train, motivate and retain highly qualified professionals is a key element of our strategy. The successful implementation of our growth strategy depends on the availability of skilled management and employees, both at our head office and at each of our business units. If we or one of our business units or other functions fails to staff its operations appropriately or loses one or more of its key senior executives and fails to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including control and operational risks, may be adversely affected.
The financial industry in the United States has experienced and may continue to experience more stringent regulation of employee compensation, which could have an adverse effect on our ability to hire or retain the most qualified employees. In addition, due to our relationship with Santander, we are subject to indirect regulation by the European Central Bank, which has recently imposed compensation restrictions that may apply to certain of our executive officers and other employees under the CRD IV prudential rules. These restrictions may impact our ability to retain our experienced management team and key employees and our ability to attract appropriately qualified personnel, which could have a material adverse impact on our business, financial condition, and results of operations.
Damage to our reputation could cause harm to our business prospects.
Maintaining a positive reputation is critical to our attracting and maintaining customers, investors and employees and conducting business transactions with our counterparties. Damage to our reputation could materially and adversely affect our perception among current and potential clients, investors, vendors, partners, regulators, and other third parties, which in turn could have a material adverse effect on our operating results, financial condition, and prospects as well as damage our customers' and investors' confidence. Harm to our reputation can arise from numerous sources including, among others, employee misconduct, litigation or regulatory outcomes, failure to deliver minimum standards of service and quality, dealing with sectors that are not well perceived by the public (e.g., weapons industries), dealing with customers on sanctions lists, ratings downgrades, compliance failures, unethical behavior, press speculation, perception of our environmental, social and governmental practices and disclosures, and the activities of customers and counterparties, including activities that affect the environment negatively. Further, adverse publicity, regulatory actions or fines, litigation, operational failures or the failure to meet client expectations or other obligations could materially and adversely affect our reputation, our ability to attract and retain clients or our sources of funding for the same or other businesses. Our reputation could also suffer if we are the subject of negative coverage in the media, whether it has merit or not.
Actions by the financial services industry generally or by certain members of, or individuals in, the industry can also affect our reputation. Since we are part of the global Santander group and conduct business under the “Santander” brand, negative public opinion about the actions or activities of other Santander businesses around the world could affect our reputation adversely. Additionally, the role played by financial services firms in the financial crisis and increased regulatory supervision and enforcement have caused public perception of us and others in the financial services industry to decline. Activists increasingly target financial services firms with criticism for relationships with clients engaged in businesses whose products are perceived to be harmful to the health of customers, or whose activities are perceived to affect public safety, the environment, climate or workers’ rights negatively, even when such businesses are legal. Such criticism could take many forms, including protests at our locations, and could increase dissatisfaction among customers, investors and employees of the Company and damage the Company’s reputation. Alternatively, yielding to such activism could damage the Company’s reputation with groups whose views are not aligned with those of the activists. In either case, certain clients and customers may cease to do business with the Company, and the Company’s ability to attract new clients and customers may be diminished. Activist pressure can also be a factor when we consider pursuing new business opportunities, potentially resulting in our not pursuing otherwise profitable opportunities.
Additionally, we could suffer significant reputational harm that could affect our business, results of operations and prospects from any negative perceptions regarding topics related to environmental, social and corporate governance policies. There has been increased focus by customers, shareholders, investor advocacy groups, employees, regulators and other stakeholders on these topics, and our policies, practices and disclosures in these areas could come under scrutiny. Governments may implement new or additional regulations and standards, or investors, customers and other stakeholders may impose new expectations or focus investments in ways that cause significant shifts in disclosure, consumption and behaviors that may have negative impacts on our business. If regulators or stakeholders consider our efforts to be ineffective, inadequate or unsatisfactory, whether real or perceived, it could harm our reputation, business and prospects and we could be subject to enforcement, other supervisory actions or other harm.
Preserving and enhancing our reputation also depends on maintaining systems, procedures and controls that address known risks and regulatory requirements, as well as our ability to timely identify, understand and mitigate additional risks that arise due to changes in our businesses and the markets in which we operate, the regulatory environment and customer expectations.
We could suffer significant reputational harm if we fail to identify and manage potential conflicts of interest properly. The failure to adequately address, or the perceived failure to adequately address, conflicts of interest could affect the willingness of clients to deal with us or give rise to litigation or enforcement actions against us. Therefore, there can be no assurance that conflicts of interest will not arise in the future that could cause material harm to us.
While negative public opinion once was primarily a response to adverse coverage in traditional news media, increased use of social media platforms has resulted in rapid dissemination of information and misinformation, which can magnify potential harm to the Company’s reputation. We may be the subject of misinformation and misrepresentations deliberately propagated in media or social media to harm our reputation or for other deceitful purposes, including by others seeking to gain an illegal market advantage by spreading false information about us. There can be no assurance that we will be able to neutralize or contain false information that may be propagated regarding the Company, which could have an adverse effect on our operating results, financial condition and prospects.
Fraudulent activity associated with our products or networks could cause us to suffer reputational damage, the use of our products to decrease and our fraud losses to be materially adversely affected. We are subject to the risk of fraudulent activity associated with merchants, customers and other third parties handling customer information. The risk of fraud continues to increase for the financial services industry in general. Credit and debit card fraud, identity theft and related crimes are prevalent, and perpetrators are growing more sophisticated. Our resources, customer authentication methods and fraud prevention tools may not be sufficient to accurately predict or prevent fraud. Additionally, our fraud risk continues to increase as third parties that handle confidential consumer information suffer security breaches and we expand our direct banking business and introduce new products and features. Our financial condition, the level of our fraud charge-offs and other results of operations could be materially adversely affected if fraudulent activity were to increase significantly. High-profile fraudulent activity could negatively impact our brand and reputation. In addition, significant increases in fraudulent activity could lead to regulatory intervention and reputational and financial damage to our brands, which could negatively impact the use of our products and services and have a material adverse effect on our business, financial condition and results of operations.
SBNA engages in transactions with its affiliates that may not be on favorable terms to the affiliate.
Federal banking laws establish numerous requirements for transactions banks have with their affiliates, including that such transactions be on terms and conditions that are at least as favorable to the bank as those prevailing at the time for comparable transactions the bank has with non-affiliates.
SBNA enters into many transactions with its affiliates in the ordinary course of business, including agreements pursuant to which SHUSA may render services, such as administrative, accounting, finance, treasury, legal services and others.
SBNA is likely to continue to engage in transactions with affiliates and such transactions are not required to be and may not be considered favorable to SHUSA.
Risks Related to Pandemics and Public Health Emergencies
The COVID-19 pandemic materially impacted our business, and a similar pandemic or public health emergency could materially and adversely impact our business, financial condition, liquidity and results of operations.
If a new pandemic or public health emergency occurs that forces countries to re-adopt measures that restrict economic activity, such as requiring certain businesses or locations to close temporarily or indefinitely, the macroeconomic environment could deteriorate and adversely impact our business and results of operations, the effects of which could include, but are not limited to, (i) decreased demand for our products and services; (ii) material impairment of our loans and other assets including goodwill; (iii) decline in the value of collateral; (iv) constraints on our liquidity due to market conditions, exchange rates and customer withdrawal of deposits and continued draws on lines of credit; and (v) downgrades to our credit ratings. Moreover, our operations could still be impacted by risks from remote work or bans on non-essential activities. If, as a result of any future public health emergency, we become unable to operate our business from remote locations successfully including, for example, due to failures of our technology infrastructure, increased cybersecurity risks, or governmental restrictions that affect our operations, this could result in business disruptions that could have a material and adverse effect on our business.
A future pandemic or public health emergency may have adverse effects on our business, financial condition, liquidity and results of operations or increase the likelihood of experiencing other risks described in these Risk Factors.
Technology and Cybersecurity Risks
Any failure to effectively maintain, secure, improve or upgrade our IT infrastructure and management information systems in a timely manner could have a material adverse effect on us.
Our ability to remain competitive depends in part on our ability to maintain, protect and upgrade our IT on a timely and cost-effective basis. We must continually make significant investments and improvements in our IT infrastructure in order to meet the needs of our customers. There can be no assurance that we will be able to maintain the level of capital expenditures necessary to support the continuous improvement and upgrading of our IT infrastructure in the future. To the extent we are dependent on any particular technology or technological solution, we may be harmed if that technology or technological solution becomes non-compliant with existing industry standards, fails to meet or exceed the capabilities of our competitors’ comparable technologies or technological solutions, becomes increasingly expensive to service, retain and update, becomes subject to third-party claims of intellectual property infringement, misappropriation or other violation, or malfunctions or functions in a way we did not anticipate. Additionally, new technologies and technological solutions are continually being released. Accordingly, it is difficult to predict the problems we may encounter in improving our technologies’ functionality. There is no assurance that we will be able to successfully adopt new technology as critical systems and applications become obsolete and better ones become available. Any failure to improve or upgrade our IT infrastructure and management information systems effectively and in a timely and cost-efficient manner could have a material adverse effect on us.
Risks relating to data collection, processing, storage systems and security are inherent in our business.
Like other financial institutions with a large customer base, we have been subject to and are likely to continue to be the subject of attempted cyberattacks in light of the fact that we receive, manage, process, hold and transmit proprietary and sensitive or confidential information, including that of our customers and employees, in the conduct of our banking operations, as well as a large number of assets. Our business depends on the ability to process a large number of transactions efficiently and accurately, and on our ability to rely on our digital technologies, computer and e-mail services, spreadsheets, software and networks, as well as on the secure processing, storage and transmission of confidential and other information in our computer systems and networks and those of our third-party service providers. The proper and secure functioning of financial controls, accounting and other data collection and processing systems is critical to our businesses and our ability to compete effectively. Cybersecurity incidents and data losses can result from inadequate personnel, inadequate or failed internal control processes and systems, or external events or actors that interrupt normal business operations. We also face the risk that the design of our cybersecurity controls and procedures proves to be inadequate or is circumvented. Any material disruption or slowdown of our systems could cause information, including data related to customer requests, to be lost or delivered to our clients with delays or errors, which could reduce demand for our products and services, result in customer claims and materially and adversely affect us.
Although we work with our clients, third-party service providers, counterparties and other external parties to develop secure transmission capabilities and prevent information security risk, we routinely exchange personal, confidential and proprietary information by electronic means, which may be a target for attempted cyberattacks. For example, on May 14, 2024, Santander announced that it had become aware of an unauthorized access to a Santander database that included certain customer and employee information hosted by a third-party provider. Only U.S. employee data was involved in this event, no U.S. customer data was involved. Several measures were implemented immediately to manage the incident, such as blocking access to the database, strengthening fraud prevention, preventative actions to prevent similar incidents from occurring again, maintaining direct contact with regulatory agencies and collaborating with law enforcement agencies in the investigation. Risks related to the electronic exchange of sensitive information are especially applicable in the current environment, in which there has been a shift in recent years to work-from-home policies for a significant portion of the workforce, as they access our secure networks remotely. If we cannot maintain effective and secure electronic data and information, management and processing systems or if we fail to maintain complete physical and electronic records, the result could be disruptions to our operations, claims from customers, regulators, employees and other parties, violations of applicable privacy and other laws, regulatory sanctions and serious reputational and financial harm to us.
Many companies across the country and in the financial services industry have reported significant breaches in the security of their websites or other systems. Cybersecurity risks have increased significantly in recent years due to the development and proliferation of new technologies, increased use of the internet and telecommunications technology to conduct financial transactions, and increased sophistication and activities of organized crime groups, state-sponsored and individual hackers, terrorist organizations, disgruntled employees and other insiders, activists and other threat actors. Financial institutions, the government and retailers have in recent years reported cyber incidents that compromised data, resulted in the theft of funds or the theft or destruction of corporate information and other assets.
We take protective measures and continuously monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption. We have policies, practices and controls designed to prevent or limit disruptions to our systems and enhance the security of our infrastructure, as described in greater detail in Item 1C - Cybersecurity of this Annual Report on Form 10-K.
Controls and capabilities include performing risk management for information systems that store, transmit or process information assets identifying and managing risks to information assets managed by third-party service providers through on-going oversight and assessment of the service providers’ operations and controls. We develop controls regarding user access to software on the principle that access is forbidden to a system unless expressly permitted, limited to the minimum amount necessary for business purposes, and terminated promptly when access is no longer required. We seek to educate and make our employees aware of information security and privacy controls and their specific responsibilities on an ongoing basis.
Nevertheless, while we have not experienced material losses or other material consequences relating to cyberattacks or other information or security breaches, whether directed at us, our third parties or other external parties that our third parties rely on, our systems, software and networks, as well as those of our clients, third-party service providers, counterparties and other third parties, may be vulnerable to unauthorized access, misuse, computer viruses or other malicious code, phishing attacks, cyberattacks such as denial of service, malware, ransomware, phishing, and other events of a similar nature. Such events could result in security breaches or give rise to the manipulation or loss of significant amounts of personal, proprietary or confidential information of our customers, employees, suppliers, counterparties and other third parties, disrupt, sabotage or degrade service on our systems, or result in the theft or loss of significant levels of liquid assets, including cash. We may also be impacted by cyberattacks against national critical infrastructure in the geographic locations in which we operate, such as telecommunications networks. Our IT systems are dependent on such national critical infrastructure and cyberattacks against such infrastructure could affect our ability to service our customers negatively.
As cybersecurity threats continue to evolve and increase in sophistication, we cannot guarantee the effectiveness of our policies, practices and controls to protect against all such circumstances that could result in disruptions to our systems. This is because, among other reasons, the techniques used in cyberattacks change frequently and cyberattacks can originate from a wide variety of sources, including not only cyber-criminals but also activists and states regarded by the international community to be rogue states. Threat actors may seek to gain access to our systems either directly or by using equipment or passwords belonging to employees, customers, third-party service providers or other authorized users of our systems. In the event of a cyberattack or security breach affecting a third party entity on whom we rely, our ability to conduct business, and the security of our customer information, could be impaired in a manner to that of a cyberattack or security breach affecting us directly. We also may not receive information or notice of the breach in a timely manner, or we may have limited options to influence how and when the cyberattack or security breach is addressed.
As financial institutions continue to be interconnected with central agents, exchanges and clearinghouses, they may be increasingly susceptible to negative consequences of cyberattacks and security breaches affecting the systems of such third parties. It could take a significant amount of time for a cyberattack to be investigated, during which time we may not be in a position to fully understand and remediate the attack, and certain errors or actions could be repeated or compounded before they are discovered and remediated, any or all of which could further increase the costs and consequences associated with a particular cyberattack. The perception of a security breach affecting us or any part of the financial services industry, whether correct or not, could result in a loss of confidence in our cybersecurity measures or otherwise damage our reputation with customers and third parties with whom we do business. Should such adverse events occur, we may not have indemnification or other protection from the third party sufficient to compensate or protect us from the consequences.
As attempted cyberattacks continue to evolve, we may incur significant costs in our attempts to modify or enhance our protective measures against such attacks to investigate or remediate any vulnerability or resulting breach, or in communicating cyberattacks to our customers. An interception, misuse or mishandling of personal, confidential or proprietary information sent to or received from a client, vendor, service provider, counterparty or third party or a cyberattack could result in our inability to recover or restore data that has been stolen, manipulated or destroyed, damage to our systems and those of our clients, customers and counterparties, violations of applicable privacy and other laws, or other significant disruption of operations, including disruptions in our ability to use our accounting, deposit, loan and other systems and our ability to communicate with and perform transactions with customers, third-party service providers and other parties. These effects could be exacerbated if we would need to shut down portions of our technology infrastructure temporarily to address a cyberattack, if our technology infrastructure is not sufficiently redundant to meet our business needs while an aspect of our technology is compromised, or if a technological or other solution to a cyberattack is slow to be developed. Even if we timely resolve the technological issues in a cyberattack, a temporary disruption in our operations could adversely affect customer satisfaction and behavior, expose us to reputational damage, contractual claims, regulatory, supervisory or enforcement actions, or litigation.
U.S. banking agencies and other federal and state government agencies continue to focus their attention on cybersecurity and data privacy risks and have proposed enhanced risk management standards that would apply to us. For example, in 2023, the SEC adopted new rules related to disclosures of cybersecurity risk management, strategy, governance, and incidents by public companies. These new rules have two main components for domestic public companies: (1) disclosure of material cybersecurity incidents on Form 8-K within four business days of determining that a cybersecurity incident is material; and (2) annual disclosure of a company’s risk management, strategy, and governance relating to cybersecurity matters on Form 10-K. Such legislation and regulations relating to cybersecurity and data privacy may require that we modify systems, change service providers, or alter business practices or policies regarding information security, handling of data and privacy. Also in 2023, the NYDFS updated regulations to include enhanced requirements including independent audits, additional Board reporting and oversight, authentication, penetration testing, and incident response and continuity planning. These changes are in line with our existing information security program requirements. In addition, the NYDFS established a requirement for covered companies to notify the NYDFS within 72 hours after determining that a notifiable cybersecurity event has occurred. Changes such as these could subject us to heightened compliance complexity and operational costs. We may be required to report events related to data privacy or cybersecurity issues, events where customer information may be compromised, unauthorized access to our systems and other security breaches to affected individuals or the relevant regulatory authorities. To the extent we do not successfully meet supervisory standards pertaining to cybersecurity, we could be subject to supervisory actions, substantial fines, civil or criminal penalties, significant litigation and reputational damage or ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.
Risks Associated with Our Use of AI
We utilize, and are continuing to explore further uses of, AI in connection with our businesses, products and services. However, regulation of AI is evolving rapidly as legislators and regulators are increasingly focused on these emerging technologies. The technologies underlying AI and its uses are subject to a variety of laws and regulations, including intellectual property, privacy, data protection and information security, consumer protection, competition, and equal opportunity laws, and are expected to be subject to increased regulation and new laws or applications of existing laws and regulations. AI is the subject of ongoing review by various U.S. governmental and regulatory agencies, and various U.S. states are applying, or are considering applying, their cybersecurity and data protection laws and regulations to AI, or are considering legal frameworks for AI.
We may not be able to anticipate how to respond to these rapidly evolving laws and regulations, and we may need to expend resources to adjust our offerings in certain jurisdictions if the legal and regulatory frameworks are inconsistent across jurisdictions. Furthermore, because AI technology itself is highly complex and developing rapidly, it is not possible to predict all of the legal or regulatory risks that may arise related to the use of AI. If laws and regulations relating to AI are implemented, interpreted or applied in a manner inconsistent with our current practices or policies, those laws and regulations may adversely affect our use of AI and our ability to provide and improve our services, require additional compliance measures and changes to our operations and processes and result in increased compliance costs and potential increases in civil claims against us, any of which could adversely affect our operating results, financial condition and prospects.
Risks Associated with our Auto Lending Business
The financial results of the auto lending business could have a negative impact on the Company's operating results and financial condition.
The auto lending business historically has provided a significant source of funding to the Company through earnings. The auto lending business involves risk, including the possibility that poor operating results could negatively affect the operating results of SHUSA.
Factors that affect the financial results of the auto lending business in addition to those which have been previously addressed include, but are not limited to:
•Our relationship with Stellantis has been a significant source of our loan and lease originations. Loss of our relationship with Stellantis, including as a result of termination of our agreement with Stellantis, could materially and adversely affect our business, financial condition and results of operations. Our MLPA with Stellantis is scheduled to expire in December 2025.
•The auto lending business may be negatively impacted if it is unsuccessful in developing and maintaining relationships with automobile dealerships that correlate to the ability to acquire loans and automotive leases. In addition, economic downturns may result in the closure of dealerships and corresponding decreases in sales and loan volumes.
•The auto lending business could be negatively impacted if it is unsuccessful in developing and maintaining its serviced for others portfolio. As this is a significant and growing portion of the auto lending business strategy, if an institution for
which we currently service assets chooses to terminate rights as a servicer or if we fail to add additional institutions or portfolios to its servicing platform, the auto lending business may not achieve the desired revenue or income from this platform.
•We have repurchased obligations in our capacity as a servicer in securitizations and whole loan sales. If significant repurchases of assets or other payments are required under our responsibility as a servicer, this could have a material adverse effect on the auto lending business' financial condition, results of operations, and liquidity.
General Risk Factors
Climate Change Risks
There is increasing concern over the risks of climate change and related environmental risks that could adversely affect us, including:
•Transition risks associated with the move to a low-carbon economy, both at idiosyncratic and systemic levels, such as through policy, regulatory and technological changes, which could increase our expenses and impact our strategies.
•Physical risks related to discreet events such as flooding and wildfires, and extreme weather impacts and longer-term shifts in climate patterns, such as extreme heat, sea level rise and more frequent and prolonged droughts, which could impair our or our customers’ property and/or result in financial losses that could impair asset values and the creditworthiness of our customers. Such events could disrupt our operations or those of our customers, including through direct damage to assets, reduced availability of insurance, unemployment and indirect impacts from supply chain disruption and market volatility.
•Liability risks derived from parties who may suffer losses from the effects of climate change and may seek compensation from those they hold responsible such as state entities, regulators, investors and lenders.
These primary drivers could lead to the following financial risks, among others:
•Credit risks: physical climate change could lower corporate revenues, increasing operating costs, and lead to increased credit exposure. Additionally, companies with business models not aligned with the transition to a low-carbon economy may face a higher risk of reduced corporate earnings, lower asset values, and business disruption due to new regulations or market shifts. We may face regulatory restrictions or costs associated with providing products or services to certain companies or sectors.
•Market risks: Market changes in the most carbon-intensive sectors could affect energy and commodity prices, corporate bonds, equities and certain derivatives contracts. Increasing frequency of severe weather events could affect macroeconomic conditions, weakening fundamental factors such as economic growth, employment and inflation, and lead to higher volatility.
•Liquidity risks: Companies could face liquidity risks derived from cash outflows to improve their reputation in the market or solve climate-related problems. Extreme weather events could also affect the value of our high-quality liquid assets or cause sovereign debt to rise, limiting our access to capital markets.
•Operational risks: Severe weather events could directly damage our assets and impact business continuity, both our customers’ and ours. Climate-related financial risks could also cause operational risk losses from litigation if, for example, we are perceived to misrepresent sustainability-related practices.
•Reputational risks: Our reputation and client relationships may be damaged as a result of our practices, disclosures and decisions related to climate change and the environment, or to the practices or involvement of our clients, vendors or suppliers in certain industries or projects associated with causing or exacerbating climate change. Furthermore, parties who may suffer losses from the effects of climate change may seek compensation from those they hold responsible such as state entities, regulators, investors and lenders. Conduct risks could develop associated with misrepresenting our declarations, actions, communications, policies or the sustainability characteristics of our products or practices or misleading our customers, investors or other stakeholders.
•Regulatory risk: Increased regulatory compliance risk may result from the increasing focus, pace, breadth and depth of regulatory expectations, requiring implementation in short timeframes and from changes in public policy, laws and regulations in connection with climate change and related environmental sustainability matters. Banking regulators have increased focus on climate-related risks and the threats posed to financial institutions, including us, as well as systemic financial stability. Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.
•Strategic risks: Our strategy could be affected if we fail to achieve our environmental-related targets, including those related to the activities that we finance and those concerning our own operations.
As climate risk is interconnected with all key types, we have developed and continue to enhance processes to embed climate risk considerations into our core processes and risk management cycle; however, because the timing and severity of climate change is evolving rapidly and may not be predictable, our risk management strategies may not be effective in mitigating climate risk exposure. Additionally, we may become subject to new or heightened regulatory requirements relating to climate change, which may result in increased regulatory, compliance and other costs. As the risks, perspective and focus of regulators, employees and other stakeholders regarding climate change are evolving rapidly, it can be difficult to assess the ultimate impact on us of climate-related risks, compliance risks and uncertainties.
We periodically disclose information such as emissions and other climate-related performance data, statistics, metrics and/or targets. If we lack robust and high-quality climate-related procedures, controls and data, we may not be able to disclose reliable climate-related information. In addition, because the climate-related information is based on current expectations and future estimates about our and third-parties’ operations and businesses and addresses matters that are uncertain to varying degrees, we may not be able to meet our estimates, targets or commitments or we may not be able to achieve them within the timelines we announce. Actual or perceived shortcomings with respect to these emissions and other climate-related initiatives and reporting could result in litigation or regulatory enforcement and impact our ability to hire and retain employees, increase our customers base, and attract and retain certain types of investors.
Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations.
Macro-Economic and Political Risks
Business and Industry Risks
We depend in part upon dividends and other funds from subsidiaries.
Most of our operations are conducted through our subsidiaries. As a result, our ability to pay dividends, to the extent we decide to do so, depends in part on the ability of our subsidiaries to generate earnings and pay dividends to us. Payment of dividends, distributions and advances by our subsidiaries will be contingent on our subsidiaries’ earnings and business considerations and are limited by legal and regulatory restrictions. Additionally, our right to receive any assets of our subsidiaries as an equity holder of such subsidiaries upon their liquidation or reorganization will be effectively subordinated to the claims of our subsidiaries’ creditors, including trade creditors.
Our ability to maintain our competitive position depends, in part, on the success of new products and services we offer our clients and our ability to continue offering products and services from third parties, and we may not be able to manage various risks we face as we expand our range of products and services that could have a material adverse effect on us.
The success of our operations and our profitability depend, in part, on the success of new products and services we offer our clients and our ability to continue offering products and services from third parties. However, we cannot guarantee that our new products and services will be responsive to client demands or successful once they are offered to our clients, or that they will be successful in the future. In addition, our clients’ needs or desires may change over time, and such changes may render our products and services obsolete, outdated or unattractive, and we may not be able to develop new products that meet our clients’ changing needs. Our success is also dependent on our ability to anticipate and leverage new and existing technologies that may have an impact on products and services in the banking industry. Technological changes may further intensify and complicate the competitive landscape and influence client behavior. If we cannot respond in a timely fashion to the changing needs of our clients, we may lose clients, which could in turn materially and adversely affect us.
The introduction of new products and services can entail significant time and resources, including regulatory approvals. Substantial risks and uncertainties are associated with the introduction of new products and services, including technical and control requirements that may need to be developed and implemented, rapid technological change in the industry, our ability to access technical and other information from our clients and the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices. Our failure to manage these risks and uncertainties also exposes us to the enhanced risk of operational lapses, which may result in the recognition of financial statement liabilities. Regulatory and internal control requirements, capital requirements, competitive alternatives, vendor relationships and shifting market preferences may also determine whether initiatives can be brought to market in a manner that is timely and attractive to our clients. Failure to manage these risks in the development and implementation of new products or services successfully could have a material adverse effect on our business and reputation, as well as on our consolidated results of operations and financial condition. In addition, the cost of developing products that are not launched is likely to affect our business, financial condition and
results of operations. Any or all of these factors, individually or collectively, could have a material adverse effect on our business, financial condition and results of operations.
We rely on third parties for important products and services.
Third-party vendors provide key components of our business infrastructure such as loan and deposit servicing systems, back office and business process support and software, information technology, internet connections and network access, including cloud-based services. Third parties can be sources of operational risk to us, including with respect to security breaches affecting those parties. We also are subject to risk with respect to security breaches affecting the vendors and other parties that interact with those service providers. We may be required to take steps to protect the integrity of our operational systems, thereby increasing our operational costs and potentially decreasing customer satisfaction. In addition, any problems caused by these third parties, including as a result of their not providing us their services for any reason, their performing their services poorly, or employee misconduct could adversely affect our ability to deliver products and services to customers and otherwise to conduct business, which could lead to reputational damage and regulatory investigations and intervention. Replacing these third-party vendors could also entail significant delays and expense. Further, the operational and regulatory risk we face as a result of these arrangements may be increased to the extent that we restructure them. Any restructuring could involve significant expense to us and entail significant delivery and execution risk, which could have a material adverse effect on our business, financial condition and results of operations.
If a third party obtains access to our customer information and that third party experiences a cyberattack or breach of its systems, this could result in several negative outcomes for us, including losses from fraudulent transactions, potential legal and regulatory liability and associated damages, penalties and restitution, increased operational costs to remediate the consequences of the third party’s security breach, and harm to our reputation from the perception that our systems or third-party systems or services that we rely on may not be secure.
Our business and financial performance could be adversely affected, directly or indirectly, by disasters, natural or otherwise, including geopolitical events such as terrorist activities, international hostilities, and government responses to events.
Neither the occurrence nor potential impact of disasters (such as earthquakes, hurricanes, tornadoes, floods and other severe weather conditions, pandemics, and other significant public health emergencies, dislocations, fires, explosions, or other catastrophic accidents or events), terrorist activities or international hostilities can be predicted. However, these occurrences could impact us directly (for example, by causing significant damage to our facilities, preventing a subset of our employees from working for a prolonged period and otherwise preventing us from conducting our business in the ordinary course), or indirectly as a result of their impact on our borrowers, depositors, other customers, suppliers or other counterparties. We could also suffer adverse consequences to the extent that disasters, terrorist activities or international hostilities affect the financial markets or the economy in general or in any particular region. These types of impacts could lead, for example, to an increase in delinquencies, bankruptcies and defaults that could result in our experiencing higher levels of nonperforming assets, net charge-offs and provisions for credit losses.
Our ability to mitigate the adverse consequences of such occurrences is in part dependent on the quality of our resiliency planning and our ability to anticipate the nature of any such event that may occur. The adverse impact of disasters, terrorist activities or international hostilities also could be increased to the extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other organizations and businesses with which we deal.
We are also subject to geopolitical risks, such as sanctions, state-sponsored cyberattacks, civil unrest, government or military conflicts and the U.S. or foreign governments’ reactions to such events. For example, disagreements between the U.S. and significant trading partners over economic or political matters such as international trade may result in new or continued sanctions, tariffs and other similar restrictions on trade and investment between countries, which may result in supply chain disruptions and increased costs that could negatively affect us, our customers and our counterparties. In addition, during 2022, Russia launched a large-scale military action against Ukraine. The war in Ukraine has caused an ongoing humanitarian crisis in Europe as well as volatility in financial markets globally, heightened inflation, shortages and increased commodities prices. In addition, the war has exacerbated supply chain problems, particularly to businesses most sensitive to rising energy prices. Several countries, including the US, have imposed severe sanctions on Russia and Belarus, including freezing/blocking assets, targeting major Russian banks, the Russian Central Bank, and certain Russian companies and individuals, imposing trade restrictions against Russia and Russian interests, as well as the disconnection of certain Russian banks from the SWIFT system. The scale of potential sanctions is complex and rapidly evolving and can pose operational risk to banking organizations. While we do not knowingly engage in direct or indirect dealings with sanctioned parties or in direct dealings with sanctioned countries/territories, companies within Santander may on occasion have indirect dealings within the sanctioned countries/territories, while aiming to
operate in line with applicable U.S. and foreign sanctions regulations. Furthermore, the risk of cyberattacks on companies and institutions is expected to increase as a result of the war and in response to the sanctions imposed.
While our direct exposure to Russian or Ukrainian markets and assets is not material, the impact of the war in Ukraine and the sanctions imposed on global markets and institutions, the impact on macroeconomic conditions generally, and other potential future geopolitical tensions and consequences arising from the war remain uncertain and may exacerbate our operational and other risks. Similarly, the ongoing conflict in the Middle East could lead to regional instability, a rise in commodity prices, increase inflationary pressures and market volatility, and result in similar risks to us.
Financial Reporting and Control Risks
Changes in accounting standards could impact reported earnings.
The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our Consolidated Financial Statements. These changes can materially impact how we record and report our financial condition and results of operations, as well as affect the calculation of our capital ratios. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.
For example, in June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The adoption of this standard resulted in the increase in the ACL of approximately $2.5 billion and a decrease to opening retained earnings, net of income taxes, at January 1, 2020. The estimated increase is based on forecasts of expected future economic conditions and is primarily driven by the fact that the allowance will cover expected credit losses over the full expected life of the loan portfolios. The standard did not have a material impact on the Company’s other financial instruments. Additionally, we elected to utilize regulatory relief issued in March 2020 which permitted a two-year delay on including 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. We remain in the three-year transition period. This interim rule was subsequently updated with technical amendments in a final rule dated September 30, 2020, which was elected by the Company.
Our financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement of the results of our operations and financial position.
The preparation of consolidated financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect our Consolidated Financial Statements and accompanying notes. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates. Estimates, judgments and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. The accounting policies deemed critical to our results and financial position, based upon materiality and significant judgments and estimates, include impairment of loans, goodwill impairment, estimates of residual values of leased vehicles, valuation of financial instruments, impairment of available-for-sale financial assets, deferred tax assets and provisions for liabilities.
The ACL is a significant critical estimate. Due to the inherent nature of this estimate, we cannot provide assurance that the Company will not significantly increase the ACL or sustain credit losses that are significantly higher than the provided allowance.
The valuation of financial instruments measured at fair value can be subjective, in particular when models are used which include unobservable inputs. Given the uncertainty and subjectivity associated with valuing such instruments it is possible that the results of our operations and financial position could be materially misstated if the estimates and assumptions used prove inaccurate.
If the judgments, estimates and assumptions we use in preparing our Consolidated Financial Statements are subsequently found to be incorrect, there could be a material effect on our results of operations and a corresponding effect on our funding requirements and capital ratios.
Disclosure controls and procedures over financial and non-financial reporting and internal controls over financial and non-financial reporting may not prevent or detect all errors or acts of fraud, and lapses in these controls could materially and adversely affect our operations, liquidity and/or reputation.
Disclosure controls and procedures over financial and non-financial reporting are designed to provide reasonable assurance that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms. We also maintain a system of internal controls over financial reporting. However, these controls may not achieve their intended objectives. Control processes that involve human diligence and compliance, such as our disclosure controls and procedures and internal controls over financial reporting, are subject to lapses in judgement and breakdowns resulting from human failures. Controls can be circumvented by collusion or improper management override. Because of these limitations, there are risks that material misstatements due to error or fraud may not be prevented or detected, and that information may not be reported on a timely basis.
Further, there can be no assurance that we will not suffer from material weaknesses in disclosure controls and processes over financial reporting in the future. If we fail to remediate any future material weaknesses or fail to otherwise maintain effective internal controls over financial reporting in the future, such failure could result in a material misstatement of our annual or quarterly financial statements that would not be prevented or detected on a timely basis and which could cause investors and other users to lose confidence in our financial statements and limit our ability to raise capital. Additionally, failure to remediate the material weaknesses or otherwise failing to maintain effective internal controls over financial reporting may negatively impact our operating results and financial condition, impair our ability to timely file our periodic reports with the SEC, subject us to additional litigation and regulatory actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial measures.
Failure to satisfy obligations associated with public securities filings may have adverse regulatory, economic, and reputational consequences.
If we are not able to file our periodic reports within the time periods prescribed by the SEC, among other consequences, we would be unable to use Form S-3 registration statements until we have timely filed our SEC periodic reports for a period of 12 consecutive months. Our inability to use Form S-3 registration statements would increase the time and resources we need to spend if we choose to access the public capital markets.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2 - PROPERTIES
As of December 31, 2024, the Company utilized 496 buildings that occupy a total of 4.0 million square feet, including 105 owned properties with 0.6 million square feet, and 391 leased properties with 3.4 million square feet. The executive and primary administrative offices for SHUSA and SBNA are located at 75 State Street, Boston, Massachusetts. The Company leases this location. SC's corporate headquarters are located at 1601 Elm Street, Dallas, Texas. SC leases this location. SanCap's primary administrative office is located at 437 Madison Ave, New York, New York.
Seven major buildings serve as the headquarters or house significant operational and administrative functions, and are:
Operations Center - 1 Enterprise Drive, Quincy, Massachusetts 02171 - Leased
SHUSA/SBNA Administrative Offices - 75 State Street, Boston, Massachusetts - Leased
Operations and Administrative Offices - 1130 Berkshire Boulevard, Wyomissing, Pennsylvania - Owned
SC Administrative Offices - 1601 Elm Street, Dallas, Texas - Leased
BSI Operations and Administrative Offices - 830 Brickell Plaza, Miami, Florida - Leased
SCH Headquarters and Administrative offices - 437 Madison Ave, New York, New York - Leased
SanCap and SBNA Operation and Administrative offices - 200 Liberty Street, New York, New York 10006 - Leased
The majority of these seven Company properties identified above are utilized for general corporate purposes. The remaining 489 properties consist primarily of bank branches and lending offices. Of the total number of buildings, SBNA has approximately 400 retail branches.
For additional information regarding the Company's properties refer to Note 5 - "Premises and Equipment" and Note 7 - "Other Assets" in the Notes to Consolidated Financial Statements in Item 8 of this Report.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3 - LEGAL PROCEEDINGS
Refer to Note 20 to the Consolidated Financial Statements for SHUSA’s litigation disclosures, which are incorporated herein by reference.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4 - MINE SAFETY DISCLOSURES
None.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company has one class of common stock. The Company’s common stock was traded on the NYSE under the symbol “SOV” through January 29, 2009. On January 30, 2009, all shares of the Company's common stock were acquired by Santander and de-listed from the NYSE. Following this de-listing, there has not been, nor is there currently, an established public trading market in shares of the Company’s common stock. As of the date of this filing, Santander was the sole holder of the Company’s common stock.
At February 28, 2025, 530,391,043 shares of common stock were outstanding. There were no issuances of common stock during 2024, 2023, or 2022.
During the years ended December 31, 2024, 2023, and 2022, the Company declared and paid cash dividends on common stock of $1.1 billion, $3.0 billion, and $4.8 billion respectively, to its shareholder.
During the years ended December 31, 2024, 2023, and 2022, the Company declared and paid cash dividends on preferred stock of $176.9 million, $90.8 million, and zero respectively, to its shareholder.
On December 21, 2022, the Company issued 500,000 shares of the Series E Preferred Stock. Dividends on the Series E Preferred Stock are payable when, as and if authorized by the Company’s Board of Directors or a duly authorized committee thereof. From and including December 21, 2022 to but excluding December 21, 2027, dividends accrue on a non-cumulative basis a rate of 8.41% per annum, payable quarterly in arrears. From and including December 21, 2027, dividends on the Series E Preferred Stock will accrue on a non-cumulative basis at the five-year U.S. Treasury rate as of the most recent re-set dividend determination date plus 4.74% for each dividend re-set period, payable quarterly in arrears. The Company may redeem the Series E Preferred Stock on, among others, any dividend payment date on or after December 31, 2027.
On June 15, 2023, the Company issued 1,000,000 shares of the Series F Preferred Stock. Dividends on the Series F Preferred Stock are payable when, as and if authorized by the Company’s Board of Directors or a duly authorized committee thereof. From and including June 15, 2023 to but excluding June 21, 2028, dividends accrue on the Series F Preferred Stock on a non-cumulative basis at a rate of 9.380% per annum, payable quarterly in arrears. From and including June 21, 2028, dividends will accrue on a non-cumulative basis at the five-year U.S. Treasury rate as of the most recent re-set dividend determination date plus 5.467% for each dividend re-set period, payable quarterly in arrears. The Company may redeem the Series F Preferred Stock on, among others, any dividend payment date on or after June 21, 2028.
On December 19, 2023, the Company issued 500,000 shares of the Series G Preferred Stock. Dividends on the Series G Preferred Stock are payable when, as and if authorized by the Company’s Board of Directors or a duly authorized committee thereof. From and including December 19, 2023 to but excluding December 21, 2028, dividends accrue on the Series G Preferred Stock on a non-cumulative basis a rate of 8.170% per annum, payable quarterly in arrears. From and including December 21, 2028, dividends will accrue on a non-cumulative basis at the five-year U.S. Treasury rate as of the most recent re-set dividend determination date plus 4.360% for each dividend re-set period, payable quarterly in arrears. The Company may redeem the Series G Preferred Stock on, among others, any dividend payment date on or after December 21, 2028.
As of the date of this filing, Santander was the sole holder of all preferred stock shares issued.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6 - [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
SHUSA is the parent holding company of SBNA, a national banking association; SC, a consumer finance company headquartered in Dallas, Texas; BSI, a financial services company headquartered in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; SanCap, an institutional broker-dealer headquartered in New York, which has significant capabilities in market-making via an experienced fixed-income sales and trading team and a focus on structuring and advisory services for asset originators in the real estate and specialty finance markets; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC is a registered investment adviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.
The Company specializes in consumer financing focused on vehicle finance, servicing of third-party vehicle financing, and delivering service to dealers and customers across the full credit spectrum. This includes indirect origination and servicing of vehicle loans and leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers, origination of vehicle loans through a web-based direct lending program, purchases of vehicle loans from other lenders, and servicing of automobile and recreational and marine vehicle portfolios for other lenders. The Company sells consumer vehicle loans and leases through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer vehicle loans and leases.
Since May 2013, under the MPLFA with Stellantis, the Company has operated as Stellantis' preferred provider for consumer loans, leases and dealer loans and provides services to Stellantis customers and dealers under the CCAP brand. In the second quarter of 2022, the Company announced it had reached an agreement with Stellantis to amend and extend the MPLFA through December 2025. In June 2022, the Company launched a preferred lender, full spectrum financing program in partnership with MMNA to provide customer and dealer financing programs that will help MMNA achieve its goal of improving the car-buying experience.
During the second half of 2023, the Company entered into numerous new lending agreements with various auto OEMs. These new agreements reinforce the Company’s leadership in the U.S. auto finance market and commitment to forging deep, multi-geography relationships with automotive manufacturers catering to customers across the credit spectrum. These various OEMs have a diverse product lineup, including an increased focus on electric vehicles. In addition, the Company has been chosen by LendingClub to be its primary loan servicer for its auto refinance program.
In addition to specialized consumer finance, the Company also attracts deposits and provides other retail banking services through its network of retail branches with locations in Connecticut, Delaware, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island and originates small business, middle market, large and global commercial loans, multifamily loans, and other consumer loans and leases throughout the Mid-Atlantic and Northeastern areas of the United States. The Company also acquires deposits nationally through SBNA's online Openbank platform. For large institutional investors, the Company provides structured products, emerging markets credit and U.S. investment grade credit, U.S. rates, short-term fixed-income, debt and equity capital markets, investment banking, exchange-traded derivatives, and cash equities, benefiting from a combination of Santander’s global reach and access to financial hubs together with extensive local market knowledge and regional expertise.
The Company uses its deposits, public and private borrowings, as well as other financing sources, to fund its loan and investment portfolios.
In December 2023, SBNA acquired a 20 percent interest in the Structured LLC for approximately $1.1 billion. The Structured LLC was established by the FDIC to hold and service a $9.0 billion portfolio primarily consisting of New York based rent-controlled and rent-stabilized multifamily loans retained by the FDIC following a recent bank failure. SBNA's 20 percent interest is reported as an AFS debt security that had a fair value of approximately $1.2 billion and $1.1 billion at December 31, 2024 and December 31, 2023, respectively. As of December 31, 2024, SBNA serviced approximately $8.7 billion of multi-family loans for the Structured LLC and receives a market rate servicing fee in the accompanying Consolidated Statements of Operations.
ECONOMIC AND BUSINESS ENVIRONMENT
Overview
The unemployment rate at December 31, 2024 was 4.1% compared to 3.7% one year ago. According to the U.S. Bureau of Labor Statistics, employment trended up in government, health care, and social assistance.
Market year-to-date returns for the following indices based on closing prices for the period indicated were:
December 31, 2024 December 31, 2023
Dow Jones Industrial Average 12.9% 13.7%
S&P 500 23.3% 24.2%
NASDAQ Composite 28.6% 43.4%
At its December 2024 meeting, the FOMC lowered the federal funds rate target range to 4.25% - 4.50%. The FOMC continues to focus its policy making on maximum employment and achieving a 2.0% inflation target rate.
The ten-year Treasury bond rate at December 31, 2024 was 4.57%, up from 3.87% at December 31, 2023.
One of the primary metrics used by the market to monitor the strength of the used car market is the Manheim Used Vehicle Index. The Manheim Used Vehicle Value Index, based on the 1997 Manheim based index, increased from 204.0 at December 31, 2023 to 204.8 at December 31, 2024.
Credit Rating Actions
The following table presents Moody’s, S&P and Fitch credit ratings for SBNA, SHUSA, and Santander senior debt / long-term issuer:
SANTANDER (1)
SHUSA(3)
SBNA (2)
Overall Outlook
Fitch A / A- BBB+ BBB+ Stable
Moody's A2 / Baa1 Baa2
Baa1 Stable
S&P A+ / A- BBB+ A- Stable
(1) Senior preferred debt / senior non-preferred rating
(2) Moody's rating represents SBNA long-term issuer rating
(3) During the first quarter of 2025 Fitch upgraded SHUSA's and SBNA's long-term credit rating to A- and reaffirmed a stable outlook and upgraded Santander preferred debt / senior non preferred ratings to A+ / A and reaffirmed a stable outlook.
SHUSA funds its operations independently of the other entities owned by Santander, and believes its business is not necessarily closely related to the business or outlook of other entities owned by Santander. Future changes in the credit ratings of its parent, Santander, or the Kingdom of Spain, however, could impact SHUSA's or its subsidiaries' credit ratings, and any other change in the condition of Santander could affect SHUSA.
REGULATORY MATTERS
The activities of the Company and its subsidiaries are subject to regulation under various U.S. federal laws and regulatory agencies which impose regulations, supervise and conduct examinations, and may affect the operations and management of the Company and its ability to take certain actions, including making distributions to our parent, Santander. The Company is regulated on a consolidated basis by the Federal Reserve, including the FRB of Boston, and the CFPB. The Company's subsidiaries are further supervised by the OCC, the FRB of Atlanta, and the New York Department of Financial Services.
The Federal Reserve tailors its supervisory programs and regulatory requirements by category based on firm-specific characteristics such as total assets, cross-jurisdictional activity, and nonbank asset or off-balance sheet exposure. As of December 31, 2024, SHUSA was designated a Category IV institution under the Federal Reserve's tailoring rule. Institutions that change to a higher category would become subject to the requirements of the new category, as outlined by the Federal Reserve, generally within two quarters of the change in category.
On July 27, 2023, the regulatory agencies issued an NPR to modify the definition of cross-jurisdictional activity, which would expand the scope of exposures included in the measurement of cross-jurisdictional activity and has the potential to move certain firms into a higher supervisory category under the Federal Reserve’s tailoring rule. The Company does not expect to be materially impacted by this NPR once finalized.
Payment of Dividends
SHUSA is the parent holding company of SBNA. SHUSA and SBNA are subject to various regulatory restrictions relating to the payment of dividends, including regulatory capital minimums and the requirement to remain "well-capitalized" under prompt corrective action regulations. Refer to the "Liquidity and Capital Resources" section of this MD&A for detail of the capital actions of the Company and its subsidiaries during the period.
Regulatory Capital Requirements
U.S. Basel III regulatory capital rules are applicable to both SHUSA and SBNA.
These rules include prompt corrective action thresholds that require banking organizations, including the Company and SBNA, to maintain a minimum CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total capital ratio of 8.0% and a minimum leverage ratio, calculated as the ratio of Tier 1 capital to average consolidated assets for the quarter, of 4.0%. A further capital conservation buffer of 2.5% above these minimum ratios is required for banking institutions to make capital distributions, including paying dividends.
On January 1, 2020 we adopted the FASB ASC Topic 326 - Financial Instruments - Credit Losses, which upon adoption resulted in a reduction to our opening retained earnings balance, net of income tax, and an increase to the allowance for loan losses of approximately $2.5 billion. The U.S. banking agencies in December 2018 approved a final rule to address the impact of CECL on regulatory capital by allowing banking organizations, including the Company, the option to phase in the day-one impact of CECL until the first quarter of 2023. On March 26, 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. SHUSA remains in the three-year transition period. This interim rule was subsequently updated with technical amendments in a final rule dated September 30, 2020, which was elected by the Company.
See the "Bank Regulatory Capital" section of this MD&A for the Company's capital ratios under Basel III standards. The implementation of certain regulations and standards relating to regulatory capital could disproportionately affect the Company's regulatory capital position relative to that of its competitors, including those that may not be subject to the same regulatory requirements as the Company.
Material restrictions can be imposed on SBNA, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver or conservator. Critically undercapitalized banks generally may not make any payment of principal or interest on their subordinated debt and all but well-capitalized banks are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to the FDIA and OCC regulations, institutions which are not categorized as well-capitalized or adequately-capitalized are restricted from making capital distributions, which include cash dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the capital account of the institution. At December 31, 2024, SBNA met the criteria to be classified as “well-capitalized.”
The Federal Reserve has adopted a final rule to simplify capital rules for large banks. Under the final rule, firms' supervisory stress test results are now used to establish the size of the SCB requirement. The SCB is calculated as the maximum decline in CET1 in the severely adverse scenario (subject to a 2.5% floor) plus four quarters of dividends. The rule results in new firm-specific regulatory capital expectations which are equal to 4.5% of CET1 plus the SCB, any GSIB surcharge, and any countercyclical capital buffer. The GSIB buffer is applicable only to the largest and most complex firms and does not apply to SHUSA. In the event a firm falls below its new minimums, the rule imposes restrictions on capital distributions and discretionary bonuses. Firms continue to submit a capital plan annually. Supervisory expectations for capital planning processes do not change under the final rule. As of December 31, 2024, SHUSA's SCB CET1 minimum requirement was 8.0%.
On July 27, 2023, the federal banking agencies issued a capital proposal that would make significant changes to the regulatory capital rules applicable to large banking organizations (including SHUSA and SBNA) and banking organizations with significant trading activity. This proposal would implement the final elements of the Basel III capital framework and make other changes to the regulatory capital rules in response to recent bank failures. The capital proposal would establish the expanded risk-based approach for calculating RWAs that would apply to large banking organizations. The expanded risk-based approach would include a new more risk-sensitive standardized approach for measuring credit risk and operational risk. It would also include new standardized approaches for measuring market risk and credit valuation adjustment risk but would allow the use of internal models for market risk in certain circumstances with regulatory approval. Under the capital proposal, a large banking organization would be required to calculate its risk-based capital ratios under both the expanded risk-based approach and the current standardized approach and would use the lower of the two. All capital buffer requirements, including the SCB requirement, would apply regardless of whether the expanded risk-based approach or the existing standardized approach produces the lower ratio.
The total RWA calculation used in the expanded risk-based approach would be phased in over a three-year period. The requirement to reflect AOCI in regulatory capital would also be phased in over a three-year period. All other elements of the calculation of regulatory capital would apply on the effective date of the final rule. On October 20, 2023, the federal banking agencies announced that they extended the comment period on the capital proposal from November 30, 2023 until January 16, 2024. In addition to pushing back the comment deadline, the Federal Reserve indicated it would begin collecting data to gather more information from the banks affected by the proposal. That data collection also ended on January 16, 2024. The proposed rules and their impact on SHUSA are under review.
On July 10, 2024, Federal Reserve Chair Jerome Powell indicated during a hearing with the House Financial Services Committee plans for a re-proposal of the rules which would include broad and material changes from the initial proposal. On September 10, 2024, Federal Reserve Vice Chair of Supervision Michael Barr gave a speech informing institutions of the nature of the changes in their current form. Most notably, the rules would be tailored by institution size and, for those with total assets between $100 and $250 billion, a majority of the new requirements would no longer apply. These changes have not yet been made final by the Federal Reserve, and it is expected that an implementation timeline will be released once the regulatory agencies have agreed on the substance of the changes.
Liquidity Rules
The Federal Reserve, the FDIC, and the OCC have established a rule to implement the Basel III LCR for certain internationally active banks and nonbank financial companies, and a modified version of the LCR for certain depository institution holding companies that are not internationally active. The LCR is designed to ensure that a banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to its expected net cash outflow for a 30-day time horizon. Smaller covered companies (but with more than $50 billion in assets) such as the Company are required to calculate the LCR monthly.
Resolution Planning
The DFA requires the Company to prepare and update resolution plans. The 165(d) resolution plan must assume that the covered company is resolved under the U.S. Bankruptcy Code and that no “extraordinary support” is received from the U.S. or any other government. The most recent 165(d) resolution plan was submitted to the Federal Reserve and FDIC in June 2022. In addition, under amended FDIA rules, the IDI resolution plan rule requires that a bank with assets of $50 billion or more develop a plan for its resolution that supports depositors’ rapid access to their insured deposits, maximizes the net present value return from the sale or disposition of its assets, and minimizes the amount of any loss realized by creditors in resolution.
On June 20, 2024, the FDIC issued a final rule that took effect on October 1, 2024, which revises the IDI resolution planning requirements. The final rule requires IDIs with assets of $100 billion or more, including SBNA, to submit a full resolution plan every three years, with interim supplements filed in the off-years.
Long-Term Debt Requirements
On July 28, 2023, the Federal Reserve and FDIC issued an NPR that would require banks with total assets of $100 billion or more to maintain a layer of long-term debt from the holding company to improve financial stability by increasing the resolvability and resiliency of such institutions. By requiring each such large bank to maintain a minimum amount of long-term debt to absorb losses, the proposal would increase the options available to resolve such banks in case of failure. Additionally, by reducing the risk that uninsured depositors would face losses, long-term debt can reduce the speed and severity of bank runs and limit the risk of contagion when a bank is under stress. The proposal would provide a three-year phase-in period and would also allow certain outstanding long-term debt to count toward the minimum requirements to provide banks with a reasonable period to transition to the required characteristics of eligible long-term debt instruments. Comments on the proposal were due on November 30, 2023. SHUSA remains subject to the TLAC requirements discussed below.
Deposit Insurance and Assessments
On October 18, 2022, the FDIC adopted a final rule, applicable to all IDIs, to increase the initial base deposit insurance assessment rate schedules uniformly by two basis points consistent with the amended restoration plan approved by the FDIC on June 21, 2022. The FDIC indicated that it was taking this action in order to restore the DIF reserve ratio to the required statutory minimum of 1.35% by the statutory deadline of September 30, 2028. The FDIC indicated that the reserve ratio had declined below this level because of the increase in insured deposits since the start of the pandemic and other factors that affect the level of the DIF. Under the final rule, the increase in rates began with the first quarterly assessment period of 2023 and will remain in effect unless and until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% reserve ratio. The increase in assessment rates applies to SBNA.
The recent failure of several large U.S. banking institutions has led to increased market uncertainty. Under the FDIA, the loss to the DIF arising from the use of the systemic risk exception must be recovered through one or more special assessments on IDIs, depository institution holding companies, or both, as the FDIC determines to be appropriate. On May 11, 2023, the FDIC issued for public comment a proposed rule to impose a special assessment on IDIs to recover the loss to the DIF resulting from the use of the systemic risk exception to protect the uninsured depositors of the failed U.S. banking institutions. The final rule was issued on November 16, 2023. Under the final rule, the FDIC would collect a special assessment from IDIs at a quarterly rate of approximately 3.36 basis points over eight quarterly assessment periods, starting with the first quarterly assessment period of 2024. In June 2024, the FDIC added an additional assessment to be collected at a quarterly rate of approximately 2.34 basis points over an additional two quarters, resulting in an additional accrual of $10.7 million that was recorded during the second quarter of 2024. The assessment base for the special assessment is equal to an IDI’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits held by the IDI. The special assessment is a tax-deductible operating expense for IDIs, and the effect on income of the entire amount of the special assessment will occur in one quarter for the IDIs subject to the assessment. The total impact of the special assessment is $72.1 million.
TLAC
The TLAC Rule requires certain U.S. organizations to maintain a minimum amount of loss-absorbing instruments, including a minimum amount of unsecured LTD. The TLAC Rule applies to U.S. GSIBs and to IHCs with $50 billion or more in U.S. non-branch assets that are controlled by a global systemically important FBO. The Company is such an IHC.
Under the TLAC Rule, companies are required to maintain a minimum amount of TLAC, which consists of a minimum amount of LTD and Tier 1 capital. As a result, SHUSA must hold the higher of 18% of its RWAs or 9% of its total consolidated assets in the form of TLAC, of which 6% of its RWAs or 3.5% of total consolidated assets must consist of LTD. In addition, SHUSA must maintain a TLAC buffer composed solely of CET1 capital and will be subject to restrictions on capital distributions and discretionary bonus payments based on the size of the TLAC buffer it maintains.
Volcker Rule
Section 13 of the BHCA, commonly referred to as the “Volcker Rule,” prohibits a “banking entity” from engaging in “proprietary trading” or engaging in any of the following activities with respect to a Covered Fund: (i) acquiring or retaining any equity, partnership or other ownership interest in the Covered Fund; (ii) controlling the Covered Fund; or (iii) engaging in certain transactions with the fund if the banking entity or any affiliate is an investment adviser or sponsor to the Covered Fund. These prohibitions are subject to certain exemptions for permitted activities.
Because the term “banking entity” includes an IDI, a depository institution holding company and any of their affiliates, the Volcker Rule has sweeping worldwide application and covers entities such as Santander, the Company, and certain of the Company’s subsidiaries (including SBNA and SC), as well as other Santander subsidiaries in the United States and abroad.
The Company implemented certain policies and procedures, training programs, recordkeeping, internal controls and other compliance requirements that were necessary to comply with the Volcker Rule. As required by the Volcker Rule, the compliance infrastructure has been tailored to each banking entity based on its size and its level of trading and Covered Fund activities. SHUSA's compliance program includes, among other things, processes for prior approval of new activities and investments permitted under the Volcker Rule, and testing and auditing for compliance.
Risk Retention Rule
The Federal Reserve's final credit risk retention rule generally requires sponsors of ABS to retain at least five percent of the credit risk of the assets collateralizing ABS. SHUSA, primarily through SC and SBNA, is an active participant in the structured finance markets and complies with these retention requirements.
Market Risk Rule
The market risk rule requires certain national banks to measure and hold risk-based regulatory capital for the market risk of their covered positions. The bank must measure and hold capital for its market risk using its internal risk-based models. The market risk rule outlines quantitative requirements for the bank's internal risk-based models, as well as qualitative requirements for the bank's management of market risk. Banks subject to the market risk rule must also measure and hold market risk regulatory capital for the specific risk associated with certain debt and equity positions.
A bank is subject to the market risk capital rules if its consolidated trading activity, defined as the sum of trading assets and liabilities as reported in its FFIEC 031 and FR Y-9C for the previous quarter, equals the lesser of: (1) 10 percent or more of the bank's total assets as reported in its Call Report and FR Y-9C for the previous quarter, or (2) $1 billion or more. The Bank and the Company are required to comply with the market risk component within RWAs of the risk-based capital ratios and submit the FFIEC 102 - Market Risk Regulatory Report.
SHUSA has integrated SanCap’s market risk exposure into its market risk rule calculation framework during Q1 2024, replacing the previously utilized methodology in 2023. Consequently, SanCap has continued to be the primary driver of SHUSA’s market risk RWAs. As of December 31, 2024, SHUSA’s market risk RWAs decreased from $7.2 billion at September 30, 2024 to $5.6 billion at December 31, 2024, primarily due to reduced SanCap balance sheet positions.
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 govern 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 and SBNA 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 the Company'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 rating is Outstanding, the second consecutive examination period for which SBNA has received the highest rating possible. 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.
In October 2023, the supervisory agencies jointly adopted a final CRA rule to modernize the regulation. The rule intends to adapt to industry changes, such as the growth of online, mobile, and branchless banking and hybrid models, while continuing a focus on low and moderate communities.
The rule also seeks to introduce greater clarity and consistency by implementing a metrics-based approach to evaluate performance and expanding activity that may be considered for CRA credit. This results in significant data collection and reporting requirements for banks with over $10 billion in assets such as SBNA. The rule also imposes new criteria for banks to establish assessment areas outside of the communities in which they have a physical presence if certain criteria are met.
In March 2024, a preliminary injunction was granted to pause implementation of the new rule while the Federal District Court for the Northern District of Texas decides the merits of a lawsuit brought by the American Bankers Association against the regulatory agencies for exceeding their statutory authority in adopting the rule.
SBNA remains committed to the goals of the CRA and supports efforts to modernize the rule through greater transparency regarding evaluation ratings, promoting consistent interpretations of CRA, and encouraging increased economic development in low and moderate-income communities. Management continues to monitor court proceedings and will adjust SBNA's CRA plans once the status of the new rule becomes known.
Broker-Dealer Regulation
The Broker-Dealers are registered with the SEC and subject to the regulation of the SEC, FINRA, the CFTC, the CME, and the NFA. These entities are subject to the SEC’s uniform net capital rule, which requires the maintenance of minimum net capital levels. In addition, these entities are required to maintain proper controls over customer funds and securities and ensure that customer assets are not used for the benefit of the Broker-Dealer. These requirements also restrict the Broker-Dealer’s ability to withdraw capital. Prior written notification to and approval from the applicable regulators is required for withdrawals exceeding 30 percent of the Broker-Dealer’s excess net capital and also where the Broker-Dealer’s net capital would be less than 25 percent of deductions from its net worth in computing net capital.
Edge Act Corporation Requirements
Edge Act corporations such as BSI are chartered under Section 25A of the Federal Reserve Act. These entities are subject to specific regulatory requirements under Regulation K. Permissible activities of Edge Act and agreement corporations include those incidentals to international or foreign business. Deposit-taking, credit, and fiduciary and investment advisor services are subject to applicable Federal Reserve regulations. Edge Act corporations are also subject to the USA Patriot Act as well as all applicable laws and regulations designed to combat money laundering and the financing of terrorist activities.
CRITICAL ACCOUNTING ESTIMATES
This MD&A is based on the Consolidated Financial Statements and accompanying notes that have been prepared in accordance with GAAP. The significant accounting policies of the Company are described in Note 1 to the Consolidated Financial Statements. The preparation of financial statements in accordance with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and accordingly, have a greater possibility of producing results that could be materially different than originally reported. However, the Company is not currently aware of any likely events or
circumstances that would result in materially different results. Management identified accounting for the ACL, estimates of expected residual values of leased vehicles subject to operating leases, and goodwill as the Company's most critical accounting estimates, in that they are important to the portrayal of the Company's financial condition and results and require management’s most difficult, subjective and complex judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain.
ACL
The Company maintains an ALLL for the Company’s HFI portfolio, excluding those loans measured at fair value in accordance with applicable accounting standards, and a reserve for off-balance sheet commitments representing the expected credit losses for unfunded lending commitments and financial guarantees. The reserve for off-balance sheet commitments, together with the ALLL, are generally referred to collectively as the ACL.
As described in Note 1 and Note 3 to the Consolidated Financial Statements, the ACL is measured using the CECL model, which is based on information derived from historical experience, current conditions, and prospective information that requires the use of significant judgment by management. The model includes both quantitative and qualitative factors with key inputs from unemployment data, the HPI, GDP growth rates, and used vehicle index growth rates, along with certain loan level characteristics all used to predict the likelihood of borrower default. Management applies qualitative factors to capture risks not addressed by the key inputs such as temporary or recent unique market disruptions impacting trends in delinquencies and used vehicle prices. While management uses the best information available to make such evaluations, future adjustments to the ACL may be necessary if conditions differ substantially from these assumptions used in making the evaluations.
The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustments for macroeconomic uncertainty and considers adjustments to macroeconomic inputs and outputs based on market volatility. The baseline scenario was based on the latest consensus forecasts available, which reflects growth in the U.S. economy and a stable employment rate (which is a key driver to losses). Downside risks continue to exist due to uncertainties related to increasing consumer indebtedness, and restricted job growth undermining consumer spending and growth. Using the weighted-average of a range of economic forecast scenarios, we estimated at December 31, 2024 that the unemployment rate is expected to be approximately 5.2% at the end of 2025. In comparison, at December 31, 2023, management previously estimated the unemployment rate using the weighted-average of our economic forecast scenarios to be 5.0% at the end of 2024. Additionally, the weighted used vehicle index, where a higher number corresponds to a higher used car price at auction, was estimated at December 31, 2024 to be approximately 194 at the end of 2025, compared to our estimate at December 31, 2023 to be approximately 201 at the end of 2024. While the economy saw significant recovery in 2023 and into 2024, there is still considerable uncertainty regarding overall lifetime loss estimates due to persistent inflation and high interest rates. The scenarios used by the Company are periodically updated over a reasonable and supportable time horizon with weightings assigned by management and approved through the established governance process.
Under the range of economic forecast scenarios considered, based on applying a 100% weighting to the most negative scenario used, and without considering the impact of corresponding or offsetting qualitative factors that could have a significant impact on the overall ACL, the ACL would have been higher by approximately $1.1 billion. This range reflects the sensitivity of the ACL specifically related to the scenarios and weights considered as of December 31, 2024 and does not consider other potential adjustments that could increase or decrease loss estimates calculated using alternative economic scenarios.
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.
Valuation of Automotive Lease Assets and Residuals
The Company has significant investments in vehicles in its operating lease portfolio. In accounting for operating leases, management must make a determination at the beginning of the lease contract of the estimated realizable value (i.e., residual value) of the vehicle at the end of the lease. Residual value represents an estimate of the market value of the vehicle at the end of the lease term, which typically ranges from two to four years. At contract inception, the Company determines the projected residual value based on an internal evaluation of the expected future value. This evaluation is based on third-party and internally-generated data. The customer is obligated to make payments during the term of the lease for the difference between the purchase price and the contract residual value plus a finance charge. However, since the customer is not obligated to purchase the vehicle at the end of the contract, the Company is exposed to a risk of loss to the extent the value of the vehicle is below the residual value
estimated at contract inception. Management periodically performs a detailed review of the estimated realizable value of leased vehicles to assess the appropriateness of the carrying value of leased assets.
To account for residual risk, the Company depreciates automobile operating lease assets to estimated realizable value on a straight-line basis over the lease term. The estimated realizable value is initially based on the residual value established at contract inception. If the estimated realizable value of a leased vehicle subsequently declines below the residual value at contract inception, additional depreciation expense is recorded. Periodically, the Company revises the estimated realizable value of the leased vehicle at termination based on current market conditions and other relevant data points and adjusts depreciation expense appropriately over the remaining term of the lease.
The Company periodically evaluates its investment in operating leases for impairment if circumstances, such as a systemic and material decline in used vehicle values, occurs. These circumstances could include, for example, a decline in the residual value of our lease portfolio due to an event caused by shocks to oil and gas prices (which may have a pronounced impact on certain models of vehicles) or pervasive manufacturer defects (which may systemically affect the value of a particular brand or model). Impairment is determined to exist if the fair value of the leased asset is less than its carrying value and it is determined that the net carrying value is not recoverable. If a material decline in the used vehicle price were to occur rapidly near the end of the lease term, there may not be adequate time for the remaining adjusted depreciation to account for such decline, and an impairment charge could be necessary. The net carrying value of a leased asset is not recoverable if it exceeds the sum of the undiscounted expected future cash flows expected to result from the lease payments and the estimated residual value upon eventual disposition. The expected future cash flows include residual guarantee amounts from OEMs, if applicable. If our operating lease assets are considered to be impaired, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value as estimated by DCF. No such impairment was recognized in 2024, 2023, or 2022.
The Company's depreciation methodology for operating lease assets considers management's expectation of the value of the vehicles upon lease termination, which is based on numerous assumptions and factors influencing used vehicle values. The critical assumptions underlying the estimated carrying value of automobile lease assets include: (1) estimated market value information obtained and used by management in estimating residual values, (2) proper identification and estimation of business conditions, (3) our remarketing abilities, and (4) automobile manufacturer vehicle and marketing programs. Changes in these assumptions could have a significant impact on the value of the lease residuals.
As of December 31, 2024, if the estimated realizable values of our leased vehicles were to decline 1% below the current estimated residual values, depreciation expense would increase by approximately $91.0 million over the remaining life of the current lease portfolio.
Goodwill
The acquisition method of accounting for business combinations requires the Company to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets acquired and liabilities assumed. The excess of the purchase price of an acquired business over the fair value of the identifiable assets and liabilities represents goodwill. Goodwill is not amortized on a recurring basis, but rather is subject to periodic impairment testing.
The Company conducts its evaluation of goodwill impairment at the reporting unit level on an annual basis on October 1, and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. As more fully described in Note 6 to the Company's Consolidated Financial Statements, a reporting unit is an operating segment or one level below. As of December 31, 2024, the reporting units with assigned goodwill were Auto, CBB, C&I, CRE, and CIB. The evaluation of goodwill impairment requires a comparison of the fair value of each reporting unit to its carrying amount, including allocated goodwill. Determining the fair value of reporting units requires significant valuation inputs, assumptions, and estimates.
Where a reporting unit does not have its own equity assigned for use in calculation of carrying value, the Company determines the carrying value of each reporting unit using a risk-based capital approach. Certain of the Company's assets are assigned to a Corporate/Other category. These assets are related to the Company's corporate-only programs, such as BOLI, and are not employed in or related to the operations of a reporting unit or considered in determining the fair value of a reporting unit.
Goodwill impairment testing involves management's judgment, requiring an assessment of whether the carrying value of the reporting unit can be supported by its fair value. This is performed using widely-accepted valuation techniques, such as the guideline public company market approach 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. The Company applied an equal weighting of the income and market approaches for all reporting units.
The DCF method of the income approach incorporates the reporting units' forecasted cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of the forecasts. The discount rates utilized to obtain the net present value of the reporting units' cash flows were estimated using a capital asset pricing model. Significant inputs to this model include a risk-free rate of return, beta (which is a measure of the level of non-diversifiable risk associated with comparable companies for each specific reporting unit), market equity risk premium, and, in certain cases, additional premium for size and/or unsystematic company-specific risk factors. The Company utilized discount rates that it believes adequately reflect the risk and uncertainty in the financial markets. The Company estimated expected rates of equity returns based on historical market returns and risk/return rates for similar industries of the reporting unit. The Company uses its internal forecasts to estimate future cash flows, so actual results may differ from forecasted results. When calculating the fair value of our reporting units under the income approach, short and medium-term forecasts incorporated current economic conditions. Long-term cash flow projections reflected normalized rate and credit environments, as well as a long-term rate of return for each reporting unit. For all reporting units in 2024, the Company selected a long-term growth rate of 3.5% for use in the income approach DCF analysis.
The market approach includes earnings and price-to-tangible book value multiples of comparable public companies which were applied to the earnings and equity for all of the Company's reporting units. The projected TBV multiple is an indicator of whether the price or perceived value of the company's tangible assets is greater than its book value.
In 2024, the Company applied a 25% control premium for the market approach based on the Company’s review of transactions observable in the marketplace that were determined to be comparable.
Other key assumptions by reporting unit in 2024 were as follows:
Auto CBB C&I CRE CIB
Projected TBV 1.5x 1.1x 1.0x 1.4x 1.3x
Discount Rate 11.8% 12.8% 11.7% 13.4% 13.3%
No goodwill impairment was recorded in 2024, 2023 or 2022. For the most recent impairment analysis, under the scenarios deemed by the Company to be the most likely, the results of the fair value analyses for each of the reporting units exceeded its carrying value by 10% or more.
All of the preceding fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be accurate predictions in the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the reporting units include such items as:
•a prolonged downturn in the business environment in which the reporting units operate;
•an economic environment that significantly differs from our assumptions in timing or degree;
•volatility in equity and debt markets resulting in higher discount rates and unexpected regulatory changes;
Refer to the "Goodwill" section of this MD&A for further details on the Company's goodwill, including the results of management's goodwill impairment analyses.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in Item 8. “Financial Statements and Supplementary Data.” This section of the Annual Report on Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons of 2024 to 2023. Discussions of 2022 items and year-to-year comparisons of 2023 and 2022 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 4, 2024. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
RESULTS OF OPERATIONS
CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
Year ended December 31, 2024 and 2023
2024 (1)
2023 (1)
Interest Change due to
(dollars in thousands) Average
Balance Interest Yield/
Rate(2)
Average
Balance Interest Yield/
Rate(2)
Increase/(Decrease) Volume Rate
Interest-earning deposits $ 13,586,947 $ 909,851 6.70 % $ 10,549,633 $ 773,966 7.34 % $ 135,885 $ 194,913 $ (59,028)
Federal funds sold and securities purchased under resale or similar agreements, gross (3)
52,803,604 2,787,163 5.28 % 50,333,924 2,415,539 4.80 % 371,624 122,339 249,285
Federal funds sold and securities purchased under resale or similar agreements, netting (41,666,396) (37,094,025)
Federal funds sold and securities purchased under resale or similar agreements, net 11,137,208 13,239,899
AFS 6,995,939 375,810 5.37 % 6,516,998 269,676 4.14 % 106,134 21,046 85,088
HTM 9,310,465 203,291 2.18 % 9,298,211 185,071 1.99 % 18,220 248 17,972
Trading securities 11,871,853 564,858 4.76 % 8,673,434 397,595 4.58 % 167,263 151,156 16,107
Other investments 1,367,734 45,016 3.29 % 1,291,245 42,806 3.32 % 2,210 2,608 (398)
TOTAL SECURITIES FINANCING ACTIVITIES, INVESTMENTS AND INTEREST-EARNING DEPOSITS $ 54,270,146 $ 4,885,989 9.00 % $ 49,569,420 $ 4,084,653 8.24 % $ 801,336 $ 492,310 $ 309,026
LOANS (4):
C&I 10,704,027 453,696 4.24 % 14,449,134 522,225 3.61 % (68,529) (209,760) 141,231
CRE 8,924,966 669,313 7.50 % 8,479,587 625,839 7.38 % 43,474 33,197 10,277
Other commercial loans 7,777,151 410,719 5.28 % 7,402,159 347,803 4.70 % 62,916 18,309 44,607
Multifamily 10,134,546 491,781 4.85 % 10,573,776 510,655 4.83 % (18,874) (20,963) 2,089
Total commercial loans 37,540,690 2,025,509 5.40 % 40,904,656 2,006,522 4.91 % 18,987 (179,217) 198,204
Consumer loans:
Residential mortgages 4,820,906 177,263 3.68 % 5,012,859 175,092 3.49 % 2,171 (5,148) 7,319
Home equity loans and lines of credit 2,258,235 177,086 7.84 % 2,702,259 202,417 7.49 % (25,331) (35,398) 10,067
Total consumer loans secured by real estate 7,079,141 354,349 5.01 % 7,715,118 377,509 4.89 % (23,160) (40,546) 17,386
RICs and auto loans 44,639,955 5,852,040 13.11 % 44,610,790 5,382,283 12.06 % 469,757 3,523 466,234
Personal unsecured 3,042,889 345,385 11.35 % 4,436,521 500,278 11.28 % (154,893) (158,022) 3,129
Other consumer 46,688 2,864 6.13 % 75,187 3,845 5.11 % (981) (2,072) 1,091
Total consumer 54,808,673 6,554,638 11.96 % 56,837,616 6,263,915 11.02 % 290,723 (197,117) 487,840
Total loans 92,349,363 8,580,147 9.29 % 97,742,272 8,270,437 8.46 % 309,710 (376,334) 686,044
TOTAL EARNING ASSETS 146,619,509 13,466,136 9.18 % 147,311,692 12,355,090 8.39 % 1,111,046 115,976 995,070
Non-interest bearing assets (5)
23,957,138 25,985,210
TOTAL ASSETS $ 170,576,647 $ 173,296,902
INTEREST BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits $ 12,340,320 $ 186,931 1.51 % $ 12,515,090 $ 149,984 1.20 % $ 36,947 $ (2,110) $ 39,057
Savings 4,134,724 15,491 0.37 % 4,942,614 9,143 0.18 % 6,348 (1,163) 7,511
Money market 25,195,811 840,729 3.34 % 26,618,268 654,425 2.46 % 186,304 (32,715) 219,019
CDs 20,497,124 1,016,321 4.96 % 16,735,652 730,634 4.37 % 285,687 178,469 107,218
TOTAL INTEREST-BEARING DEPOSITS 62,167,979 2,059,472 3.31 % 60,811,624 1,544,186 2.54 % 515,286 142,481 372,805
Federal funds purchased and securities sold under agreements to repurchase, gross (3)
62,112,506 3,283,107 5.29 % 53,922,892 2,739,050 5.08 % 544,057 427,629 116,428
Federal funds purchased and securities sold under agreements to repurchase, netting (41,666,396) (34,569,450)
Federal funds purchased and securities sold under agreements to repurchase, net 20,446,110 19,353,442
Trading liabilities 3,562,085 169,583 4.76 % 3,202,523 142,120 4.44 % 27,463 16,725 10,738
FHLB advances 3,772,454 184,492 4.89 % 7,161,436 361,131 5.04 % (176,639) (166,182) (10,457)
Other borrowings 40,078,415 2,191,924 5.47 % 38,044,567 1,693,255 4.45 % 498,669 94,298 404,371
TOTAL SECURITIES FINANCING ACTIVITIES AND BORROWED FUNDS 67,859,064 5,829,106 8.59 % 67,761,968 4,935,556 7.28 % 893,550 372,470 521,080
TOTAL INTEREST-BEARING FUNDING LIABILITIES 130,027,043 7,888,578 6.07 % 128,573,592 6,479,742 5.04 % 1,408,836 514,951 893,885
Non-interest-bearing liabilities (6)
22,265,477 26,166,225
TOTAL LIABILITIES 152,292,520 154,739,817
Mezzanine equity 2,000,000 1,065,494
STOCKHOLDER’S EQUITY 16,284,127 17,491,591
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY $ 170,576,647 $ 173,296,902
NET INTEREST SPREAD (7)
3.11 % 3.35 %
NET INTEREST MARGIN (8)
3.80 % 3.99 %
NET INTEREST INCOME $ 5,577,558 $ 5,875,348
(1)Average balances are based on daily averages when available. When daily averages are unavailable, mid-month averages are substituted.
(2)Yields calculated using taxable equivalent net interest income.
(3)Represents the average gross Securities Financing Activities balance, including activity that qualifies for balance sheet netting, as discussed further in Note 11 to these Condensed Consolidated Financial Statements.
(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 include non-accrual loans and LHFS.
(5)Includes allowance for loan losses and Other assets including leases, goodwill and intangibles, premises and equipment, net deferred tax assets, equity method investments, BOLI, accrued interest receivable, derivative assets, miscellaneous receivables, prepaid expenses and MSRs. Refer to Note 7 to the Consolidated Financial Statements for further discussion.
(6)Includes Non-interest-bearing deposits and Other liabilities primarily including accounts payable and accrued expenses, derivative liabilities, net deferred tax liabilities and the unfunded lending commitments liability.
(7)Represents the difference between the yield on total earning assets and the cost of total funding liabilities on a managed basis.
(8)Represents annualized, taxable equivalent net interest income divided by average interest-earning assets.
.
Years Ended December 31, 2023 and 2022
2023 (1)
2022 (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
Interest-earning deposits $ 10,549,633 $ 773,966 7.34 % $ 10,735,077 $ 223,787 2.08 % $ 550,179 $ (3,796) $ 553,975
Fed funds sold and securities purchased under resale or similar agreements, gross (3) 50,333,924 2,415,539 4.80 % 52,132,993 682,198 1.31 % 1,733,341 (22,707) 1,756,048
Fed funds sold and securities purchased under resale or similar agreements, netting (37,094,025) (37,172,738)
Fed funds sold and securities purchased under resale or similar agreements, net 13,239,899 14,960,255
Investments
AFS 6,516,998 269,676 4.14 % 8,556,278 167,922 1.96 % 101,754 (27,748) 129,502
HTM 9,298,211 185,071 1.99 % 8,746,622 160,690 1.84 % 24,381 10,635 13,746
Trading securities 8,673,434 397,595 4.58 % 5,148,461 138,913 2.70 % 258,682 128,255 130,427
Other 1,291,245 42,806 3.32 % 990,206 19,935 2.01 % 22,871 7,275 15,596
TOTAL SECURITIES FINANCING ACTIVITIES, INVESTMENTS AND INTEREST-EARNING DEPOSITS $ 49,569,420 $ 4,084,653 8.24 % $ 49,136,899 $ 1,393,445 2.84 % $ 2,691,208 $ 91,914 $ 2,599,294
LOANS (3):
C&I 14,449,134 522,225 3.61 % 14,523,190 461,783 3.18 % 60,442 (2,369) 62,811
CRE 8,479,587 625,839 7.38 % 7,545,610 327,155 4.34 % 298,684 44,862 253,822
Other 7,402,159 347,803 4.70 % 7,926,838 235,837 2.98 % 111,966 (14,500) 126,466
Multi-family 10,573,776 510,655 4.83 % 8,293,261 303,310 3.66 % 207,345 95,876 111,469
Total commercial 40,904,656 2,006,522 4.91 % 38,288,899 1,328,085 3.47 % 678,437 123,869 554,568
Consumer loans:
Residential mortgages 5,012,859 175,092 3.49 % 5,411,962 178,559 3.30 % (3,467) (15,813) 12,346
Home equity loans and lines of credit 2,702,259 202,417 7.49 % 3,264,483 137,321 4.21 % 65,096 (18,474) 83,570
Total consumer loans secured by real estate 7,715,118 377,509 4.89 % 8,676,445 315,880 3.64 % 61,629 (34,287) 95,916
RICs and auto loans 44,610,790 5,382,283 12.06 % 43,990,477 5,060,062 11.50 % 322,221 72,371 249,850
Personal unsecured 4,436,521 500,278 11.28 % 3,104,720 320,032 10.31 % 180,246 140,105 40,141
Other consumer 75,187 3,845 5.11 % 114,777 3,689 3.21 % 156 (218) 374
Total consumer 56,837,616 6,263,915 11.02 % 55,886,419 5,699,663 10.20 % 564,252 177,971 386,281
Total loans 97,742,272 8,270,437 8.46 % 94,175,318 7,027,748 7.46 % 1,242,689 301,840 940,849
TOTAL EARNING ASSETS 147,311,692 12,355,090 8.39 % 143,312,217 8,421,193 5.88 % 3,933,897 393,754 3,540,143
Non-interest bearing assets (5)
25,985,210 26,394,100
TOTAL ASSETS $ 173,296,902 $ 169,706,317
INTEREST-BEARING FUNDING LIABILITIES
Deposits and other customer related accounts:
Interest-bearing demand deposits $ 12,515,090 $ 149,984 1.20 % $ 14,100,097 $ 28,550 0.20 % $ 121,434 $ (2,793) $ 124,227
Savings 4,942,614 9,143 0.18 % 5,540,695 2,421 0.04 % 6,722 (214) 6,936
Money market 26,618,268 654,425 2.46 % 32,252,931 172,317 0.53 % 482,108 (24,298) 506,406
CDs 16,735,652 730,634 4.37 % 4,586,444 101,246 2.21 % 629,388 459,768 169,620
TOTAL INTEREST-BEARING DEPOSITS 60,811,624 1,544,186 2.54 % 56,480,167 304,534 0.54 % 1,239,652 432,463 807,189
BORROWED FUNDS:
Federal funds purchased and securities sold under agreements to repurchase, gross (3) 53,922,892 2,739,050 5.08 % 51,616,756 720,800 1.40 % 2,018,250 33,705 1,984,545
Federal funds purchased and securities sold under agreements to repurchase, netting (34,569,450) (34,648,164)
Federal funds purchased and securities sold under agreements to repurchase, net 19,353,442 16,968,592
Trading liabilities 3,202,523 142,120 4.44 % 2,741,436 64,686 2.36 % 77,434 12,413 65,021
FHLB advances 7,161,436 361,131 5.04 % 2,280,164 67,429 2.96 % 293,702 221,128 72,574
Other borrowings 38,044,567 1,693,255 4.45 % 40,110,159 1,089,281 2.72 % 603,974 (53,210) 657,184
TOTAL SECURITIES FINANCING ACTIVITIES AND BORROWED FUNDS 67,761,968 4,935,556 7.28 % 62,100,351 1,942,196 3.13 % 2,993,360 214,036 2,779,324
TOTAL INTEREST-BEARING FUNDING LIABILITIES 128,573,592 6,479,742 5.04 % 118,580,518 2,246,730 1.89 % 4,233,012 646,499 3,586,513
Noninterest-bearing liabilities(5)
26,166,225 29,767,040
TOTAL LIABILITIES 154,739,817 148,347,558
Mezzanine equity 1,065,494 13,699
STOCKHOLDER’S EQUITY 17,491,591 21,345,060
TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDER’S EQUITY $ 173,296,902 $ 169,706,317
NET INTEREST SPREAD (6)
3.35 % 3.99 %
NET INTEREST MARGIN (7)
3.99 % 4.31 %
NET INTEREST INCOME $ 5,875,348 $ 6,174,463
(1)- (7) Refer to corresponding notes above.
NET INTEREST INCOME
Net interest income decreased $297.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The most significant factors contributing to this change were as follows:
•Interest income on loans increased $309.7 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change is attributable to a decrease in average loan volume of $376.3 million and an increase in average rates of $686.0 million.
•Interest income on interest-earning deposits increased $135.9 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change is attributable to an increase in average interest-bearing deposits volume of $194.9 million and a decrease in average rates of $59.0 million. This change is primarily driven by the changing interest rate environment.
•Interest and fees on federal funds sold and securities purchased under resale agreements or similar arrangements increased $371.6 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change is attributable to an increase in average investment securities volume of $122.3 million and an increase in average rates of $249.3 million.
•Interest income on investment securities increased $293.8 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change is attributable to an increase in average investment securities volume of $175.1 million and an increase in average rates of $118.8 million. This change is primarily driven by an increase in interest rates during the year.
•Interest expense on deposits and related customer accounts increased $515.3 million for the year ended December 31, 2024, compared to the corresponding period in 2023. This change is attributable to an increase in average interest-bearing deposits volume of $142.5 million and an increase in average rates of $372.8 million. The increase in average rates is primarily attributable to money market and CD products.
•Interest expense on Securities Financing Activities and borrowed funds increased $893.6 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change is attributable to an increase in average Securities Financing Activities and borrowed funds volume of $372.5 million and an increase in average rates of $521.1 million.
CREDIT LOSS EXPENSE (BENEFIT)
The Company had credit loss expense of $1.9 billion for the year ended December 31, 2024, compared to a credit loss expense of $2.2 billion for the corresponding period in 2023. The credit loss expense during the year ended December 31, 2024 was mainly due to growth in RICs and auto loans, partially offset by the decrease in ACL driven by improvement in the macroeconomic outlook for certain macro variables, sale of certain personal unsecured loans and off-balance sheet securitizations of RICs and auto loans.
Credit loss expense on commercial loans decreased $146.1 million for the year ended December 31, 2024 compared to the corresponding period in 2023, primarily driven by CRE loans, an improved macroeconomic outlook for certain macro variables and lower exposure, partially offset by higher reserves in the Multifamily portfolio.
Credit loss expense on consumer loans decreased $155.2 million for the year ended December 31, 2024 compared to the corresponding period in 2023, primarily driven by a release in reserves due to the improved macroeconomic outlook and the sale of certain personal unsecured loans and off-balance sheet securitizations of RICs and auto loans. This was partially offset by the increase in balances in RICs and auto loans.
The credit loss expense on unfunded credit losses for the year ended December 31, 2024 increased $12.0 million compared to the corresponding period in 2023.
NON-INTEREST INCOME
Year ended December 31,
YTD Change
(dollars in thousands) 2024 2023 Dollar increase/(decrease) Percentage
Consumer fees $ 306,882 $ 220,137 $ 86,745 39.4 %
Commercial fees 109,230 129,220 (19,990) (15.5) %
Lease income 2,178,597 2,462,990 (284,393) (11.5) %
Capital market revenue 408,768 195,808 212,960 108.8 %
Miscellaneous income, net 376,731 311,655 65,076 20.9 %
Net gains recognized in earnings 224,459 145,039 79,420 54.8 %
Total non-interest income $ 3,604,667 $ 3,464,849 $ 139,818 4.0 %
Total non-interest income increased $139.8 million for the year ended December 31, 2024 compared to the corresponding period in 2023. These changes were primarily comprised of:
•Consumer fees increased $86.7 million for the year ended December 31, 2024 compared to the corresponding period in 2023, primarily due to an increase in consumer loan fees, an increase in consumer deposit fees, and an increase in insurance investment fees.
•Lease income decreased $284.4 million for the year ended December 31, 2024 compared to the corresponding period in 2023, primarily due to fewer active leased vehicle units.
•Capital market revenue increased $213.0 million for the year ended December 31, 2024 compared to the corresponding period in 2023, primarily due to an increase in investment banking income.
•Miscellaneous income, net increased $65.1 million for the year ended December 31, 2024 compared to the corresponding period in 2023, discussed further below.
•Net gains recognized in earnings increased $79.4 million for the year ended December 31, 2024 compared to the corresponding period in 2023, primarily due to an increase from trading securities gains during 2024.
Miscellaneous income
Year ended December 31,
YTD Change
(dollars in thousands) 2024 2023 Dollar increase/(decrease) Percentage
Mortgage banking income and multifamily servicing fees, net
$ 64,878 $ 16,369 $ 48,509 296.3 %
BOLI 64,811 68,479 (3,668) (5.4) %
Net gain on sale of operating leases 69,057 66,313 2,744 4.1 %
Asset and wealth management fees 288,571 245,403 43,168 17.6 %
Gain/(loss) on sale of non-mortgage loans
(128,091) (69,307) (58,784) (84.8) %
Other miscellaneous income / (loss), net 17,505 (15,602) 33,107 212.2 %
Total miscellaneous income $ 376,731 $ 311,655 $ 65,076 20.9 %
Miscellaneous income increased $65.1 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change was primarily comprised of:
•An increase in Mortgage banking income and multifamily servicing fees, net, led by servicing fees from the Structured LLC.
•An increase in Asset and wealth management fees, led by higher brokerage income.
•A decrease in Gain/(loss) on sale of non-mortgage loans, driven by the sale of personal unsecured loans to third parties during 2024.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES
Year ended December 31,
YTD Change
(dollars in thousands) 2024 2023 Dollar increase/(decrease) Percentage
Compensation and benefits $ 2,145,506 $ 2,065,108 $ 80,398 3.9 %
Occupancy and equipment expenses 653,026 667,205 (14,179) (2.1) %
Technology, outside services, and marketing expense 796,899 729,208 67,691 9.3 %
Loan expense 333,617 356,480 (22,863) (6.4) %
Lease expense 1,708,193 1,925,279 (217,086) (11.3) %
Other expenses 637,227 583,723 53,504 9.2 %
Total general, administrative and other expenses $ 6,274,468 $ 6,327,003 $ (52,535) (0.8) %
Total general, administrative and other expenses decreased $52.5 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change was primarily comprised of:
•Lease expense decreased $217.1 million for the year ended December 31, 2024 compared to the corresponding period in 2023, due to lower auto lease volumes resulting in lower depreciation expense.
INCOME TAX PROVISION
An Income tax benefit of $106.8 million was recorded for the year ended December 31, 2024 compared to a benefit of $146.1 million for the corresponding period in 2023. This resulted in an ETR of (11.0)% for the year ended December 31, 2024 compared to (18.6)% for the corresponding period in 2023.
The ETR of (34.7)% for the three months ended December 31, 2024 was higher compared to (61.2)% for the same period in 2023, and was directly impacted by an increase in pre-tax income in 2024, while other items impacting the ETR remained constant.
The Company's ETR in future periods will be affected by the results of operations allocated to the various tax jurisdictions in which the Company operates, any change in income tax laws or regulations within those jurisdictions, and interpretations of income tax regulations that differ from the Company's interpretations by tax authorities that examine tax returns filed by the Company or any of its subsidiaries.
LINE OF BUSINESS RESULTS
The Company manages its business activities by it six reportable segments, Auto, CBB, C&I, CRE, CIB, and Wealth Management. The tables below reflect certain information by reportable segment and includes additional supplementary information related to consumer activities and commercial activities. The supplementary information is deemed to be useful as it represents a view in how we manage the business and also aligns with how our parent, Santander, manages its business from a global perspective.
Consumer Activities
Consumer activities consist of the Company's Auto and CBB reportable segments.
Year ended December 31,
2024 2023 Total Consumer Activities
Auto CBB Total Consumer activities Auto CBB Total Consumer Activities Dollar increase/(decrease) Percentage
Interest income $ 6,413,954 $ 2,936,381 $ 9,350,335 $ 5,877,997 $ 2,686,686 $ 8,564,683 $ 785,652 9.2 %
Interest expense 2,764,998 1,466,384 $ 4,231,382 2,221,376 1,075,053 $ 3,296,429 $ 934,953 28.4 %
Fees and other income 71,853 139,054 $ 210,907 17,540 259,680 $ 277,220 $ (66,313) (23.9) %
Lease income 2,178,597 - $ 2,178,597 2,462,916 - $ 2,462,916 $ (284,319) (11.5) %
Credit loss (benefit) / expense 1,955,368 18,447 $ 1,973,815 1,798,268 301,884 $ 2,100,152 $ (126,337) (6.0) %
Lease expense 1,707,582 - $ 1,707,582 1,922,921 (469) $ 1,922,452 $ (214,870) (11.2) %
General, administrative and other expenses 1,334,282 1,421,597 $ 2,755,879 1,350,734 1,462,047 $ 2,812,781 $ (56,902) (2.0) %
Income/(loss) before income taxes 902,174 169,007 $ 1,071,181 1,065,154 107,851 $ 1,173,005 $ (101,824) (8.7) %
Total assets 60,421,685 9,505,663 $ 69,927,348 61,712,245 12,085,567 $ 73,797,812 $ (3,870,464) (5.2) %
The Company reported total income before income taxes related to its Consumer activities of $1.1 billion for the year ended December 31, 2024 compared to income before income taxes of $1.2 billion for the corresponding period in 2023. The most significant drivers of this change were:
•Fees and other income decreased $66.3 million for the year ended December 31, 2024 compared to the corresponding period of 2023, primarily due to a decrease in CBB of $120.6 million mainly due to loss on a sale of a portfolio, partially offset by an increase in Auto of $54.3 million due to higher servicing fee income.
•Credit loss expense decreased $126.3 million for the year ended December 31, 2024 compared to the corresponding period in 2023, comprised of a decrease in CBB of $283.4 million primarily due to reserve releases as a result of lower balances and an increase of $157.1 million in Auto due to normalization of net charge offs.
Commercial Activities
Commercial activities consist of the Company's C&I reportable segment and CRE reportable segment.
Year ended December 31,
2024 2023 Total Commercial Activities
C&I CRE Total Commercial Activities C&I CRE Total Commercial Activities Dollar increase/(decrease) Percentage
Interest income $ 988,260 $ 1,535,054 $ 2,523,314 $ 942,533 $ 1,339,814 $ 2,282,347 $ 240,967 10.6 %
Interest expense 632,687 1,034,675 $ 1,667,362 619,659 891,395 $ 1,511,054 $ 156,308 10.3 %
Fees and other income 66,264 75,983 $ 142,247 55,507 24,813 $ 80,320 $ 61,927 77.1 %
Lease income - - $ - 70 - $ 70 $ (70) (100.0) %
Credit loss (benefit) / expense (66,184) 69,767 $ 3,583 (23,299) 176,183 $ 152,884 $ (149,301) (97.7) %
Lease expense - - $ - (100) (139) $ (239) $ 239 100.0 %
General, administrative and other expenses 214,494 138,473 $ 352,967 260,759 135,239 $ 395,998 $ (43,031) (10.9) %
Income/(loss) before income taxes 273,527 368,122 $ 641,649 141,091 161,949 $ 303,040 $ 338,609 111.7 %
Total assets 3,740,417 23,265,209 $ 27,005,626 5,129,520 23,616,225 $ 28,745,745 $ (1,740,119) (6.1) %
The Company reported total income before income taxes related to its Commercial activities of $641.6 million for the year ended December 31, 2024 compared to income before income taxes of $303.0 million for the corresponding period in 2023. The most significant drivers of this change were:
•Interest income increased $241.0 million for the year ended December 31, 2024 compared to the corresponding period of 2023. This was primarily related to CRE, which increased $195.2 million due to the impact of the December 2023 acquisition of a multifamily portfolio through a joint venture partnership with the FDIC.
•Fees and other income increased $61.9 million for the year ended December 31, 2024 compared to the corresponding period of 2023, driven by servicing fees associated with the aforementioned joint venture.
•Credit loss expense decreased $149.3 million for the year ended December 31, 2024 compared to the corresponding period of 2023. This was primarily driven by lower net charge offs and lower ACL builds as a result of rating upgrades.
•General, administrative and other expenses decreased $43.0 million for the year ended December 31, 2024 compared to the corresponding period of 2023, driven by transformation initiatives underway in the business.
CIB
Year ended December 31
YTD Change
(dollars in thousands) 2024 2023 Dollar increase/(decrease) Percentage
Interest income $ 3,886,608 $ 3,656,939 $ 229,669 6.3 %
Interest expense 3,767,155 3,455,439 311,716 9.0 %
Fees and other income 661,321 365,336 295,985 81.0 %
Lease income - 4 (4) (100.0) %
Credit loss (benefit) / expense
(37,540) (20,666) (16,874) (81.7) %
Lease expense 611 3,066 (2,455) (80.1) %
General, administrative and other expenses 843,645 626,269 217,376 34.7 %
Income/(loss) before income taxes (25,942) (41,829) 15,887 38.0 %
Total assets 25,351,991 26,416,104 (1,064,113) (4.0) %
CIB reported loss before income taxes of $25.9 million for the year ended December 31, 2024 compared to a loss before income taxes of $41.8 million for the corresponding period in 2023. Factors contributing to this change were:
•Interest income increased $229.7 million for the year ended December 31, 2024 compared to the corresponding period in 2023, driven by higher rate environment.
•Fees and other income increased $296.0 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This increase was due to favorable debt capital markets and bond syndication activity.
•General, administrative and other expenses increased $217.4 million for the year ended December 31, 2024 compared to the corresponding period in 2023, driven by investment in that business.
Wealth Management
Year ended December 31
YTD Change
(dollars in thousands) 2024 2023 Dollar increase/(decrease) Percentage
Interest income $ 372,343 $ 367,263 $ 5,080 1.4 %
Interest expense 156,952 94,013 62,939 66.9 %
Fees and other income 321,832 248,668 73,164 29.4 %
Credit loss (benefit) / expense - 205 (205) (100.0) %
General, administrative and other expenses
279,904 279,425 479 0.2 %
Income/(loss) before income taxes 257,319 242,288 15,031 6.2 %
Total assets 7,570,085 7,576,807 (6,722) (0.1) %
Wealth Management reported income before income taxes of $257.3 million for the year ended December 31, 2024, compared to income before income taxes of $242.3 million for the corresponding period in 2023. The primary factors contributing to this change were:
•Fees and other income increased $73.2 million for the year ended December 31, 2024 compared to the corresponding period in 2023, driven by higher securities transaction income.
Other
Year ended December 31
YTD Change
(dollars in thousands) 2024 2023 Dollar increase/(decrease) Percentage
Interest income $ (2,666,464) $ (2,516,142) $ (150,322) (6.0) %
Interest expense (1,934,273) (1,877,193) (57,080) (3.0) %
Fees and other income 89,763 30,315 59,448 196.1 %
Credit loss (benefit) / expense (2,739) (6,137) 3,398 55.4 %
General, administrative and other expenses
333,880 287,251 46,629 16.2 %
Income/(loss) before income taxes (973,569) (889,748) (83,821) (9.4) %
Total assets 35,393,700 28,436,107 6,957,593 24.5 %
The Other category reported a loss before income taxes of $973.6 million for the year ended December 31, 2024, compared to a loss before income taxes of $889.7 million for the corresponding period in 2023. The primary factors contributing to this change were:
•Fees and other income increased $59.4 million for the year ended December 31, 2024 compared to the corresponding period of 2023. This increase was mainly driven by gains on hedge positions.
•General, administrative and other expenses increased $46.6 million for the year ended December 31, 2024 compared to the corresponding period of 2023. This increase was a result of one time restructuring charges taken during the year.
FINANCIAL CONDITION
LOAN PORTFOLIO
The Company's LHFI portfolio consisted of the following at the dates indicated:
December 31, 2024 December 31, 2023 December 31, 2022 December 31, 2021 December 31, 2020
(dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
Commercial LHFI:
CRE $ 8,624,800 9.9 % $ 8,747,544 9.4 % $ 7,971,299 8.2 % $ 7,227,003 7.8 % $ 7,327,853 8.0 %
C&I 8,386,344 9.6 % 11,181,962 12.0 % 14,811,074 15.2 % 14,710,864 16.0 % 16,537,899 17.9 %
Multifamily 9,840,692 11.3 % 10,548,905 11.3 % 9,629,423 9.9 % 7,547,382 8.2 % 8,367,147 9.1 %
Other commercial 7,608,933 8.7 % 7,476,113 8.0 % 7,982,107 8.2 % 8,170,031 8.9 % 7,455,504 8.1 %
Total commercial loans (1)
34,460,769 39.5 % 37,954,524 40.7 % 40,393,903 41.5 % 37,655,280 40.9 % 39,688,403 43.1 %
Consumer loans secured by real estate:
Residential mortgages 4,415,747 5.1 % 4,816,218 5.2 % 5,202,862 5.3 % 5,598,560 6.1 % 6,590,168 7.2 %
Home equity loans and lines of credit 2,091,365 2.4 % 2,448,454 2.6 % 3,002,804 3.1 % 3,487,234 3.8 % 4,108,505 4.5 %
Total consumer loans secured by real estate 6,507,112 7.5 % 7,264,672 7.8 % 8,205,666 8.4 % 9,085,794 9.9 % 10,698,673 11.7 %
Consumer loans not secured by real estate:
RICs and auto loans 44,585,718 50.9 % 43,705,359 47.0 % 44,577,186 45.8 % 43,183,098 46.9 % 40,698,642 44.1 %
Personal unsecured loans 1,715,727 2.0 % 4,062,700 4.4 % 4,068,848 4.2 % 2,009,654 2.2 % 824,430 0.9 %
Other consumer 35,173 0.1 % 59,954 0.1 % 92,726 0.1 % 141,986 0.1 % 223,034 0.2 %
Total consumer loans 52,843,730 60.5 % 55,092,685 59.3 % 56,944,426 58.5 % 54,420,532 59.1 % 52,444,779 56.9 %
Total LHFI $ 87,304,499 100.0 % $ 93,047,209 100.0 % $ 97,338,329 100.0 % $ 92,075,812 100.0 % $ 92,133,182 100.0 %
Total LHFI with:
Fixed $ 62,085,179 71.1 % $ 65,960,370 70.9 % $ 67,693,444 69.5 % $ 64,774,941 70.3 % $ 64,036,154 69.5 %
Variable 25,219,320 28.9 % 27,086,839 29.1 % 29,644,885 30.5 % 27,300,871 29.7 % 28,097,028 30.5 %
Total LHFI $ 87,304,499 100.0 % $ 93,047,209 100.0 % $ 97,338,329 100.0 % $ 92,075,812 100.0 % $ 92,133,182 100.0 %
(1) As of December 31, 2024, the Company had $371.6 million of commercial loans that were denominated in a currency other than the U.S. dollar.
Loans by Maturity and Interest Rate Sensitivity
At December 31, 2024, Maturing
(in thousands) In One Year
Or Less One to Five
Years Five to 15 Years After 15
Years Total
Fixed Rates:
CRE loans $ 104,870 $ 236,621 $ 63,678 $ 6,648 $ 411,817
C&I 103,777 632,881 294,335 16,470 1,047,463
Multifamily loans 601,478 4,510,201 1,992,644 - 7,104,323
Other commercial 596,284 1,895,358 1,144,755 - 3,636,397
Total Commercial $ 1,406,409 $ 7,275,061 $ 3,495,412 $ 23,118 $ 12,200,000
Residential mortgages 1,045 30,436 579,531 4,395,441 5,006,453
Home equity loans and lines of credit 16,125 11,434 39,350 27,046 93,955
RICs and auto loans 633,155 25,302,063 18,650,492 8 44,585,718
Personal unsecured loans 16,113 983,347 302,132 - 1,301,592
Other consumer 1,051 26,949 3,169 4,004 35,173
Total Fixed Rates $ 2,073,898 $ 33,629,290 $ 23,070,086 $ 4,449,617 $ 63,222,891
Variable Rates:
CRE loans $ 3,387,417 $ 4,367,882 $ 364,861 $ 92,823 $ 8,212,983
C&I 854,454 6,206,748 447,176 26,744 7,535,122
Multifamily loans 989,302 1,458,913 286,562 1,592 2,736,369
Other commercial 3,717,149 255,387 - - 3,972,536
Total Commercial $ 8,948,322 $ 12,288,930 $ 1,098,599 $ 121,159 $ 22,457,010
Residential mortgages 238 3,537 100,502 442,729 547,006
Home equity loans and lines of credit 301 1,387 445,836 1,549,886 1,997,410
Personal unsecured loans 4,676 171,130 237,349 980 414,135
Other consumer - - - - -
Total Variable Rates $ 8,953,537 $ 12,464,984 $ 1,882,286 $ 2,114,754 $ 25,415,561
Total $ 11,027,435 $ 46,094,274 $ 24,952,372 $ 6,564,371 $ 88,638,452
Commercial
Commercial loans decreased approximately $3.5 billion, or 9.2%, from December 31, 2023 to December 31, 2024. This decrease was primarily attributable to a decrease in C&I loans of $2.8 billion, a decrease in Multifamily loans of $708.2 million, and a decrease in CRE loans of $122.7 million.
Consumer Loans Secured By Real Estate
Consumer loans secured by real estate decreased $757.6 million from December 31, 2023 to December 31, 2024. The Company ceased origination of new residential mortgage and home equity loans in the first quarter of 2022.
Consumer Loans Not Secured By Real Estate
RICs and auto loans
RICs and auto loans HFI increased $0.9 billion from December 31, 2023 to December 31, 2024. This increase represents new origination activity, offset by collections and transfers out of HFI in connection with the Company's loan sales in off-balance sheet securitizations. RICs are collateralized by vehicle titles, and the lender has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. A significant portion of the Company's RICs HFI are pledged against warehouse lines or securitization bonds. Refer to further discussion of these in Note 10 to the Consolidated Financial Statements.
During the three months ended March 31, 2024, the Company sold $1.1 billion of gross of RICs to a newly formed off-balance sheet securitization VIE which resulted in a pre-tax loss of $42.3 million. The Company retained the servicing of the RIC's sold and provided a loan, classified by the Company as an investment in debt security HTM, in the amount of $53.0 million to the VIE to satisfy regulatory risk retention requirements. The Company is not obligated to provide any financial support to the VIE. All of the notes and residual equity interests issued by the VIE were sold to third-party investors. Gains and losses on securitizations are
recorded in Miscellaneous income, net, in the accompanying Consolidated Statements of Operations. At the time of the sale, the Company released approximately $96.0 million of ACL to provision expense.
In August 2024, the Company sold all of the equity certificates of an on-balance sheet auto RIC Trust to a new off-balance sheet Trust established in 2024. This new off-balance sheet Trust issued debt and equity tranches to third-party investors, with the exception of a 5% share of each new tranche purchased by the Company. In addition, the Company sold all of its debt that had been held from the on-balance sheet Trust to a third party. The Company’s sale of this debt and equity from the on-balance sheet Trust resulted in the Company no longer being identified as the primary beneficiary and the subsequent de-recognition of the assets and liabilities of the on-balance sheet Trust from its Consolidated Balance Sheets. As a result of these transactions, the Company de-consolidated approximately $507.7 million of auto RICs previously HFI which it transferred to an off-balance sheet securitization, resulting in a release of the ACL in the amount of approximately $71.0 million, offset by a loss on securitization of approximately $24.1 million.
During the fourth quarter of 2024, the Company transferred its financial interests in two on-balance sheet auto RIC Trusts (related to 2021 securitizations) to third parties and to two newly-formed off-balance sheet Trusts. The total effects of these transactions resulted in de-recognition of approximately $778.6 million of RICs and a release of the ACL in the amount of approximately $95.2 million, offset by a securitization loss of $16.4 million as a result of deconsolidation of the 2021 RIC Trusts. Refer to Note 8 to these Consolidated Financial Statements for additional discussion of these transactions.
As of December 31, 2024, 58.4% 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 6.3% of loans for which no FICO score was available. While underwriting guidelines are designed to establish that the customer would be a reasonable credit risk, nonprime loans will nonetheless experience higher default rates than a portfolio of obligations of prime customers. Additionally, higher unemployment rates, higher gasoline prices, unstable real estate values, re-sets of adjustable rate mortgages to higher interest rates, the general availability of consumer credit, and other factors that impact consumer confidence or disposable income could lead to an increase in delinquencies, defaults, and repossessions, as well as decreased consumer demand for used automobiles and other consumer products, weaken collateral values and increase losses in the event of default. Because the historical focus for such credit has been predominantly on nonprime consumers, the actual rates of delinquencies, defaults, repossessions, and losses on these loans could be more dramatically affected by a general economic downturn.
The Company's automated originations process for these credits reflects a disciplined approach to credit risk management to mitigate the risks of nonprime customers. The Company's robust historical data on both organically originated and acquired loans provides it with the ability to perform advanced loss forecasting. Each applicant is automatically assigned a proprietary custom score using information such as FICO scores, DTI ratios, LTV ratios, and over 30 other predictive factors, placing the applicant in one of 100 pricing tiers. The pricing in each tier is continuously monitored and adjusted to reflect market and risk trends. In addition to the Company's automated process, it maintains a team of underwriters for manual review, consideration of exceptions, and review of deal structures with dealers.
Personal unsecured and other consumer loans
Personal unsecured and other consumer loans HFI decreased $2.4 billion from December 31, 2023 to December 31, 2024. This decrease was primarily attributable to run-off in the portfolio and two sales to third parties during the third and fourth quarters of 2024 totaling $1.4 billion.
At December 31, 2024, the CRE and multifamily portfolios included the following:
As of December 31, 2024
(in thousands) Balance Percentage of Total CRE and Multifamily
CRE loans $ 8,624,800 46.7 %
Multifamily loans (1)
9,840,692 53.3 %
Total CRE and multifamily loans $ 18,465,492 100.0 %
CRE loans by type
Multifamily construction $ 3,695,120 20.0 %
Office 1,644,717 8.9 %
Retail 1,085,370 5.9 %
Industrial 1,313,962 7.1 %
Other 885,631 4.8 %
Total $ 8,624,800
(1) Occupied properties
Multifamily lending (occupied and construction) continues to be our focus, representing 73% of the total CRE and multifamily portfolio and 15.5% of total LHFI. Overall, occupancy across the multifamily loan portfolio and our primary markets, such as New York City, continues to be stable. Our construction originations are concentrated to well-established and proven builders and sponsors.
Office CRE loans represent 8.9% of the total CRE and multifamily portfolio and 2% of total LHFI. The Company's office exposure primarily consists of investment grade, single tenants with long leases.
The Company's retail CRE portfolio represents 5.9% of the total CRE and multifamily portfolio and 1% of total LHFI. The retail portfolio is anchored by institutional or investment grade tenants, which have demonstrated recovery following the COVID-19 pandemic.
The Company's CRE and Multifamily portfolios, by state at the date indicated was;
As of December 31, 2024
(dollars in thousands) Balance
Percentage of Total CRE and Multifamily
State
New York $ 5,656,851 30.6 %
New Jersey 2,259,381 12.2 %
Massachusetts 1,569,199 8.5 %
Texas 1,525,230 8.3 %
All other states
7,454,831 40.4 %
Total
$ 18,465,492 100.0 %
NON-PERFORMING ASSETS
The following table presents the composition of non-performing assets at the dates indicated:
Period Ended Change
(dollars in thousands) December 31, 2024 December 31, 2023 Dollar Percentage
Non-accrual loans:
Commercial:
CRE $ 243,761 $ 267,537 $ (23,776) (8.9) %
C&I 132,146 143,504 (11,358) (7.9) %
Multifamily 226,448 97,228 129,220 132.9 %
Other commercial 8,037 5,621 2,416 43.0 %
Total commercial loans 610,392 513,890 96,502 18.8 %
Consumer loans secured by real estate:
Residential mortgages 52,170 52,718 (548) (1.0) %
Home equity loans and lines of credit 70,414 86,332 (15,918) (18.4) %
Consumer loans not secured by real estate:
RICs and auto loans 2,241,575 2,194,509 47,066 2.1 %
Personal unsecured loans 486 21,267 (20,781) (97.7) %
Other consumer 15,198 15,733 (535) (3.4) %
Total consumer loans 2,379,843 2,370,559 9,284 0.4 %
Total non-accrual loans 2,990,235 2,884,449 105,786 3.7 %
OREO 54,121 24,246 29,875 123.2 %
Repossessed vehicles 249,209 265,368 (16,159) (6.1) %
Foreclosed and other repossessed assets
25,182 1,666 23,516 1,411.5 %
Total OREO and other repossessed assets 328,512 291,280 37,232 12.8 %
Total non-performing assets $ 3,318,747 $ 3,175,729 $ 143,018 4.5 %
Past due 90 days or more as to interest or principal and accruing interest $ 8,796 $ 7,947 $ 849 10.7%
Non-performing assets as a percentage of total assets 2.0 % 1.9 % n/a n/a
CREDIT RATIOS
As of and for the year ended
(dollars in thousands) December 31, 2024 December 31, 2023 December 31, 2022
ACL to total loan outstanding 7.5% 7.5% 7.0%
ACL $6,609,955 $6,992,815 $6,865,581
Total loans outstanding 88,638,452 93,207,327 97,437,884
NPL to total loans outstanding 3.4% 3.1% 2.4%
NPL $2,990,235 $2,884,449 $2,340,855
Total loans outstanding 88,638,452 93,207,327 97,437,884
ACL to NPL 221.1% 242.4% 293.3%
ACL $6,609,955 $6,992,815 $6,865,581
NPL 2,990,235 2,884,449 2,340,855
Net charge-offs during the period to average loans outstanding:
Commercial 0.1% 0.2% 0.2%
Net charge-offs / (recoveries) during the period
$46,530 $91,924 $76,469
Average amount outstanding 37,540,690 40,904,656 38,288,899
Consumer 4.1% 3.6% 2.9%
Net charge-offs / (recoveries) during the period
$2,273,449 $2,062,520 $1,642,271
Average amount outstanding 54,808,673 56,837,616 55,886,419
Commercial net charge-offs during the period to average loans decreased from December 31, 2023 to December 31, 2024. The decrease in net charge-offs was primarily in CRE loans. Consumer net charge-offs during the period to average loans increased from December 31, 2023 to December 31, 2024. This increase was primarily due to current year activity in RICs reflecting normalization in credit performance along with other factors, including high borrowing costs and persistent inflation.
Commercial
Commercial NPLs increased $96.5 million from December 31, 2023 to December 31, 2024. Commercial NPLs accounted for 1.8% of commercial LHFI at December 31, 2024. The change in commercial NPLs was primarily comprised of an increase of $129.2 million in the Multifamily portfolio, a decrease of $23.8 million in the CRE portfolio and a decrease of $11.4 million in the C&I portfolio. The changes in Multifamily NPLs were primarily driven by the impact of the high interest rate environment on customer appraisals.
Consumer Loans Secured by Real Estate
NPLs in the consumer loans secured by real estate portfolio decreased year-over-year primarily resulting from the continued run-off of the portfolio. Non-performing consumer loans secured by real estate in foreclosure were $55.4 million, or 45.2%, of non-performing consumer loans secured by real estate at December 31, 2024, compared to $67.1 million, or 48.3%, at December 31, 2023.
Consumer Loans Not Secured by Real Estate
RICs
RICs are classified as non-performing when they are more than 60 DPD (i.e., 61 or more DPD) with respect to principal or interest. Except for loans accounted for using the FVO, at the time a loan is placed on non-performing status, previously accrued and uncollected interest is reversed against interest income. When an account is 60 days or less past due, it is returned to performing status and the Company returns to accruing interest on the loan. NPLs in the RIC and auto loan portfolio increased by $47.1 million from December 31, 2023 to December 31, 2024. Non-performing RICs and auto loans accounted for 5.0% and 5.0% of total RICs and auto loans at December 31, 2024 and December 31, 2023, respectively.
Personal unsecured loans
The accrual of interest on revolving personal loans continues until the loan is charged off. Credit cards are charged off when they are 180 days delinquent or within 60 days after the receipt of notification of the cardholder’s death or bankruptcy. NPLs in the personal unsecured portfolio decreased by $20.8 million from December 31, 2023 to December 31, 2024. Non-performing personal unsecured loans accounted for 0.03% and 0.5% of total personal unsecured loans at December 31, 2024 and December 31, 2023, respectively.
Delinquencies
Early stage delinquency in commercial loans totaled approximately $178.2 million and $201.2 million at December 31, 2024 and December 31, 2023, respectively. Early stage delinquency consumer loans amounted to $5.5 billion and $5.6 billion at December 31, 2024 and December 31, 2023, respectively. Management has included these loans in its evaluation of the Company's ACL and reserved for them during the respective periods.
The Company generally considers an account delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date. Overall, total delinquencies increased by $28.2 million from December 31, 2023 to December 31, 2024. The main driver of this is the increase in past due Multifamily loans due to portfolio deterioration and rating downgrades, partially offset by a decrease in past due CRE loans and personal unsecured loans.
Loan Modifications
Loan modifications occur when a borrower is experiencing financial difficulties and the loan is modified. In these cases, the Company may agree to make certain concessions to both meet the needs of customers and maximize its ultimate recovery on the loans. The types of concessions granted are generally interest rate reductions, limitations on accrued interest charged, term extensions, covenant waivers and deferments of principal.
Modified loans are generally placed on nonaccrual status upon modification, unless the loan was performing immediately prior to modification. For most portfolios, modified loans may return to accrual status after a sustained period of repayment performance, as long as the Company believes the principal and interest of the restructured loan will be paid in full. RIC modifications are placed on nonaccrual status when the Company believes repayment under the revised terms is not reasonably assured and, at the latest, when the account becomes more than 60 DPD. RIC modifications are considered for return to accrual when the account becomes 60 days or less past due. To the extent the modified loan is determined to be collateral-dependent, and the source of repayment depends on the operation of the collateral, the loan may be returned to accrual status based on the foregoing parameters. To the extent the modified loan is determined to be collateral-dependent, and the source of repayment depends on disposal of the collateral, the loan may not be returned to accrual status.
The Company evaluates the results of its deferral strategies based upon the amount of cash installments that are collected on accounts after they have been deferred compared to the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, the Company believes that payment deferrals granted according to its policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.
Changes in deferral levels do not have a direct impact on the ultimate amount of consumer finance receivables charged-off. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent deferrals impact the ultimate timing of when an account is charged-off, historical charge-off ratios, and cash flow forecasts used in the determination of the adequacy of the ALLL for loans classified as modified are also impacted. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the ALLL and related credit loss expense. Changes in these ratios and periods are considered in determining the appropriate level of the ALLL and related credit loss expense.
Effective January 1, 2023, the Company adopted ASU 2022-02. This guidance removes the specific accounting and disclosure guidance for TDR designations and enhances disclosure requirements related to modifications of receivables made to borrowers experiencing financial difficulty. The Company adopted the new guidance on January 1, 2023 on a modified retrospective basis with a cumulative effect adjustment to retained earnings. The effect of this implementation was an increase in the ACL of approximately $55.2 million, a decrease in retained earnings of approximately $41.4 million and a decrease in deferred tax liabilities of approximately $13.8 million. Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information on modified loans.
During the year ended December 31, 2024, the Company provided loan modifications to customers with an amortized cost basis at December 31, 2024 of $2.2 billion, compared to $1.4 billion for the corresponding period in 2023. Loan modifications primarily consist of payment deferrals in the RIC and auto loan portfolio. The increase in payment deferrals in the RIC and auto loan portfolio during the year ended December 31, 2024 compared to the corresponding period in 2023 was primarily driven by increased demand for payment deferrals, higher loan balances and the use of payment deferrals in place of other loan modification programs.
CREDIT RISK
The risk inherent in the Company’s loan and lease portfolios is driven by credit and collateral quality and is affected by borrower-specific and economy-wide factors such as changes in unemployment, GDP, HPI, the CRE price index, used vehicle index, and other factors. In general, there is an inverse relationship between credit quality of transactions and projections of impairment losses so that transactions with better credit quality require a lower expected loss. The Company manages this risk through its underwriting, pricing and credit approval guidelines and servicing policies and practices, as well as geographic and other concentration limits.
The Company's ACL is principally based on various models subject to the Company's Model Risk Management Framework. New models are approved by the Company's Model Risk Management Committee. Models, inputs and documentation are further reviewed and validated at least annually, and the Company completes a detailed variance analysis of historical model projections against actual observed results on a quarterly basis. Required actions resulting from the Company's analysis, if necessary, are governed by its ACL Committee.
Management uses the qualitative framework to exercise judgment about matters that are inherently uncertain and that are not considered by the quantitative framework. These adjustments are documented and reviewed through the Company’s risk management processes. Furthermore, management reviews, updates, and validates its process and loss assumptions on a periodic basis. This process involves an analysis of data integrity, review of loss and credit trends, a retrospective evaluation of actual loss information to loss forecasts, and other analyses.
ACL levels are collectively reviewed for adequacy and approved quarterly. Required actions resulting from the Company's analysis, if necessary, are governed by its ACL Committee. The ACL levels are approved by the Board-level committees quarterly.
ACL
The Company's ACL was $6.6 billion at December 31, 2024, a decrease of $382.9 million from December 31, 2023. The decrease in the ACL was primarily driven by the sale of certain personal unsecured loans and off-balance sheet securitizations of RICs and auto loans and improvement in the macroeconomic outlook for certain macro variables. The ACL for the consumer portfolio segment decreased by $321.9 million and the ACL for the commercial segment decreased $60.9 million for the period ended December 31, 2024 compared to the period ended December 31, 2023. Refer to the rollforward of the ACL in Note 3 to the Consolidated Financial Statements.
Reserve for Unfunded Lending Commitments
The reserve for unfunded lending commitments decreased from $60.8 million at December 31, 2023 to $47.9 million at December 31, 2024.
INVESTMENT SECURITIES
The following table presents the Company's investment portfolio at the dates indicated:
(in thousands) December 31, 2024 December 31, 2023
Investment securities AFS:
U.S. Treasury securities and government agencies $ 3,358,438 $ 3,336,467
FNMA and FHLMC securities 1,827,163 2,038,307
Beneficial interest in Structured LLC
1,198,985 1,122,510
Other securities (1)
748,046 542,253
Total investment securities AFS 7,132,632 7,039,537
Investment securities HTM:
U.S. Treasury securities, government agencies, and other securities (1)
8,361,402 7,625,337
FNMA and FHLMC securities 1,552,886 1,414,367
Total investment securities HTM 9,914,288 9,039,704
Trading securities 10,322,823 7,967,875
Other investments 1,549,634 1,353,278
Total investment portfolio $ 28,919,377 $ 25,400,394
(1) Other securities primarily include ABS.
The Company’s AFS investment strategy is to purchase liquid fixed-rate and floating-rate investments to manage the Company's liquidity position and interest rate risk adequately. The Company's AFS investment portfolio consisted of the following at the dates indicated:
December 31, 2024 December 31, 2023 Change Percent
(in thousands) Fair Value Fair Value
U.S. Treasury securities $ 304,440 $ 25,409 $ 279,031 1098.2 %
Corporate debt securities 13 31,590 (31,577) (100.0) %
ABS 748,033 510,663 237,370 46.5 %
Beneficial interest in Structured LLC
1,198,985 1,122,510 76,475 6.8 %
MBS(1):
GNMA - Residential 2,565,297 2,792,844 (227,547) (8.1) %
GNMA - Commercial 488,701 518,214 (29,513) (5.7) %
FHLMC and FNMA - Residential 1,741,256 1,949,419 (208,163) (10.7) %
FHLMC and FNMA - Commercial 85,907 88,888 (2,981) (3.4) %
Total investments in debt securities AFS $ 7,132,632 $ 7,039,537 $ 93,095 1.3 %
(1) 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 following represents the weighted average yield by maturity for the Company's HTM debt securities portfolio.
Due After 1 Within 5 Years Due After 5 Within 10 Years Due After 10 Years/No Maturity Total
U.S Treasury securities
4.32 % - % - % 4.32 %
ABS 4.53 % 5.32 % - % 4.96 %
MBS:
GNMA - Residential - % 2.14 % 3.01 % 3.01 %
GNMA - Commercial - % - % 2.45 % 2.45 %
FHLMC and FNMA - Residential - % - % 3.18 % 3.18 %
Total weighted average yield
4.33 % 5.04 % 2.77 % 2.90 %
The following represents the unrealized gain / (loss) position of the AFS investment portfolio.
(in thousands) December 31, 2024 December 31, 2023 Change in unrealized gain/(loss) Percent
Total unrealized loss $ (801,722) $ (886,414) $ 84,692 (9.6) %
Total unrealized gain 100,737 61 100,676 165042.6 %
Total unrealized gain/(loss) position $ (700,985) $ (886,353) $ 185,368 (20.9) %
The change in unrealized gains is primarily related to the beneficial interest in the Structured LLC.
The average life of the AFS investment portfolio (excluding certain ABS) at December 31, 2024 was approximately 7.24 years. The average effective duration of the Company's AFS investment portfolio (excluding certain ABS) at December 31, 2024 was approximately 4.34 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 388 investment securities classified as HTM as of December 31, 2024. 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 December 31, 2024:
December 31, 2024
(in thousands) Amortized Cost Fair Value
FNMA $ 1,698,937 $ 1,473,801
FHLMC 2,065,012 1,772,938
GNMA (1)
11,254,919 9,286,380
Total $ 15,018,868 $ 12,533,119
(1) Includes U.S. government agency MBS.
GOODWILL
At December 31, 2024, goodwill totaled $2.8 billion and represented 1.7% of total assets and 17.6% of total stockholder's equity. The Company conducted its most recent annual goodwill impairment tests as of October 1, 2024 using generally accepted valuation methods and noted no impairment.
For the Auto, CBB, C&I, CRE, and CIB reporting unit fair valuation analyses, the Company applied an equal weighting to the market and income approach. Additionally, for all reporting units, the Company selected a long-term growth rate of 3.5% for use in the income approach DCF analysis and a 25.0% control premium for the market approach based on the Company's review of transactions observable in the marketplace that were determined to be comparable. Other key assumptions by reporting unit included:
Auto CBB C&I CRE CIB
Projected TBV 1.5x 1.1x 1.0x 1.4x 1.3x
Discount Rate 11.8% 12.8% 11.7% 13.4% 13.3%
For the most recent impairment analysis, under the scenarios deemed by the Company to be the most likely, the results of the fair value analyses for each of the reporting units exceeded its carrying value by 10% or more.
BORROWINGS AND OTHER DEBT OBLIGATIONS
The Company has term loans and lines of credit with Santander and other lenders. The Company utilizes borrowings and other debt obligations as a source of funds for its asset growth and asset/liability management. In addition, The Company has warehouse lines of credit and securitizes some of its RICs and operating leases, which are structured secured financings. Total borrowings and other debt obligations at December 31, 2024 were $44.0 billion, compared to $44.1 billion at December 31, 2023. Total borrowings decreased $133.1 million. Refer to Note 10 to the Consolidated Financial Statements for the detail of Borrowings and other debt obligations.
(Dollars in thousands) Year ended December 31,
Parent Company & other subsidiary borrowings and other debt obligations 2024 2023
Parent Company senior notes and short-term borrowings:
Balance $12,000,039 $10,249,393
Weighted average interest rate at year-end 5.21 % 4.76 %
Maximum amount outstanding at any month-end during the year $12,000,039 $10,249,392
Average amount outstanding during the year $11,346,929 $9,415,212
Weighted average interest rate during the year 5.19 % 4.50 %
Parent Company and Subsidiary subordinated notes:
Balance $1,000,000 $1,000,000
Weighted average interest rate at year-end 5.03 % 5.03 %
Maximum amount outstanding at any month-end during the year $1,000,000 $1,000,000
Average amount outstanding during the year $1,000,000 $1,000,000
Weighted average interest rate during the year 5.03 % 5.03 %
Subsidiary short-term and overnight borrowings:
Balance $702,272 $427,531
Weighted average interest rate at year-end 4.41 % 4.66 %
Maximum amount outstanding at any month-end during the year $862,887 $427,531
Average amount outstanding during the year $573,007 $106,883
Weighted average interest rate during the year 4.97 % 7.73 %
(Dollars in thousands) Year ended December 31,
2024 2023
FHLB advances:
Balance $4,699,407 $6,584,791
Weighted average interest rate at year-end 4.69 % 5.04 %
Maximum amount outstanding at any month-end during the year $5,273,739 $9,571,742
Average amount outstanding during the year $3,772,373 $7,161,272
Weighted average interest rate during the year 4.75 % 5.04 %
Credit linked notes:
Balance $1,188,944 $1,153,598
Weighted average interest rate at year-end 9.31 % 8.95 %
Maximum amount outstanding at any month-end during the year $3,154,661 $1,153,598
Average amount outstanding during the year $2,894,727 $1,768,301
Weighted average interest rate during the year 8.27 % 8.16 %
Term loans:
Balance $0 $2,000,000
Weighted average interest rate at year-end - % 6.98 %
Maximum amount outstanding at any month-end during the year $2,000,000 $2,000,000
Average amount outstanding during the year $2,000,000 $2,000,000
Weighted average interest rate during the year 6.98 % 6.98 %
Revolving credit facilities:
Balance $4,036,778 $3,618,378
Weighted average interest rate at year-end 5.75 % 6.93 %
Maximum amount outstanding at any month-end during the year $4,340,478 $4,720,878
Average amount outstanding during the year $3,200,186 $3,618,136
Weighted average interest rate during the year 7.34 % 6.62 %
Public securitizations:
Balance $18,489,695 $15,624,345
Weighted average interest rate range at year-end 0.58% - 7.69% 0.48% - 7.69%
Maximum amount outstanding at any month-end during the year $20,558,069 $21,430,884
Average amount outstanding during the year $18,836,808 $18,214,056
Weighted average interest rate during the year 4.90 % 3.06 %
Privately issued amortizing notes:
Balance $1,893,775 $3,486,015
Weighted average interest rate range at year-end 3.13%-6.73% 2.17% - 6.73%
Maximum amount outstanding at any month-end during the year $3,290,999 $5,538,706
Average amount outstanding during the year $2,509,862 $4,424,014
Weighted average interest rate during the year 6.86 % 6.59 %
Total of all borrowings and debt obligations $44,010,910 $44,144,051
DEFERRED TAXES AND OTHER TAX ACTIVITY
The Company had a net deferred tax asset balance of $364.3 million at December 31, 2024 (consisting of a federal deferred tax asset balance of $196.3 million and a state deferred tax asset balance of $168.0 million with respect to jurisdictional netting), compared to a net deferred tax asset balance of $150.1 million at December 31, 2023 (consisting of a state deferred tax asset balance of $234.3 million and a federal deferred tax liability balance of $84.2 million). Refer to Note 17 to the Consolidated Financial Statements for further discussion of the change in deferred tax balances.
DEPOSITS
The Company reported deposits of $78.1 billion and $77.1 billion at December 31, 2024 and December 31, 2023, respectively.
At December 31, 2024, SBNA had $76.8 billion of U.S.-based deposits, including $4.1 billion of deposits from SHUSA affiliates that eliminate in consolidation. Uninsured U.S.-based deposits were $27.9 billion and $26.3 billion at December 31, 2024 and December 31, 2023, respectively, and represented approximately 36% and 35% of all U.S. deposits at December 31, 2024 and December 31, 2023, respectively.
During the third quarter of 2024, SBNA began participating in a network that offers FDIC deposit placement services. This network spreads a customer's large deposit account among interconnected banks to increase the FDIC insurance coverage for that customer and to help the Bank retain the customer and the relationship.
SBNA attracts deposits primarily through its retail branch network located within the Mid-Atlantic and Northeastern areas of the United States, located throughout Pennsylvania, New Jersey, New York, New Hampshire, Massachusetts, Connecticut, Rhode Island, and Delaware, with two locations outside this region in Florida. Many of these deposit customers have more than one bank product including small business loans, middle market, large and global commercial loans, multi-family loans, and auto and other consumer loans. In addition, SBNA obtains deposits through third-party brokerage firms. The Company also acquires deposits nationally through SBNA's online Openbank platform.
The following shows the Company's deposits by business as of December 31, 2024:
Consumer (1)
Commercial (2)
CIB Wealth Management Other and eliminations (3)
Total
(dollars in thousands) Balance
Interest-bearing demand deposits $ 40,705,470 $ 10,196,086 $ 3,158,822 $ 3,127,050 $ 6,387,192 $ 63,574,620
Non-interest-bearing demand deposits 8,550,025 3,646,149 73,808 2,214,388 55,615 14,539,985
Total deposits (1)
$ 49,255,495 $ 13,842,235 $ 3,232,630 $ 5,341,438 $ 6,442,807 $ 78,114,605
(1) Consumer consists of deposits related to the Company's Auto and CBB reportable segments.
(2) Commercial consists of deposits related to the Company's C&I and CRE reportable segments.
(3) Other consists of deposits related to certain of the Company's immaterial subsidiaries and corporate treasury deposits.
During the fourth quarter of 2024, deposits remained stable across our commercial businesses, with changes to overall deposit balances being primarily driven by increases in strategic deposits in CIB and wealth management, offset by decreases in consumer and other businesses.
The portion of U.S. time deposits in excess of insurance limits(1) were as follows:
(in thousands) December 31, 2024
Time deposits otherwise uninsured with a maturity of:
3 months or less $ 955,155
Over 3 months through 6 months 571,049
Over 6 months through 12 months 422,116
Over 12 months 43,465
Total U.S time deposits in excess of insurance limit $ 1,991,785
(1) Uninsured deposits calculated in accordance with applicable FDIC regulations.
BANK REGULATORY CAPITAL
The Company’s capital priorities are to support client growth and business investment while maintaining appropriate capital for a range of macroeconomic outcomes.
The Company is subject to the regulations of certain federal, state, and foreign agencies and undergoes periodic examinations by those regulatory authorities. At December 31, 2024 and 2023, 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 December 31, 2024 and 2023, based on the Company’s capital calculations, exceeded the required capital ratios for BHCs.
For a discussion of U.S. Basel III, including the standardized approach and related anticipated future changes to the minimum U.S. regulatory capital ratios, see the section captioned "Regulatory Matters" in this MD&A.
Federal banking laws, regulations and policies also limit SBNA’s ability to pay dividends and make other distributions to the Company. SBNA must obtain prior OCC approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the Bank's total distributions to SHUSA within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years, (2) the Bank would not meet capital levels imposed by the OCC in connection with any order, (3) the Bank has negative retained earnings, or (4) the Bank is not adequately capitalized at the time. The OCC's prior approval would also be required if SBNA were notified by the OCC that it is a problem institution or in troubled condition.
Any dividend declared and paid or return of capital has the effect of reducing capital ratios. Refer to the section captioned "Liquidity and Capital Resources" in this MD&A for discussion of the Company's dividends.
The following schedule summarizes the actual capital ratios of SHUSA and SBNA at December 31, 2024:
SHUSA
December 31, 2024 Well-capitalized Requirement Minimum Requirement
CET1 capital ratio 12.71 % 6.50 % 4.50 %
Tier 1 capital ratio 14.66 % 8.00 % 6.00 %
Total capital ratio 16.83 % 10.00 % 8.00 %
Leverage ratio 9.27 % 5.00 % 4.00 %
SBNA
December 31, 2024 Well-capitalized Requirement Minimum Requirement
CET1 capital ratio 17.67 % 6.50 % 4.50 %
Tier 1 capital ratio 17.67 % 8.00 % 6.00 %
Total capital ratio 18.93 % 10.00 % 8.00 %
Leverage ratio 11.54 % 5.00 % 4.00 %
The Company utilizes fair value hedging strategies to mitigate the risk of unrealized losses in its investments in debt securities AFS. As of December 31, 2023, the Company had $6.7 billion of notional in fair value hedges which decreased to $5.5 billion at December 31, 2024. Refer to Note 14 to the Consolidated Financial Statements for information about the notional and fair value of these hedging instruments.
LIQUIDITY AND CAPITAL RESOURCES
Overall
The Company continues to maintain strong liquidity. Liquidity represents the ability of the Company to obtain cost-effective funding to meet the needs of customers as well as the Company's financial obligations. Factors that impact the liquidity position of the Company include loan origination volumes, loan prepayment rates, the maturity structure of existing loans, core deposit growth levels, CD maturity structure and retention, the Company's credit ratings, investment portfolio cash flows, the maturity structure of the Company's wholesale funding, and other factors. These risks are monitored and managed centrally. The Company's Asset/Liability Committee reviews and approves the Company's liquidity policy and guidelines on a regular basis. This process includes reviewing all available wholesale liquidity sources. The Company also forecasts future liquidity needs and develops strategies to ensure adequate liquidity is available at all times. SHUSA conducts monthly liquidity stress test analyses to manage its liquidity under a variety of scenarios, all of which demonstrate that the Company has ample liquidity to meet its short-term and long-term cash requirements.
Enhanced Monitoring of Liquidity
In addition to its normal monitoring of liquidity, SBNA enhanced monitoring of its liquidity position since the recent financial system market disruption that began in March 2023 and the ensuing market volatility. Additionally, SBNA continues to optimize contingent sources of liquidity. Some of these actions include the pledge of additional loans to the FRB discount window, and the transfer of loans from the discount window to the FHLB in order to receive more favorable discounts. Overall, the available capacity from the FRB and FHLB remained stable throughout and since 2023.
Impact of Changes to Credit Rating on Liquidity and Capital Resources
Changes to the credit ratings of SHUSA, Santander and its affiliates or the Kingdom of Spain could have a material adverse effect on SHUSA's business, including its liquidity and capital resources. The credit ratings of SHUSA have changed in the past and may change in the future, which could impact its cost of and access to sources of financing and liquidity. Any reductions in the long-term or short-term credit ratings of SHUSA would increase its borrowing costs and require it to replace funding lost due to the downgrade, which may include the loss of customer deposits, limit its access to capital and money markets and trigger additional collateral requirements in derivatives contracts and other secured funding arrangements. See further discussion on the impacts of credit ratings actions in the "Economic and Business Environment" section of this MD&A.
Sources of Liquidity
The Company has several sources of funding to meet liquidity requirements, including the core deposit base, liquid investment securities portfolio, ability to acquire large deposits, FHLB borrowings, wholesale deposit purchases, and federal funds purchased, as well as through securitizations in the ABS market and committed credit lines from third-party banks and Santander. In addition, the Company has other sources of funding to meet its liquidity requirements such as dividends and returns of investments from its subsidiaries, short-term investments held by non-bank affiliates, and access to the capital markets.
The specialized consumer financing of RICs requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. The Company funds these operations through its lending relationships with third-party banks, Santander and affiliates, and through securitizations in the ABS market. The Company seeks to issue debt that appropriately matches the cash flows of the assets that it originates. The Company uses liquidity for debt service and repayment of borrowings, as well as for funding loan commitments.
During the year ended December 31, 2024, the Company's subsidiaries completed on-balance and off-balance sheet funding transactions, including CLNs, of:
•securitizations on SC's SDART platform for approximately $8.4 billion
•securitizations on SC's DRIVE platform for approximately $2.8 billion
•lease securitizations on SBNA's SBALT platform for approximately $4.6 billion
•issuance of retained bonds for approximately $0.5 billion
•issuance of CLNs for approximately $0.5 billion
•off-balance sheet securitizations on SBNA's SBAT platform for approximately $1.0 billion
Santander provides a liquidity line to SHUSA for the purpose of supporting additional liquidity for SHUSA's and its subsidiaries' CIB business activities. At December 31, 2024, SHUSA had $4.0 billion in uncommitted available liquidity on the line, of which it had drawn zero.
Intercompany Borrowings with SHUSA Affiliates
SHUSA provides notes payable and revolving loans and lines to its subsidiaries as needed for the purpose of providing additional liquidity to support business operations at the subsidiary level.
Available Liquidity
As of the periods indicated, the Company and its subsidiaries had the following available liquidity:
December 31, 2024 September 30, 2024
Total Capacity Used Available Total Capacity Used Available
Cash on deposit at FRB $ 15,783,871 $ 13,290,976
Liquidity from released government deposit collateral (1)
2,506,235 - 2,506,235 2,819,609 - 2,819,609
Liquidity from unencumbered securities 2,476,164 - 2,476,164 2,541,268 - 2,541,268
FHLB 15,980,755 4,729,407 11,251,348 16,490,977 2,283,823 14,207,154
FRB:
Discount window 12,413,942 - 12,413,942 12,819,626 - 12,819,626
Total available liquidity $ 44,431,560 $ 45,678,633
(1) Includes high quality liquid assets that are encumbered as collateral for uninsured government deposits.
At December 31, 2024, unencumbered highly liquid assets (cash and cash equivalents, investments in Level 1 through Level 2b qualifying debt securities AFS, and other liquid assets exclusive of securities encumbered pledged as collateral) totaled approximately $28.5 billion. This amount represented 36.5% of total deposits at December 31, 2024.
Cash, cash equivalents, and restricted cash
Year ended December 31,
YTD Change
(in thousands) 2024 2023 Increase/(Decrease)
Net cash flows from operating activities $ 1,158,322 $ 1,907,345 $ (749,023)
Net cash flows from investing activities 3,087,029 2,138,154 948,875
Net cash flows from financing activities 662,526 (1,941,684) 2,604,210
Cash flows from operating activities
Net cash flow from operating activities decreased by $0.7 billion from the year ended December 31, 2023 to the year ended December 31, 2024, primarily due to an increase in originations and purchases of LHFS, offset by an increase in proceeds from the sales of and collections on LHFS during the year ended December 31, 2024.
Cash flows from investing activities
Net cash flow from investing activities increased by $948.9 million from the year ended December 31, 2023 to the year ended December 31, 2024, primarily driven by an increase in proceeds from sales of LHFI and a decrease in purchases and originations of operating leases, offset by an increase in purchases of HTM investment securities.
Cash flows from financing activities
Net cash flow from financing activities increased by $2.6 billion from the year ended December 31, 2023 to the year ended December 31, 2024, primarily driven by an increase in deposits activity and a decrease in dividends paid on common stock, offset by a decrease in preferred stock offerings and the net change in Securities Financing Activities.
See the SCF for further details on the Company's sources and uses of cash.
Credit Facilities
Third-Party Revolving Credit Facilities
Warehouse Lines
The Company's subsidiaries have a credit facility with several banks providing an aggregate commitment of $2.2 billion for the exclusive use of providing short-term liquidity needs to support preferred auto lessor financing. As of December 31, 2024, there was an outstanding balance of $832.2 million on this facility. The facility requires reduced advance rates in the event of delinquency, credit loss, or residual loss ratios, as well as other metrics exceeding specified thresholds.
In addition, the Company's subsidiaries have credit facilities with several banks providing an aggregate commitment of $5.1 billion for the exclusive use of providing short-term liquidity to support core and preferred auto lender financing. As of December 31, 2024, there was an outstanding balance of $3.2 billion on these facilities in the aggregate. These facilities reduce advance rates in the event of delinquency or credit loss, as well as various other metrics exceeding specific thresholds.
Securities Financing Activities
The Company may enter into Securities Financing Activities primarily to deploy the Company’s excess cash and investment positions. Securities Financing Activities are treated as collateralized financings and are included in "Federal funds sold and securities purchased under resale agreements or similar arrangements" and "Federal funds purchased and securities loaned or sold under repurchase agreements" on the Company’s Consolidated Balance Sheets. Refer to Note 13 to the Consolidated Financial Statements for additional information about the Company's Securities Financing Activities.
Secured Structured Financings
The Company's subsidiaries' secured structured financings primarily consist of public, SEC-registered securitizations, as well as private securitizations under Rule 144A of the Securities Act, and privately issued amortizing notes. As of December 31, 2024, there were on-balance sheet securitizations outstanding in the market with a cumulative balance of approximately $20.0 billion.
Deficiency and Debt Forward Flow Agreement
In addition to SC's credit facilities and secured structured financings, SC has a flow agreement in place with a third party for charged-off assets. Loans and leases sold under these flow agreements are not on SC's balance sheet.
Uses of Liquidity
The Company uses liquidity for debt service and repayment of borrowings. In addition, our subsidiaries use liquidity for funding loan commitments, satisfying deposit withdrawal requests, supporting underwriting transactions and meeting customer liquidity requirements.
At December 31, 2024, the Company's liquidity to meet debt payments, debt service and debt maturities was in excess of 12 months.
Contractual Obligations and Other Commitments
The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and asset/liability management and to meet required capital needs. These obligations require the Company to make cash payments over time.
As of December 31, 2024, the Company had total contractual cash obligations of $88.8 billion, which included FHLB advances, notes payable, other debt obligations, CDs, repurchase agreements, non-qualified pension and post-retirement benefits, and operating leases. The Company’s near-term cash obligations largely stem from maturing short term liabilities (CDs, repurchase agreements, and short-term borrowings) and long-term debt. Our primary funding sources to meet these obligations are reliable and stable and include Retail, Commercial and Brokered Deposits of $78.1 billion, secured and other financing of $31.0 billion, short term repurchase agreements of $16.3 billion and long-term unsecured debt of $13.0 billion as well as cash flows from continuing operations. Additionally, on December 31, 2024 the Company has $44.4 billion of readily available liquidity to support near term requirements and ensure it maintains the sufficiency of the liquidity portfolio over stressed horizons ranging from 30 days to 12 months. In addition, the Company had other commitments of $25.5 billion, which consisted of commitments to extend credit and letters of credit. Of this amount, approximately $8.1 billion of the other commitments with maturity dates within one year.
The Company is a party to financial instruments and other arrangements with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and manage its exposure to fluctuations in interest rates. See further discussion on these risks in Note 14 and Note 20 to the Consolidated Financial Statements.
Dividends, Contributions and Stock Issuances
As of December 31, 2024, the Company had 530,391,043 shares of common stock outstanding.
During the year ended December 31, 2024, the Company paid dividends of $1.1 billion on its common stock and $176.9 million on its preferred stock.
During the year ended December 31, 2024, SHUSA's subsidiaries had the following capital activity, which eliminates in consolidation:
•SC declared and paid $1.0 billion in dividends to SHUSA
•BSI declared and paid $160.0 million in dividends to SHUSA
ASSET AND LIABILITY MANAGEMENT
Interest Rate Risk
Interest rate risk arises primarily through the Company’s traditional business activities of extending loans and accepting deposits. Many factors, including economic and financial conditions, movements in market interest rates, and consumer preferences, affect the spread between interest earned on assets and interest paid on liabilities. Interest rate risk is managed by the Company's Treasury group and measured by its Market Risk Department, with oversight by the Asset/Liability Committee. In managing interest rate risk, the Company seeks to minimize the variability of net interest income across various likely scenarios, while at the same time maximizing net interest income and the net interest margin. To achieve these objectives, the Treasury group works closely with each business line in the Company. The Treasury group also uses various other tools to manage interest rate risk, including wholesale funding maturity targeting, investment portfolio purchase strategies, asset securitizations/sales, and financial derivatives.
Interest rate risk focuses on managing four elements of risk associated with interest rates: basis risk, repricing risk, yield curve risk and option risk. Basis risk stems from rate index timing differences with rate changes, such as differences in the extent of changes in Federal funds rates compared with the three-month term SOFR. Repricing risk stems from the different timing of contractual repricing, such as one-month versus three-month reset dates, as well as the related maturities. Yield curve risk stems from the impact on earnings and market value resulting from different shapes and levels of yield curves. Option risk stems from prepayment or early withdrawal risk embedded in various products. These four elements of risk are analyzed through a combination of net interest income and balance sheet valuation simulations, shocks to those simulations, and scenario and market value analyses, and the subsequent results are reviewed by management. Several assumptions and models are used to produce these analyses, including assumptions about new business volumes, loan and investment prepayment rates, deposit flows, interest rate curves, economic conditions, and competitor pricing. Certain models use historical data analyses to estimate future customer behavior, such as deposit re-pricing and attrition. Estimates from these models can differ from actual behavior, depending on various factors such as macroeconomic conditions or competitor response.
Net Interest Income Simulation Analysis
The Company utilizes a variety of measurement techniques to evaluate the impact of interest rate risk, including simulating the impact of changing interest rates on expected future interest income and interest expense, to estimate the Company's net interest income sensitivity. This simulation is run monthly and includes various scenarios that help management understand the potential risks in the Company's net interest income sensitivity. These various scenarios include parallel, non-parallel, gradual parallel and gradual non-parallel rate shocks applied relative to the implied market-based forward curve, as well as other scenarios that are consistent with quantifying the four measures of risk described above. The shocks below are extended using the parallel scenario and are applied instantaneously to the implied forward curve as of the stated month-end. The 200 basis point down shock has been added as market rates have increased. This set of shocks represents a range of plausible rate shocks, as an instantaneous shock 200 basis points down can be analogous to a gradual ramp-down of 400 basis points over one year. This information is used to develop proactive strategies to ensure that the Company’s risk position remains within SHUSA Board of Directors-approved limits so that future earnings are not significantly adversely affected by future interest rates.
The table below reflects the estimated sensitivity to the Company’s net interest income based on interest rate changes at December 31, 2024 and December 31, 2023:
The following estimated percentage increase/(decrease) to
net interest income would result
If interest rates changed in parallel by the amounts below December 31, 2024 December 31, 2023
Down 200 basis points (4.53) % (4.14) %
Down 100 basis points (2.12) % (1.94) %
Up 100 basis points 1.89 % 1.82 %
Up 200 basis points 3.71 % 3.63 %
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 December 31, 2024 and December 31, 2023.
The following estimated percentage
increase/(decrease) to MVE would result
If interest rates changed in parallel by the amounts below December 31, 2024 December 31, 2023
Down 200 basis points 3.02 % 6.68 %
Down 100 basis points 2.93 % 4.05 %
Up 100 basis points (4.22) % (4.49) %
Up 200 basis points (8.88) % (8.76) %
As of December 31, 2024, the Company’s profile reflected an increase of MVE of 2.93% for downward parallel interest rate shocks of 100 basis points and a decrease of 4.22% for upward parallel interest rate shocks of 100 basis points. The asymmetrical sensitivity between a 100 basis point increase and a 100 basis point decrease is due to the negative convexity as a result of the prepayment option embedded in mortgage-related products, the impact of which is not fully offset by the behavior of the funding base (largely NMDs).
In downward parallel interest rate shocks, mortgage-related products’ prepayments increase, their duration decreases, and their market value appreciation is therefore limited. At the same time, with deposit rates remaining at comparatively low levels, the Company cannot effectively transfer interest rate declines to its NMD customers. For upward parallel interest rate shocks, extension risk weighs on a sizable portion of the Company’s mortgage-related products, which are predominantly long-term and fixed-rate; 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.
Uses of Derivatives to Manage Interest Rate and Other Risks
To mitigate interest rate risk and, to a lesser extent, foreign exchange, equity and credit risks, the Company uses derivative financial instruments to reduce the effects that changes in interest rates may have on net income, the fair value of assets and liabilities, and cash flows.
The Company is subject to price risk through its capital markets and mortgage banking activities. The Company employs various tools to measure and manage price risk in its portfolios. In addition, SHUSA's Board of Directors has established certain limits relative to positions and activities. The level of price risk exposure at any point in time depends on the market environment and expectations of future price and market movements and will vary from period to period.
Management uses derivative instruments to mitigate the impact of interest rate movements on the fair value of certain liabilities, assets and highly probable forecasted cash flows. These instruments primarily include interest rate swaps that have underlying interest rates based on key benchmark indices and forward sale or purchase commitments. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated interest rate environments.
The Company 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 15 to the Consolidated Financial Statements.
The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate. The Company also utilizes forward contracts to manage market risk associated with certain expected investment securities sales.
For additional information on foreign exchange contracts, derivatives and hedging activities, see Note 14 to the Consolidated Financial Statements.
NON-GAAP FINANCIAL MEASURES
The Company's non-GAAP information has limitations as an analytical tool and, therefore, should not be considered in isolation or as a substitute for analysis of our results or any performance measures under GAAP as set forth in the Company's financial statements. These limitations should be compensated for by relying primarily on the Company's GAAP results and using this non-GAAP information only as a supplement to evaluate the Company's performance.
The Company considers various measures when evaluating capital utilization and adequacy. These calculations are intended to complement the capital ratios defined by banking regulators for both absolute and comparative purposes. Because GAAP does not include capital ratio measures, the Company believes that there are no comparable GAAP financial measures to these ratios. These ratios are not formally defined by GAAP and are considered to be non-GAAP financial measures. Since analysts and banking regulators may assess the Company's capital adequacy using these ratios, the Company believes they are useful to provide investors the ability to assess its capital adequacy on the same basis. The Company believes these non-GAAP measures are important because they reflect the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures may allow readers to compare certain aspects of the Company's capitalization to other organizations. However, because there are no standardized definitions for these ratios, the Company's calculations may not be directly comparable with those of other organizations, and the usefulness of these measures to investors may be limited.
As a result, the Company encourages readers to consider its Consolidated Financial Statements in their entirety and not to rely on any single financial measure.
Year Ended December 31,
(Dollars in thousands) 2024 2023 2022 2021
2020(1)
Return on Average Assets:
Net income/(loss) $ 1,077,399 $ 932,902 $ 1,405,007 $ 3,621,307 $ (656,303)
Average assets 170,576,647 173,296,902 169,706,317 151,819,293 149,645,866
Return on average assets 0.63% 0.54% 0.83% 2.39% (0.44)%
Return on Average Equity:
Net income/(loss) $ 1,077,399 $ 932,902 $ 1,405,007 $ 3,621,307 $ (656,303)
Average equity 16,284,127 17,491,591 21,345,060 23,163,377 21,719,676
Return on average equity 6.62% 5.33% 6.58% 15.63% (3.02)%
Average Equity to Average Assets:
Average equity $ 16,284,127 $ 17,491,591 $ 21,345,060 $ 23,163,377 $ 21,719,676
Average assets 170,576,647 173,296,902 169,706,317 151,819,293 149,645,866
Average equity to average assets 9.55% 10.09% 12.58% 15.26% 14.51%
Efficiency Ratio:
General, administrative, and other expenses
(numerator) $ 6,274,468 $ 6,327,003 $ 6,136,779 $ 6,144,167 $ 8,208,234
Net interest income $ 5,577,558 $ 5,875,348 $ 6,174,463 $ 6,189,521 $ 6,359,481
Non-interest income 3,604,667 3,464,849 3,729,263 4,452,187 3,949,988
Total net interest income and non-interest income (denominator) 9,182,225 9,340,197 9,903,726 10,641,708 10,309,469
Efficiency ratio 68.33% 67.74% 61.96% 57.74% 79.62%
(1) General, administrative, and other expenses includes $1.8 billion goodwill impairment charge for SBNA.
The following table includes the related GAAP measures included in our non-GAAP financial measures.
Transitional Fully Phased In(4)
SBNA SHUSA SBNA SHUSA
December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2024
CET 1(1)
CET 1(1)
CET 1(1)
CET 1(1)
CET 1(1)
CET 1(1)
Total stockholder's equity (GAAP) $ 12,644,664 $ 11,687,456 $ 15,675,527 $ 15,500,909 $ 12,644,664 $ 15,675,527
Goodwill (1,554,410) (1,554,410) (2,766,665) (2,766,665) (1,554,410) (2,766,665)
Intangible assets (773) (856) (248,920) (287,159) (773) (248,920)
Deferred taxes on goodwill and intangible assets 103,639 109,425 22,304 20,502 103,639 22,305
Other adjustments to CET1(3)
73,331 146,663 339,136 678,272 - -
Disallowed deferred tax assets (182,643) (171,630) (15,393) (6,624) (182,643) (15,393)
Accumulated other comprehensive loss 759,710 1,086,574 717,700 1,065,568 759,710 717,700
CET1 capital (numerator) $ 11,843,518 $ 11,303,222 $ 13,723,689 $ 14,204,803 $ 11,770,187 $ 13,384,554
RWAs (denominator)(2)
67,032,476 70,806,169 108,006,026 114,789,473 66,996,980 107,485,188
Ratio 17.67 % 15.96 % 12.71 % 12.37 % 17.57 % 12.45 %
(1) CET1 is calculated under U.S. Basel III regulations.
(2) Under the banking agencies' risk-based capital guidelines, assets and credit equivalent amounts of derivatives and off-balance sheet exposures are assigned to broad risk categories. The aggregate dollar amount in each risk category is multiplied by the associated risk weight of the category. The resulting weighted values are added together with the measure for market risk, resulting in the Company's and SBNA's total RWAs.
(3) Represent the impact of CECL transition adjustments for regulatory capital.
(4) Represents non-GAAP measures.
2024 FOURTH QUARTER RESULTS
SHUSA reported Net income for the fourth quarter of 2024 of $126.3 million compared to Net income of $193.3 million for the third quarter of 2024. The most significant contributors to this decrease were:
•an increase in Net interest income of $30.8 million compared to the third quarter of 2024, primarily due to improving interest rate margins.
•an increase in Total fees and other income of $75.9 million compared to the third quarter of 2024, due to the third quarter losses related to loan sale and securitization activity.
•a decrease in general, administrative, and other expenses of $29.2 million compared to the third quarter of 2024.
The above impacts were offset by an increase in Credit loss expense of $188.2 million compared to the third quarter of 2024, due the large reserve releases in the third quarter as a result of loan sale and securitization activity.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference from Part II, Item 7, MD&A - "Asset and Liability Management" above.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements and Supplementary Data Page
Reports of Independent Registered Public Accounting Firms (PCAOB ID 238)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income/(Loss)
Consolidated Statements of Stockholder's Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholder of Santander Holdings USA, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Santander Holdings USA, Inc. and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, of comprehensive income, of stockholder's equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Loan and Lease Losses on Loans Held for Investment - Certain Qualitative Adjustments
As described in Notes 1 and 3 to the consolidated financial statements, management’s estimate of expected credit losses is based on an evaluation of relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of the reported amounts. As of December 31, 2024, the allowance for loan and lease losses was $6.6 billion on total loans held for investment of $87.3 billion. Management estimates current expected credit losses based on prospective information as well as account-level models based on historical data. Unemployment, housing price index (HPI), commercial real estate (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 and the loss in the event of default. Gross domestic product (GDP) is also a key input used in the models for prediction of the likelihood that the borrower will default. Management also utilizes qualitative adjustments to capture any additional risks that may not be captured in either the economic forecasts or in the historical data, including consideration of several factors such as the interpretation of economic trends and uncertainties, changes in the nature and volume of loan portfolios, trends in delinquency and collateral values, and concentration risk. Management 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. Weightings are assigned to the macroeconomic scenarios and are approved quarterly by management through established committee governance.
The principal considerations for our determination that performing procedures relating to certain qualitative adjustments to the allowance for loan and lease losses on loans held for investment is a critical audit matter are (i) the significant judgment by management in determining the allowance for loan and lease losses; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the macroeconomic scenario weighting for the interpretation of economic trends; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s allowance for loan and lease losses on loans held for investment estimation process, including controls over certain qualitative adjustments. These procedures also included, among others, (i) testing the completeness and accuracy of the data used in the estimate and (ii) the involvement of professionals with specialized skill and knowledge to assist in (a) testing management’s process for determining the allowance for loan and lease losses, (b) evaluating the appropriateness of the methodology and models, (c) testing certain of the data used in the estimate, and (d) evaluating the reasonableness of the qualitative adjustments related to macroeconomic scenario weighting for the interpretation of economic trends.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
March 3, 2025
We have served as the Company’s auditor since 2016.
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, 2024 December 31, 2023
ASSETS
Cash and cash equivalents $ 18,546,918 $ 13,118,428
Federal funds sold and securities purchased under resale agreements or similar arrangements (1)
8,132,230 10,238,714
Investment securities:
AFS at fair value (amortized cost of $7,833,617 and $7,925,890 as of December 31, 2024 and December 31, 2023, respectively)
7,132,632 7,039,537
Trading securities 10,322,823 7,967,875
HTM (fair value of $8,306,417 and $7,562,523 as of December 31, 2024 and December 31, 2023, respectively)
9,914,288 9,039,704
Other investments 1,549,634 1,353,278
LHFI (2) (6)
87,304,499 93,047,209
ALLL (6)
(6,562,012) (6,932,053)
Net LHFI 80,742,487 86,115,156
LHFS (3)
1,333,953 160,118
Premises and equipment, net (4)
986,953 987,088
Operating lease assets, net (6)(7)
11,667,951 13,782,840
Goodwill 2,766,665 2,766,665
Intangible assets, net 248,920 287,159
BOLI 2,013,692 1,982,428
Restricted cash (6)
5,029,088 5,549,701
Other assets (5) (6)
4,860,516 4,583,884
TOTAL ASSETS $ 165,248,750 $ 164,972,575
LIABILITIES
Accounts payables and accrued expenses $ 5,244,272 $ 5,165,566
Deposits and other customer accounts 78,114,605 77,073,176
Federal funds purchased and securities loaned or sold under repurchase agreements (8)
16,302,948 16,290,786
Trading liabilities 2,460,613 2,699,500
Borrowings and other debt obligations (6)
44,010,910 44,144,051
Advance payments by borrowers for taxes and insurance 150,777 165,843
Deferred tax liabilities, net - 84,187
Other liabilities (6)
1,289,098 1,848,557
TOTAL LIABILITIES 147,573,223 147,471,666
Commitments and contingencies (Note 20)
MEZZANINE EQUITY
Preferred stock (no par value; 7,500,000 shares authorized; 2,000,000 shares outstanding at December 31, 2024 and December 31, 2023, respectively)
2,000,000 2,000,000
STOCKHOLDER'S EQUITY
Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both December 31, 2024 and December 31, 2023, respectively)
17,335,889 17,284,611
Accumulated other comprehensive loss, net of taxes (717,700) (1,065,568)
Retained earnings / (accumulated deficit)
(942,662) (718,134)
TOTAL STOCKHOLDER'S EQUITY 15,675,527 15,500,909
TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDER'S EQUITY $ 165,248,750 $ 164,972,575
(1) Includes zero and $2.1 billion of contracts held at the FVO at December 31, 2024 and December 31, 2023, respectively.
(2) Includes $9.0 million and $13.9 million of loans recorded at fair value at December 31, 2024 and December 31, 2023, respectively.
(3) Includes $1.3 billion and $19.5 million of loans recorded at the FVO at December 31, 2024 and December 31, 2023, respectively.
(4) Net of accumulated depreciation of $2.5 billion and $2.3 billion at December 31, 2024 and December 31, 2023, respectively.
(5) Includes MSRs of $91.0 million and $94.3 million at December 31, 2024 and December 31, 2023, respectively, for which the Company has elected the FVO.
(6) The Company has interests in certain Trusts that are considered VIEs for accounting purposes. At December 31, 2024 and December 31, 2023, LHFI included $24.6 billion and $25.1 billion, LHFS included zero and zero, Operating leases assets, net included $11.7 billion and $13.8 billion, restricted cash included $706.6 million and $864.5 million, Other assets included $693.1 million and $638.0 million, Borrowings and other debt obligations included $26.2 billion and $25.1 billion, and Other liabilities included $99.6 million and $119.3 million of assets or liabilities, respectively, that were included within VIEs. See Note 8 to these Consolidated Financial Statements for additional information.
(7) Net of accumulated depreciation of $3.1 billion and $3.5 billion at December 31, 2024 and December 31, 2023, respectively.
(8) Includes zero and $595.4 million of contracts recorded at the FVO at December 31, 2024 and December 31, 2023, respectively.
See accompanying notes to the Consolidated Financial Statements
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Year ended December 31,
2024 2023 2022
INTEREST INCOME:
Loans $ 8,580,147 $ 8,270,437 $ 7,027,748
Interest-earning deposits 909,851 773,966 223,787
Interest and fees on federal funds sold and securities purchased under resale agreements or similar arrangements 2,787,163 2,415,539 682,198
Investment securities:
AFS
375,810 269,676 167,922
HTM 203,291 185,071 160,690
Trading securities 564,858 397,595 138,913
Other investments 45,016 42,806 19,935
TOTAL INTEREST INCOME 13,466,136 12,355,090 8,421,193
INTEREST EXPENSE:
Deposits and other customer accounts 2,059,472 1,544,186 304,534
Interest expense on federal funds purchased and securities loaned or sold under repurchase agreements 3,283,107 2,739,050 720,800
Interest expense on trading liabilities 169,583 142,120 64,686
Borrowings and other debt obligations 2,376,416 2,054,386 1,156,710
TOTAL INTEREST EXPENSE 7,888,578 6,479,742 2,246,730
NET INTEREST INCOME 5,577,558 5,875,348 6,174,463
Credit loss expense
1,937,119 2,226,438 2,018,817
NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE
3,640,439 3,648,910 4,155,646
NON-INTEREST INCOME:
Consumer and commercial fees 416,112 349,357 399,448
Capital markets and foreign exchange income 408,768 195,808 179,843
Lease income 2,178,597 2,462,990 2,650,668
Miscellaneous income, net (1)
376,731 311,655 480,762
TOTAL FEES AND OTHER INCOME 3,380,208 3,319,810 3,710,721
Net gain on sale of investment securities
224,459 145,039 18,542
TOTAL NON-INTEREST INCOME 3,604,667 3,464,849 3,729,263
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES:
Compensation and benefits 2,145,506 2,065,108 2,001,243
Occupancy and equipment expenses 653,026 667,205 653,820
Technology, outside service, and marketing expense 796,899 729,208 656,038
Loan expense 333,617 356,480 287,419
Lease expense 1,708,193 1,925,279 2,036,715
Other expenses 637,227 583,723 501,544
TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES 6,274,468 6,327,003 6,136,779
INCOME BEFORE INCOME TAX
970,638 786,756 1,748,130
Income tax (benefit) / provision
(106,761) (146,146) 343,123
NET INCOME $ 1,077,399 $ 932,902 $ 1,405,007
(1) Includes equity investment income/(expense), net.
See accompanying notes to the Consolidated Financial Statements
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Year ended December 31,
2024 2023 2022
NET INCOME $ 1,077,399 $ 932,902 $ 1,405,007
OTHER COMPREHENSIVE INCOME, NET OF TAX
Net unrealized changes in cash flow hedge derivative financial instruments, net of tax
182,349 261,145 (435,647)
Net unrealized gains / (losses) on investment in debt securities, net of tax
160,205 6,021 (716,667)
Pension and post-retirement actuarial gains, net of tax 5,314 3,289 4,401
TOTAL OTHER COMPREHENSIVE INCOME / (LOSS), NET OF TAX
347,868 270,455 (1,147,913)
COMPREHENSIVE INCOME
$ 1,425,267 $ 1,203,357 257,094
See accompanying notes to the Consolidated Financial Statements
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(In thousands)
Common Shares Outstanding Common Stock and Paid-in Capital Accumulated Other Comprehensive Income / (Loss), Net of Tax
Retained Earnings / (Accumulated Deficit)
Noncontrolling Interest Total Stockholder's Equity Preferred Stock Mezzanine
Balance, January 1, 2022 530,391 $ 17,875,938 $ (188,110) $ 4,826,127 $ 1,953,395 $ 24,467,350 $ -
Comprehensive (loss) / income - - (1,147,913) 1,405,007 - 257,094 -
Dividends paid on common stock - - - (4,750,000) - (4,750,000) -
Stock repurchase - (591,327) - - (1,953,395) (2,544,722) -
Preferred stock offering
- - - - - - 500,000
Balance, December 31, 2022 530,391 $ 17,284,611 $ (1,336,023) $ 1,481,134 $ - $ 17,429,722 $ 500,000
Cumulative-effect adjustment upon adoption of new accounting standards (Note 1) - - - (41,396) - (41,396) -
Comprehensive income - - 270,455 932,902 - 1,203,357 -
Dividends paid on common stock - - - (3,000,000) - (3,000,000) -
Dividends paid on preferred stock - - - (90,774) - (90,774) -
Preferred stock offering - - - - - - $ 1,500,000
Balance, December 31, 2023 530,391 $ 17,284,611 $ (1,065,568) $ (718,134) $ - $ 15,500,909 $ 2,000,000
Comprehensive income - - 347,868 1,077,399 - 1,425,267 -
Dividends paid on common stock - - - (1,125,000) - (1,125,000) -
Dividends paid on preferred stock - - - (176,927) - (176,927) -
Sale of subsidiary (Note 1) - 51,278 - - $ - 51,278 -
Balance, December 31, 2024
530,391 $ 17,335,889 $ (717,700) $ (942,662) $ - $ 15,675,527 $ 2,000,000
See accompanying notes to the Consolidated Financial Statements
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
2024 2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$ 1,077,399 $ 932,902 $ 1,405,007
Adjustments to reconcile net income to net cash provided by operating activities:
Credit loss expense/(benefit) 1,937,119 2,226,438 2,018,817
Deferred tax (benefit) / expense
(354,342) (430,134) (86,291)
Depreciation, amortization and accretion 2,603,657 2,617,812 2,788,088
Net (gain)/loss on sale or disposal of loans, investment securities, and other assets (64,780) (91,808) (35,076)
Originations and purchases of LHFS
(4,166,203) (18,772) (195,849)
Proceeds from sales of and collections on LHFS 2,905,464 2,580 364,333
Net change in:
Trading securities and trading liabilities, net (2,363,396) (2,122,482) (850,795)
Other assets and BOLI (573,420) (358,269) (992,254)
Other liabilities 129,565 (852,465) 890,198
Other operating activities, net 27,259 1,543 (21,037)
NET CASH (USED IN) / PROVIDED BY OPERATING ACTIVITIES
1,158,322 1,907,345 5,285,141
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS investment securities 200,344 311,052 624,353
Proceeds from prepayments and maturities of AFS investment securities 927,596 1,564,733 2,062,869
Purchases of AFS investment securities (1,086,071) (1,884,820) (2,256,438)
Proceeds from prepayments and maturities of HTM investment securities 663,766 520,183 1,110,339
Purchases of HTM investment securities (1,473,482) - (1,214,305)
Proceeds from sales of equity method and other investments 388,043 409,583 509,465
Proceeds from maturities of other investments - 300,000 650,000
Purchases of and contributions to equity method and other investments (702,739) (1,118,344) (1,334,512)
Net change in federal funds sold and securities purchased under resale agreements
2,106,484 2,185,365 3,561,084
Proceeds from sales of LHFI 2,675,319 1,641,811 596,717
Purchases of LHFI (137,253) (117,192) (1,100,954)
Net change in loans other than purchases and sales (714,028) (5,002) (6,680,472)
Purchases and originations of operating leases (4,343,559) (6,171,296) (5,789,527)
Proceeds from the sale and termination of operating leases 4,532,699 4,634,147 5,024,206
Purchases and sales of premises and equipment, net
(278,468) (256,057) (220,633)
Proceeds from sale of residual interest in VIE
196,688 63,592 -
Acquisition of PCH - - (391,931)
Other investing activities, net
131,690 60,399 45,690
NET CASH (USED IN) / PROVIDED BY INVESTING ACTIVITIES
3,087,029 2,138,154 (4,804,049)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits and other customer accounts 1,041,429 (2,055,365) (2,469,631)
Net change in short-term borrowings 274,741 1,192,950 177,205
Net proceeds from long-term borrowings 33,708,183 31,399,685 42,902,767
Repayments of long-term borrowings (33,108,274) (31,812,857) (40,832,614)
Net change in federal funds purchased and securities loaned or sold under repurchase agreements
12,162 907,967 (1,923,559)
Dividends paid on common stock and preferred stock (1,301,927) (3,090,774) (4,750,000)
Stock repurchase - - (2,544,722)
Preferred stock offering - 1,500,000 500,000
Other financing activities, net 36,212 16,710 6,541
NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES
662,526 (1,941,684) (8,934,013)
NET (DECREASE) / INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
4,907,877 2,103,815 (8,452,921)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 18,668,129 16,564,314 25,017,235
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (1)
$ 23,576,006 $ 18,668,129 $ 16,564,314
(1) The years ended December 31, 2024, 2023 and 2022 include cash and cash equivalents balances of $18.5 billion, $13.1 billion and $10.2 billion, respectively, and restricted cash balances of $5.0 billion, $5.5 billion, and $6.3 billion, respectively.
See accompanying notes to the Consolidated Financial Statements
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES
SHUSA is the parent holding company of SBNA, a national banking association; SC, a consumer finance company headquartered in Dallas, Texas; BSI, a financial services company headquartered in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; SanCap, an institutional broker-dealer headquartered in New York, which has significant capabilities in market-making via an experienced fixed-income sales and trading team and a focus on structuring and advisory services for asset originators in the real estate and specialty finance markets; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC is a registered investment adviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.
The Company specializes in consumer financing focused on vehicle finance, servicing of third-party vehicle financing, and delivering service to dealers and customers across the full credit spectrum. This includes indirect origination and servicing of vehicle loans and leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers, origination of vehicle loans through a web-based direct lending program, purchases of vehicle loans from other lenders, and servicing of automobile and recreational and marine vehicle portfolios for other lenders. The Company sells consumer vehicle loans and leases through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer vehicle loans and leases.
In addition to specialized consumer finance, the Company also attracts deposits and provides other retail banking services through its network of retail branches with locations in Connecticut, Delaware, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island and originates small business, middle market, large and global commercial loans, multifamily loans, and other consumer loans and leases throughout the Mid-Atlantic and Northeastern areas of the United States. The Company also acquires deposits nationally through SBNA's online Openbank platform. For large institutional investors, the Company provides structured products, emerging markets credit and U.S. investment grade credit, U.S. rates, short-term fixed-income, debt and equity capital markets, investment banking, exchange-traded derivatives, and cash equities, benefiting from a combination of Santander’s global reach and access to financial hubs together with extensive local market knowledge and regional expertise.
Sale of Subsidiary
In May 2024, the Company sold its wholly-owned subsidiary Services and Promotions Delaware Corp. to an affiliate of Santander. Services and Promotions Delaware Corp. (through a wholly-owned subsidiary) owned and managed the corporate office building located at 1401 Brickell Avenue, Miami, Florida, which leased space to BSI and other tenants until the sale. The affiliate paid fair value of approximately $134.0 million. The Company recorded proceeds in excess of its carrying value (approximately $51.6 million, net of a tax effect of $7.9 million) to additional paid-in capital as a result of the transaction between entities under common control.
Joint Venture with FDIC
In December 2023, SBNA acquired a 20 percent interest in the Structured LLC for approximately $1.1 billion. The Structured LLC was established by the FDIC to hold and service a $9 billion portfolio primarily consisting of New York-based rent-controlled and rent-stabilized multifamily loans retained by the FDIC following a recent bank failure. SBNA classifies its 20 percent interest in the Structured LLC as an AFS debt security. Under the terms of the arrangement, SBNA receives payments from the Structured LLC generated from net cash flows of the underlying loans based on its proportionate interest in the Structured LLC. SBNA is manager and servicer of the loan portfolio and is paid market rate fees by the Structured LLC.
Recently Adopted Accounting Standards
Effective December 2024, the Company adopted ASU 2023-07 Segment Reporting - Improvements to Reportable Segment Disclosures, which enhances segment disclosure requirements primarily in the area of significant segment expenses. This standard was applied retrospectively to the disclosures in Note 23 - Business Segment Information. The adoption of this standard did not impact the Company's financial position or results of operations.
On January 1, 2024, the Company adopted ASU 2023-02 Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which permits the use of an accounting policy election to apply the proportional amortization method to all tax equity investments that meet specific criteria. The adoption of this standard did not impact the Company's financial position or results of operations.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
On January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures. Upon adoption of this standard, the Company recorded an increase in the ACL of approximately $55.2 million, a decrease in retained earnings of approximately $41.4 million and a decrease in deferred tax liabilities of approximately $13.8 million. Refer to Note 3 for additional information on modified loans.
Recently Issued Accounting Standards Not Yet Adopted
On August 23, 2023, the FASB issued ASU 2023-05 Business Combinations - Joint Venture Formations, Recognition and Initial Measurement, requiring most assets and liabilities contributed to a joint venture upon formation to be measured at fair value. The new guidance is effective prospectively for all joint ventures with a formation date on or after January 1, 2025, and early adoption is permitted. The Company does not expect a material impact on the Company’s financial position or results of operations as a result of this accounting standard.
On December 14, 2023, the FASB issued ASU 2023-09 Income Taxes - Improvements to Income Tax Disclosures, requiring consistent categories and greater disaggregation of information in the rate reconciliation, and income taxes paid disaggregated by jurisdiction. The new disclosure requirements are effective for annual periods beginning in 2025, with early adoption permitted. The adoption of this ASU will not impact the Company’s financial position or results of operations.
On November 26, 2024, the FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses, which requires a breakout of expenses in specific areas including employee compensation, depreciation, and intangible asset amortization. The new disclosure requirements are effective for annual reporting periods beginning in 2027 and interim periods thereafter, with early adoption permitted. The new guidance can be applied either prospectively to reporting periods after the effective date, or retrospectively to any or all prior periods presented. We are currently evaluating the impact of this update.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Basis of Presentation
These 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 Consolidated Financial Statements have been prepared in accordance with GAAP and pursuant to SEC regulations. Certain prior-year amounts have been reclassified to conform to the current year presentation. These reclassifications did not have a material impact on the Company's consolidated financial condition or results of operations.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates, and those differences may be material. The most significant estimates include the ACL, expected end-of-term lease residual values, and goodwill. These estimates, although based on actual historical trends and modeling, may potentially show significant variances over time.
Significant Accounting Policies
Consolidation
In accordance with the applicable accounting guidance for consolidations, the Consolidated Financial Statements include any VOEs in which the Company has a controlling financial interest, and any VIEs for which the Company is deemed to be the primary beneficiary. The Company consolidates its VIEs if the Company has (i) a variable interest in the entity; (ii) the power to direct activities of the VIE that most significantly impact the entity's economic performance; and (iii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE (i.e., the Company is considered to be the primary beneficiary). The Company generally consolidates its VOEs if the Company, directly or indirectly, owns more than 50% of the outstanding voting shares of the entity and the noncontrolling shareholders do not hold any substantive participating or controlling rights. Interests in VIEs and VOEs can include equity interests in corporations, partnerships and similar legal entities, subordinated debt, securitizations, derivatives contracts, leases, service agreements, guarantees, standby letters of credit, loan commitments, and other contracts, agreements and financial instruments.
Upon the occurrence of certain significant events, as required by the VIE model, the Company reassesses whether a legal entity in which the Company is involved is a VIE. The reassessment process considers whether the Company has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The reassessment also considers whether the Company has acquired or disposed of a financial interest that could be significant to the VIE, or whether an interest in the VIE has become significant or is no longer significant. The consolidation status of the entities with which the Company is involved may change as a result of such reassessments. Changes in consolidation status are applied prospectively, with assets and liabilities of a newly consolidated VIE initially recorded at fair value. A gain or loss may be recognized upon deconsolidation of a VIE, depending on the carrying amounts of deconsolidated assets and liabilities compared to the fair value of retained interests and ongoing contractual arrangements.
The Company uses the equity method to account for unconsolidated investments in VOEs if the Company has significant influence over the entity's operating and financing decisions but does not maintain a controlling financial interest. These investments are classified in Other Assets on the Condensed Consolidated Balance Sheets, and the Company's proportionate share of income or loss is included in Miscellaneous income, net within the Consolidated Statements of Operations. Unconsolidated investments in VOEs in which the Company has a voting or economic interest of less than 20% (3% for limited liability entities) are generally carried at cost less any impairment and classified in Other Investments.
Unconsolidated investments in VIEs in which the Company is not the primary beneficiary are generally carried at cost less impairment (and classified as HTM securities) or at fair value and classified in Other Investments.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Sales and Securitizations
The Company transfers RICs or leases into newly-formed Trusts which then issue one or more classes of notes payable backed by the RICs or leases. The Company’s continuing involvement with the credit facilities and Trusts are in the form of servicing RICs or leases held by the SPEs and, generally, through holding a residual interest in the SPE. These transactions are structured without recourse. The Trusts are considered VIEs under GAAP and are consolidated when the Company has: (a) power over the significant activities of the entity and (b) an obligation to absorb losses or the right to receive benefits from the VIE which are potentially significant to the VIE. The Company has power over the significant activities of those Trusts as servicer of the financial assets held in the Trust. Servicing fees are not considered significant variable interests in the Trusts; however, when the Company also retains a residual interest in the Trust, either in the form of a debt security or equity interest, the Company has an obligation to absorb losses or the right to receive benefits that are potentially significant to the SPE. For all VIEs in which the Company is involved, the Company assesses whether it is the primary beneficiary of the VIE on an ongoing basis. In circumstances where the Company has both the power to direct the activities that most significantly impact the VIEs performance and the obligation to absorb losses or the right to receive benefits of the VIE that could be significant, the Company would conclude that it is the primary beneficiary of the VIE, and accordingly, these Trusts are consolidated within the Consolidated Financial Statements, and the associated RICs or leases, borrowings under credit facilities and securitization notes payable remain on the Consolidated Balance Sheets. In situations where the Company is not deemed to be the primary beneficiary of the VIE, the Company does not consolidate the VIE and only recognizes its interests in the VIE. These securitizations involving Trusts are treated as sales of the associated RICs or leases. While these Trusts are included in our Consolidated Financial Statements, they are separate legal entities; thus, the RICs or leases and other assets sold to these Trusts are legally owned by the Trusts, are available only to satisfy the notes payable related to the securitized RICs or leases and are not available to the Company's creditors or other subsidiaries.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
The Company also sells RICs and leases to VIEs or directly to third parties. The Company may determine that these transactions meet sale accounting treatment in accordance with applicable guidance, which states that control must be surrendered. To arrive at this conclusion, the Company evaluates legal considerations and the nature and extent of its continuing involvement with the transferred assets. The transferred financial assets are removed from the Company's Consolidated Balance Sheets at the time the sale is completed if control has been surrendered. The Company generally remains the servicer of the financial assets and receives servicing fees. The Company also recognizes a gain or loss for the difference between the fair value, as measured based on sales proceeds plus (or minus) the value of any servicing asset (or liability) retained and the carrying value of the assets sold.
See further discussion on the Company's securitizations in Note 8 to these Consolidated Financial Statements.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash, amounts due from depository institutions, interest-bearing deposits in other banks, and federal funds sold. Cash and cash equivalents have original maturities of three months or less and, accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value. The Company has maintained balances in various operating and money market accounts in excess of federally insured limits.
Cash deposited to support securitization transactions, lockbox collections, and the related required reserve accounts is recorded in the Company's Consolidated Balance Sheets as restricted cash. Excess cash flows generated by Trusts are added to the restricted cash reserve account, creating additional over-collateralization until the contractual securitization requirement has been reached. Once the targeted reserve requirement is satisfied, additional excess cash flows generated by the Trusts are released to the Company as distributions from the Trusts. Lockbox collections are added to restricted cash and released when transferred to the appropriate warehouse facility or Trust. The Company also maintains restricted cash primarily related to cash posted as collateral related to derivative agreements and cash restricted for investment purposes.
Investment Securities and Other Investments
Investments in debt securities are classified as either AFS, HTM, trading, or other investments. Investments in equity securities are generally recorded at fair value with changes recorded in earnings. Management determines the appropriate classification at the time of purchase.
Debt securities that the Company has the positive intent and ability to hold until maturity are classified as HTM securities. HTM securities are reported at cost and adjusted for payments, charge-offs, amortization of premium and accretion of discount. Impairment of HTM securities is recorded using a valuation reserve which represents management’s best estimate of expected credit losses during the lives of the securities. Securities for which management has an expectation that nonpayment of the amortized costs basis is zero, do not have a reserve. The Company has a zero loss expectation when the securities are issued or guaranteed by certain U.S. government entities, and those entities have a long history of no defaults and the highest credit ratings issued by rating agencies. Transfers of debt securities into the HTM category from the AFS category are made at amortized cost plus or minus any unrealized gains or losses recorded in AOCI. The unrealized gain or loss at the date of transfer is amortized over the remaining lives of the securities. Any reserve for credit losses on investments recorded while the security was classified as AFS will be reversed through provision expense in non-interest income. Thereafter, the allowance will be recorded through provision expense using the HTM valuation reserve.
Debt securities expected to be held for an indefinite period of time are classified as AFS and recorded on the balance sheet at fair value. If the fair value of an AFS debt security declines below its amortized cost basis and the Company does not have the intention or requirement to sell the security before it recovers its amortized cost basis, declines due to credit factors will be recorded in earnings through a reserve for credit losses on investments, and declines due to non-credit factors will be recorded in AOCI, net of taxes. Subsequent to recognition of a credit loss, improvements to the expectation of collectability will be reversed through the allowance. If the Company has the intention or requirement to sell the security, the Company will record its fair value changes in earnings as a direct write down to the security. Increases in fair value above amortized cost basis are recorded in AOCI, net of taxes.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
The Company conducts a comprehensive security-level impairment assessment quarterly on all AFS securities with a fair value that is less than their amortized cost basis to determine whether the loss is due to credit factors. The quarterly assessment takes into consideration whether (i) the Company has the intent to sell or (ii) it is more likely than not that it will be required to sell the security before the expected recovery of its amortized cost. The Company also considers whether or not it would expect to receive all of the contractual cash flows from the investment based on its assessment of the security structure, recent security collateral performance metrics, external credit ratings, failure of the issuer to make scheduled interest or principal payments, judgment and expectations of future performance, and relevant independent industry research, analysis and forecasts. The Company also considers the severity of the impairment in its assessment. Similar to HTM securities, securities for which management expects risk of nonpayment of the amortized cost basis is zero do not have a reserve. The Company has a zero loss expectation when the securities are issued or guaranteed by certain U.S. government entities, and those entities have a long history of no defaults and the highest credit ratings issued by rating agencies.
The Company does not measure an ACL for accrued interest, and instead writes off uncollectible accrued interest balances in a timely manner. The Company places securities on nonaccrual and reverses any uncollectible accrued interest when the full and timely collection of interest or principal becomes uncertain, but no later than at 90 days delinquent.
Realized gains and losses on sales of investment securities are recognized on the trade date and included in earnings within Net (losses)/gains on sale of investment securities, which is a component of non-interest income. Unamortized premiums and discounts are recognized in interest income over the estimated life of the security using the interest method.
Debt securities held for trading purposes and equity securities are carried at fair value, with changes in fair value recorded in non-interest income. Investments that are purchased principally for the purpose of economically hedging MSRs in the near term are classified as trading securities and carried at fair value, with changes in fair value recorded as a component of the Miscellaneous income, net line of the Consolidated Statements of Operations.
Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the FRB. Although FHLB and FRB stock are equity interests in the FHLB and FRB, respectively, neither has a readily determinable fair value, because ownership is restricted, and they are not readily marketable. FHLB stock can be sold back only at its par value of $100 per share and only to FHLBs or to another member institution. Accordingly, FHLB stock and FRB stock are carried at cost. The Company evaluates this investment for impairment on the ultimate recoverability of the par value. Other investments also includes investments in LIHTC affordable housing projects.
See Note 2 to the Consolidated Financial Statements for details on the Company's investments.
Securities Financing Activities
The Company may enter into Securities Financing Activities primarily to deploy the Company’s excess cash and/or borrow short term funds to manage liquidity and investment positions. Securities Financing Activities are treated as collateralized financings and are included in "Federal funds sold and securities purchased under resale agreements or similar arrangements" and "Federal funds purchased and securities loaned or sold under repurchase agreements" on the Company’s Consolidated Balance Sheets. Resale and repurchase agreements are generally carried at the amount of cash collateral advanced or received. Accrued interest is classified in Other assets and Other liabilities. Where appropriate under applicable accounting guidance, Securities Financing Activities with the same counterparty are reported on a net basis.
Securities transferred to counterparties under repurchase agreements and securities lending transactions continue to be recognized on the Consolidated Balance Sheets, are measured at fair value, and are included in Trading securities on the Company’s Consolidated Balance Sheets. Securities received from counterparties under reverse repurchase agreements and securities borrowed transactions are not recognized on the Consolidated Balance Sheets unless the counterparty defaults. The securities transferred under Securities Financing Activities 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 collateral 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.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
LHFI
LHFI include commercial and consumer loans (including RICs) originated by the Company as well as loans acquired by the Company, which the Company intends to hold for the foreseeable future or until maturity. RICs include nonprime automobile finance receivables that are acquired individually from dealers at a nonrefundable discount from the contractual principal amount. RICs also include receivables originated through a direct lending program and loan portfolios purchased from other lenders.
LHFI are reported net of cumulative charge-offs, unamortized loan origination fees and costs, and (for purchased loans) unamortized discounts and premiums. Interest on loans is credited to income as it is earned. For most of the Company's LHFI, loan origination fees and certain direct loan origination costs and premiums and discounts are deferred and recognized as adjustments to interest income in the Consolidated Statements of Operations over the contractual life of the loan utilizing the effective interest method. For RICs, loan origination fees and costs, premiums and discounts are deferred and amortized over their estimated lives as adjustments to interest income utilizing the effective interest method using estimated prepayment speeds, which are updated on a monthly basis. The Company estimates future principal prepayments specific to pools of homogeneous loans, which are based on the vintage, credit quality at origination and term of the loan. Prepayments in our portfolio are sensitive to credit quality, with higher credit quality loans experiencing higher voluntary prepayment rates than lower credit quality loans. The resulting prepayment rate specific to each pool is based on historical experience and is used as an input in the calculation of the constant effective yield. The impact of defaults is not considered in the prepayment rate; the prepayment rate only considers voluntary prepayments.
The Company’s LHFI are carried at amortized cost, net of the ALLL. When a RIC is originated, certain cost basis adjustments (the net discounts) to the principal balance of the loan are recognized in accordance with the accounting guidance for loan origination fees and costs. These cost basis adjustments generally include the following:
•Origination costs.
•Dealer discounts - dealer discounts to the principal balance of the loan generally occur in circumstances in which the contractual interest rate on the loan is not sufficient to compensate for the credit risk of the borrower.
•Participation - participation fees, or premiums, paid to the dealer as a form of profit-sharing, rewarding the dealer for originating loans that perform.
•Subvention - payments received from the vehicle manufacturer as compensation (yield enhancement) for the cost of below-market interest rates offered to consumers.
Originated loans are initially recorded at the proceeds paid to fund the loan, adjusted for loan origination fees and costs.
Purchased loans are initially recorded at the proceeds paid, which includes premiums and discounts. Purchased loans are generally acquired in a bulk purchase or a business combination. RICs acquired directly from a dealer and loans acquired upon origination from a third party through a flow agreement are considered to be originated loans, not purchased loans. Purchase discounts and premiums on purchased loans that are deemed performing are accreted over the contractual term of the loans, generally using the effective interest method. The purchase discounts on revolving personal unsecured loans are amortized on a straight-line basis.
Collateral is generally required for loans. For commercial loans, the Company focuses on assessing the borrower’s capacity and willingness to repay and obtaining sufficient collateral. C&I loans are generally secured by the borrower’s assets and by guarantees. CRE loans are secured by real estate at specified LTV ratios and often by a guarantee. The Company purchases residential mortgage loans and home equity loans and lines that are secured by the underlying 1-4 family residential properties. RICs and auto loans are secured by the underlying vehicles.
See LHFS subsection below for accounting treatment when an HFI loan is re-designated as LHFS.
PCD Loans
Purchased loans that at acquisition the Company deems to have more than insignificant deterioration in credit quality since origination are considered PCD loans. PCD loans require the recognition of an ACL at purchase. The ACL is added to the purchase price at the date of acquisition to determine the initial amortized cost basis of the PCD loan. The ACL is calculated based on the unpaid principal balance, using the same methodology as originated loans, as described below.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Alternatively, the Company can elect the FVO at the time of purchase for any financial asset. Under the FVO, loans are recorded at fair value with changes in value recognized immediately in income. There is no ACL for loans under the FVO.
For loans under the FVO, the Company recognizes the fair value adjustments as part of other non-interest income in the Company’s Consolidated Statements of Operations. Generally, the Company does not recognize interest income on non-accrual loans under the FVO. For certain loans which the Company has elected to account for at fair value that are not considered non-accrual, the Company recognizes interest income separately from the total fair value adjustment.
Allowance for Credit Losses
General
The ALLL and reserve for off-balance sheet commitments (together, the ACL) are maintained at levels that represent management’s best estimate of expected credit losses in the Company’s HFI loan portfolios, excluding those loans accounted for under the FVO. Credit loss expenses are charged in amounts sufficient to maintain the ACL at levels considered adequate to cover expected credit losses in the Company’s HFI loan portfolios. The ACL is measured based on a current expected loss model, which means that it is not necessary for a loss event to occur before a credit loss is recognized. Management’s estimate of expected credit losses is based on an evaluation of relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of the reported amounts. Management's evaluation takes into consideration the risks in the portfolio, past loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic forecasts and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the ACL may be necessary if conditions differ substantially from the assumptions used in making the evaluations.
The ALLL is a valuation account that is deducted from, or added to, the amortized cost basis to present the net amount expected to be collected on the Company’s HFI loan portfolios. The reserve for off-balance sheet commitments represents the expected credit losses for unfunded lending commitments and financial guarantees and is presented within Other liabilities on the Company's Consolidated Balance Sheets. The reserve for off-balance sheet commitments, together with the ALLL, is generally referred to collectively throughout this Form 10-K as the ACL, despite the presentation differences.
The Company measures expected losses of all components of the amortized cost basis of its loans. For all loans except credit cards, the Company has elected to exclude accrued interest receivable balances from the measurement of expected credit losses because it applies a nonaccrual policy that results in the timely write off of uncollectible interest.
Off-balance sheet commitments which are not unconditionally cancellable by the Company are subject to credit risk. Additions to the reserve for off-balance sheet commitments are made by charges to the credit loss expense. The Company does not calculate a liability for expected credit losses for off-balance sheet credit exposures which are unconditionally cancellable by the lender, because these instruments do not expose the Company to credit risk. At SHUSA, this generally applies to credit cards and commercial demand lines of credit.
Methodology
The Company uses several methodologies for measurement of the ACL. The ACL is made up of a quantitative and a qualitative component. To determine the quantitative component, the Company generally uses a DCF approach for determining the ALLL for individually assessed loans, and loss rate statistical methodology for other loans. The methodologies utilized by the Company to estimate expected credit losses vary by product type.
Expected credit losses are estimated on a collective basis when similar risk characteristics exist. Expected credit losses are estimated on an individual basis only if the individual asset or exposure does not share similar risk attributes with other financial assets or exposures, including when an asset is treated as a collateral dependent asset. The estimate of expected credit losses reflects information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of reported amounts. This information includes internal information, external information, or a combination of both. The Company uses historical loss experience as a starting point for estimating expected credit losses.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
The ACL estimate includes significant assumptions including the reasonable and supportable economic forecast period, which considers the availability of forward-looking scenarios and their respective time horizons, as well as the reversion method to historical losses. The economic scenarios used by the Company are available up to the contractual maturities of the assets, and therefore the Company can project losses through the respective contractual maturities, using an input reversion approach. This method results in a single, quantitatively consistent credit model across the entire projection period as the macroeconomic effects in the historical data are controlled for the estimate of the long-run loss level.
The Company uses multiple scenarios in its CECL estimation process. Additionally, the results from the CECL models are reviewed and adjusted, if necessary, based on management’s judgment, as discussed in the section captioned "Qualitative Reserves" below.
CECL Models
The Company uses a statistical methodology based on an expected credit loss approach that focuses on forecasting the expected credit loss components (i.e., PD, payoff, LGD and EAD) on a loan level basis to estimate the expected future lifetime losses.
•In calculating the PD and payoff, the Company developed model forecasts which consider variables such as delinquency status, loan tenor and credit quality as measured by internal risk ratings assigned to individual loans and credit facilities.
•The LGD component forecasts the extent of losses given that a default has occurred and considers variables such as collateral, LTV and credit quality.
•The EAD component captures the effects of expected partial prepayments and underpayments that are expected to occur during the forecast period and considers variables such as LTV, collateral and credit quality indicators.
The above expected credit loss components are used to compute an ACL based on the weighted average of the results of four macroeconomic scenarios. 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. Weightings are assigned to the macroeconomic scenarios and are approved quarterly by management through established committee governance. These ECL components are inputs to the Company’s DCF approach for individually assessed loans, and the non-DCF approach for other loans.
When using a non-DCF method to measure the ACL, the Company measures expected credit losses over the asset’s contractual term, adjusted for (a) expected prepayments and (b) expected extensions or renewal options (excluding those that are accounted for as derivatives) included in the original or modified contract at the reporting date that are not unconditionally cancellable by the Company.
In addition to the ALLL, management estimates expected losses related to off-balance sheet commitments using the same models and procedures used to estimate expected loan losses. Off-balance sheet commitments for commercial customers are analyzed and segregated by risk according to the Company's internal risk rating scale. These risk classifications, in conjunction with a forecast of expected usage of committed amounts and an analysis of historical loss experience, reasonable and supportable forecasts of economic conditions, performance trends within specific portfolio segments, and any other pertinent information result in the estimation of the reserve for off-balance sheet commitments.
DCF Approaches
A DCF method measures expected credit losses by forecasting expected future principal and interest cash flows and discounting them using the financial asset’s EIR. The ACL reflects the difference between the amortized cost basis and the present value of the expected cash flows. When using a DCF method to measure the ACL, the period of exposure is determined as a function of the Company’s expectations of the timing of principal and interest payments. The Company considers estimated prepayments in the future principal and interest cash flows when utilizing a DCF method. The Company generally uses a DCF approach for impaired commercial loans. The Company reports the entire change in present value in credit loss expense.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Collateral-Dependent Assets
A loan is considered a collateral-dependent financial asset when:
•The Company determines foreclosure is probable, or
•The borrower is experiencing financial difficulty and the Company expects repayment to be provided substantially through the operation or sale of the collateral.
For all collateral-dependent loans, the Company measures the ACL as the difference between the asset’s amortized cost basis and the fair value of the underlying collateral as of the reporting date, adjusted for expected costs to sell. If repayment or satisfaction of the loan is dependent only on the operation, rather than the sale of the collateral, the measure of credit losses does not incorporate estimated costs to sell.
A collateral dependent loan is written down (i.e., charged-off) to the fair value of the collateral adjusted for costs to sell (if repayment from sale is expected.) Any subsequent increase or decrease in the collateral’s fair value less cost to sell is recognized as an adjustment to the related loan’s ACL. Negative ACLs are limited to the amount previously charged-off.
Loans discharged under Chapter 7 bankruptcy are considered collateral-dependent, regardless of delinquency status. These loans are written down to the fair value of collateral and classified as non-accrual/non-performing for the remaining life of the loan.
Collateral Maintenance Provisions
For certain loans with collateral maintenance provisions which are secured by highly liquid collateral, the Company expects nonpayment of the amortized cost basis to be zero when such provisions require the borrower to continually replenish collateral in the event the fair value of the collateral changes. For these loans, the Company records no ACL.
Negative Allowance
Negative allowance is defined as the amount of future recovery expected for accounts that have already been charged-off. The Company performs an analysis of the actual historical recovery values to determine the pattern of recovery and expected rate of recovery over a given historic period and uses the results of this analysis to determine a negative allowance. Negative allowance reduces the ACL.
Qualitative Reserves
Regardless of the extent of the Company's analysis of customer performance, portfolio evaluations, trends or risk management processes established, a level of imprecision will always exist due to the judgmental nature of loan portfolio and/or individual loan evaluations. The Company maintains qualitative reserves as a component of the ACL to recognize the existence of these exposures. Imprecisions include loss factors inherent in the loan portfolio that may not have been discreetly contemplated in deriving the quantitative component of the allowance, as well as potential variability in estimates.
Quantitative models have certain limitations regarding estimating expected losses in times of rapidly changing macro-economic forecasts. The ACL estimate includes qualitative adjustments to adjust for limitations in modeled results with respect to forecasted economic conditions that are well outside of historic economic conditions used to develop the models and to give consideration to significant government relief programs, stimulus, and internal credit accommodations. Management believes the qualitative component of the ACL, which incorporates management’s expert judgment related to expected future credit losses, will continue to represent a significant portion of the ACL for the foreseeable future.
The qualitative adjustments are also established in consideration of several factors such as the interpretation of economic trends and uncertainties, changes in the nature and volume of our loan portfolios, trends in delinquency and collateral values, and concentration risk. This analysis is conducted at least quarterly, and the Company revises the qualitative component of the allowance, when necessary, in order to address improving or deteriorating credit quality trends or specific risks associated with a loan pool classification.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Governance
A comprehensive analysis of the ACL is performed by the Company on a quarterly basis. Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated considering factors such as historical loss experience, trends in delinquency and NPLs, changes in risk composition and underwriting standards, experience and ability of staff and regional and national economic conditions, trends and forecasts. Risk factors are continuously reviewed and revised by management when conditions warrant.
The Company's reserves are 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 periodically, 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.
Reserve levels are collectively reviewed for adequacy and approved quarterly by Board-level committees.
Changes in the assumptions used in these estimates could have a direct material impact on credit loss expense in the Consolidated Statements of Operations and in the ALLL. The Company’s models incorporate a variety of assumptions based on historical experience, current conditions and forecasts. Management also applies its judgement in evaluating the appropriateness of the allowance. Material changes to the ACL might be necessary if prevailing conditions differ materially from the assumptions and estimates utilized in calculating the ACL.
Interest Recognition and Non-accrual loans
Interest from loans is accrued when earned in accordance with the terms of the loan agreement. The accrual of interest is discontinued and uncollected interest is reversed once a loan is placed in non-accrual status. A loan is determined to be non-accrual when it is probable that scheduled payments of principal and interest will not be received when due according to the contractual terms of the loan agreement.
The Company generally places commercial loans on non-accrual status when they become 90 days or more delinquent. When the collectability of the recorded loan balance of a nonaccrual loan is in doubt, cash payments received from the borrower are generally applied first to reduce the carrying value of the loan. Otherwise, interest income may be recognized to the extent cash is received. Generally, a nonaccrual loan is returned to accrual status when, based on the Company’s judgment, the borrower’s ability to make the required principal and interest payments has resumed and collectability of remaining principal and interest is no longer doubtful. Interest income recognition resumes for nonaccrual loans that were accounted for on a cash basis method when they return to accrual status, while interest income that was previously recorded as a reduction in the carrying value of the loan would be recognized as interest income based on the effective yield to maturity on the loan. Collateral dependent loans are generally not returned to accrual status.
Consumer loans (excluding RICs and auto loans) are placed on nonaccrual status when they meet certain delinquency thresholds, or sooner if collectability of the amortized cost basis is in doubt. Residential mortgages, home equity loans and lines and unsecured loans are generally placed on nonaccrual status at 90 days delinquent and returned to accrual status when they become less than 90 days delinquent.
Credit cards continue to accrue interest until they become 180 days delinquent, at which point they are charged-off.
For RICs and auto loans, the accrual of interest is discontinued and accrued but uncollected interest is reversed once a RIC becomes more than 60 days delinquent, (i.e., 61 or more DPD) and is resumed and reinstated if a delinquent account subsequently becomes 60 days or less past due. The Company considers RICs and auto loans delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date. The payment following the partial payment must be a full payment, or the account will move into delinquency status at that time. For RICs and auto loans on nonaccrual status, interest income is recognized on a cash basis.
At the time a deferral is granted on a RIC or auto loan, all delinquent amounts may be deferred or paid, resulting in the classification of the loan as current, and therefore not considered a delinquent account. Thereafter, the account is aged based on the timely payment of future installments in the same manner as any other account.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Charge-off of Uncollectible Loans
Any loan may be charged-off if a loss confirming event has occurred. Loss-confirming events usually involve the receipt of specific adverse information about the borrower and may include bankruptcy, foreclosure, or receipt of an asset valuation indicating a shortfall between the value of the collateral and the book value of the loan when that collateral asset is the sole source of repayment.
The Company generally charges off commercial loans when it is determined that the specific loan or a portion thereof is uncollectible. This determination is based on facts and circumstances of the individual loans and normally includes considering the viability of the related business, the value of any collateral, the ability and willingness of any guarantors to perform and the overall financial condition of the borrower. Partially charged-off loans continue to be evaluated on not less than a quarterly basis, with additional charge-offs or loan and lease loss provisions taken on the remaining loan balance, if warranted, utilizing the same criteria. Although the ACL is established on a collective basis, actual charge-offs are recorded on a loan-by-loan basis when losses are confirmed or when established delinquency thresholds have been met.
The Company generally charges off consumer loans, or a portion thereof, as follows: residential mortgage loans and home equity loans are charged-off to the estimated fair value of their collateral (net of selling costs) when they become 180 days delinquent, and other loans (closed-end) are charged-off when they become 120 days delinquent. RICs and auto loans are charged-off to the estimated net recovery value in the month an account becomes greater than 120 days delinquent if the Company has not repossessed the related vehicle. The Company charges off accounts in repossession to estimated net recovery value when the automobile is repossessed and legally available for disposition. For RICs and auto loans, a net charge-off represents the difference between the estimated net sales proceeds and the Company's amortized cost basis of the related contract. Revolving personal unsecured loans are charged off when they become 180 days delinquent. Credit cards are charged off when they are 180 days delinquent or within 60 days after the receipt of notification of the cardholder’s death or bankruptcy.
Accounts in repossession that have been charged off and are pending liquidation are removed from loans and the related repossessed assets are included in Other assets in the Company's Consolidated Balance Sheets. For residential mortgages, foreclosed real estate is moved to Other assets when the Company has obtained legal title to the property.
Loans receiving a bankruptcy notice or for which fraud has been discovered are written down to the collateral value less costs to sell within 60 days of such notice or discovery. Charge-offs are not required when it can be clearly demonstrated that repayment will occur regardless of delinquency status. Factors that would demonstrate repayment include a loan that is secured by collateral and is in the process of collection, a loan supported by a valid guarantee or insurance, or a loan supported by a valid claim against a solvent estate.
Expected recoveries of amounts previously written off and expected to be written off are included in the ACL up to the aggregate of amounts previously written off and expected to be written off by the Company.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
LHFS
LHFS are recorded at either estimated fair value (if the FVO is elected) or the lower of cost or fair value. The Company has elected to account for most of its residential real estate mortgages purchased with the intent to sell at fair value. Applying fair value accounting to the residential mortgage LHFS better aligns the reported results of the economic changes in the value of these loans and their related economic hedge instruments. Generally, residential loans are valued on an aggregate portfolio basis, and commercial loans are valued on an individual loan basis. Gains and losses on LHFS which are accounted for at fair value are recorded in Miscellaneous income, net.
All other LHFS which the Company does not have the intent and ability to hold for the foreseeable future or until maturity or payoff are carried at the lower of cost or fair value. When loans are transferred from HFI, the Company will recognize a charge-off to the ALLL, if warranted under the Company’s charge-off policies. Any excess ALLL for the transferred loans is reversed through provision expense. Subsequent to the initial measurement of LHFS, market declines in the recorded investment, whether due to credit or market risk, are recorded through Miscellaneous income, net as lower of cost or market adjustments.
Interest income on the Company’s LHFS is recognized when earned based on their respective contractual rates in Interest income on loans in the Consolidated Statements of Operations. The accrual of interest is discontinued and reversed once the loans become more than 90 days delinquent.
Leases (as Lessor)
The Company provides financing for various types of equipment, energy and power systems, and automobiles through a variety of lease arrangements.
The Company’s investments in leases that are accounted for as direct financing leases are carried at the aggregate of lease payments plus estimated residual value of the leased property less unearned income and are reported as part of LHFI in the Company’s Consolidated Balance Sheets. Leveraged leases, a form of financing lease, are carried net of non-recourse debt. The Company recognizes income over the term of the lease using the effective interest method, which provides a constant periodic rate of return on the outstanding investment on the lease.
Leased vehicles under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges and presented as Operating lease assets, net in the Company’s Consolidated Balance Sheets. Leased assets acquired in a business combination are initially recorded at their estimated fair value. Leased vehicles purchased in connection with newly originated operating leases are recorded at cost. The depreciation expense of the vehicles is recognized on a straight-line basis over the contractual term of the leases to the expected residual value. The expected residual value and, accordingly, the monthly depreciation expense may change throughout the term of the lease. The Company estimates expected residual values using independent data sources and internal statistical models that take into consideration economic conditions, current auction results, the Company’s remarketing abilities, and manufacturer vehicle and marketing programs.
Lease payments due from operating lease customers are recorded as income within Lease income in the Company’s Consolidated Statements of Operations, unless and until a customer becomes more than 60 days delinquent, at which time the accrual of revenue is discontinued. The accrual is resumed if a delinquent account subsequently becomes 60 days or less past due. Payments from the vehicle’s manufacturer under its Subvention programs are recorded as reductions to the cost of the vehicle and are recognized as an adjustment to depreciation expense on a straight-line basis over the contractual term of the lease.
The Company periodically evaluates its investment in operating leases for impairment if circumstances such as a systemic and material decline in used vehicle values occurs. This would include, for example, a decline in the residual value of our lease portfolio due to an event caused by shocks to oil and gas prices that have a pronounced impact on certain models of vehicles, pervasive manufacturer defects, or other events that could systemically affect the value of a particular brand or model of leased asset, which indicates that impairment may exist.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Under the accounting for impairment or disposal of long-lived assets, residual values of leased assets under operating leases are evaluated individually for impairment. When aggregate future cash flows from the operating lease, including the expected realizable fair value of the leased asset at the end of the lease, are less than the book value of the lease, an immediate impairment write-down is recognized if the difference is deemed not recoverable. Otherwise, reductions in the expected residual value result in additional depreciation of the leased asset over the remaining term of the lease. Upon disposition, a gain or loss is recorded for any difference between the net book value of the leased asset and the proceeds from the disposition of the asset, including any insurance proceeds. Gains or losses on the sale of leased assets are included in Miscellaneous income, net, while valuation adjustments on operating lease residuals are included in Other administrative expense in the Consolidated Statements of Operations. No impairment for leased assets was recognized during the years ended December 31, 2024, 2023, or 2022.
Leases (as Lessee)
Operating lease ROU assets and lease liabilities are recognized upon lease commencement based on the present value of lease payments over the lease term, discounted at the Company's estimated rate of interest for a collateralized borrowing for a similar term. The lease term includes options to extend or terminate a lease when the Company considers it reasonably certain that such options will be exercised. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation. Depreciation is calculated utilizing the straight-line method. Estimated useful lives are as follows:
Office buildings 10 to 30 years
Leasehold improvements (1)
10 to 30 years
Software 3 to 7 years
Furniture, fixtures and equipment 3 to 10 years
Automobiles 5 years
(1) Leasehold improvements are depreciated over the shorter of the useful lives of the assets or the remaining term of the leases.
Expenditures for maintenance and repairs are charged to Occupancy and equipment expense in the Consolidated Statements of Operations as incurred.
Equity Method Investments
The Company uses the equity method for general and limited partnership interests, limited liability companies and other unconsolidated equity investments in which the Company is considered to have significant influence over the operations of the investee. Under the equity method, the Company records its equity ownership share of net income or loss of the investee in "Other miscellaneous expenses." Investments accounted for under the equity method of accounting above are included in the caption "Other Assets" on the Consolidated Balance Sheets.
Goodwill and Intangible Assets
Goodwill is the excess of the purchase price over the fair value of the tangible and identifiable intangible assets and liabilities of companies acquired through business combinations accounted for under the acquisition method. Goodwill and other indefinite-lived intangible assets are not amortized on a recurring basis, but rather are subject to periodic impairment testing. The Company conducts its evaluation of goodwill impairment at the reporting unit level on an annual basis at October 1, and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. A reporting unit is an operating segment or one level below.
An entity's goodwill impairment quantitative analysis is required to be completed unless the entity determines, based on certain qualitative factors, that it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is greater than its carrying amount, including goodwill, in which case no further analysis is required. An entity has an unconditional option to bypass the preceding qualitative assessment (often referred to as step 0) for any reporting unit in any period and proceed directly to the quantitative goodwill impairment test.
The quantitative test includes a comparison of the fair value of each reporting unit to its respective carrying amount, including its allocated goodwill. If the fair value of the reporting unit is in excess of the carrying value, the related goodwill is considered not to be impaired, and no further analysis is necessary. If the carrying value of the reporting unit is higher than the fair value, the impairment is measured as the excess of carrying value over fair value. A recognized impairment charge cannot exceed the amount of goodwill allocated to a reporting unit and cannot subsequently be reversed even if the fair value of the reporting unit recovers.
The Company's intangible assets consist of assets purchased or acquired through business combinations, including customer relationships and dealer networks. Certain intangible assets are amortized over their useful lives. The Company evaluates identifiable intangibles for impairment when an indicator of impairment exists, but not less than annually. Separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives.
MSRs
The Company has elected to measure its residential MSRs at fair value to be consistent with the risk management strategy to hedge changes in the fair value of these assets.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
BOLI
BOLI represents the cash surrender value of life insurance policies for certain current and former employees who have provided positive consent to allow SBNA to be the beneficiary of such policies. Increases in the net cash surrender value of the policies, as well as insurance proceeds received, are recorded in non-interest income, and are not subject to income taxes.
OREO and Other Repossessed Assets
OREO and other repossessed assets consist of properties, vehicles, and other assets acquired by, or in lieu of, foreclosure or repossession in partial or total satisfaction of NPLs, including RICs and leases. Assets obtained in satisfaction of a loan are recorded at the estimated fair value minus estimated costs to sell based upon the asset's appraisal value at the date of transfer. The excess of the carrying value of the loan over the fair value of the asset minus estimated costs to sell are charged to the ALLL at the initial measurement date. Subsequent to the acquisition date, OREO and repossessed assets are carried at the lower of cost or estimated fair value, net of estimated cost to sell. Any declines in the fair value of OREO and repossessed assets below the initial cost basis are recorded through a valuation allowance with a charge to non-interest income. Increases in the fair value of OREO and repossessed assets net of estimated selling costs will reverse the valuation allowance, but only up to the cost basis which was established at the initial measurement date. Costs of holding the assets are recorded as operating expenses, except for significant property improvements, which are capitalized to the extent that the carrying value does not exceed the estimated fair value. The Company generally begins vehicle repossession activity once a customer's account becomes 60 days delinquent. The customer has an opportunity to redeem the repossessed vehicle by paying all outstanding balances, including finance changes and fees. Any vehicles not redeemed are sold at auction. OREO and other repossessed assets are recorded within Other assets on the Consolidated Balance Sheets.
Derivative Instruments and Hedging Activities
The Company uses derivative financial instruments primarily to manage exposure to interest rate, foreign exchange, equity, and credit risk. Derivative financial instruments are used to reduce the effects that changes in interest rates may have on net income, the fair value of assets and liabilities, and cash flows. The Company also enters into derivatives with customers to facilitate their risk management activities, and often sells derivative products to commercial loan customers to hedge interest rate risk associated with loans made by the Company. The Company uses derivative financial instruments as risk management tools and not for speculative trading purposes for its own account. Derivative financial instruments are recognized as either assets or liabilities in the Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of each derivative financial instrument depends on whether it has been designated and qualifies as a hedge for accounting purposes, as well as the type of hedging relationship identified.
Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk such as interest rate risk are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows or other types of forecasted transactions are considered cash flow hedges. The Company formally documents the relationships of qualifying hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking each hedge transaction.
Fair value hedges that are highly effective are accounted for by recording the change in the fair value of the derivative instrument and the change (due to the hedged risk) in the fair value of the related hedged asset, liability or firm commitment in the corresponding income or expense line in the Consolidated Statements of Operations. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as an other asset or other liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense associated with the hedged asset or liability.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Cash flow hedges that are highly effective are accounted for by recording the fair value of the derivative instrument on the Consolidated Balance Sheets as an asset or liability, with a corresponding charge or credit for the change in the fair value of the derivative, net of tax, recorded in AOCI within stockholder's equity in the accompanying Consolidated Balance Sheets. Amounts are reclassified from AOCI to the Consolidated Statements of Operations in the period or periods the hedged transaction affects earnings. In the case in which certain cash flow hedging relationships have been terminated, the Company continues to defer the net gain or loss in AOCI and reclassifies it into interest expense as the hedged cash flows occur, unless it becomes probable that the hedged cash flows will not occur.
We discontinue hedge accounting when it is determined that the derivative no longer qualifies as an effective hedge; the derivative expires or is sold, terminated or exercised; the derivative is de-designated as a fair value or cash flow hedge; or, for a cash flow hedge, it is no longer probable that the forecasted transaction will occur by the end of the originally specified time period. If we determine that the derivative no longer qualifies as a fair value or cash flow hedge and hedge accounting is discontinued, the derivative will continue to be recorded on the balance sheet at its fair value, with changes in fair value included in current earnings. For a discontinued fair value hedge, the previously hedged item is no longer adjusted for changes in fair value.
Changes in the fair value of derivatives not designated in hedging relationships are recognized immediately in the Consolidated Statements of Operations. Derivatives are classified in the Consolidated Balance Sheets as "Other assets" or "Other liabilities," as applicable. See Note 11 to the Consolidated Financial Statements for further discussion.
CLNs
CLNs are classified as Borrowings and other debt obligations. The notes contain a financial guarantee that effectively transfers a portion of the credit risk on a reference pool of loans owned by the Company to the noteholders. These are considered freestanding financial guarantee contracts. The notes are recorded at the amount of the proceeds received, net of debt issuance costs and subsequently accounted for on an amortized cost basis. In the event of credit losses on the reference loan pool in excess of the contractual residual amount, the principal balance of the notes will be reduced to the extent of such loss up to the amount of notes issued and recognized as a debt extinguishment gain within Miscellaneous income, net. In addition, as the credit guarantee component of the notes is considered to be free standing, the ACL measured on the reference pool of loans in accordance with ASC 326 is not reduced by the credit guarantee. The Company has the option to redeem the notes once the unpaid principal balance of the reference pool is less than or equal to 10% of the initial principal balance.
In connection with certain of its CLNs, the Company is required to maintain a collateral account with a third-party financial institution, with the amount equal to at least the outstanding balances of these transactions' CLNs. This is reported as restricted cash in the Consolidated Balance Sheets. In addition, the Company maintains standby letters of credit (with a third-party financial institution) in an amount approximating six months of interest due on the notes outstanding.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to reverse or be realized. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date.
A valuation allowance is established if the Company determines that it is more likely than not that a deferred tax asset will not be realized. This requires periodic analysis of the carrying amount of deferred tax assets and when the deferred tax assets will be realized in future periods. Consideration is given to all positive and negative evidence related to the realization of deferred tax assets.
In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of inherently complex tax laws of the U.S., its states and municipalities, and abroad. 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. Interest and penalties on income tax payments are included within Income tax provision on the Consolidated Statements of Operations.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
The Company recognizes tax benefits in its financial statements when it is more likely than not that the related tax position will be sustained upon examination by tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the taxing authority, assuming full knowledge of the position and all relevant facts. See Note 15 to the Consolidated Financial Statements for details on the Company's income taxes.
Guarantees
Certain financial instruments of the Company meet the definition of a guarantee. They generally require the Company to perform and make future payments in the event specified triggering events or conditions were to occur over the term of the guarantee. The Company recognizes a liability at inception at the greater of the fair value of the guarantee or the Company's estimate of the contingent liability arising from the guarantee. Subsequent to initial recognition, the liability is adjusted based on the passage of time to perform under the guarantee and the changes to the probabilities of the occurrence of the specified triggering events or conditions that would require the Company to perform on the guarantee.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting, and records the identifiable assets, liabilities and any NCI of the acquired business at their acquisition date fair values. The excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill. Any changes in the estimated acquisition date fair values of the net assets recorded prior to the finalization of a more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable to goodwill. Any subsequent changes to any purchase price allocations that are material to the Company’s Consolidated Financial Statements will be adjusted retrospectively. All acquisition related costs are expensed as incurred.
The results of operations of the acquired companies are recorded in the Consolidated Statements of Operations from the date of acquisition. The application of business combination principles, including the determination of the fair value of the net assets acquired, requires the use of significant estimates and assumptions.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Revenue Recognition
The Company primarily earns interest and non-interest income from various sources, including:
•Lending (interest income and loan fees)
•Investment securities
•Loan sales and servicing
•Leases
•BOLI
•Depository services
•Commissions and trailer fees
•Interchange income, net
•Underwriting, structuring and advisory fees
•Asset and wealth management fees
Lending and Investment Securities
The principal source of revenue is interest income from loans and investment securities. Interest income is recognized on an accrual basis primarily according to non-discretionary formulas in written contracts, such as loan agreements or securities contracts. Revenue earned on interest-earning assets, including amortization of deferred loan fees and origination costs and the accretion of discounts recognized on acquired or purchased loans, is recognized based on the constant effective yield of such interest-earning assets.
Gains or losses on sales of investment securities are recognized on the trade date.
Loan Sales and Servicing
The Company recognizes revenue from servicing commercial mortgages and consumer loans as earned. Mortgage banking income, net includes fees associated with servicing loans for third parties based on the specific contractual terms and changes in the fair value of MSRs. Gains or losses on sales of residential mortgage and home equity loans are included within mortgage banking revenues and are recognized when the sale is complete.
Leases
Income from finance leases is recognized as part of interest income over the term of the lease using the constant effective yield method, while income arising from operating leases is recognized as part of other non-interest income over the term of the lease on a straight-line basis.
BOLI
Income from BOLI represents increases in the cash surrender value of the policies, as well as insurance proceeds and interest.
Depository services
Depository services are performed under an agreement with a customer, and those services include personal deposit account opening and maintenance, checking services, online banking services, debit card services, etc. Depository service fees related to customer deposits can generally be distinguished between monthly service fees and transactional fees within the single performance obligation of providing depository account services. Monthly account service and maintenance fees are provided over a period of time (usually a month), and revenue is recognized as the Company performs the service (usually at the end of the month). The services for transactional fees are performed at a point in time and revenue is recognized when the transaction occurs.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Commissions and trailer fees
Commission fees are earned from the selling of annuity contracts to customers on behalf of insurance companies, acting as the broker for certain equity trading, and sales of interests in mutual funds. The Company elected the expected value method for estimating commission fees due to the large number of customer contracts with similar characteristics. However, commissions and trailer fees are fully constrained as the Company cannot sufficiently estimate the consideration which it could be entitled to earn. Commissions are generally associated with point-in-time transactions or agreements that are one year or less. The performance obligation is satisfied immediately, and revenue is recognized as the Company performs the service.
Interchange income, net
The Company has entered into agreements with payment networks under which the Company will issue the payment network's credit card as part of the Company's credit card portfolio. Each time a cardholder makes a purchase at a merchant and the transaction is processed, the Company receives an interchange fee in exchange for the authorization and settlement services provided to the payment networks.
The performance obligation for the Company is to provide authorization and settlement services to the payment network when the payment network submits a transaction for authorization. The Company considers the payment network to be the customer, and the Company is acting as a principal when performing the transaction authorization and settlement services. The performance obligation for authorization and settlement services is satisfied at a point in time, and revenue is recognized on the date when the Company authorizes and routes the payment to the merchant. The expenses paid to payment networks are accounted for as consideration payable to the customer and therefore reduce the transaction price. Therefore, interchange income is recorded net against the expenses paid to the payment network and the cost of rewards programs. The agreements also contain immaterial fixed consideration related to upfront sign-on bonuses and program development bonuses, which are amortized over the remainder of the agreements' life on a straight-line basis.
Underwriting structuring and advisory fees
SanCap performs underwriting services by raising investment capital from investors on behalf of corporations that are issuing securities. Underwriting services have one performance obligation, which is satisfied on the day SanCap purchases the securities.
Underwriting revenues also result from securitization activities related to commercial mortgage loans and mortgage-backed and other asset-backed securities. Such transfers of financial assets are accounted for as sales when the Company has relinquished control over the transferred assets. The gain or loss on sale of such financial assets is recorded as underwriting revenues and is based upon their respective fair values at the date of sale.
Underwriting services include multiple parties in delivering the performance obligation. The Company has evaluated whether it is the principal or agent when we provide underwriting services. The Company acts as the principal when performing underwriting services and recognizes fees on a gross basis. Revenue is recorded as the difference between the price the Company pays the issuer of the securities and the public offering price, and expenses are recorded as the proportionate share of the underwriting costs incurred. The Company is the principal because we obtain control of the services provided by third-party vendors and combine them with other services as part of delivering on the underwriting service.
In addition, structuring and advisory fees may be earned by the Broker-Dealers, primarily in referring institutional clients to entities participating in financing transactions. This revenue is recognized as the performance obligations are satisfied, generally at the funding date.
Asset and wealth management fees
Asset and wealth management fees includes fee income generated from discretionary investment management and non-discretionary investment advisory contracts with customers. Discretionary investment management fees are earned for the management of the assets in the customer's account and are recognized as earned and charged to the customer on a quarterly basis. Non-discretionary investment advisory fees are earned for providing investment advisory services to customers, such as recommending the re-balancing or restructuring of the assets in the customer’s account. The investment advisory fee is recognized as earned and charged to the customer on a quarterly basis. The fee for the discretionary and nondiscretionary contracts is based on a percentage of the average assets included in the customer’s account.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
Fair Value Measurements
The Company estimates the fair value of certain assets and liabilities for both measurement and disclosure purposes. 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, 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.
When measuring the fair value of a liability, the Company assumes that the transfer will not affect the nonperformance risk associated with the liability. The Company considers the effect of the credit risk on the fair value for any period in which fair value is measured.
There are three valuation approaches for measuring fair value: the market approach, the income approach and the cost approach. When selecting the appropriate technique for valuing a particular asset or liability the Company considers the exit market for the asset or liability, the nature of the asset or liability being measured, and how a market participant would value the same asset or liability. Ultimately, selecting the appropriate valuation method requires significant judgment.
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.
The fair value hierarchy is used for disclosure purposes, with assets and liabilities classified into one of the three levels defined above, based upon the level of the most significant assumptions used in the valuation.
Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability. Inputs can be observable or unobservable. Observable inputs are assumptions based on market data obtained from an independent source. Unobservable inputs are assumptions based on the Company's own information or assessment of assumptions used by other market participants in pricing the asset or liability. The unobservable inputs are based on the best and most current information available on the measurement date. The Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs in its fair value measurements.
Subsequent Events
The Company evaluated events from the date of these Consolidated Financial Statements on December 31, 2024 through the issuance of these Consolidated Financial Statements. Except as noted in Note 10, and Note 19 to these Consolidated Financial Statements, there were no material events in that period that would require recognition or disclosure in its Consolidated Financial Statements as of December 31, 2024.
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:
December 31, 2024 December 31, 2023
(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 $ 304,292 $ 148 $ - $ 304,440 $ 25,391 $ 18 $ - $ 25,409
Corporate debt securities 13 - - 13 31,584 7 (1) 31,590
ABS 749,608 505 (2,080) 748,033 512,553 29 (1,919) 510,663
Beneficial interest in Structured LLC (1)
1,099,000 99,985 - 1,198,985 1,122,510 - - 1,122,510
MBS:
GNMA - Residential 2,905,020 17 (339,740) 2,565,297 3,187,600 - (394,756) 2,792,844
GNMA - Commercial 643,010 3 (154,312) 488,701 659,882 4 (141,672) 518,214
FHLMC and FNMA - Residential 2,122,647 79 (381,470) 1,741,256 2,330,558 3 (381,142) 1,949,419
FHLMC and FNMA - Commercial 88,416 - (2,509) 85,907 91,821 - (2,933) 88,888
Unallocated fair value hedge basis adjustment (2)
(78,389) - 78,389 - (36,009) - 36,009 -
Total investments in debt securities AFS $ 7,833,617 $ 100,737 $ (801,722) $ 7,132,632 $ 7,925,890 $ 61 $ (886,414) $ 7,039,537
(1) Represents a 20 percent interest in the Structured LLC to hold and service a pool of multi-family loans.
(2) The Company has entered into fair value hedges of portions of a closed portfolio of AFS debt securities, using the portfolio layer method. Refer to Note 14 for additional information.
The following table presents the amortized cost, gross unrealized gains and losses and approximate fair values of investments in debt securities HTM at the dates indicated:
December 31, 2024 December 31, 2023
(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 $ 584,277 $ 159 $ (352) $ 584,084 $ - $ - $ - $ -
ABS and other interests in structured securities
70,236 188 (49) 70,375 29,701 - (363) 29,338
MBS:
GNMA - Residential 3,010,357 3,118 (502,165) 2,511,310 2,752,158 724 (469,929) 2,282,953
GNMA - Commercial 4,696,532 56 (975,516) 3,721,072 4,843,478 492 (894,635) 3,949,335
FHLMC and FNMA - Residential 1,552,886 1,832 (135,142) 1,419,576 1,414,367 - (113,470) 1,300,897
Total investments in debt securities HTM $ 9,914,288 $ 5,353 $ (1,613,224) $ 8,306,417 $ 9,039,704 $ 1,216 $ (1,478,397) $ 7,562,523
As of December 31, 2024 and December 31, 2023, the Company had investment securities with an estimated carrying value of $11.5 billion and $11.2 billion, respectively, pledged as collateral. The Company's investment securities pledged as collateral were comprised of the following: $3.9 billion and $7.5 billion, respectively, were pledged as collateral for the Company's borrowing capacity with the FRB; $2.5 billion and $3.2 billion, respectively, were pledged to secure public fund deposits; $20.4 million and $95.6 million, respectively, were pledged to various independent parties to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; $372.8 million and $349.9 million, respectively, were pledged to secure the Company's customer overnight sweep product; and $4.7 billion and zero , respectively, were pledged as collateral for the Company's borrowing capacity with the FHLB as of December 31, 2024 and December 31, 2023. There were no amounts pledged to secure repurchase agreements in which the secured party has the right to sell or repledge the collateral as of December 31, 2024 or December 31, 2023. The Company also participates in Securities Financing Activities discussed further in Note 13 to these Consolidated Financial Statements.
At December 31, 2024 and December 31, 2023, the Company had $116.2 million and $79.6 million, respectively, of accrued interest related to investment securities which is included in the Other assets line of the Company's Consolidated Balance Sheets. No accrued interest related to investment securities was written off during the periods ended December 31, 2024 or December 31, 2023.
NOTE 2. INVESTMENT SECURITIES (continued)
Contractual Maturity of Investments in Debt Securities
Contractual maturities of the Company’s investments in debt securities AFS at December 31, 2024 were as follows:
(in thousands) Due Within One Year Due After 1 Within 5 Years Due After 5 Within 10 Years Due After 10 Years/No Maturity Total (1)
Weighted Average Yield (2)
U.S Treasury securities
$ 304,440 $ - $ - $ - $ 304,440 4.26 %
Corporate debt securities 13 - - - 13 4.90 %
ABS - - 532,909 215,124 748,033 5.71 %
Beneficial Interest in Structured LLC
- - - 1,198,985 1,198,985 10.32 %
MBS:
GNMA - Residential - 3,782 18,538 2,542,977 2,565,297 3.84 %
GNMA - Commercial - - - 488,701 488,701 2.18 %
FHLMC and FNMA - Residential 1,642 45,350 53,005 1,641,259 1,741,256 2.87 %
FHLMC and FNMA - Commercial 4,160 73,933 - 7,814 85,907 4.48 %
Total fair value $ 310,255 $ 123,065 $ 604,452 $ 6,094,860 $ 7,132,632 4.80 %
Weighted average yield
4.24 % 3.68 % 5.38 % 4.79 % 4.80 %
Total amortized cost (3)
$ 310,144 $ 126,761 $ 612,577 $ 6,862,524 $ 7,912,006
(1) The maturities above do not represent the effective duration of the Company's portfolio, since the amounts above are based on contractual maturities of the debt securities and do not contemplate anticipated non-contractual payments.
(2) Yields on tax-exempt securities are calculated on a tax equivalent basis and are based on the statutory federal tax rate.
(3) Does not include unallocated fair value hedge basis adjustment.
Contractual maturities of the Company’s investments in debt securities HTM at December 31, 2024 were as follows:
(in thousands) Due Within One Year Due After 1 Within 5 Years Due After 5 Within 10 Years Due After 10 Years/No Maturity Total (1)
Weighted Average Yield (2)
U.S Treasury securities $ - $ 584,084 $ - $ - $ 584,084 4.32 %
ABS - 31,775 38,600 - 70,375 4.96 %
MBS:
GNMA - Residential - - 3,703 2,507,607 2,511,310 3.01 %
GNMA - Commercial - - - 3,721,072 3,721,072 2.45 %
FHLMC and FNMA - Residential - - - 1,419,576 1,419,576 3.18 %
Total fair value $ - $ 615,859 $ 42,303 $ 7,648,255 $ 8,306,417 2.90 %
Weighted average yield - % 4.33 % 5.04 % 2.77 % 2.90 %
Total amortized cost $ - $ 616,102 $ 42,277 $ 9,255,909 $ 9,914,288
(1) (2) See corresponding footnotes to the contractual maturity table for investments in debt securities HTM, shown above.
Actual maturities may differ from contractual maturities when there is a right to call or prepay obligations with or without call or prepayment penalties.
NOTE 2. INVESTMENT SECURITIES (continued)
Gross Unrealized Loss and Fair Value of Investments in Debt Securities AFS and HTM
The following table presents the aggregate amount of unrealized losses on debt securities in the Company’s AFS investment portfolios classified according to the amount of time those securities have been in a continuous loss position as of the dates indicated:
December 31, 2024 December 31, 2023
Less than 12 months 12 months or longer Less than 12 months 12 months or longer
(in thousands) Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
U.S. Treasury securities $ - $ - $ - $ - $ 6,992 $ - $ - $ -
Corporate debt securities - - 13 - 7,325 (1) 13 -
ABS 353,501 (1,724) 11,250 (356) 6,749 (168) 402,325 (1,751)
MBS:
GNMA - Residential - - 2,539,940 (339,740) - - 2,792,843 (394,756)
GNMA - Commercial - - 488,698 (154,312) - - 518,210 (141,672)
FHLMC and FNMA - Residential - - 1,724,770 (381,470) - - 1,949,320 (381,142)
FHLMC and FNMA - Commercial - - 85,907 (2,509) - - 88,888 (2,933)
Total investments in debt securities AFS (1)
$ 353,501 $ (1,724) $ 4,850,578 $ (878,387) $ 21,066 $ (169) $ 5,751,599 $ (922,254)
(1) Does not include unallocated fair value hedge basis adjustment.
The following table presents the aggregate amount of unrealized losses on debt securities in the Company’s HTM investment portfolios classified according to the amount of time those securities have been in a continuous loss position as of the dates indicated:
December 31, 2024 December 31, 2023
Less than 12 months 12 months or longer Less than 12 months 12 months or longer
(in thousands) Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
U.S. Treasury securities $ 401,232 $ (352) $ - $ - -
$ - $ - $ -
ABS and other interests in structured securities - - 16,000 (49) 22,461 (313) 6,878 (50)
MBS:
GNMA - Residential 245,812 (1,647) 1,944,400 (500,518) - - 2,166,032 (469,929)
GNMA - Commercial 23,637 (43) 3,675,226 (975,473) 45,983 (1,610) 3,856,536 (893,025)
FHLMC and FNMA - Residential 71,995 (699) 1,103,973 (134,443) 57,955 (528) 1,242,941 (112,942)
Total investments in debt securities HTM $ 742,676 $ (2,741) $ 6,739,599 $ (1,610,483) $ 126,399 $ (2,451) $ 7,272,387 $ (1,475,946)
Allowance for credit-related losses on AFS and HTM securities
The Company did not record an allowance for credit-related losses on AFS or HTM securities at December 31, 2024 or December 31, 2023. As discussed in Note 1 to these Consolidated Financial Statements, securities for which management expects risk of nonpayment of the amortized cost basis is zero do not have a reserve.
For securities that do not qualify for the zero credit loss expectation exception, management has concluded that the unrealized losses are not credit-related since (1) they are not related to the underlying credit quality of the issuers, (2) the entire contractual principal and interest due on these securities is currently expected to be recoverable, (3) the Company does not intend to sell these investments at a loss and (4) it is more likely than not that the Company will not be required to sell the investments before recovery of the amortized cost basis, which for the Company's debt securities may be at maturity.
NOTE 2. INVESTMENT SECURITIES (continued)
Gains (Losses) on Sales of Investment Securities
The realized gross gains and losses from sales of investment securities were as follows for the periods indicated:
Year ended December 31,
(in thousands) 2024 2023 2022
AFS debt and other securities:
Gross realized gains $ 444 $ 192 $ -
Gross realized losses - (4,928) (29,343)
Net realized gains/(losses) on AFS and other securities $ 444 $ (4,736) $ (29,343)
Total trading securities gains/(losses) 227,888 151,158 35,405
Total equity securities gains/(losses) (3,873) (1,383) 12,480
Total realized gains/(losses) in income from investments $ 224,459 $ 145,039 $ 18,542
The Company uses the specific identification method to determine the cost of the securities sold and the gain or loss recognized.
Trading Securities
At December 31, 2024 and December 31, 2023, the Company held $10.3 billion and $8.0 billion, respectively, of trading securities. Gains and losses on trading securities are recorded within Net gain on sale of investment securities on the Company's Consolidated Statements of Operations. At December 31, 2024 and December 31, 2023, the Company had $10.0 billion and $7.4 billion, respectively, of assets classified as trading securities pledged as collateral to counterparties that have the right to repledge these securities.
Other Investments
Other investments consisted of the following as of the dates indicated:
(in thousands) December 31, 2024 December 31, 2023
FHLB of Pittsburgh and FRB stock $ 588,250 $ 631,394
LIHTC investments 899,925 660,694
Equity securities not held for trading (1)
56,459 61,190
Interest-bearing deposits with an affiliate bank 5,000 -
Total $ 1,549,634 $ 1,353,278
(1) Includes $8.0 million and $2.8 million of equity certificates related to off-balance sheet securitizations as of December 31, 2024 and December 31, 2023, respectively.
Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the FRB. These stocks do not have readily determinable fair values because their ownership is restricted and there is no market for their sale. The stocks can be sold back only at their par value of $100 per share, and FHLB stock can be sold back only to the FHLB or to another member institution. Accordingly, these stocks are carried at cost. During the year ended December 31, 2024, the Company purchased $240.5 million of FHLB stock at par, and redeemed $316.4 million of FHLB stock at par. The Company purchased $32.8 million of FRB stock at par and redeemed no FRB stock at par during the year ended December 31, 2024. 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 generally measured at fair value with changes in fair value recognized in net income. Certain privately held equity investments are accounted for using the cost less impairment accounting process.
Interest-bearing deposits include deposits maturing in more than 90 days with Santander affiliates that are not consolidated.
With the exception of equity and trading securities, which are measured at fair value, the Company evaluates these other investments for impairment based on the ultimate recoverability of the carrying value, rather than by recognizing temporary declines in value.
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 pledged loans totaled $59.1 billion at December 31, 2024 and $60.3 billion at December 31, 2023.
LHFS includes loans the Company has the intent to sell or securitize in an off-balance sheet securitization and loans that the Company no longer intends to hold to maturity or for the foreseeable future. The LHFS portfolio balance at December 31, 2024 was $1.3 billion, compared to $160.1 million at December 31, 2023. For a discussion on the composition and valuation of LHFS at fair value, see Note 15 to these Consolidated Financial Statements.
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 Consolidated Statements of Operations generally over the contractual life of the loan utilizing the interest method. Loan origination costs and fees and premiums and discounts on RICs are deferred and recognized in interest income over their estimated lives using estimated prepayment speeds, which are updated on a monthly basis. At December 31, 2024 and December 31, 2023, accrued interest receivable on the Company's loans was $632.4 million and $661.0 million, respectively.
During the first quarter of 2024, the Company transferred $1.1 billion in RIC loans to a newly formed off-balance sheet trust. Refer to Note 8 of these Consolidated Financial Statements for more information.
During the third quarter of 2024, the Company sold approximately $1.3 billion of personal unsecured loans to a third party. The transaction resulted in a loss on sale of approximately $106.8 million, offset by a release of the ACL in the amount of approximately $101.8 million.
In addition, during the third quarter of 2024, the Company transferred its financial interests of approximately $507.7 million on- balance sheet auto RIC Trust to a third party and to a newly-formed off-balance sheet Trust. Refer to Note 8 to these Condensed Consolidated Financial Statements for additional discussion of this transaction.
During the fourth quarter of 2024, the Company transferred its financial interests in two on-balance sheet auto RIC Trusts (related to 2021 securitizations) to third parties and to two newly-formed off-balance sheet Trusts. The total effects of these two transactions resulted in de-recognition of approximately $778.6 million of RICs from the Consolidated Balance Sheets, and a release of the ACL in the amount of approximately $95.2 million, offset by a securitization loss of $16.4 million as a result of de-consolidation of the 2021 RIC Trusts. Refer to Note 8 to these Consolidated Financial Statements for additional discussion of these transactions.
In addition, during the fourth quarter of 2024, the Company sold approximately $154.6 million of personal unsecured loans to a third party. The transaction resulted in a loss on sale of approximately $14.2 million, offset by a release of the ACL in the amount of approximately $12.1 million.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Loan and Lease Portfolio Composition
The following presents the composition of loans and leases HFI by portfolio and by rate type as of the dates indicated:
December 31, 2024 December 31, 2023
(dollars in thousands) Amount Percent Amount Percent
Commercial LHFI:
CRE loans $ 8,624,800 9.9 % $ 8,747,544 9.4 %
C&I loans 8,386,344 9.6 % 11,181,962 12.0 %
Multifamily loans 9,840,692 11.3 % 10,548,905 11.3 %
Other commercial (2)
7,608,933 8.7 % 7,476,113 8.0 %
Total commercial LHFI $ 34,460,769 39.5 % $ 37,954,524 40.7 %
Consumer loans secured by real estate:
Residential mortgages 4,415,747 5.1 % 4,816,218 5.2 %
Home equity loans and lines of credit 2,091,365 2.4 % 2,448,454 2.6 %
Total consumer loans secured by real estate $ 6,507,112 7.5 % $ 7,264,672 7.8 %
Consumer loans not secured by real estate:
RICs and auto loans 44,585,718 50.9 % 43,705,359 47.0 %
Personal unsecured loans 1,715,727 2.0 % 4,062,700 4.4 %
Other consumer (3)
35,173 0.1 % 59,954 0.1 %
Total consumer loans $ 52,843,730 60.5 % $ 55,092,685 59.3 %
Total LHFI (1)
$ 87,304,499 100.0 % $ 93,047,209 100.0 %
Total LHFI:
Fixed rate $ 62,085,179 71.1 % $ 65,960,370 70.9 %
Variable rate 25,219,320 28.9 % 27,086,839 29.1 %
Total LHFI (1)
$ 87,304,499 100.0 % $ 93,047,209 100.0 %
(1)Total LHFI includes unamortized deferred loan fees, net of deferred origination costs; unamortized purchase premiums, net of discounts; unamortized
participation fees; accretable subvention; as well as purchase accounting adjustments. These items resulted in a net positive adjustment to the loan balances of $425.4 million and $475.0 million as of December 31, 2024 and December 31, 2023, respectively.
(2)Other commercial includes CEVF leveraged leases and loans.
(3)Other consumer primarily includes RV and marine loans.
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 portfolio segments.
The commercial portfolio 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.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
ACL Rollforward by Portfolio Segment
The ACL is comprised of the ALLL and the reserve for unfunded lending commitments. The activity in the ACL by portfolio segment was as follows for the periods indicated:
Year ended December 31, 2024
(in thousands) Commercial Consumer Total
ALLL, beginning of period $ 616,788 $ 6,315,265 $ 6,932,053
Credit loss (benefit) / expense
(4,573) 1,954,511 1,949,938
Charge-offs (108,032) (4,732,029) (4,840,061)
Recoveries 61,502 2,458,580 2,520,082
Charge-offs, net of recoveries $ (46,530) $ (2,273,449) $ (2,319,979)
ALLL, end of period $ 565,685 $ 5,996,327 $ 6,562,012
Reserve for unfunded lending commitments, beginning of period $ 55,846 $ 4,916 $ 60,762
Credit loss (benefit) on unfunded lending commitments
(9,820) (2,999) (12,819)
Reserve for unfunded lending commitments, end of period $ 46,026 $ 1,917 $ 47,943
Total ACL, end of period $ 611,711 $ 5,998,244 $ 6,609,955
Year ended December 31, 2023
(in thousands) Commercial Consumer Total
ALLL, beginning of period $ 562,216 $ 6,217,783 $ 6,779,999
Day 1: Adjustment to allowance for adoption of ASU 2022-02 4,986 50,254 55,240
Credit loss expense 141,510 2,109,748 2,251,258
Charge-offs (158,157) (4,586,806) (4,744,963)
Recoveries 66,233 2,524,286 2,590,519
Charge-offs, net of recoveries $ (91,924) $ (2,062,520) $ (2,154,444)
ALLL, end of period $ 616,788 $ 6,315,265 $ 6,932,053
Reserve for unfunded lending commitments, beginning of period $ 77,709 $ 7,873 $ 85,582
Credit loss (benefit) on unfunded lending commitments
(21,863) (2,957) (24,820)
Reserve for unfunded lending commitments, end of period $ 55,846 $ 4,916 $ 60,762
Total ACL, end of period $ 672,634 $ 6,320,181 $ 6,992,815
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Year Ended December 31, 2022
(in thousands) Commercial Consumer Total
ALLL, beginning of period $ 567,310 $ 5,894,100 $ 6,461,410
Credit loss benefit on loans
71,375 1,965,954 2,037,329
Charge-offs (133,104) (4,041,349) (4,174,453)
Recoveries 56,635 2,399,078 2,455,713
Charge-offs, net of recoveries (76,469) (1,642,271) (1,718,740)
ALLL, end of period $ 562,216 $ 6,217,783 $ 6,779,999
Reserve for unfunded lending commitments, beginning of period $ 91,191 $ 12,903 $ 104,094
Credit loss benefit on unfunded lending commitments
(13,482) (5,030) (18,512)
Reserve for unfunded lending commitments, end of period 77,709 7,873 85,582
Total ACL end of period $ 639,925 $ 6,225,656 $ 6,865,581
The credit risk in the Company’s loan portfolios is driven by credit and collateral quality and is affected by borrower-specific and economy-wide factors. In general, there is an inverse relationship between the credit quality of loans and projections of impairment losses so that loans with better credit quality require a lower expected loss reserve. The Company manages this risk through its underwriting, pricing strategies, credit policy standards, and servicing guidelines and practices, as well as the application of geographic and other concentration limits.
The Company estimates CECL based on prospective information as well as account-level models based on historical data. Unemployment, HPI, CRE price index and used vehicle index growth rates, along with loan level characteristics, are the key inputs used in the models for prediction of the likelihood that the borrower will default in the forecasted period (the PD) and the loss in the event of default (the LGD). GDP is also a key input used in the models for the prediction of the likelihood that a borrower will default.
The Company has determined the reasonable and supportable period to be three years, at which time the economic forecasts generally tend to revert to historical averages. The Company also utilizes qualitative adjustments to capture any additional risks that may not be captured in either the economic forecasts or in the historical data, including consideration of several factors such as the interpretation of economic trends and uncertainties, changes in the nature and volume of loan portfolios, trends in delinquency and collateral values, and concentration risk.
The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustments for macroeconomic uncertainty and considers adjustments to macroeconomic inputs and outputs based on market volatility. The baseline scenario was based on the latest consensus forecasts available, which reflects growth in the U.S. economy and a stable unemployment rate (which is a key driver to losses). Downward side risks continue to exist due to uncertainties related to increasing consumer indebtedness, and restricted job growth undermining consumer spending and growth. Using the weighted average of a range of economic forecast scenarios, we estimated at December 31, 2024 that the unemployment rate is expected to be approximately 5.2% at the end of 2025. In comparison, at December 31, 2023, management previously estimated the unemployment rate using the weighted average of our economic forecast scenarios to be 5.0% at the end of 2024. Additionally, the weighted used vehicle index, where a higher number corresponds to a higher used car price at auction, is estimated at December 31, 2024 to be approximately 194 at the end of 2025 compared to our estimate at December 31, 2023 to be approximately 201 at the end of 2024. While the economy saw significant recovery in 2023 and into 2024, there is still considerable uncertainty regarding overall lifetime loss estimates due to persistent inflation and high interest rates.
The Company's ACL was $6.6 billion at December 31, 2024, a decrease of $382.9 million from December 31, 2023. The decrease in the ACL was primarily driven by the sale of certain personal unsecured loans and off-balance sheet securitizations of RICs and auto loans and improvement in the macroeconomic outlook for certain macro variables. The ACL for the consumer portfolio segment decreased by $321.9 million and the ACL for the commercial portfolio segment decreased by $60.9 million at December 31, 2024 compared to December 31, 2023.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Non-accrual loans by Class of Financing Receivable
The amortized cost basis of financing receivables that are non-accrual and other non-performing assets disaggregated by class of financing receivables (as well as the amount of non-accrual loans for which no related allowance is recorded) are as follows at the dates indicated:
Non-accrual loans and other non-performing assets as of:(1)
Non-accrual loans with no related allowance
(in thousands) December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023
Non-accrual loans:
Commercial:
CRE $ 243,761 $ 267,537 $ 36,643 $ 64,383
C&I 132,146 143,504 70,153 2,230
Multifamily 226,448 97,228 81,480 17,801
Other commercial 8,037 5,621 9 -
Total commercial loans $ 610,392 $ 513,890 $ 188,285 $ 84,414
Consumer:
Residential mortgages 52,170 52,718 1,436 5,898
Home equity loans and lines of credit 70,414 86,332 12,681 15,241
RICs and auto loans 2,241,575 2,194,509 147,574 153,850
Personal unsecured loans 486 21,267 - 1,776
Other consumer 15,198 15,733 201 152
Total consumer loans $ 2,379,843 $ 2,370,559 $ 161,892 $ 176,917
Total non-accrual loans $ 2,990,235 $ 2,884,449 $ 350,177 $ 261,331
OREO 54,121 24,246 - -
Repossessed vehicles 249,209 265,368 - -
Foreclosed and other repossessed assets 25,182 1,666 - -
Total OREO and other repossessed assets $ 328,512 $ 291,280 $ - $ -
Total non-performing assets $ 3,318,747 $ 3,175,729 $ 350,177 $ 261,331
(1) Interest income recognized on nonaccrual loans was $242.9 million and $206.0 million for the year ended December 31, 2024 and December 31, 2023, respectively.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Age Analysis of Past Due Loans
The Company generally considers an account delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date. When an account is deferred, the loan is returned to accrual status during the deferral period and accrued interest related to the loan is evaluated for collectability.
The amortized cost of past due loans and accruing loans 90 days or greater past due disaggregated by class of financing receivables is summarized as follows at the dates indicated:
As of: December 31, 2024
(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
$ 14,113 $ 107,189 $ 121,302 $ 8,503,498 $ 8,624,800 $ -
C&I (1)
54,966 30,007 84,973 8,497,612 8,582,585 -
Multifamily
55,813 140,025 195,838 9,644,854 9,840,692 -
Other commercial 53,345 3,289 56,634 7,552,299 7,608,933 -
Consumer:
Residential mortgages (2)
71,252 48,511 119,763 5,433,696 5,553,459 -
Home equity loans and lines of credit 34,698 60,302 95,000 1,996,365 2,091,365 -
RICs and auto loans
5,377,426 591,437 5,968,863 38,616,855 44,585,718 -
Personal unsecured loans 41,673 22,296 63,969 1,651,758 1,715,727 8,796
Other consumer 1,078 146 1,224 33,949 35,173 -
Total $ 5,704,364 $ 1,003,202 $ 6,707,566 $ 81,930,886 $ 88,638,452 $ 8,796
(1) C&I loans includes $196.2 million of LHFS at December 31, 2024.
(2) Residential mortgages include $1.1 billion of LHFS at December 31, 2024.
As of: December 31, 2023
(in thousands) 30-89
Days Past
Due 90
Days or Greater Total
Past Due Current Total
Financing
Receivables Recorded
Investment
> 90 Days and Accruing
Commercial:
CRE (2)
$ 98,799 $ 62,645 $ 161,444 $ 8,586,100 $ 8,747,544 $ -
C&I (1)
54,367 12,260 66,627 11,246,726 11,313,353 -
Multifamily (4)
- 62,391 62,391 10,495,778 10,558,169 -
Other commercial 48,075 3,260 51,335 7,424,778 7,476,113 -
Consumer:
Residential mortgages (3)
99,171 47,019 146,190 4,689,491 4,835,681 -
Home equity loans and lines of credit 36,297 71,936 108,233 2,340,221 2,448,454 -
RICs and auto loans 5,393,627 558,208 5,951,835 37,753,524 43,705,359 -
Personal unsecured loans 84,379 44,389 128,768 3,933,932 4,062,700 7,947
Other consumer 2,213 345 2,558 57,396 59,954 -
Total $ 5,816,928 $ 862,453 $ 6,679,381 $ 86,527,946 $ 93,207,327 $ 7,947
(1)C&I loans included $131.4 million of LHFS at December 31, 2023.
(2)CRE loans includes no LHFS at December 31, 2023.
(3) Residential mortgages included $19.5 million of LHFS at December 31, 2023.
(4) Multifamily loans include $9.3 million of LHFS at December 31, 2023.
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.
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:
December 31, 2024 Commercial Loan Portfolio (2)
(dollars in thousands) Amortized Cost by Origination Year
Regulatory Rating: 2024(1)
2023 2022 2021 2020 Prior Total (3)
CRE
Pass $ 338,140 $ 824,121 $ 2,829,501 $ 1,098,765 $ 740,463 $ 1,387,777 $ 7,218,767
Special mention 18,961 32,300 276,613 311,328 22,486 98,887 760,575
Substandard 29,011 10,662 243,510 49,001 65,937 198,848 596,969
Doubtful - - - - - 48,489 48,489
Total CRE $ 386,112 $ 867,083 $ 3,349,624 $ 1,459,094 $ 828,886 $ 1,734,001 $ 8,624,800
Current period gross write-offs - CRE $ 3,184 $ - $ - $ 19,709 $ - $ 681 $ 23,574
C&I
Pass $ 1,196,845 $ 675,221 $ 1,291,707 $ 808,286 $ 412,971 $ 2,501,415 $ 6,886,445
Special mention 15,888 18,633 198,737 70,428 10,973 98,450 413,109
Substandard - 125,253 33,951 73,032 25,830 211,237 469,303
N/A 364,947 190,867 163,191 67,654 17,237 9,832 813,728
Total C&I $ 1,577,680 $ 1,009,974 $ 1,687,586 $ 1,019,400 $ 467,011 $ 2,820,934 $ 8,582,585
Current period gross write-offs - C&I $ 2,018 $ 13,647 $ 21,267 $ 10,256 $ 5,040 $ 6,956 $ 59,184
Multifamily
Pass $ 57,650 $ 1,004,387 $ 2,690,142 $ 1,266,945 $ 823,374 $ 2,107,406 $ 7,949,904
Special mention - 164,750 197,385 157,652 28,969 101,130 649,886
Substandard - 86,516 490,480 212,479 90,304 361,123 1,240,902
Total multifamily $ 57,650 $ 1,255,653 $ 3,378,007 $ 1,637,076 $ 942,647 $ 2,569,659 $ 9,840,692
Current period gross write-offs - Multifamily $ - $ - $ - $ - $ - $ 14,100 $ 14,100
Remaining commercial
Pass $ 3,700,349 $ 1,230,676 $ 1,019,522 $ 518,369 $ 330,432 $ 797,060 $ 7,596,408
Special mention - 710 596 2,667 - 514 4,487
Substandard - 1,151 2,141 1,242 303 3,201 8,038
Total remaining commercial $ 3,700,349 $ 1,232,537 $ 1,022,259 $ 522,278 $ 330,735 $ 800,775 $ 7,608,933
Current period gross write-offs - Remaining commercial $ - $ 267 $ 13 $ 20 $ - $ 10,874 $ 11,174
Total commercial loans
Pass $ 5,292,984 $ 3,734,405 $ 7,830,872 $ 3,692,365 $ 2,307,240 $ 6,793,658 $ 29,651,524
Special mention 34,849 216,393 673,331 542,075 62,428 298,981 1,828,057
Substandard 29,011 223,582 770,082 335,754 182,374 774,409 2,315,212
Doubtful - - - - - 48,489 48,489
N/A 364,947 190,867 163,191 67,654 17,237 9,832 813,728
Total commercial loans $ 5,721,791 $ 4,365,247 $ 9,437,476 $ 4,637,848 $ 2,569,279 $ 7,925,369 $ 34,657,010
Current period gross write-offs - Total commercial $ 5,202 $ 13,914 $ 21,280 $ 29,985 $ 5,040 $ 32,611 $ 108,032
(1)Loans originated during the year ended December 31, 2024.
(2)Includes $196.2 million of LHFS at December 31, 2024.
(3)Includes $8.9 million revolving loans converted to term loans.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
December 31, 2023 Commercial Loan Portfolio (2)
(dollars in thousands) Amortized Cost by Origination Year
Regulatory Rating: 2023(1)
2022 2021 2020 2019 Prior Total (3)
CRE
Pass $ 353,350 $ 1,947,060 $ 1,800,140 $ 1,108,882 $ 674,347 $ 1,343,095 $ 7,226,874
Special mention 3,747 178,287 145,212 102,550 245,385 114,666 789,847
Substandard - 112,872 188,061 63,806 85,138 232,168 682,045
Doubtful - - - - 48,778 - 48,778
Total CRE $ 357,097 $ 2,238,219 $ 2,133,413 $ 1,275,238 $ 1,053,648 $ 1,689,929 $ 8,747,544
Current period gross write-offs - CRE $ - $ - $ 37,982 $ - $ 28,626 $ 8,637 $ 75,245
C&I
Pass $ 1,073,864 $ 2,930,616 $ 1,941,561 $ 1,002,562 $ 993,395 $ 1,923,607 $ 9,865,605
Special mention 6,256 96,218 4,695 2,668 10,686 139,360 259,883
Substandard 100 14,786 82,563 70,458 50,881 230,798 449,586
N/A 272,220 259,671 126,449 41,229 32,916 5,794 738,279
Total C&I $ 1,352,440 $ 3,301,291 $ 2,155,268 $ 1,116,917 $ 1,087,878 $ 2,299,559 $ 11,313,353
Current period gross write-offs - C&I $ 3,440 $ 20,806 $ 12,749 $ 5,012 $ 11,287 $ 19,224 $ 72,518
Multifamily
Pass $ 1,147,959 $ 3,000,968 $ 1,358,513 $ 949,385 $ 1,422,205 $ 1,289,127 $ 9,168,157
Special mention 116,789 107,137 101,850 - 160,535 72,513 558,824
Substandard - 302,057 128,023 61,041 172,983 167,084 831,188
Total multifamily $ 1,264,748 $ 3,410,162 $ 1,588,386 $ 1,010,426 $ 1,755,723 $ 1,528,724 $ 10,558,169
Current period gross write-offs - Multifamily $ - $ - $ - $ - $ 1,267 $ 2,684 $ 3,951
Remaining commercial
Pass $ 3,154,497 $ 1,598,202 $ 1,157,726 $ 491,229 $ 248,309 $ 811,827 $ 7,461,790
Special mention - 355 3,624 - - 1,410 5,389
Substandard 283 2,262 1,524 765 311 3,789 8,934
Total remaining commercial $ 3,154,780 $ 1,600,819 $ 1,162,874 $ 491,994 $ 248,620 $ 817,026 $ 7,476,113
Current period gross write-offs - Remaining commercial $ 205 $ - $ 27 $ - $ - $ 6,211 $ 6,443
Total commercial loans
Pass $ 5,729,670 $ 9,476,846 $ 6,257,940 $ 3,552,058 $ 3,338,256 $ 5,367,656 $ 33,722,426
Special mention 126,792 381,997 255,381 105,218 416,606 327,949 1,613,943
Substandard 383 431,977 400,171 196,070 309,313 633,839 1,971,753
Doubtful - - - - 48,778 - 48,778
N/A 272,220 259,671 126,449 41,229 32,916 5,794 738,279
Total commercial loans $ 6,129,065 $ 10,550,491 $ 7,039,941 $ 3,894,575 $ 4,145,869 $ 6,335,238 $ 38,095,179
Current period gross write-offs - Total commercial $ 3,645 $ 20,806 $ 50,758 $ 5,012 $ 41,180 $ 36,756 $ 158,157
(1)Loans originated during the year ended December 31, 2023.
(2)Includes $140.7 million of LHFS at December 31, 2023.
(3)Includes $126.6 million revolving loans converted to term loans.
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:
RICs and Auto Loans
As of December 31, 2024
RICs and auto loans
(dollars in thousands) Amortized Cost by Origination Year (3)
Credit Score Range 2024(1)
2023 2022 2021 2020 Prior Total Percent
No FICO (2)
$ 1,405,385 $ 619,855 $ 439,495 $ 203,482 $ 75,220 $ 59,112 $ 2,802,549 6.3 %
<600 6,226,932 3,802,976 2,684,114 1,300,940 430,387 467,173 14,912,522 33.4 %
600-639 3,666,764 2,210,937 1,570,957 580,838 156,518 156,414 8,342,428 18.7 %
640-679 2,584,001 1,381,664 991,775 327,850 88,443 84,671 5,458,404 12.2 %
680-719 1,876,930 1,021,254 692,491 322,204 131,317 72,779 4,116,975 9.2 %
720-759 1,196,671 664,152 524,294 321,172 133,447 49,809 2,889,545 6.5 %
>=760
2,538,495 1,042,245 1,155,983 910,962 335,186 80,424 6,063,295 13.7 %
Total $ 19,495,178 $ 10,743,083 $ 8,059,109 $ 3,967,448 $ 1,350,518 $ 970,382 $ 44,585,718 100.0 %
Current period gross write-offs - RICs and auto loans $ 527,058 $ 1,545,761 $ 1,295,970 $ 618,628 $ 395,766 $ 10,081 $ 4,393,264
(1) Loans originated during the year ended December 31, 2024.
(2) Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.
(3) Excludes LHFS.
As of December 31, 2023
RICs and auto loans
(dollars in thousands) Amortized Cost by Origination Year (3)
Credit Score Range 2023(1)
2022 2021 2020 2019 Prior Total Percent
No FICO (2)
$ 1,075,125 $ 763,677 $ 445,542 $ 193,922 $ 120,752 $ 61,909 $ 2,660,927 6.1 %
<600 5,578,707 4,219,184 2,791,141 1,093,652 778,438 458,350 14,919,472 34.1 %
600-639 3,324,732 2,483,763 1,324,435 439,996 303,441 138,715 8,015,082 18.3 %
640-679 2,535,908 1,567,064 718,649 234,883 169,431 69,668 5,295,603 12.1 %
680-719 1,754,195 1,092,896 612,871 268,978 159,209 39,934 3,928,083 9.0 %
720-759 1,052,128 830,476 583,392 256,724 122,537 24,692 2,869,949 6.6 %
>=760 1,574,026 1,847,059 1,644,605 654,214 267,443 28,896 6,016,243 13.8 %
Total $ 16,894,821 $ 12,804,119 $ 8,120,635 $ 3,142,369 $ 1,921,251 $ 822,164 $ 43,705,359 100.0 %
Current period gross write-offs - RICs and auto loans $ 479,992 $ 1,943,905 $ 1,052,016 $ 366,896 $ 245,621 $ 194,308 $ 4,282,738
(1) Loans originated during the year ended December 31, 2023.
(2) Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.
(3) Excludes LHFS.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Personal Unsecured Loans
As of December 31, 2024
Personal Unsecured loans
(dollars in thousands) Amortized Cost by Origination Year
Credit Score Range 2024(1)
2023 2022 2021 2020 Prior Total Percent
No FICO (2)
$ 12,247 $ - $ - $ - $ - $ 44 $ 12,291 0.7 %
<600 41 69 55 70 28 2,831 3,094 0.2 %
600-639 697 4,621 6,309 721 202 5,208 17,758 1.0 %
640-679 10,606 50,854 35,095 5,764 1,971 28,655 132,945 7.7 %
680-719 129,635 175,986 77,455 14,800 5,161 60,513 463,550 27.0 %
720-759 191,798 180,368 90,523 18,019 4,944 60,515 546,167 31.8 %
>=760
220,123 154,570 75,909 19,481 5,433 64,406 539,922 31.6 %
Total $ 565,147 $ 566,468 $ 285,346 $ 58,855 $ 17,739 $ 222,172 $ 1,715,727 100.0 %
Current period gross write-offs - personal unsecured loans $ 7,457 $ 129,396 $ 146,710 $ 39,248 $ 2,229 $ 7,555 $ 332,595
(1) Loans originated during the year ended December 31, 2024.
(2) Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.
As of December 31, 2023
Personal Unsecured loans
(dollars in thousands) Amortized Cost by Origination Year
Credit Score Range 2023(1)
2022 2021 2020 2019 Prior Total Percent
No FICO (2)
$ 8,080 $ - $ - $ - $ - $ 49 $ 8,129 0.2 %
<600 40 62 57 35 32 2,883 3,109 0.1 %
600-639 7,634 11,300 1,205 418 390 5,752 26,699 0.7 %
640-679 175,427 228,631 30,445 3,442 2,479 31,341 471,765 11.6 %
680-719 610,259 599,431 154,687 10,264 5,721 69,897 1,450,259 35.6 %
720-759 511,424 444,493 181,398 15,625 5,847 70,518 1,229,305 30.3 %
>=760 350,721 274,043 148,550 20,357 6,020 73,743 873,434 21.5 %
Total $ 1,663,585 $ 1,557,960 $ 516,342 $ 50,141 $ 20,489 $ 254,183 $ 4,062,700 100.0 %
Current period gross write-offs - personal unsecured loans $ 30,001 $ 179,550 $ 75,237 $ 4,837 $ 2,205 $ 5,621 $ 297,451
(1) Loans originated during the year ended December 31, 2023.
(2) Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Consumer Lending Asset Quality Indicators-FICO and LTV Ratio
For both residential and home equity loans, loss severity assumptions are incorporated in the loan and lease loss reserve models to estimate loan balances that will ultimately charge off. These assumptions are based on recent loss experience within various current LTV bands within these portfolios. LTVs are refreshed quarterly by applying Federal Housing Finance Agency Home price index changes at a state-by-state level to the last known appraised value of the property to estimate the current LTV. The Company's CECL loss calculation incorporates the refreshed LTV information to update the distribution of defaulted loans by LTV as well as the associated LGD for each LTV band. Reappraisals on a recurring basis at the individual property level are not considered cost-effective or necessary; however, reappraisals are performed on certain higher risk accounts to support line management activities, default servicing decisions, or when other situations arise for which, the Company believes the additional expense is warranted.
FICO scores are refreshed quarterly, where possible. The indicators disclosed represent the credit scores for loans as of the date presented based on the most recent assessment performed.
Residential mortgage and home equity financing receivables by LTV and FICO range are summarized as follows:
As of December 31, 2024
Amortized Cost by Origination Year (4)
(dollars in thousands)
Residential mortgages 2024(1)
2023(1)
2022 2021 2020 Prior Grand Total Revolving Loans
LTV ratios (3)
No LTV available (2)
$ - $ - $ - $ - $ - $ 2,532 $ 2,532 $ -
<= 70% - - 205,291 1,018,821 825,279 2,294,350 4,343,741 -
70.01% - 110% - - 52,481 14,558 - 2,073 69,112 -
Greater than 110% - - - - - 362 362 -
Total residential mortgages $ - $ - $ 257,772 $ 1,033,379 $ 825,279 $ 2,299,317 $ 4,415,747 $ -
FICO scores
No FICO score available $ - $ - $ - $ - $ - $ 2,633 $ 2,633 $ -
<600 - - 13,735 20,510 15,011 134,634 183,890 -
600-679 - - 18,057 45,160 33,077 201,710 298,004 -
680-759 - - 69,337 233,824 181,819 609,774 1,094,754 -
>=760 - - 156,643 733,885 595,372 1,350,566 2,836,466 -
Total residential mortgages $ - $ - $ 257,772 $ 1,033,379 $ 825,279 $ 2,299,317 $ 4,415,747 $ -
Current period gross write-offs - residential mortgages $ - $ - $ 26 $ 63 $ 17 $ 47 $ 153
Home equity
LTV ratios
No LTV available (2)
$ - $ - $ 1,636 $ 5,278 $ 4,648 $ 49,780 $ 61,342 $ 40,996
<= 70% - - 39,288 152,644 161,525 1,665,349 2,018,806 1,946,324
70.01% - 110% - - 3,741 1,474 - 4,324 9,539 8,412
Greater than 110% - - 690 545 - 443 1,678 1,678
Total home equity $ - $ - $ 45,355 $ 159,941 $ 166,173 $ 1,719,896 $ 2,091,365 $ 1,997,410
FICO scores
No FICO score available $ - $ - $ 678 $ 2,392 $ 2,485 $ 46,861 $ 52,416 $ 32,071
<600 - - 928 4,302 6,270 130,273 141,773 122,068
600-679 - - 3,828 10,849 8,516 209,631 232,824 216,096
680-759 - - 15,820 52,248 54,234 533,004 655,306 639,403
>=760 - - 24,101 90,150 94,668 800,127 1,009,046 987,772
Total home equity $ - $ - $ 45,355 $ 159,941 $ 166,173 $ 1,719,896 $ 2,091,365 $ 1,997,410
Current period gross write-offs - home equity $ - $ - $ - $ - $ 544 $ 3,198 $ 3,742
(1) The Company ceased origination of new residential mortgage and home equity loans in 2022.
(2) Balances in the "No LTV available" or "No FICO score available" ranges primarily represent loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.
(3) The ALLL model considers LTV for financing receivables in first lien position and CLTV for financing receivables in second lien position for the Company.
(4) Excludes LHFS.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
As of December 31, 2023
Amortized Cost by Origination Year (4)
(dollars in thousands)
Residential mortgages 2023(1)
2022 2021 2020 2019 Prior Grand Total Revolving Loans
LTV ratios (3)
No LTV available (2)
$ - $ - $ - $ - $ - $ 2,156 $ 2,156 $ -
<= 70% - 190,214 1,024,024 880,476 590,828 1,977,309 4,662,851 -
70.01% - 110% - 83,925 61,624 - - 5,287 150,836 -
Greater than 110% - - - - - 375 375 -
Total residential mortgages $ - $ 274,139 $ 1,085,648 $ 880,476 $ 590,828 $ 1,985,127 $ 4,816,218 $ -
FICO scores
No FICO score available $ - $ - $ - $ - $ - $ 2,926 $ 2,926 $ -
<600 - 9,909 15,601 13,053 30,094 109,302 177,959 -
600-679 - 20,516 43,327 32,157 51,103 189,585 336,688 -
680-759 - 83,098 256,737 202,173 160,961 517,085 1,220,054 -
>=760 - 160,616 769,983 633,093 348,670 1,166,229 3,078,591 -
Total residential mortgages $ - $ 274,139 $ 1,085,648 $ 880,476 $ 590,828 $ 1,985,127 $ 4,816,218 $ -
Current period gross write-offs - residential mortgages $ - $ 33 $ 22 $ - $ 16 $ 182 $ 253
Home equity
LTV ratios
No LTV available (2)
$ - $ 1,577 $ 3,904 $ 3,848 $ 3,747 $ 53,593 $ 66,669 $ 42,375
<= 70% - 43,661 168,205 179,258 230,879 1,737,887 2,359,890 2,285,157
70.01% - 110% - 3,742 1,968 - 23 13,630 19,363 16,576
Greater than 110% - 607 156 - - 1,769 2,532 2,532
Total home equity $ - $ 49,587 $ 174,233 $ 183,106 $ 234,649 $ 1,806,879 $ 2,448,454 $ 2,346,640
FICO scores
No FICO score available $ - $ 703 $ 2,471 $ 2,597 $ 3,328 $ 52,044 $ 61,143 $ 36,854
<600 - 430 2,774 3,942 6,652 126,607 140,405 123,232
600-679 - 3,325 8,624 9,080 24,357 215,826 261,212 242,747
680-759 - 16,781 60,151 61,256 73,166 576,663 788,017 771,495
>=760 - 28,348 100,213 106,231 127,146 835,739 1,197,677 1,172,312
Total home equity $ - $ 49,587 $ 174,233 $ 183,106 $ 234,649 $ 1,806,879 $ 2,448,454 $ 2,346,640
Current period gross write-offs - home equity $ - $ - $ - $ 253 $ 17 $ 1,330 $ 1,600
(1) The Company ceased origination of new residential mortgage and home equity loans in 2022.
(2) Balances in the "No LTV available" or "No FICO score available" ranges primarily represent loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.
(3) The ALLL model considers LTV for financing receivables in first lien position and CLTV for financing receivables in second lien position for the Company.
(4) Excludes LHFS.
During the year ended December 31, 2024, the Company reported $2.3 million in gross charge-offs related to other consumer portfolios.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Loan Modifications
Occasionally the Company modifies loans to customers in financial difficulty by providing term extensions, payment deferrals, and interest rate reductions. When a loan is modified, the related unamortized net fees and costs and any prepayment penalties are carried forward and any fees received, and direct loan origination costs associated with the refinancing or restructuring, are deferred. Additionally, the EIR is recalculated based upon the amortized cost basis of the modified loan and its revised contractual cash flows. If the modification results in a new loan, unamortized fees and costs from the original loan are recognized into income.
All of the Company’s commercial loan modifications are based on the circumstances of the individual customer, including specific customers' complete relationship with the Company. Loan terms are modified to meet each borrower’s specific circumstances at a point in time and may allow for modifications such as term extensions, covenant waivers, payment holidays and interest rate reductions. Commercial loan modifications are generally restructured to allow for an upgraded risk rating and return to accrual status after a sustained period of payment performance has been achieved (typically 12 months for monthly payment schedules).
The primary modification program for the Company’s residential mortgage and home equity portfolios is a proprietary program designed to keep customers in their homes and, when appropriate, prevent them from entering into foreclosure. The program is available to all customers facing a financial hardship regardless of their delinquency status. The main goal of the modification program is to review the customer’s entire financial condition to ensure that the proposed modified payment solution is affordable according to a specific DTI ratio range. The main modification benefits of the program allow for term extensions, interest rate reductions, and/or deferment of principal. The Company reviews each customer on a case-by-case basis to determine which benefit or combination of benefits will be offered to achieve the target DTI range.
For RICs and auto loans, the Company at times offers deferrals under which the consumer is allowed to defer a maximum of three payments per event to the end of the loan. We limit the frequency of each new deferral that may be granted to one deferral after completion of at least eight payments from origination and eight payments between each extension. The maximum number of months extended for the life of the loan for all automobile RICs is eight for non-natural disaster extensions and twelve for natural disaster extensions. Some marine and RV contracts also have a maximum of twelve months extension to reflect their longer terms. Additionally, we generally limit the granting of deferrals on new accounts until a requisite number of payments has been received. During the deferral period, we continue to accrue and collect interest on the loan in accordance with the terms of the deferral agreement. Some auto loan modifications include a reduction of the interest rate and may include an extension of term to eligible borrowers at risk of default and repossession of the financed vehicle.
When estimating the ACL, the Company uses a statistical methodology based on an expected credit loss approach that focuses on forecasting the expected credit loss components (i.e., PD, payoff, LGD and EAD) on a loan level basis to estimate the expected future lifetime losses. This methodology generally does not change when loans are modified. However, the Company monitors credit quality indicators and delinquency, and adjusts the allowance as those factors change. The Company generally uses a DCF approach for large impaired commercial loans. For all collateral-dependent loans, the Company measures the ACL as the difference between the asset’s amortized cost basis and the fair value of the underlying collateral as of the reporting date, adjusted for expected costs to sell. Refer to Note 1 for more information on the ACL.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
The following table shows the amortized cost basis at the end of the reporting period for loans modified during the reporting period to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of modification granted. Short-term modifications (three months or less) are not included in these tables.
Amortized Cost
Year ended
Year ended
December 31, 2024 December 31, 2023
(dollars in thousands): Payment Deferral Only All Other Modifications Total % of Total Class of Financing Receivable Payment Deferral Only All Other Modifications Total % of Total Class of Financing Receivable
Commercial:
CRE $ 377,174 $ 260,829 $ 638,003 7.40 % $ 102,760 $ 73,523 $ 176,283 2.02 %
C&I 99,862 40,936 140,798 1.64 % 71,145 4,569 75,714 0.67 %
Multifamily 87,443 - 87,443 0.89 % 24,144 8,919 33,063 0.31 %
Other commercial 68 150 218 - % - 348 348 - %
Consumer:
Residential mortgages - 2,945 2,945 0.05 % - 4,537 4,537 0.09 %
Home equity loans and lines of credit - 5,307 5,307 0.25 % - 5,730 5,730 0.23 %
RICs and auto loans 1,224,005 92,725 1,316,730 2.95 % 815,506 299,051 1,114,557 2.55 %
Total $ 1,788,552 $ 402,892 $ 2,191,444 2.47 % $ 1,013,555 $ 396,677 $ 1,410,232 1.51 %
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
The following table describes the financial effects of the modifications made to borrowers experiencing financial difficulty:
Loan Type
Modification Type
Financial Effect
RICs and auto loans Payment deferral Provide payment deferrals to borrowers through our deferral program, which allows a customer to defer payments for a maximum of up to eight months over the life of the loan. The deferred payments are added to the end of the original loan term.
Commercial loans Payment deferral Provide payment deferrals to commercial borrowers through our deferral program. The deferred payments are added to the end of the original loan term.
Consumer secured by real estate All other modification types Provide modifications consisting of a combination of term extension, interest rate reduction, and/or deferment of principal on a case-by-case basis to determine which benefit or combination of benefits will be offered to achieve the target DTI range.
RICs and auto loans All other modification types Provides reduction in interest rate and maturity date extension of up to 36 months beyond the current maturity date resulting in reduction to monthly payment.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Performance of Modified Loans
The Company monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the 12- month period prior to period-end:
Amortized Cost Amortized Cost(1)
As of December 31, 2024
As of December 31, 2023
(in thousands)
Current 30-89 DPD 90+ DPD Current 30-89 DPD 90+ DPD
Commercial:
CRE $ 595,370 $ 36,731 $ 5,903 $ 156,412 $ 12,727 $ 7,144
C&I 116,850 7,060 16,887 71,327 4,196 191
Multifamily 67,513 19,930 - 24,527 - 8,536
Other commercial 150 68 - 348 - -
Consumer:
Residential mortgages 2,532 216 197 3,879 151 507
Home equity loans and lines of credit 4,010 581 716 5,211 333 186
RICs and auto loans 894,242 387,367 35,121 724,752 358,395 31,410
Total $ 1,680,667 $ 451,953 $ 58,824 $ 986,456 $ 375,802 $ 47,974
Payment Defaults Which Have Had a Prior Modification
A modified loan is generally considered to have subsequently defaulted if, after modification, the loan becomes 90 DPD. For RICs, a modified loan is considered to have subsequently defaulted after modification at the earlier of the date of repossession or 120 DPD. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Refer to Note 1 to these Consolidated Financial Statements for more information on the Company's charge-off policy. The following table provides the amortized cost basis of financing receivables that had a payment default during the period and were modified in the 12-month period prior to default due to the borrower's financial difficulty:
Amortized Cost
Year ended
December 31, 2024 December 31, 2023
Payment deferral All other modification types Payment deferral(1)
All other modification types(1)
(in thousands)
Commercial:
CRE $ - $ - $ 7,144 $ -
C&I 2,020 90 843 607
Multi-family - - 8,536 -
Consumer:
Residential mortgages - 47 - 507
Home equity loans and lines of credit - 323 - 186
RICs and auto loans 146,282 13,679 56,512 33,702
Total $ 148,302 $ 14,139 $ 73,035 $ 35,002
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
TDR Loans
Prior to the adoption of ASU 2022-02 (as discussed in Note 1), the Company followed the TDR guidance effective at the time. The following table summarizes the Company’s performing and non-performing TDRs at the date indicated:
(in thousands) December 31, 2022
Performing $ 2,694,007
Non-performing 478,431
Total (1)
$ 3,172,438
(1) Excludes LHFS.
TDR Activity by Class of Financing Receivable
The Company's modifications consist primarily of term extensions. The following tables detail the activity of TDRs for period indicated:
Year ended December 31, 2022
(dollars in thousands) Number of
Contracts Pre-TDR Recorded
Investment (1)
Post-TDR Recorded Investment (2)
Commercial:
CRE 46 $ 7,883 $ 7,883
C&I 320 13,718 13,734
Multi-family 17 7,168 7,168
Other commercial 15 229 229
Consumer:
Residential mortgages (3)
24 6,503 6,501
Home equity loans and lines of credit 79 10,004 10,424
RICs and auto loans 46,904 862,061 861,701
Personal unsecured loans 1 23 23
Other consumer 1 1,250 1,250
Total 47,407 $ 908,839 $ 908,913
(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.
TDRs Which Have Subsequently Defaulted
A TDR is generally considered to have subsequently defaulted if, after modification, the loan becomes 90 DPD. For RICs, a TDR is considered to have subsequently defaulted after modification at the earlier of the date of repossession or 120 DPD. The following table details period-end amortized cost balances of TDRs that became TDRs during the past twelve-month period and have subsequently defaulted during the period presented.
Year ended December 31,
(dollars in thousands) Number of
Contracts Recorded Investment (1)
Commercial
Other commercial 1 $ 11
Consumer:
Residential mortgages 82 $ 28,945
Home equity loans and lines of credit 43 5,684
RICs and auto loans 5,406 96,671
Personal unsecured loans 14 196
Other consumer 2 57
Total 5,548 $ 131,564
(1)Represents the period-end balance.
NOTE 4. OPERATING LEASE ASSETS, NET
The Company has operating leases, including leased vehicles, which are included in the Company's Consolidated Balance Sheets as Operating lease assets, net.
Operating lease assets, net consisted of the following as of the periods indicated:
(in thousands) December 31, 2024 December 31, 2023
Leased vehicles $ 14,831,709 $ 17,548,952
Less: accumulated depreciation (3,070,657) (3,546,875)
Depreciated net capitalized cost $ 11,761,052 $ 14,002,077
Manufacturer subvention payments, net of accretion (561,366) (593,004)
Unamortized origination fees and other costs
468,265 373,767
Leased vehicles, net $ 11,667,951 $ 13,782,840
Total operating lease assets, net $ 11,667,951 $ 13,782,840
The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of December 31, 2024 (in thousands):
2025 $ 1,850,884
2026 1,154,146
2027 275,292
2028 10,073
2029 -
Thereafter -
Total $ 3,290,395
During the years ended December 31, 2024, 2023 and 2022, the Company recognized $69.1 million, $66.3 million, and $84.8 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. These amounts are recorded within Miscellaneous income, net in the Company's Consolidated Statements of Operations.
NOTE 5. PREMISES AND EQUIPMENT
A summary of premises and equipment, less accumulated depreciation, follows:
(in thousands) December 31, 2024 December 31, 2023
Land $ 29,889 $ 75,213
Office buildings 139,216 153,643
Furniture, fixtures, and equipment 632,968 665,164
Leasehold improvement 610,149 641,205
Computer software 1,993,790 1,714,667
Automobiles and other 37,506 26,289
Total premises and equipment
3,443,518 3,276,181
Less accumulated depreciation (2,456,565) (2,289,093)
Total premises and equipment, net $ 986,953 $ 987,088
NOTE 5. PREMISES AND EQUIPMENT (continued)
Depreciation expense for premises and equipment, included in Occupancy and equipment expenses in the Consolidated Statements of Operations, was $292.0 million, $269.9 million, and $244.7 million for the year ended December 31, 2024, 2023 and 2022, respectively.
During the year ended December 31, 2024, the Company sold nine (9) properties. The Company received net proceeds of $7.8 million from the sales, with a net gain of $6.0 million. The carrying value of these properties was $1.8 million. In 2023, the Company sold fourteen (14) properties. The Company received net proceeds of $10.2 million from the sales, with a net gain of $5.1 million. The carrying value of these properties was $5.1 million. In 2022, the Company sold twenty (20) properties. The Company received net proceeds of $11.9 million from the sales, with a net gain of $7.6 million. The carrying value of these properties was $4.3 million. In addition to the twenty properties sold in 2022, the Company completed the sale of SBC, including its fixed assets.
During the year ended December 31, 2024, 2023, and 2022, the Company recorded impairment of capitalized assets in the amount of $0.2 million, $3.6 million, and $25.2 million, respectively. These were primarily related to capitalized software assets removed from service prior to the end of their useful life.
NOTE 6. 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 balance of the Company's goodwill by its reporting units for the periods indicated:
(in thousands) Auto CBB C&I CRE CIB Total
December 31, 2024 and 2023
$ 1,238,676 $ 159,027
$ 52,198 $ 1,015,130
$ 301,634
$ 2,766,665
During the years ended December 31, 2024 and 2023, there were no material additions, re-allocations, impairments, or disposals of goodwill.
NOTE 6. GOODWILL AND OTHER INTANGIBLES (continued)
The Company evaluates goodwill for impairment at the reporting unit level. The Company conducted its last annual goodwill impairment tests as of October 1, 2024 using generally accepted valuation methods. As a result of that impairment test, no goodwill impairment was identified.
Other Intangible Assets
The following table details amounts related to the Company's intangible assets subject to amortization for the dates indicated:
December 31, 2024 December 31, 2023
(in thousands) Net Carrying
Amount Accumulated
Amortization Net Carrying
Amount Accumulated
Amortization
Intangibles subject to amortization:
Dealer networks $ 213,458 $ (256,542) $ 236,958 $ (233,042)
Stellantis relationship 1,754 (136,996) 5,436 (133,314)
Other intangibles 33,708 (50,302) 44,765 (47,539)
Total intangibles subject to amortization $ 248,920 $ (443,840) $ 287,159 $ (413,895)
At December 31, 2024 and December 31, 2023, the Company did not have any intangibles, other than goodwill, which were not subject to amortization.
Amortization expense on intangible assets was $38.2 million, $39.5 million and $51.4 million for the years ended December 31, 2024, 2023, and 2022, respectively.
The estimated aggregate amortization expense related to intangibles, excluding any impairment charges, for each of the five succeeding calendar years ending December 31 is:
Year Calendar Year Amount
(in thousands)
2025 $ 34,768
2026 32,487
2027 28,645
2028 26,340
2029 26,340
Thereafter 100,340
NOTE 7. OTHER ASSETS
The following is a detail of items that comprised Other assets at the periods indicated:
(in thousands) December 31, 2024 December 31, 2023
Operating lease ROU assets $ 493,217 $ 435,633
Deferred tax assets 364,309 234,309
Accrued interest receivable 847,830 827,704
Derivative assets at fair value 1,121,980 1,090,194
Other real estate owned and other repossessed assets 328,512 291,280
Equity method investments 262,377 306,313
MSRs 90,958 94,266
Income tax receivables 466,422 478,305
Prepaid expense 152,358 242,273
Capital markets receivables 282,926 144,913
Miscellaneous assets and receivables 449,627 438,694
Total Other assets $ 4,860,516 $ 4,583,884
Operating lease ROU assets
We have operating leases for real estate and non-real estate assets. Real estate leases relate to office space and bank/lending retail branches. Non-real estate leases include disaster recovery centers, data centers, ATMs, vehicles and certain equipment leases. Real estate leases may include one or more options to renew, with renewal terms that can extend the lease term generally from one to five years. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
For the years ended December 31, 2024, 2023, and 2022, operating lease expenses were $131.7 million, $154.5 million, and $153.8 million, respectively. Sublease income was $3.4 million, $4.0 million, and $4.0 million, for the years ended December 31, 2024, 2023, and 2022, respectively. These are reported within Occupancy and equipment expenses in the Company’s Consolidated Statements of Operations.
Supplemental balance sheet information related to leases was as follows:
Maturity of Lease Liabilities at December 31, 2024
Total Operating leases
(in thousands)
2025 $ 125,545
2026 114,593
2027 104,768
2028 68,080
2029 51,680
Thereafter 161,368
Total lease liabilities $ 626,034
Less: Interest (68,615)
Present value of lease liabilities $ 557,419
NOTE 7. OTHER ASSETS (continued)
Supplemental Balance Sheet Information December 31, 2024 December 31, 2023
Operating lease ROU assets $493,217 $435,633
Other liabilities $557,419 $511,400
Weighted-average remaining lease term (years) 6.6 5.6
Weighted-average discount rate 3.4% 3.1%
Year ended December 31,
Other Information 2024 2023
(in thousands)
Operating cash flows from operating leases (1)
$ (135,471) $ (152,292)
Leased assets obtained in exchange for new operating lease liabilities $ 186,132 $ 45,312
(1) Activity is included within the net change in other liabilities on the SCF.
The remainder of Other assets is comprised of:
•Deferred tax asset - Refer to Note 17 of these Consolidated Financial Statements for more information on tax-related activities.
•Accrued interest receivable - Includes accrued interest receivable on the Company's investments, loans, and other interest-earning portfolios.
•Derivative assets at fair value - Refer to the "Offsetting of Financial Assets" table in Note 14 to these 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 renewable energy projects and qualified community development entities, such as 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 15.
•Income tax receivables - Refer to Note 17 of these Consolidated Financial Statements for more information on tax-related activities.
•OREO and other repossessed assets includes property and vehicles recovered through foreclosure and repossession.
•Prepaid expenses includes advanced payments for cloud-based hosting, prepaid taxes, and outside services.
•Capital markets receivables includes receivables from broker dealers, financial institutions, clearing organizations, customers and other receivables associated with capital markets activities.
•Miscellaneous assets and receivables includes investment receivables, subvention receivables, derivatives trading receivables, and unapplied payments.
At December 31, 2024, the Company held approximately $34.0 million and $13.9 million of Other assets and Other liabilities, respectively, which were related to a disposal group that was classified as HFS. These assets, included within Other assets in these Condensed Consolidated Financial Statements, primarily included repossessed property with a net book value of approximately $24.0 million, and an ROU lease asset of $9.2 million. These liabilities, included within Other liabilities in these Condensed Consolidated Financial Statements, primarily included a lease liability of $9.2 million and an asset retirement obligation of $3.8 million. During 2024, the Company sold an investment tax credit related to the disposal group to a third party for approximately $21.4 million. The Company is obligated to indemnify the purchaser for losses incurred as a result of recapture or reductions of the tax credits.
NOTE 8. 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 Consolidated Balance Sheets.
The collateral and borrowings under credit facilities and securitization notes payable of the Company’s consolidated VIEs remain on the Consolidated Balance Sheets. The Company recognizes finance charges, fee income, and provisions for credit losses on the RICs, and leased vehicles and interest expense on the debt. Revolving credit facilities generally also utilize entities that are considered VIEs which are included on the Consolidated Balance Sheets.
The Company also uses a titling trust to originate and hold its leased vehicles and the associated leases, for administrative efficiency and also to facilitate the pledging of leases to financing facilities or the sale of leases to other parties, without incurring the costs and administrative burden of retitling the leased vehicles. In this process, the leases may be transferred to separate legal units within the titling trust to segregate them for ownership purposes, including for securitizations. This does not result in any changes to the accounting for the leases. This titling trust is considered a VIE. Refer to Note 4 to these Consolidated Financial Statements for further information on the Company's leased vehicles.
On-balance sheet VIEs
The assets of consolidated VIEs are presented based upon the legal transfer of the underlying assets in order to reflect legal ownership. Certain of these assets can be used only to settle obligations of the consolidated VIEs and the liabilities of those entities for which creditors (or beneficial interest holders) do not have recourse to the Company's general credit.
The assets and liabilities of consolidated VIEs included the following at the dates indicated:
(in thousands) December 31, 2024 December 31, 2023
Assets
Restricted cash $ 706,571 $ 864,464
Net LHFI 24,635,642 25,144,797
Operating lease assets, net (1)
11,667,951 13,782,840
Various other assets 693,090 637,987
Total Assets $ 37,703,254 $ 40,430,088
Liabilities
Notes payable $ 26,208,911 $ 25,087,655
Various other liabilities 99,587 119,280
Total Liabilities $ 26,308,498 $ 25,206,935
(1) As noted above, all leased vehicles are originated through a titling trust. At December 31, 2024 and December 31, 2023, $4.3 billion and $7.8 billion, respectively, of leased vehicle assets included in this amount were in a titling trust, but not in a securitization trust.
The Company retains servicing rights for receivables transferred to the Trusts and receives a monthly servicing fee on the outstanding principal balance. Supplemental fees, such as late charges, for servicing the receivables are reflected in Miscellaneous income, net.
As of December 31, 2024 and December 31, 2023, the Company was servicing $29.0 billion and $28.7 billion, respectively, of gross RICs that have been transferred to consolidated Trusts. Certain amounts shown above are greater than the amounts shown in the corresponding line items in the accompanying 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.
NOTE 8. VIEs (continued)
A summary of the cash flows received from the consolidated Trusts for the respective periods is as follows for the periods indicated:
Year ended December 31,
(in thousands) 2024 2023 2022
Assets securitized $ 18,350,732 $ 12,800,355 $ 21,141,471
Net proceeds from new securitizations (1)
$ 14,824,503 $ 8,335,877 $ 14,796,827
Net proceeds on retained bonds from new securitizations
1,937,140 1,553,830 2,674,884
Cash received for servicing fees (2)
891,806 926,136 942,993
Net distributions from Trusts (2)
4,683,144 2,915,148 3,734,402
Total cash received from Trusts $ 22,336,593 $ 13,730,991 $ 22,149,106
(1) Includes additional advances on existing securitizations.
(2) These amounts are not reflected in the SCF because the cash flows are between the VIEs and other entities included in the consolidation.
Off-balance sheet VIEs
At December 31, 2024 and December 31, 2023, the Company was servicing RICs of $2.3 billion and $973.9 million, respectively, that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call.
During the three months ended March 31, 2024, the Company sold $1.1 billion of gross of RICs to a newly formed off-balance sheet securitization VIE which resulted in a pre-tax loss of $42.3 million. The Company retained the servicing of the RIC's sold and provided a loan, classified by the Company as an investment in debt security HTM, in the amount of $53.0 million to the VIE to satisfy regulatory risk retention requirements. The Company is not obligated to provide any financial support to the VIE. All of the notes and residual equity interests issued by the VIE were sold to third-party investors. Gains and losses on securitizations are recorded in Miscellaneous income, net, in the accompanying Condensed Consolidated Statements of Operations. At the time of the sale, the Company released approximately $96.0 million of ACL to provision expense.
In August 2024, the Company sold all of the equity certificates of an on-balance sheet auto RIC Trust to a new off-balance sheet Trust established in 2024. This new off-balance sheet Trust issued debt and equity tranches to third-party investors, with the exception of a 5% share of each new tranche purchased by the Company. In addition, the Company sold all of its debt that had been held from the on-balance sheet Trust to a third party. The Company’s sale of this debt and equity from the on-balance sheet Trust resulted in the Company no longer being identified as the primary beneficiary and the subsequent de-recognition of the assets and liabilities of the on-balance sheet Trust from its Condensed Consolidated Balance Sheets. As a result of these transactions, the Company de-consolidated approximately $507.7 million of auto RICs previously HFI which it transferred to an off-balance sheet securitization, resulting in a release of the ACL in the amount of approximately $71.0 million, offset by a loss on securitization of approximately $24.1 million.
During the fourth quarter, the Company sold all of its residual certificates of two on-balance sheet auto RIC Trusts (related to 2021 securitizations) to two new off-balance sheet Trusts established in 2024. In addition, the Company sold all of its debt that had been held from the 2021 on-balance sheet Trusts to third parties and to the 2024 off-balance sheet Trusts. These new off-balance sheet Trusts sold 95% of their debt and equity tranches to third-party investors, and the Company retained a 5% share. As a result of the Company’s sale of the debt and equity from the 2021 on-balance sheet Trusts, the Company is no longer identified as the primary beneficiary and the Company therefore de-consolidated the 2021 Trusts from its Consolidated Balance Sheets. As a result, the Company de-recognized approximately $778.6 million of auto RICs previously classified as HFI, resulting in a release of the ACL in the amount of approximately $95.2 million, offset by a loss on securitization of approximately $16.4 million.
During the year ended December 31, 2023, the Company sold $347.4 million gross RICs to third-party investors in off-balance sheet securitizations and recorded an immaterial loss on securitization. Gains and losses on securitizations are recorded in Miscellaneous income, net, in the accompanying Consolidated Statements of Operations.
NOTE 8. VIEs (continued)
A summary of cash flows received from Trusts for the respective periods were as follows for the periods indicated:
Year ended December 31,
(in thousands) 2024 2023 2022
Receivables securitized (1)(2)
1,060,931 - -
Net proceeds from new securitizations 1,003,695 - -
Cash received for servicing fees $ 24,473 $ 8,512 19,735
Total cash received from Trusts
$ 1,028,168 $ 8,512 $ 19,735
(1) Represents the UPB at the time of original securitization.
(2) Table excludes impacts of non-cash deconsolidation transaction referred to above.
Other than repurchases of sold assets due to claims against standard representations and warranties, the Company's exposure to loss as a result of its involvement with these VIEs includes the portion of securitizations retained by the Company. The carrying value of this exposure at December 31, 2024 was $70.2 million and $8.0 million of debt and equity investments, respectively, compared to $29.7 million and $2.8 million at December 31, 2023. These amounts are reported in debt securities HTM and other investments, respectively, in Note 2 to these Consolidated Financial Statements.
As discussed in Note 1 to these Consolidated Financial Statements, in December 2023 SBNA acquired a 20 percent interest in the Structured LLC for approximately $1.1 billion. The Company did not transfer any assets to the VIE and does not control nor consolidate it. SBNA's 20 percent interest is reported as an AFS debt security that has a fair value of approximately $1.2 billion and $1.1 billion at December 31, 2024 and December 31, 2023, respectively. As of December 31, 2024, SBNA serviced approximately $8.7 billion in multi-family loans for the Structured LLC and received a market rate servicing fee. For the year ended December 31, 2024, SBNA recognized $52.2 million in servicing fee income from the servicing of these assets which is recorded in Miscellaneous income, net, in the accompanying Consolidated Statements of Operations.
NOTE 9. DEPOSITS AND OTHER CUSTOMER ACCOUNTS
Deposits and other customer accounts are summarized as follows at the dates indicated:
December 31, 2024 December 31, 2023
(dollars in thousands) Balance Percent of total deposits Balance Percent of total deposits
Interest-bearing demand deposits $ 11,850,043 15.2 % $ 11,591,982 15.0 %
Non-interest-bearing demand deposits 14,539,985 18.6 % 15,504,947 20.1 %
Savings 5,045,668 6.5 % 4,428,281 5.7 %
Customer repurchase accounts 299,216 0.4 % 238,523 0.3 %
Money market 25,197,858 32.2 % 25,361,575 33.0 %
CDs 21,181,835 27.1 % 19,947,868 25.9 %
Total deposits (1)
$ 78,114,605 100.0 % $ 77,073,176 100.0 %
(1) Includes foreign deposits, as defined by the FRB, of $4.9 billion and $5.4 billion at December 31, 2024 and December 31, 2023, respectively.
Demand deposit overdrafts that have been reclassified as loan balances were $305.2 million and $107.6 million at December 31, 2024 and December 31, 2023, respectively.
At December 31, 2024 and December 31, 2023, the Company had $6.5 billion and $5.6 billion, respectively, of CDs greater than $250 thousand.
The Company's subsidiaries had outstanding irrevocable letters of credit totaling $30.0 million and $40.0 million from the FHLB of Pittsburgh at December 31, 2024 and December 31, 2023, respectively, used to secure uninsured deposits placed with the Bank by state and local governments and their political subdivisions.
NOTE 9. DEPOSITS AND OTHER CUSTOMER ACCOUNTS (continued)
Interest expense on deposits and other customer accounts is summarized as follows:
Years Ended December 31,
(in thousands) 2024 2023 2022
Interest-bearing demand deposits $ 183,946 $ 148,044 $ 28,303
Savings 15,492 9,143 2,421
Customer repurchase accounts 2,983 1,939 245
Money market 840,729 654,425 172,317
CDs 1,016,322 730,635 101,248
Total interest expense on deposits
$ 2,059,472 $ 1,544,186 $ 304,534
The following table sets forth the maturity of the Company's CDs of $100,000 or more at December 31, 2024 as scheduled to mature contractually:
(in thousands)
Three months or less $ 8,249,193
Over three through six months 2,673,832
Over six through twelve months 2,356,834
Over twelve months 488,091
Total $ 13,767,950
The following table sets forth the maturity of all the Company's CDs at December 31, 2024 as scheduled to mature contractually:
(in thousands)
2025 $ 20,460,488
2026 696,986
2027 17,756
2028 3,153
2029 651
Thereafter 2,801
Total $ 21,181,835
NOTE 10. BORROWINGS
Total borrowings and other debt obligations at December 31, 2024 were $44.0 billion, compared to $44.1 billion at December 31, 2023. The Company's debt agreements impose certain limitations on dividend payments and other transactions. The Company is currently in compliance with these limitations.
During the year ended December 31, 2024, the Company issued the following debt:
•$1.0 billion in aggregate principal amount of its 6.17% fixed-to-floating rate senior notes due January 2030.
•$500.0 million in aggregate principal amount of its 6.12% fixed-to-floating rate senior notes due May 2027.
•$750.0 million in aggregate principal amount of its 6.34% fixed-to-floating rate senior notes due May 2035.
•$1.0 billion in aggregate principal amount of its 5.35% fixed-to-floating rate senior notes due September 2030.
•$235.9 million of CLNs due June 2032.
•$264.3 million of CLNs due January 2033.
•$4.6 billion of secured structured financings in its SBALT platform, of which approximately $596.8 million was retained in interests in the VIE.
•$8.4 billion of secured structured financings in its SDART platform, of which it retained approximately $966.7 million in interests in the VIE.
•$2.8 billion of secured structured financings in its DRIVE platform, of which it retained approximately $373.6 million in interests in the VIE.
The Company continues to consolidate these VIEs on its Consolidated Balance Sheets.
The Company repurchased $2.0 billion of fixed-to-floating senior notes from Santander during the year ended December 31, 2024, resulting in a $32.9 million early redemption penalty which is recorded in other expenses.
In January 2025, the Company's auto business issued $2.1 billion of secured structured financings in its SDART platform, of which it retained approximately $285.0 million in interests in the VIE.
In February 2025, the Company issued $860.4 million of secured structured financings in its SBALT platform, of which it retained approximately $110.4 million in interests in the VIE.
NOTE 10. 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:
December 31, 2024 December 31, 2023
(dollars in thousands) Balance Effective
Rate Balance Effective
Rate
Parent Company
3.50% senior notes due June 2024
$ - - % $ 999,559 3.50 %
3.45% senior notes due June 2025
999,567 3.45 % 998,329 3.45 %
4.26% senior notes due June 2025
- - % 499,634 4.43 %
4.50% senior notes due July 2025
1,099,617 4.50 % 1,098,937 4.50 %
Senior notes due April 2026 (2)
433,505 5.76 % 433,450 6.02 %
5.81% senior sustainability notes due September 2026
499,614 5.92 % 499,082 5.92 %
3.24% senior notes due October 2026
937,090 3.24 % 930,768 3.24 %
6.12% senior notes due May 2027
499,173 6.20 % - - %
6.89% senior notes due June 2027 (1)
750,000 6.89 % 750,000 6.89 %
4.40% senior notes due July 2027
1,049,684 4.40 % 1,049,641 4.40 %
2.49% senior notes due January 2028
998,364 2.57 % 997,582 2.57 %
6.50% senior notes due March 2029
997,313 6.59 % 996,580 6.59 %
6.57% senior notes due June 2029
498,427 6.67 % 498,034 6.67 %
6.17% senior notes due January 2030
996,776 6.26 % - - %
5.35% senior notes due September 2030
996,402 5.44 % - - %
7.66% senior notes due November 2031
498,008 7.73 % 497,797 7.73 %
2.88% subordinated notes due November 2031 (1)
500,000 2.88 % 500,000 2.88 %
7.18% subordinated notes due December 2032 (1)
500,000 7.18 % 500,000 7.18 %
6.34% senior notes due May 2035
746,499 6.40 % - - %
Total Parent Company borrowings 13,000,039 11,249,393
Subsidiaries
Short-term borrowing due within one year, maturing through March 2024 $ - - % $ 427,531 4.66 %
Short-term borrowing due within one year, maturing through Dec. 2025 702,272 4.41 % - - %
FHLB advances, maturing through April 2027
4,699,407 4.69 % 6,584,791 5.04 %
Credit-linked notes due December 2031 (3)
33,811 5.86 % 89,812 3.51 %
CLNs due May 2032 (4)
95,552 9.36 % 214,941 7.25 %
CLNs due June 2032 (10)
232,122 7.89 % - - %
CLNs due August 2032 (5)
86,884 12.34 % 188,282 9.12 %
CLNs due December 2032 (6)
139,681 12.22 % 246,497 10.16 %
CLNs due January 2033 (11)
262,323 7.01 % - - %
CLNs due June 2033 (7)
56,482 12.04 % 89,787 10.26 %
CLNs due December 2033 (8)
174,448 9.27 % 206,033 9.24 %
CLNs due February 2052 (9) (13)
107,641 11.46 % 118,246 11.92 %
6.98% senior notes due October 2025 (1)
- - % 2,000,000 6.98 %
Warehouse lines maturing through November 2026 (12)
4,036,778 5.75 % 3,618,378 6.93 %
Secured structured financings maturing through May 2032
20,383,470 0.58% - 7.69%
19,110,360 0.48% - 7.69%
Total subsidiary borrowings and other debt obligations 31,010,871 32,894,658
Total Parent Company and subsidiaries' borrowings and other debt obligations $ 44,010,910 $ 44,144,051
(1) These notes are payable to SHUSA's parent company, Santander.
(2) These notes bear interest at a rate equal to the SOFR index rate plus 135 basis points per year.
(3) Notes are tied to the performance of a $2.0 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $36.0 million.
(4) Notes are tied to the performance of a $3.5 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $63.0 million.
(5) Notes are tied to the performance of a $3.5 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $63.0 million.
(6) Notes are tied to the performance of a $3.6 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $65.3 million.
(7) Notes are tied to the performance of a $1.1 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $22.0 million.
(8) Notes are tied to the performance of a $2.1 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $62.3 million.
(9) Notes are tied to the performance of a $2.5 billion original reference pool of SBNA residential mortgage loans. The contractual residual amount is $5.1 million.
(10) Notes are tied to the performance of a $2.3 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $75.2 million.
(11) Notes are tied to the performance of a $2.6 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $84.2 million.
(12) Benchmark rates used included commercial paper, daily simple SOFR, one-month term SOFR, and three-month term SOFR.
(13) Variable rate notes issued in tranches that bear interest at a rate equal to SOFR index plus varying spreads ranging from 4.15% to 13.90% and reset monthly.
NOTE 10. BORROWINGS (continued)
CLNs
CLNs transfer credit risk on a reference pool of loans to the purchaser of the notes. In the event of credit losses on the reference pool in excess of the contractual residual amount, the principal balance of the notes will be reduced to the extent of such loss up to the amount of notes issued and recognized as a debt extinguishment gain within Miscellaneous income, net. The Company has the option to redeem the notes once the UPB of the reference pool is less than or equal to 10% of the initial principal balance.
In connection with certain of its CLNs, the Company is required to maintain a letter of credit, as well as a collateral account with a third-party financial institution, with the amount equal to at least the outstanding balances of the transaction’s credit-linked notes. This is reported as restricted cash in these Consolidated Financial Statements.
Warehouse Lines
The following tables present information regarding the Company's warehouse lines at the dates indicated:
December 31, 2024
(dollars in thousands) Balance Committed Amount Effective
Rate Assets Pledged Restricted Cash Pledged
Warehouse line due November 2025 $ - $ 500,000 - % $ - $ 506
Warehouse line due January 2026 999,900 1,000,000 6.26 % 1,436,818 2,690
Warehouse line due February 2026 402,678 700,000 5.96 % 613,395 1,749
Warehouse line due April 2026 440,300 1,000,000 5.26 % 675,081 1
Warehouse line due April 2026 429,500 1,000,000 5.62 % 600,174 2
Warehouse line due July 2026 102,600 500,000 6.88 % 324,331 -
Warehouse line due October 2026 1,162,100 2,100,000 5.83 % 2,381,723 64
Warehouse line due November 2026 499,700 500,000 4.66 % 684,428 -
Total credit facilities $ 4,036,778 $ 7,300,000 5.75 % $ 6,715,950 $ 5,012
The warehouse lines and repurchase facilities are fully collateralized by a designated portion of the Company's RICs, leased vehicles, securitization notes payable, and residuals retained by the Company.
Secured Structured Financings
The following tables present information regarding the Company's secured structured financings at the dates indicated:
December 31, 2024
(dollars in thousands) Balance Initial Note Amounts Issued (3)
Initial Weighted Average Interest Rate Range Collateral (2)
Restricted Cash
Public securitizations maturing on various dates through May 2032(1)
$ 18,489,695 $ 40,837,785 0.58% - 7.69%
$ 26,736,394 $ 701,156
Privately issued amortizing notes maturing on various dates through August 2030 (3)
1,893,775 6,700,025 3.13% - 6.73%
3,151,188 537
Total secured structured financings $ 20,383,470 $ 47,537,810 0.58% - 7.69%
$ 29,887,582 $ 701,693
(1) Securitizations executed under Rule 144A of the Securities Act are included within this balance.
(2) Secured structured financings may be collateralized by collateral overages of other issuances.
(3) Excludes securitizations which no longer have outstanding debt and excludes any incremental borrowings.
Most of the Company's secured structured financings are in the form of public, SEC-registered securitizations. The Company also executes private securitizations under Rule 144A of the Securities Act, and periodically issues private term amortizing notes, which are structured similarly to securitizations but are acquired by banks and conduits. The Company's securitizations and private issuances are collateralized by vehicle RICs and loans or leases.
NOTE 10. BORROWINGS (continued)
The following table sets forth the maturities of the Company's consolidated borrowings and debt obligations at December 31, 2024:
(in thousands)
2025 $ 7,151,455
2026 8,181,424
2027 3,831,392
2028 1,710,679
2029 3,540,766
Thereafter 19,595,194
Total $ 44,010,910
NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)
The following table presents the components of AOCI / (loss), net of related tax, for the periods indicated.
Total Other
Comprehensive Income/(Loss) Total Accumulated
Other Comprehensive Income/(Loss)
Year ended December 31, 2024
December 31, 2023 December 31, 2024
(in thousands) Pre-tax
Activity Tax
Effect Net Activity Beginning
Balance Net
Activity Ending
Balance
Change in AOCI on cash flow hedge derivative financial instruments $ 255,315 $ (65,601) $ 189,714
Reclassification adjustment for net losses/(gains) on cash flow hedge derivative financial instruments (1)
(9,943) 2,578 (7,365)
Net unrealized (losses)/gains on cash flow hedge derivative financial instruments 245,372 (63,023) 182,349 $ (254,519) $ 182,349 $ (72,170)
Change in unrealized (losses)/gains on investments in debt securities 215,721 (55,187) 160,534
Reclassification adjustment for net losses/(gains) included in net income/(expense) on debt securities AFS (2)
(444) 115 (329)
Net unrealized (losses)/gains on investments in debt securities 215,277 (55,072) 160,205 (790,551) 160,205 (630,346)
Pension and post-retirement actuarial gain / (loss)(3)
7,166 (1,852) 5,314 (20,498) 5,314 (15,184)
As of December 31, 2024
$ 467,815 $ (119,947) $ 347,868 $ (1,065,568) $ 347,868 $ (717,700)
(1) Net gains/(losses) reclassified into Interest on borrowings and other debt obligations in the 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 Consolidated Statements of Operations for the sale of debt securities.
(3) Included in the computation of net periodic pension costs.
Total Other
Comprehensive Income/(Loss) Total Accumulated
Other Comprehensive Income/(Loss)
Year ended December 31, 2023
December 31, 2022 December 31, 2023
(in thousands) Pre-tax
Activity Tax
Effect Net Activity Beginning
Balance Net
Activity Ending
Balance
Change in AOCI on cash flow hedge derivative financial instruments $ 344,067 $ (93,422) $ 250,645
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments (1)
14,158 (3,658) 10,500
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments 358,225 (97,080) 261,145 $ (515,664) $ 261,145 $ (254,519)
Change in unrealized (losses)/gains on investments in debt securities 28,903 (26,395) 2,508
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)
4,737 (1,224) 3,513
Net unrealized gains/(losses) on investments in debt securities 33,640 (27,619) 6,021 (796,572) 6,021 (790,551)
Pension and post-retirement actuarial gain / (loss) (3)
4,481 (1,192) 3,289 (23,787) 3,289 (20,498)
As of December 31, 2023
$ 396,346 $ (125,891) $ 270,455 $ (1,336,023) $ 270,455 $ (1,065,568)
(1) Net gains/(losses) reclassified into Interest on borrowings and other debt obligations in the 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 Consolidated Statements of Operations for the sale of debt securities.
(3) Included in the computation of net periodic pension costs.
NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS) (continued)
Total Other Comprehensive Income/(Loss) Total Accumulated
Other Comprehensive Income/(Loss)
Year Ended December 31, 2022
December 31, 2021 December 31, 2022
(in thousands) Pretax
Activity Tax
Effect Net Activity Beginning
Balance Net
Activity Ending
Balance
Change in AOCI on cash flow hedge derivative financial instruments $ (615,144) $ 162,939 $ (452,205)
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments (1)
20,601 (4,043) 16,558
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments (594,543) 158,896 (435,647) $ (80,017) $ (435,647) $ (515,664)
Change in unrealized gains/(losses) on investments in debt securities (1,009,786) 278,216 (731,570)
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2)
18,542 (3,639) 14,903
Net unrealized gains/(losses) on investments in debt securities (991,244) 274,577 (716,667) (79,905) (716,667) (796,572)
Pension and post-retirement actuarial gain / (loss) (3)
6,014 (1,613) 4,401 (28,188) 4,401 (23,787)
As of December 31, 2022
$ (1,579,773) $ 431,860 $ (1,147,913) $ (188,110) $ (1,147,913) $ (1,336,023)
(1) Net gains/(losses) reclassified into Interest on borrowings and other debt obligations in the 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 Consolidated Statements of Operations for the sale of debt securities.
(3) Included in the computation of net periodic pension costs.
NOTE 12. MEZZANINE AND STOCKHOLDER'S EQUITY
At December 31, 2024, the Company had 530,391,043 shares of common stock outstanding to its parent, Santander. The Company did not have any contributions from Santander for the years ended December 31, 2024 or 2023. During the year ended December 31, 2024, the Company paid total dividends, including dividends on common and preferred stock, to Santander in the amount of $1.3 billion.
Preferred Stock Issuances
On December 19, 2023, the Company issued 500,000 shares of the Series G Preferred Stock. Dividends on the Series G Preferred Stock are payable when, as and if authorized by the Company’s Board of Directors or a duly authorized committee thereof. From and including December 19, 2023 to but excluding December 21, 2028, dividends will accrue on a non-cumulative basis a rate of 8.17% per annum, payable quarterly in arrears. From and including December 21, 2028, dividends on the Series G Preferred Stock will accrue on a non-cumulative basis at the five-year U.S. Treasury rate as of the most recent re-set dividend determination date plus 4.360% for each dividend re-set period, payable quarterly in arrears. The Company may redeem the Series G Preferred Stock on, among others, any dividend payment date on or after December 21, 2028. As of December 31, 2024, Santander was the sole holder of the Series G Preferred Stock.
On June 15, 2023, the Company issued 1,000,000 shares of the Series F Preferred Stock. Dividends on the Series F Preferred Stock are payable when, as and if authorized by the Company's Board of Directors or a duly authorized committee thereof. From and including June 15, 2023 to but excluding June 15, 2028, dividends will accrue on a non-cumulative basis a rate of 9.38% per annum, payable quarterly in arrears. From and including June 15, 2028, dividends on the Series F Preferred Stock will accrue on a non-cumulative basis at the five-year U.S. Treasury rate as of the most recent re-set dividend determination date plus 5.467% for each dividend re-set period, payable quarterly in arrears. The Company may redeem the Series F Preferred Stock on, among others, any dividend payment date on or after June 21, 2028. As of December 31, 2024, Santander was the sole holder of the Series F Preferred Stock.
On December 21, 2022, the Company issued 500,000 shares of the Series E Preferred Stock. Dividends on the Series E Preferred Stock are payable when, as and if authorized by the Company's Board of Directors or a duly authorized committee thereof. From and including December 21, 2022 to but excluding December 21, 2027, dividends will accrue on a non-cumulative basis a rate of 8.41% per annum, payable quarterly in arrears. From and including December 21, 2027, dividends on the Series E Preferred Stock will accrue on a non-cumulative basis at the five-year U.S. Treasury rate as of the most recent re-set dividend determination date plus 4.74% for each dividend re-set period, payable quarterly in arrears. The Company may redeem the Series E Preferred Stock on, among others, any dividend payment date on or after December 31, 2027. As of December 31, 2024, Santander was the sole holder of the Series E Preferred Stock.
Share Repurchases
During the years ended December 31, 2024, 2023, and 2022, SC repurchased zero, zero and $2.5 billion of SC Common Stock. On January 31, 2022, SHUSA acquired all of the outstanding shares of SC Common Stock not already owned by SHUSA for approximately $2.5 billion and SC became a wholly-owned subsidiary of SHUSA. As a result of that acquisition, Additional paid-in capital decreased by $591.3 million for the difference between the carrying value of the NCI and the amount paid to acquire it.
NOTE 13. SECURITIES FINANCING ACTIVITIES
The Company may enter into Securities Financing Activities primarily to deploy the Company’s excess cash and investment positions. Securities Financing Activities are treated as collateralized financings and are included in "Federal funds sold and securities purchased under resale agreements or similar arrangements" and "Federal funds purchased and securities loaned or sold under repurchase agreements" on the Company’s Consolidated Balance Sheets. Refer to Note 1 to these Consolidated Financial Statements for further discussion of accounting for and the offsetting of securities financing assets and liabilities.
The Company has elected the FVO for certain of its Securities Financing Activities. Refer to Note 15 to these Condensed Consolidated Financial Statements for the amounts recorded at FVO.
NOTE 13. SECURITIES FINANCING ACTIVITIES (continued)
Securities borrowed and purchased under agreements to resell, at their respective carrying values, consisted of the following at the dates indicated:
(in thousands) December 31, 2024 December 31, 2023
Securities purchased under agreements to resell $ 7,151,510 $ 8,617,309
Securities borrowed 980,720 1,621,405
Total $ 8,132,230 $ 10,238,714
Securities loaned or sold under agreements to repurchase, at their respective carrying values, consisted of the following at the dates indicated:
(in thousands) December 31, 2024 December 31, 2023
Securities sold under agreements to repurchase $ 16,302,948 $ 16,290,761
Securities lending - 25
Total $ 16,302,948 $ 16,290,786
Securities Financing Activities are generally executed under standard industry agreements, including master agreements that create a single contract under which all transactions between two counterparties are executed, allowing for trade aggregation of receivables and payables into a single net payment or settlement. The amounts of securities financing assets or liabilities qualified for offset in the Consolidated Balance Sheets were as follows for the dates indicated.
December 31, 2024
(in thousands)
Gross amounts of recognized assets
Gross amounts offset on the Consolidated Balance Sheets (1)
Net amounts of assets included on the Consolidated Balance Sheets
Securities purchased under agreements to resell $ 31,858,795 $ (24,707,285) $ 7,151,510
Securities borrowed 980,720 - 980,720
Total
$ 32,839,515 $ (24,707,285) $ 8,132,230
December 31, 2024
(in thousands) Gross amounts of recognized liabilities
Gross amounts offset on the Consolidated Balance Sheets (1)
Net amounts of liabilities included on the Consolidated Balance Sheets
Securities sold under agreements to repurchase $ 41,010,233 $ (24,707,285) $ 16,302,948
(1) Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45.
NOTE 13. SECURITIES FINANCING ACTIVITIES (continued)
December 31, 2023
(in thousands)
Gross amounts of recognized assets
Gross amounts offset on the Consolidated Balance Sheets (1)
Net amounts of assets included on the Consolidated Balance Sheets
Securities purchased under agreements to resell $ 41,237,731 $ (32,620,422) $ 8,617,309
Securities borrowed 1,621,405 - 1,621,405
Total
$ 42,859,136 $ (32,620,422) $ 10,238,714
December 31, 2023
(in thousands) Gross amounts of recognized liabilities
Gross amounts offset on the Consolidated Balance Sheets (1)
Net amounts of liabilities included on the Consolidated Balance Sheets
Securities sold under agreements to repurchase $ 48,911,183 $ (32,620,422) $ 16,290,761
Securities lending 25 - 25
Total $ 48,911,208 $ (32,620,422) $ 16,290,786
(1) Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45.
The following table presents the gross amounts of liabilities associated with Securities Financing Activities by remaining contractual maturity as of the date indicated:
December 31, 2024
(in thousands) Open and overnight Up to 30 days 31-90 days Greater than 90 days Total
Securities sold under agreements to repurchase $ 19,157,888 $ 10,079,169 $ 7,022,973 $ 4,750,203 $ 41,010,233
The following table presents the gross amounts of liabilities associated with Securities Financing Activities by class of underlying collateral as of the dates indicated:
December 31, 2024 December 31, 2023
(in thousands) Repurchase agreements
Securities lending
Total Repurchase agreements
Securities lending
Total
U.S. Treasury
$ 23,367,567 $ - $ 23,367,567 $ 29,251,978 $ - $ 29,251,978
Residential agency MBS
15,896,929 - 15,896,929 17,532,972 - 17,532,972
Corporate and other securities 1,745,737 - 1,745,737 2,126,233 25 2,126,258
Total
$ 41,010,233 $ - $ 41,010,233 $ 48,911,183 $ 25 $ 48,911,208
NOTE 14. DERIVATIVES
General
Derivatives represent contracts between parties that usually require little or no initial net investment and result in one or both parties delivering cash or another type of asset to the other party based on a notional amount and an underlying asset, index, interest rate or future purchase commitment or option as specified in the contract. Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged, is not recorded on the balance sheet, and does not represent the Company`s exposure to credit loss. The notional amount is the basis on which the financial obligation of each party to the derivative contract is calculated to determine required payments under the contract. The Company controls the credit risk of its derivative contracts through credit approvals, limits and monitoring procedures. The underlying variable is typically a referenced interest rate (commonly the OIS rate or a SOFR-based rate), security, credit spread or index.
The Company’s capital markets and mortgage banking activities are subject to price risk. The Company employs various tools to measure and manage price risk in its portfolios. In addition, the Board of Directors has established certain limits relative to positions and activities. The level of price risk exposure at any given time depends on the market environment and expectations of future price and market movements and will vary from period to period.
See Note 15 to the 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 December 31, 2024, derivatives in this category had a fair value of zero. The credit ratings of the Company and SBNA are currently considered investment grade. As of December 31, 2024, 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 December 31, 2024 and December 31, 2023, 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 $7.5 million and $11.1 million, respectively. The Company had $6.2 million and $15.3 million in cash and securities collateral posted to cover those positions as of December 31, 2024 and December 31, 2023, respectively.
Hedge Accounting
Management uses derivative instruments designated as hedges to mitigate the impact of interest rate and foreign exchange rate movements on the fair value of certain assets and liabilities and on highly probable forecasted cash flows. These instruments primarily include interest rate swaps that have underlying interest rates based on key benchmark indices. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated interest rate environment.
Interest rate swaps are generally used to convert fixed-rate assets and liabilities to variable rate assets and liabilities and vice versa. The Company utilizes interest rate swaps that have a high degree of correlation to the related financial instrument.
Fair Value Hedges
The Company enters into derivatives to hedge the risk of changes in fair value of a portion of its AFS debt securities portfolio. These derivatives are designated as fair value hedges at inception. The gains/(losses) from changes in the fair value of the hedging derivative and the offsetting gains/(losses) from changes in the fair value of the related underlying hedged items due to the hedged risk are reporting in the same line item in the Consolidated Statements of Operations as earnings from the hedged items. The cumulative fair value hedge basis adjustments included in the carrying amount of hedged assets is reversed through earnings in future periods as an adjustment to yield. The Company includes gains/(losses) on the hedging derivatives and the related hedged items in the assessment of hedge effectiveness. All of these swaps have been deemed highly effective fair value hedges. The last of the hedges is scheduled to expire in February 2030. The Company has entered into fair value hedges of portions of a closed portfolio of approximately $2.7 billion of AFS debt securities, using the portfolio layer method.
NOTE 14. DERIVATIVES (continued)
The carrying amount and fair value hedge adjustment of hedged assets at the dates indicated was:
Carrying Amount of Hedged Assets Amount of Fair Value Hedge Adjustment Included in the Carrying Amount
December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023
Debt securities AFS (Note 2) $ 2,446,611 $ 2,463,991 $ 78,389 $ 36,009
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 and forecasted issuances of borrowed funds. The Company also has foreign exchange contracts designed to hedge certain contractual payments in foreign currencies.
Except as noted below, all of these derivatives 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 Consolidated Statements of Operations line item as the earnings effect of the hedged item.
During the third quarter of 2024, the Company discontinued cash flow hedges with an aggregate notional amount of $500.0 million that were no longer highly effective and it is probable that the forecasted transaction will not occur. The Company de-designated the hedge relationship, resulting in the reclassification of $4.6 million from AOCI to non-interest income.
The last of the hedges is scheduled to expire in January 2029. The Company includes all components of each derivative's gain or loss in the assessment of hedge effectiveness. As of December 31, 2024, the Company estimated that approximately $29.2 million of unrealized losses included in AOCI would be reclassified to earnings during the subsequent twelve months as the future cash flows occur.
Derivatives Designated in Hedge Relationships - Notional and Fair Values
Derivatives designated as accounting hedges included the following as of the dates indicated:
(dollars in thousands) Notional
Amount Asset Liability Weighted Average Receive Rate Weighted Average Pay
Rate Weighted Average Life
(Years)
December 31, 2024
Fair value hedges:
Cross-currency swaps $ 18,766 $ 532 $ 137 4.97 % 9.90 % 2.83
Interest rate swaps
5,525,000 61,708 - 2.12 % 3.45 % 2.30
Cash flow hedges:
Pay fixed - receive variable interest rate swaps
$ 4,280,700 $ 33,116 $ 75 2.20 % 3.53 % 2.32
Pay variable - receive fixed interest rate swaps 11,650,000 12,700 143,872 3.02 % 2.00 % 1.25
Total $ 21,474,466 $ 108,056 $ 144,084 2.63 % 2.68 % 1.73
December 31, 2023
Fair value hedges:
Cross-currency swaps $ 18,766 $ 192 $ 2,235 5.91 % 9.90 % 3.83
Interest rate swaps
6,650,000 38,712 7,716 2.02 % 3.46 % 3.01
Cash flow hedges:
Pay fixed - receive variable interest rate swaps $ 3,422,700 $ 22,935 $ 120 5.38 % 3.82 % 2.53
Pay variable - receive fixed interest rate swaps 11,925,000 13,575 362,018 1.83 % 1.64 % 1.30
Interest rate floor 250,000 - - - % - % 0.04
Total $ 22,266,466 $ 75,414 $ 372,089 2.41 % 2.51 % 1.99
NOTE 14. DERIVATIVES (continued)
Other Derivative Activities
The Company also enters into derivatives that are not designated as accounting hedges under GAAP. Although these derivatives are used to hedge risk and are considered economic hedges, they are not designated as accounting hedges because the contracts they are hedging are often carried at fair value on the balance sheet, resulting in generally symmetrical accounting treatment for the hedging instrument and the hedged item.
Customer-related derivatives
The Company offers derivatives to its customers in connection with their risk management requirements related to foreign exchange and lending arrangements. These derivatives primarily consist of interest rate swaps, caps, floors, and foreign exchange contracts. Risk exposure from customer positions is managed through offsetting transactions with other dealers, including Santander. Refer to Note 21 for related party transactions.
Broker dealer activities
The Company uses exchange-traded options and futures, credit default swaps, and forward-settling securities trades as part of its trading business, as well as to actively manage risk exposures that arise from its trading in cash instruments.
Structured financing activities
In certain circumstances, the Company is required to hedge its interest rate risk on revolving credit and term borrowings related to its secured structured financings. The Company uses interest rate caps to satisfy these requirements and enters into offsetting option contracts.
Foreign exchange activities
The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts as well as cross-currency swaps, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date and may or may not be physically settled depending on the Company’s needs. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate.
Mortgage Banking Derivatives
The Company typically retains the servicing rights related to residential mortgage loans that are sold. Most of the Company`s residential MSRs are accounted for at fair value. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase MBS.
Other derivative activities
Other derivative instruments primarily include forward contracts related to certain investment securities sales, loan sales, an OIS, and a total return swap on Visa, Inc. Class B common shares.
NOTE 14. DERIVATIVES (continued)
Derivatives Not Designated in Hedge Relationships - Notional and Fair Values
Other derivative activities included the following as of the dates indicated:
Notional Asset derivatives
Fair value Liability derivatives
Fair value
(in thousands) December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023
Mortgage banking derivatives:
Total mortgage banking risk management $ 601,000 $ 662,000 $ 9,329 $ 14,634 $ 26,777 $ 31,304
Customer-related derivatives:
Swaps receive fixed 15,236,535 15,017,998 8,817 26,731 633,072 687,505
Swaps pay fixed 15,631,475 15,005,503 648,895 708,642 9,432 26,366
Other 8,976,013 8,691,978 65,124 93,439 64,461 91,602
Total customer-related derivatives 39,844,023 38,715,479 722,836 828,812 706,965 805,473
Other derivative activities:
Foreign exchange contracts 7,376,101 11,518,594 125,642 54,722 86,461 62,842
Interest rate swap agreements 100 2,400,100 5 - - 2
Interest rate cap agreements 1,324,775 2,313,672 23,133 76,019 - -
Options for interest rate cap agreements 1,324,775 2,313,672 - - 23,133 76,019
Other 48,909,284 48,543,537 138,124 42,657 31,290 126,968
Total $ 99,380,058 $ 106,467,054 $ 1,019,069 $ 1,016,844 $ 874,626 $ 1,102,608
NOTE 14. DERIVATIVES (continued)
Gains (Losses) on all Derivatives
The following Consolidated Statements of Operations line items were impacted by the Company’s derivative activities for the periods indicated:
(in thousands) Year ended December 31,
Line Item 2024 2023 2022
Fair value hedges:
Cross-currency swaps Net interest income $ (363) $ (1,259) $ (1,326)
Interest rate swaps Net interest income 38,743 30,695 18,959
Derivative Activity (1)
Cash flow hedges:
Pay fixed-receive variable interest rate swaps Interest expense on borrowings 50,585 17,866 (20,867)
Pay variable receive-fixed interest rate swap Interest income on loans (302,689) (445,892) (96,113)
Interest rate floors Interest income on loans (46) (436) (752)
Other derivative activities:
Mortgage banking derivatives Non Interest income
(7,392) (2,647) (39,862)
Customer-related derivatives Non interest income (56,305) 7,814 20,112
Foreign exchange Non interest income 109,763 24,177 14,744
Interest rate swaps, caps, and options Non interest income 23,331 (35,343) (1,848)
Net interest income (3,372) - -
Other Non interest income 212,277 (24,833) 116,441
(1) Gains are disclosed as positive numbers while losses are shown as a negative number regardless of the line item being affected.
The net amount of change recognized in OCI for cash flow hedge derivatives were gains of $189.7 million, $250.6 million, and losses of $452.2 million net of tax, for the year ended December 31, 2024, 2023, and 2022, respectively.
The net amount of changes reclassified from OCI into earnings for cash flow hedge derivatives were gains of $7.4 million and losses of $10.5 million and $16.6 million, net of tax, for the years ended December 31, 2024, 2023, and 2022, respectively.
Disclosures about Offsetting Assets and Liabilities
The Company enters into legally enforceable master netting agreements which reduce risk by permitting netting of transactions with the same counterparty on the occurrence of certain events. A master netting agreement allows two counterparties the ability to net-settle amounts under all contracts, including any related collateral posted, through a single payment and in a single currency. The right to offset and certain terms regarding the collateral process, such as valuation, credit events and settlement, are contained in the applicable master agreement. The Company's financial instruments, including resell and repurchase agreements, securities lending arrangements, derivatives, and cash collateral, may be eligible for offset on its 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 Consolidated Balance Sheets” section of the tables below.
NOTE 14. DERIVATIVES (continued)
Information about financial assets and liabilities that are eligible for offset on the Consolidated Balance Sheets was as follows for the dates indicated:
Offsetting of Financial Assets
Gross Amounts Not Offset in the Consolidated Balance Sheets
(in thousands) Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts of Assets Presented in the Consolidated Balance Sheets Collateral Received (2)
Net Amount
December 31, 2024
Fair value hedges $ 62,240 $ - $ 62,240 $ (23,509) $ 38,731
Cash flow hedges 45,816 - 45,816 (39,703) 6,113
Other derivative activities (1)
1,019,069 (5,145) 1,013,924 (238,021) 775,903
Total Derivative Assets $ 1,127,125 $ (5,145) $ 1,121,980 $ (301,233) $ 820,747
December 31, 2023
Fair value hedges $ 38,904 $ - $ 38,904 $ (11,300) $ 27,604
Cash flow hedges 36,510 - 36,510 (22,935) 13,575
Other derivative activities (1)
1,016,844 (2,064) 1,014,780 (170,835) 843,945
Total Derivative Assets $ 1,092,258 $ (2,064) $ 1,090,194 $ (205,070) $ 885,124
(1)Includes customer-related and other derivatives.
(2)Collateral received includes cash, cash equivalents, and other financial instruments. Cash collateral received is reported in Other liabilities, as applicable, in the Consolidated Balance Sheets. Financial instruments that are pledged to the Company are not reflected in the accompanying Consolidated Balance Sheets since the Company does not control or have the ability to re-hypothecate these instruments.
Offsetting of Financial Liabilities
Gross Amounts Not Offset in the Consolidated Balance Sheets
(in thousands) Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts of Liabilities Presented in the Consolidated Balance Sheets Collateral Pledged (2)
Net Amount
December 31, 2024
Fair value hedges $ 137 $ - $ 137 $ - $ 137
Cash flow hedges 143,947 - 143,947 (72,891) 71,056
Other derivative activities (1)
874,626 (5,145) 869,481 (29,281) 840,200
Total Derivative Liabilities $ 1,018,710 $ (5,145) $ 1,013,565 $ (102,172) $ 911,393
December 31, 2023
Fair value hedges $ 9,951 $ - $ 9,951 $ (1,064) $ 8,887
Cash flow hedges 362,138 - 362,138 (140,968) 221,170
Other derivative activities (1)
1,102,608 (2,014) 1,100,594 (129,722) 970,872
Total Derivative Liabilities $ 1,474,697 $ (2,014) $ 1,472,683 $ (271,754) $ 1,200,929
(1)Includes customer-related and other derivatives.
(2)Cash collateral pledged and financial instruments pledged is reported in Other assets in the 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 15. FAIR VALUE
The Company estimates the fair value of certain assets and liabilities for both measurement and disclosure purposes. The fair value hierarchy categorizes the underlying assumptions and inputs to valuation techniques that are used to measure fair value into three levels as follows:
•Level 1 inputs are quoted prices in active markets for identical assets or liabilities that can be accessed as of the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2 inputs are those other than quoted prices included in Level 1 that are observable for the assets or liabilities, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3 inputs are those that are unobservable or not readily observable for the asset or liability and are used to measure fair value to the extent relevant observable inputs are not available.
Assets and liabilities measured at fair value, by their nature, result in a higher degree of financial statement volatility. See Note 1 to these Consolidated Financial Statements 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.
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.
NOTE 15. FAIR VALUE (continued)
The Company's Market Risk Department approves the methodologies used in the estimations of fair value, including the Company's Level 3 assets and liabilities. Price validation procedures are performed, and the results are reviewed for Level 3 assets and liabilities by the Market Risk Department. Price validation procedures performed for these assets and liabilities can include comparing current prices to historical pricing trends by collateral type and vintage, comparing prices by product type to indicative pricing grids published by market makers, and obtaining corroborating dealer prices for significant securities.
The Company reviews the assumptions utilized to determine fair value on a quarterly basis. Any changes in methodologies or significant inputs used in determining fair values are further reviewed to determine if a change in fair value level hierarchy has occurred. At December 31, 2023, the beneficial interest in the Structured LLC was determined to be Level 2 based on observed market execution. As a result of moving further from the purchase date and observed market execution, the Company is relying on a DCF method going forward for valuation. As a result, the $1.1 billion beneficial interest in the Structured LLC transferred from Level 2 to Level 3 during the first quarter of 2024.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the assets and liabilities that are measured at fair value on a recurring basis by major product category and fair value hierarchy as of the dates indicated:
(in thousands) Level 1 Level 2 Level 3 Balance at
December 31, 2024
Level 1 Level 2 Level 3 Balance at December 31, 2023
Financial assets:
U.S. Treasury securities $ 304,440 $ - $ - $ 304,440 $ 25,409 $ - $ - $ 25,409
Corporate debt - 13 - 13 - 31,590 - 31,590
ABS - 748,033 - 748,033 - 510,663 - 510,663
Beneficial interest in Structured LLC
- - 1,198,985 1,198,985 - 1,122,510 - 1,122,510
MBS - 4,881,161 - 4,881,161 - 5,349,365 - 5,349,365
Investment in debt securities AFS (2)
$ 304,440 $ 5,629,207 $ 1,198,985 $ 7,132,632 $ 25,409 $ 7,014,128 $ - $ 7,039,537
Trading securities 2,150,785 8,165,771 6,267 10,322,823 1,637,908 6,329,031 936 7,967,875
Federal funds sold and securities purchased under resale agreements or similar arrangements - - - - - 2,112,292 - 2,112,292
RICs HFI (3)
- - 9,039 9,039 - - 13,888 13,888
LHFS (1)(4)
- 1,256,401 - 1,256,401 - 19,464 - 19,464
MSRs - - 90,958 90,958 - - 94,266 94,266
Other assets - derivatives (2)
485 1,121,472 23 1,121,980 4,807 1,085,333 54 1,090,194
Total financial assets (5)
$ 2,455,710 $ 16,172,851 $ 1,305,272 $ 19,933,833 $ 1,668,124 $ 16,560,248 $ 109,144 $ 18,337,516
Financial liabilities:
Federal funds purchased and securities loaned or sold under repurchase agreements $ - $ - $ - $ - $ - $ 595,414 $ - $ 595,414
Trading liabilities 2,220,496 240,117 - 2,460,613 2,371,823 327,293 384 2,699,500
Other liabilities - derivatives (2)
217 1,013,296 52 1,013,565 5,914 1,466,119 650 1,472,683
Total financial liabilities $ 2,220,713 $ 1,253,413 $ 52 $ 3,474,178 $ 2,377,737 $ 2,388,826 $ 1,034 $ 4,767,597
(1) LHFS disclosed on the 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 14 for the fair values of derivative assets and liabilities on a further disaggregated basis.
(3) Certain RICs collateralized by vehicle titles and RV/marine loans.
(4) Residential mortgage loans and commercial mortgage loans.
(5) Approximately $1.3 billion of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 6.5% of total assets measured at fair value on a recurring basis and approximately 0.8% of total consolidated assets.
NOTE 15. FAIR VALUE (continued)
Valuation Processes and Techniques - Recurring Fair Value Assets and Liabilities
The following is a description of the valuation techniques used for instruments measured at fair value on a recurring basis:
Investments in debt securities AFS
Investments in debt securities AFS are accounted for at fair value. The Company utilizes a third-party pricing service to value its investment securities portfolios on a global basis. Its primary pricing service has consistently proved to be a high quality third-party pricing provider. For those investments not valued by pricing vendors, other trusted market sources are utilized. The Company monitors and validates the reliability of vendor pricing on an ongoing basis, which can include pricing methodology reviews, performing detailed reviews of the assumptions and inputs used by the vendor to price individual securities, and price validation testing. Price validation testing is performed independently of the risk-taking function and can include corroborating the prices received from third-party vendors with prices from another third-party source, reviewing valuations of comparable instruments, comparison to internal valuations, or by reference to recent sales of similar securities.
The classification of securities within the fair value hierarchy is based upon the activity level in the market for the security type and the observability of the inputs used to determine their fair values. Actively traded quoted market prices for debt securities AFS, such as government agency securities, corporate debt, state and municipal securities, and MBS, are not readily available. The Company's principal markets for its investment securities are the secondary institutional markets with an exit price that is predominantly reflective of bid-level pricing in these markets. These investment securities are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.
Certain ABS are valued using DCF models. The DCF models are obtained from a third-party pricing vendor which uses observable market data and therefore are classified as Level 2.
The Company's beneficial interest in the Structured LLC was acquired in December 2023, and is valued using an internally-developed DCF model and is classified as Level 3 at December 31, 2024. Significant assumptions used in evaluation include, discount spread, loss estimates, and extension of loans. Significant changes in any of these inputs could result in a higher or lower fair value measurement.
Securities Financing Activities
No quoted prices exist for Securities Financing Activities, so fair value is determined using a DCF technique. Cash flows are estimated based on the terms of the contract. These cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Securities Financing Activities are classified as Level 2.
LHFI
For certain RICs reported in LHFI, net, the Company has elected the FVO. The estimated fair value of all RICs HFI is estimated using a DCF model and is classified as Level 3.
LHFS
For certain LHFS portfolios, the Company has elected the FVO and the portfolios are measured at fair value on a recurring basis. These loans consisted primarily of loans attributed to CIB whole loan aggregation and bridge lending programs. The fair value of these loans was based on estimated market rates for similar loans and certain forward sale agreements and the loans are considered Level 2. See further discussion below in the section captioned "FVO for Financial Assets and Financial Liabilities."
NOTE 15. FAIR VALUE (continued)
MSRs
The Company maintains an MSR asset accounted for at fair value for sold residential real estate loans serviced for others. At December 31, 2024 and December 31, 2023, the balance of these loans serviced for others was $7.4 billion and $8.3 billion, respectively. Changes in fair value of the MSR are recorded through Miscellaneous income, net on the Consolidated Statements of Operations.
The Company has elected to measure its residential MSRs at fair value to be consistent with the risk management strategy to hedge changes in the fair value of these assets. The fair value of residential MSRs is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates (reflective of a market participant’s return on an investment for similar assets), servicing costs, and other economic factors which are determined based on current market conditions. Historically, servicing costs and discount rates have been less volatile than prepayment rates, which are directly correlated with changes in market interest rates. Increases in prepayment rates, discount rates and servicing costs result in lower valuations of MSRs. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of MSRs. Assumptions incorporated into the residential MSR valuation model reflect management's best estimate of factors that a market participant would use in valuing the residential MSRs, as well as future expectations. Although sales of residential MSRs do occur, residential MSRs do not trade in an active market with readily observable prices. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase MBS. See further discussion on these derivative activities in Note 14 to these Consolidated Financial Statements.
As a benchmark for the reasonableness of the residential MSRs' fair value, opinions of value from Brokers are obtained. Brokers provide a range of values based upon their own DCF calculations of our portfolio that reflect conditions in the secondary market and any recently executed servicing transactions. Management compares the internally-developed residential MSR values to the ranges of values received from brokers. If the residential MSRs fair value falls outside of the Brokers' ranges, management will assess whether a valuation adjustment is warranted. The residential MSRs value is considered to represent a reasonable estimate of fair value. MSRs are classified as Level 3.
Gains and losses on MSRs are recognized on the 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 $2.5 million and $4.8 million, respectively, at December 31, 2024.
•A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $3.5 million and $6.8 million, respectively, at December 31, 2024.
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.
NOTE 15. FAIR VALUE (continued)
The Company incorporates credit valuation adjustments in the fair value measurement of its derivatives to reflect the counterparty's nonperformance risk, except for those derivative contracts with associated credit support annexes which provide credit enhancements, such as collateral postings and guarantees. The Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy. Certain of the Company's derivatives utilize Level 3 inputs, which are primarily related to total return settlement derivative contracts.
The DCF model is utilized to determine the fair value of the total return settlement derivative contracts. The significant unobservable inputs for total return settlement derivative contracts used in the fair value measurement of the Company's liabilities are discount percentages, which are based on comparable financial instruments. See Note 14 to the Consolidated Financial Statements for a discussion of derivatives activity.
Trading liabilities
The sales and trading of financial instruments are recorded on the trade date. Trading liabilities includes amounts payable for securities transactions that have not reached their contractual settlement date. Financial instruments owned and securities sold, not yet purchased, are carried at fair value.
Level 3 Rollforward for Assets and Liabilities Measured at Fair Value on a Recurring Basis
The tables below present the changes in Level 3 balances for those assets and liabilities measured at fair value on a recurring basis for the periods indicated.
Year ended December 31, 2024
Year ended December 31, 2023
(in thousands) Beneficial Interest in Structured, LLC RICs HFI MSRs Derivatives, net Other Total RICs HFI MSRs Derivatives, net Other Total
Balances, beginning of period $ - $ 13,888 $ 94,266 $ (596) $ 552 $ 108,110 $ 20,924 $ 107,383 $ (2,210) $ 139 $ 126,236
Gain / (losses) in OCI
99,985 - - - - 99,985 - - - - -
Gains/(losses) in earnings - - 6,112 567 710 7,389 - (3,383) 1,614 (2,902) (4,671)
Additions/Issuances - - - - 3,734 3,734 - - - - -
Transfers from Level 2
1,122,510 - - - 3,320 1,125,830 - - - 3,751 3,751
Settlements (1)
(23,510) (4,849) (9,420) - (2,049) (39,828) (7,036) (9,734) - (436) (17,206)
Balances, end of period $ 1,198,985 $ 9,039 $ 90,958 $ (29) $ 6,267 $ 1,305,220 $ 13,888 $ 94,266 $ (596) $ 552 $ 108,110
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period $ - $ - $ 6,112 $ 567 $ 710 $ 7,389 $ - $ (3,383) $ 1,614 $ (2,902) $ (4,671)
(1)Settlements include charge-offs, prepayments, paydowns and maturities.
NOTE 15. FAIR VALUE (continued)
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company may be required to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP from time to time. These adjustments to fair value usually result from application of lower-of-cost-or-fair value accounting or certain impairment measures. Assets measured at fair value on a nonrecurring basis that were still held on the balance sheet were as follows at the dates indicated:
(in thousands) Level 1 Level 2 Level 3 Balance at December 31, 2024
Level 1 Level 2 Level 3 Balance at December 31, 2023
Impaired commercial LHFI $ - $ 208,820 $ 35,030 $ 243,850 $ - $ 230,443 $ 41,432 $ 271,875
Foreclosed assets - 74,759 - 74,759 - 24,588 - 24,588
Vehicle inventory - 348,603 - 348,603 - 311,321 - 311,321
LHFS - - 77,552 77,552 - - 140,655 140,655
Auto loans impaired due to bankruptcy - 148,053 - 148,053 - 154,684 - 154,684
Goodwill - - 2,766,665 2,766,665 - - 2,766,665 2,766,665
Valuation Processes and Techniques - Nonrecurring Fair Value Assets and Liabilities
Impaired commercial LHFI in the table above represents the recorded investment of impaired commercial loans for which the Company measures impairment during the period based on the fair value of the underlying collateral supporting the loan. Written offers to purchase a specific impaired loan are considered observable market inputs, which are considered Level 1 inputs. Appraisals are obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and are considered Level 2 inputs. Loans for which the value of the underlying collateral is determined using a combination of real estate appraisals, field examinations and internal calculations are classified as Level 3. The inputs in the internal calculations may include the loan balance, estimation of the collectability of the underlying receivables held by the customer used as collateral, sale and liquidation value of the inventory held by the customer used as collateral and historical loss-given-default parameters. In cases in which the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized.
Foreclosed assets represent the recorded investment in assets taken during the period presented in foreclosure of defaulted loans and are primarily comprised of commercial and residential real properties and generally measured at fair value less costs to sell. The fair value of the real property is generally determined using appraisals or other indications of market value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace.
The Company estimates the fair value of its vehicles, which are obtained either through repossession or lease termination, using historical auction rates and current market values of used cars.
The Company has LHFS portfolios that are measured at fair value on a nonrecurring basis primarily consisting of commercial loans. 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. These are classified Level 3.
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.
NOTE 15. FAIR VALUE (continued)
The estimated fair value of goodwill is calculated using unobservable inputs and is classified as Level 3. Goodwill is written down to fair value when, as a result of an annual or interim goodwill impairment test, an impairment is identified and recognized. Fair value is calculated using widely-accepted valuation techniques, such as the guideline public company market approach (earnings and price-to-tangible book value multiples of comparable public companies) and the income approach (the DCF method). The Company uses a combination of these accepted methodologies to determine the fair valuation of reporting units. Several factors are taken into account, including actual operating results, future business plans, economic projections, and market data. On a quarterly basis, the Company assesses whether or not impairment indicators are present. For information on the Company's goodwill impairment test and the results of the most recent goodwill impairment test, see Note 6 for a further 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 Consolidated Statements of Operations relating to assets held at period-end:
Year ended December 31,
(in thousands) Statement of Operations Location 2024 2023
Impaired LHFI Credit loss expense / (benefit) $ 11,717 $ 16,166 $ 8,039
Foreclosed assets Miscellaneous income, net (1)
(3,983) (298) (78)
LHFS Credit loss expense / (benefit) - 4,021 77
LHFS Miscellaneous income, net (1)
(1,998) (2,231) (9,759)
Auto loans impaired due to bankruptcy Credit loss expense / (benefit) 17,448 14,978 4,677
(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 the dates indicated:
(dollars in thousands) Fair Value at
December 31, 2024 (3)
Valuation Technique Unobservable Inputs Range
(Weighted Average)
Financial Assets:
Beneficial interest in Structured LLC $ 1,198,985 DCF Discount spread 2.75% - 25.00% (11.77%)
Loss estimate 0.01% - 44.27% (7.07%)
Extension of loan 0 to 60 months
MSRs $ 90,958 DCF CPR (2)
3.09% - 100.00% (7.00%)
Discount rate (1)
9.81 %
(1) Average discount rate from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the associated relative UPB.
(2) Average CPR projected from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the associated relative UPB.
(3) Excluded insignificant Level 3 assets and liabilities.
NOTE 15. FAIR VALUE (continued)
(dollars in thousands) Fair Value at December 31, 2023 (3)
Valuation Technique Unobservable Inputs Range
(Weighted Average)
MSRs $ 94,266 DCF CPR (2)
0.00% - 100.00% (7.53%)
Discount rate (1)
9.81 %
(1), (2), (3) - See corresponding footnotes to the December 31, 2024 Level 3 significant inputs table above.
Fair Value of Financial Instruments
The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company's financial instruments are as follows as of the dates indicated:
December 31, 2024 December 31, 2023
(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 $ 18,546,918 $ 18,546,918 $ 18,546,918 $ - $ - $ 13,118,428 $ 13,118,428 $ 13,118,428 $ - $ -
Federal funds sold and securities purchased under resale agreements or similar arrangements 8,132,230 8,140,742 - 8,140,742 - 10,238,714 10,234,487 - 10,234,487 -
Investments in debt securities AFS 7,132,632 7,132,632 304,440 5,629,207 1,198,985 7,039,537 7,039,537 25,409 7,014,128 -
Investments in debt securities HTM 9,914,288 8,306,417 584,084 7,722,333 - 9,039,704 7,562,523 - 7,562,523 -
Trading securities and other investments (2)
10,327,823 10,327,823 2,150,785 8,170,771 6,267 7,967,875 7,967,874 1,637,908 6,329,030 936
LHFI, net 80,742,487 80,633,333 - 208,820 80,424,513 86,115,156 89,544,115 - 230,443 89,313,672
LHFS 1,333,953 1,333,953 - 1,256,401 77,552 160,118 160,119 - 19,464 140,655
Restricted cash 5,029,088 5,029,088 5,029,088 - - 5,549,701 5,549,701 5,549,701 - -
MSRs 90,958 90,958 - - 90,958 94,266 94,266 - - 94,266
Derivatives 1,121,980 1,121,980 485 1,121,472 23 1,090,194 1,090,194 4,807 1,085,333 54
Financial liabilities:
Deposits (1)
21,181,835 21,314,519 - 21,314,519 - 19,947,868 20,040,000 - 20,040,000 -
Federal funds purchased and securities loaned or sold under repurchase agreements 16,302,948 16,309,678 - 16,309,678 - 16,290,786 16,289,980 - 16,289,980 -
Trading liabilities 2,460,613 2,460,613 2,220,496 240,117 - 2,699,500 2,699,500 2,371,823 327,293 384
Borrowings and other debt obligations 44,010,910 44,327,760 - 38,394,469 5,933,291 44,144,051 44,107,856 - 36,998,432 7,109,424
Derivatives 1,013,565 1,013,565 217 1,013,296 52 1,472,683 1,472,683 5,914 1,466,119 650
(1) This line item excludes deposit liabilities with no defined or contractual maturities.
(2) This line item includes CDs with a maturity greater than 90 days and investments in trading securities.
Valuation Processes and Techniques - Financial Instruments
The preceding tables present disclosures about the fair value of the Company's financial instruments. Those fair values for certain instruments are presented based upon subjective estimates of relevant market conditions at a specific point in time and information about each financial instrument. In cases in which quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties resulting in variability in estimates affected by changes in assumptions and risks of the financial instruments at a certain point in time. Therefore, the derived fair value estimates presented above for certain instruments cannot be substantiated by comparison to independent markets. In addition, the fair values do not reflect any premium or discount that could result from offering for sale at one time an entity’s entire holding of a particular financial instrument, nor do they reflect potential taxes and the expenses that would be incurred in an actual sale or settlement. Accordingly, the aggregate fair value amounts presented above do not represent the underlying value of the Company.
NOTE 15. FAIR VALUE (continued)
The following methods and assumptions were used to estimate the fair value of each class of financial instruments not measured at fair value on the Consolidated Balance Sheets:
Cash, cash equivalents and restricted cash
Cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits in other banks, federal funds sold, and securities purchased under agreements to resell. The related fair value measurements have been classified as Level 1, since their carrying value approximates fair value due to the short-term nature of the asset.
Restricted cash is related to cash restricted for investment purposes, cash posted for collateral purposes, cash advanced for loan purchases, and lockbox collections. Cash and cash equivalents, including restricted cash, have maturities of three months or less and, accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.
Securities Financing Activities
No quoted prices exist for Securities Financing Activities, so fair value is determined using a DCF technique. Cash flows are estimated based on the terms of the contract. These cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Securities Financing Activities are classified as Level 2. At December 31, 2024, the fair value of the underlying collateral was $41.0 billion before netting of $24.7 billion, all of which was sold or re-pledged.
Investments in debt securities HTM
Investments in debt securities HTM are recorded at amortized cost and are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.
LHFI, net
The fair values of loans are estimated based on groupings of similar loans, including but not limited to stratification by type, interest rate, maturity, and borrower creditworthiness. Discounted future cash flow analyses are performed for these loans incorporating assumptions of current and projected voluntary prepayment speeds. Discount rates are determined using the Company's current origination rates on similar loans, adjusted for changes in current liquidity and credit spreads (if necessary). Because the current liquidity spreads are generally not observable in the market and the expected loss assumptions are based on the Company's experience, these are Level 3 valuations. Impaired loans are valued at fair value on a nonrecurring basis. See further discussion under the section captioned "Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis" above.
LHFS
The Company has LHFS portfolios that are accounted for at the lower of cost or market. Estimated fair value for these portfolios is generally based on prices obtained from agreements to sell the specific assets, if available, recent market transactions for similar assets or prices expected to be obtained in the subsequent sales.
NOTE 15. FAIR VALUE (continued)
Deposits
For deposits with no stated maturity, such as non-interest-bearing and interest-bearing demand deposit accounts, savings accounts, and certain money market accounts, the carrying value approximates fair values. The fair value of fixed-maturity deposits is estimated by discounting cash flows using currently offered rates for deposits of similar remaining maturities and have been classified as Level 2.
Borrowings and other debt obligations
Fair value is estimated by discounting cash flows using rates currently available to the Company for other borrowings with similar terms and remaining maturities. Certain other debt obligation instruments are valued using available market quotes for similar instruments, which contemplates issuer default risk. The related fair value measurements have generally been classified as Level 2. A certain portion of debt relating to revolving credit facilities is classified as Level 3. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements and, therefore, they are considered to be Level 3.
FVO for Financial Assets and Financial Liabilities
RICs HFI
To reduce accounting and operational complexity, the Company elected the FVO for certain of its RICs HFI. These loans consisted primarily of NPLs acquired by the Company under optional clean-up calls from its non-consolidated Trusts.
LHFS
At December 31, 2024 and December 31, 2023, the Company had LHFS for which the FVO has been elected, primarily related to loans that are attributed to CIB whole loan aggregation and bridge lending programs. Electing the FVO allows the Company to record loans in these programs at fair value. The Company may enter into hedges on these LHFS portfolios, These hedges are reported at fair value; as a result, the loans and associated hedges are carried at fair value, reducing earnings volatility.
Securities Financing Activities
The Company has elected the FVO for certain of its Securities Financing Activities, primarily to align the accounting with the derivatives that are used to economically hedge changes in fair value of the assets and liabilities. Changes in fair value for Securities Financing Activities under an FVO are recording in non-interest income.
The following table summarizes the differences between the fair value and the principal balance of financial instruments measured at fair value on a recurring basis as of the dates indicated:
December 31, 2024 December 31, 2023
(in thousands) Fair Value Principal Balance Difference Fair Value Principal Balance Difference
LHFS(1)
$ 1,256,401 $ 1,230,119 $ 26,282 $ 19,464 $ 19,389 $ 75
RICs HFI 9,039 9,039 - 13,888 13,888 -
Nonaccrual loans 83 83 - 74 74 -
Securities Financing Activities
Federal funds sold and securities purchased under resale agreements or similar arrangements - - - 2,112,292 2,111,293 999
Federal funds purchased and securities loaned or sold under repurchase agreements - - - 595,414 595,142 272
(1) LHFS disclosed on the Consolidated Balance Sheets also includes $77.6 million and $140.7 million of LHFS valued on a non-recurring basis at December 31, 2024 and December 31, 2023, respectively, 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.
NOTE 16. NON-INTEREST INCOME AND OTHER EXPENSES
The following table presents the details of the Company's non-interest income for the following periods:
Year ended December 31,
(in thousands) 2024 2023 2022
Non-interest income:
Consumer and commercial fees $ 416,112 $ 349,357 $ 399,448
Lease income 2,178,597 2,462,990 2,650,668
Capital market revenue 408,768 195,808 179,843
Miscellaneous income, net
Mortgage banking income and multifamily servicing fees, net
64,878 16,369 27,134
BOLI 64,811 68,479 61,151
Net gain on sale of operating leases 69,057 66,313 84,774
Asset and wealth management fees 288,571 245,403 252,900
(Loss) / gain on non-mortgage loans
(128,091) (69,307) (19,687)
Other miscellaneous income / (loss), net
17,505 (15,602) 74,490
Net gain / (loss) on sale of investment securities
224,459 145,039 18,542
Total non-interest income
$ 3,604,667 $ 3,464,849 $ 3,729,263
Disaggregation of Revenue from Contracts with Customers
The following table presents the Company's non-interest income disaggregated by revenue source:
Year ended December 31,
(in thousands) 2024 2023 2022
Non-interest income:
In-scope of revenue from contracts with customers:
Depository services (1)
$ 126,157 $ 123,988 $ 160,662
Commission and trailer fees (2)
274,828 227,100 227,275
Interchange income, net (2)
82,941 72,450 71,672
Underwriting service fees (2)
260,877 144,668 86,725
Asset and wealth management fees (2)
290,573 110,637 151,749
Other revenue from contracts with customers (2)
4,349 20,586 44,844
Total in-scope of revenue from contracts with customers 1,039,725 699,429 742,927
Out-of-scope of revenue from contracts with customers:
Consumer and commercial fees (3)
217,752 155,534 171,249
Lease income 2,178,597 2,462,990 2,650,668
Other miscellaneous income, net (3)
(55,866) 1,857 145,877
Net gain / (loss) on sale of investment securities
224,459 145,039 18,542
Total out-of-scope of revenue from contracts with customers 2,564,942 2,765,420 2,986,336
Total non-interest income $ 3,604,667 $ 3,464,849 $ 3,729,263
(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.
NOTE 16. NON-INTEREST INCOME AND OTHER EXPENSES (continued)
Other Expenses
The following table presents the Company's other expenses for the following periods:
Year ended December 31,
(in thousands) 2024 2023 2022
Other expenses:
Amortization of intangibles $ 38,202 $ 39,477 $ 51,370
Deposit insurance premiums and other expenses 66,506 140,221 44,786
Loss on debt extinguishment 32,871 - 235
Other administrative and miscellaneous expenses
499,648 404,025 405,153
Total Other expenses $ 637,227 $ 583,723 $ 501,544
NOTE 17. INCOME TAXES
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.
Income Taxes from Continuing Operations
The provision for income taxes in the Consolidated Statements of Operations is comprised of the following components:
Year Ended December 31,
(in thousands) 2024 2023 2022
Current:
Foreign $ 15,125 $ 15,167 $ 5,588
Federal 201,774 171,721 274,281
State 30,682 97,100 149,545
Total current 247,581 283,988 429,414
Deferred:
Foreign - - -
Federal (370,605) (397,832) (60,725)
State 16,263 (32,302) (25,566)
Total deferred (354,342) (430,134) (86,291)
Total income tax provision/(benefit) $ (106,761) $ (146,146) $ 343,123
NOTE 17. INCOME TAXES (continued)
Reconciliation of Statutory and ETR
The following is a reconciliation of the U.S. federal statutory rate of 21.0% for the years ended December 31, 2024, 2023, and 2022, respectively, to the Company's ETR for each of the years indicated:
Year Ended December 31,
2024 2023 2022
Federal income tax at statutory rate 21.0 % 21.0 % 21.0 %
Increase/(decrease) in taxes resulting from:
Valuation allowance - % (2.2) % - %
Tax-exempt income (0.3) % (0.3) % (0.2) %
Officers' compensation limitation 0.6 % 0.5 % 0.3 %
Non-deductible FDIC insurance premiums 1.2 % 2.1 % 0.5 %
BOLI (1.4) % (1.8) % (0.7) %
State income taxes, net of federal tax benefit 1.8 % 4.6 % 5.0 %
Low-income housing credits tax credits (2.8) % (2.8) % (1.0) %
Electric vehicle credits (28.5) % (37.7) % (4.9) %
Research and development credits (0.5) % (4.4) % - %
Production tax credits (0.8) % (1.1) % (0.7) %
Foreign taxes 1.2 % 1.5 % 0.3 %
Uncertain tax position reserve (0.7) % 2.3 % 0.1 %
Punta Lima investment tax credit
(2.0) % - % - %
Other 0.2 % (0.3) % (0.1) %
ETR (11.0) % (18.6) % 19.6 %
NOTE 17. INCOME TAXES (continued)
Deferred Tax Assets and Liabilities
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below:
At December 31,
(in thousands) 2024 2023
Deferred tax assets:
ALLL $ 320,503 $ 427,050
Auto loan mark-to-market adjustment 150,231 360,799
Unrealized loss on available-for-sale securities 167,468 221,746
Unrealized loss on derivatives 25,050 82,286
Unrealized loss on AFS securities reclassified to HTM
39,618 45,828
Net operating loss carryforwards 51,007 61,481
ROU lease liability
141,008 134,631
Employee benefits 117,307 100,875
General business credit & other tax credit carryforwards 864,319 544,774
Depreciation and amortization 843,190 1,007,951
Deferred income 55,039 46,647
Other 91,853 109,900
Total gross deferred tax assets 2,866,593 3,143,968
Valuation allowance (81,553) (84,700)
Total deferred tax assets 2,785,040 3,059,268
Deferred tax liabilities:
Purchase accounting adjustments 56,468 56,468
Originated MSRs 23,779 29,168
ROU lease asset
131,594 119,111
Auto lease transactions (1)
2,128,932 2,543,510
Other 79,958 160,889
Total gross deferred tax liabilities 2,420,731 2,909,146
Net deferred tax asset / (liability)
$ 364,309 $ 150,122
(1) The leasing transactions deferred tax liability is primarily related to accelerated tax depreciation on auto operating leases.
Due to jurisdictional netting, the net deferred tax asset of $364.3 million is classified on the balance sheet as a deferred tax asset included in Other assets.
NOTE 17. INCOME TAXES (continued)
Periodic reviews of the carrying amount of deferred tax assets are made to determine if the establishment of a valuation allowance is necessary. If, based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.
Items considered in this evaluation include historical financial performance, the expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, the length of statutory carryforward periods, experience with operating loss and tax credit carryforwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. The Company's evaluation is based on current tax laws, as well as its expectations of future performance. As of December 31, 2024, the Company maintained a valuation allowance of $81.6 million, compared to $84.7 million as of December 31, 2023, related to deferred tax assets subject to carryforward periods for which the Company has determined it is more likely than not that these deferred tax assets will remain unused after the carryforward periods have expired. The $3.1 million decrease year-over-year was primarily driven by a release of the valuation allowance against state net operating losses and other deferred tax assets.
The deferred tax asset realization analysis is updated at each quarter-end using the most recent forecasts. An assessment is made quarterly as to whether the forecasts and assumptions used in the deferred tax asset realization analysis should be revised in light of any changes that have occurred or are expected to occur that would significantly impact the forecasts or modeling assumptions. At December 31, 2024, the Company has recorded the following:
(in thousands) Gross Deferred Tax Balance Valuation Allowance Final Expiration Year (1)
Net operating loss carryforwards $ 7,691 $ - 2037
State net operating loss carryforwards 43,316 4,462 2043
General business credit carryforward 864,319 77,091 2044
Deferred tax timing differences 1,951,267 - N/A
Total $ 2,866,593 $ 81,553
(1) These will expire in varying amounts through the final expiration year.
The Company has not provided deferred income taxes of $28.2 million on approximately $112.1 million of SBNA's existing pre-1988 tax bad debt reserve at December 31, 2024, due to the indefinite nature of the recapture provisions. Certain rules under Section 593 of the IRC govern when the Company may be subject to tax on the recapture of the existing base year tax bad debt reserve, such as distributions by SBNA in excess of certain earnings and profits, the redemption of SBNA’s stock, or a liquidation. The Company does not expect any of those events to occur.
NOTE 17. INCOME TAXES (continued)
Changes in Liability Related to Uncertain Tax Positions
At December 31, 2024, the Company had reserves related to tax benefits from uncertain tax positions of $36.6 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands) Unrecognized Tax Benefits Accrued Interest and Penalties Total
Gross unrecognized tax benefits at January 1, 2022
$ 20,159 $ 6,840 $ 26,999
Additions for tax positions of prior years 19,566 1,236 20,802
Reductions for tax positions of prior years - - -
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations (663) (156) (819)
Gross unrecognized tax benefits at December 31, 2022
39,062 7,920 46,982
Additions based on tax positions related to 2023
15,903 50 15,953
Additions for tax positions of prior years 5,842 1,766 7,608
Reductions for tax positions of prior years (19,566) - (19,566)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations - - -
Gross unrecognized tax benefits at December 31, 2023
41,241 9,736 50,977
Additions based on tax positions related to the current year 1,354 - 1,354
Additions for tax positions of prior years 240 2,526 2,766
Reductions for tax positions of prior years (11,985) - (11,985)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations - - -
Gross unrecognized tax benefits at December 31, 2024
$ 30,850 $ 12,262 $ 43,112
Gross net unrecognized tax benefits that if recognized would impact the ETR at December 31, 2024
$ 30,850 $ 12,262
Less: Federal, state, and local income tax benefits (6,501)
Net unrecognized tax benefit reserves $ 36,611
Tax positions will initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. 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 relevant governmental taxing authorities. In establishing an income tax provision, the Company must make judgments and interpretations about the application of these inherently complex tax laws. The Company recognizes penalties and interest accrued related to unrecognized tax benefits within the Income tax provision on the Consolidated Statements of Operations.
With few exceptions, the Company is no longer subject to federal and non-U.S. income tax examinations by tax authorities for years prior to 2011 and state income tax examinations for years prior to 2006.
The Company applies an aggregate portfolio approach whereby income tax effects from AOCI are released only when an entire portfolio (i.e., all related units of account) of a particular type is liquidated, sold, or extinguished.
NOTE 18. STOCK-BASED COMPENSATION
Certain employees of the Company are eligible to received deferred compensation arrangements in the form of ADRs of Santander. The total of these compensation arrangements issued during the year ended December 31, 2024 was not material to the Consolidated Financial Statements.
As described in Note 12 of the Consolidated Financial Statements, on January 31, 2022, SHUSA acquired all shares of SC Common Stock it did not previously own, and SC became a wholly-owned subsidiary of SHUSA. As a result, each outstanding SC restricted stock unit was cancelled and replaced with an award providing the employee the right to receive ADRs of Santander. In addition, each outstanding SC stock option was cancelled and settled with the right to receive a cash payment. The changes to the stock-based compensation plans had no material impact on income or equity.
NOTE 19. OTHER EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsors a defined contribution plan offered to qualifying employees. Participants may annually contribute up to 75% of their compensation on a pre-tax basis subject to IRS limitations. The Company matching contribution is 100% of employee contributions up to 6% of eligible compensation that a participant contributes to the Plan. Matching contributions are made in cash and invested in accordance with the participant’s investment election. The Company match is immediately vested and is allocated to the employee’s various 401(k) plan investment options in the same percentages as the employee’s own contributions. The Company recognized expense for contributions to the 401(k) plan of $56.2 million, $62.4 million, and $57.0 million during 2024, 2023 and 2022, respectively, within the Compensation and benefits line on the Consolidated Statements of Operations.
Defined Benefit Plans and Other Post Retirement Benefit Plans
The Company sponsors a defined benefit pension plan and other post-retirement benefit plans that cover certain employees. All of these plans are frozen and therefore closed to new entrants; all benefits are fully vested, and the plans ceased accruing benefits. The Company complies with minimum funding requirements in all countries. The Company also sponsors several supplemental executive retirement plans and other unfunded post-retirement benefit plans that provide health care to certain retired employees.
The Company recognizes the funded status of its defined benefit pension plan and other post-retirement benefit plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, within Other liabilities on the Consolidated Balance Sheets. The Company has accrued liabilities of $22.0 million and $21.8 million related to its total defined benefit pension plan and other post-retirement benefit plans at December 31, 2024 and 2023, respectively. The net unfunded status related to the actuarially-valued defined benefit pension plan and other post-retirement plans was $9.3 million and $9.3 million at December 31, 2024 and 2023, respectively. During 2024, the Company terminated the defined benefit pension plan. It was partially settled in 2024 with lump sum payments to qualifying participants. This resulted in the payment of $12.0 million of cash and in the realization of a $4.0 million loss. During the first quarter of 2025, the Company will settle the remaining obligations of the defined pension plan resulting in an approximate loss of $23.0 million.
BSI and SanCap are participating employers in a defined benefit pension plan sponsored by Santander's New York branch, covering certain active and former employees. Effective December 31, 2012, the defined benefit pension plan was frozen. The plan was terminated in 2024. Amounts owed to the Santander New York Branch related to this plan are negligible.
NOTE 20. 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 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 meeting 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 14 to these Consolidated Financial Statements for discussion of all derivative contract commitments.
The following table details the amount of commitments at the dates indicated:
Other Commitments December 31, 2024 December 31, 2023
(in thousands)
Commitments to extend credit $ 24,202,682 $ 25,239,691
Letters of credit 1,243,122 1,168,681
Recourse exposure on sold loans 5,669 18,546
Total commitments $ 25,451,473 $ 26,426,918
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 December 31, 2024 and December 31, 2023 were $4.1 billion and $3.1 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.
During 2024, the Company sold an investment tax credit to a third party for approximately $21.4 million. The Company is obligated to indemnify the purchaser for losses incurred as a result of recapture or reductions of the tax credit. The indemnification expires at the later of the end of the recapture period (2029) or when the purchaser's tax returns are no longer subject to audit.
NOTE 20. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
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 December 31, 2024 was 9.1 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 December 31, 2024 was $1.2 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 December 31, 2024. 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 December 31, 2024 and December 31, 2023, the liability related to unfunded lending commitments was $47.9 million and $60.8 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.
RIC Commitments
The following table summarizes significant liabilities recorded for commitments and contingencies associated with the Company's RIC origination and servicing operations, all of which are included in Accounts payable and accrued expenses in the accompanying Consolidated Balance Sheets at the dates indicated:
Agreement or Legal Matter Commitment or Contingency December 31, 2024 December 31, 2023
(in thousands)
MPLFA Revenue-sharing and gain/(loss), net-sharing payments $ 6,000 $ 10,302
MPLFA
Under the terms of the MPLFA, SC must make revenue-sharing payments to Stellantis and also must share with Stellantis when residual gains/(losses) on leased vehicles exceed a specified threshold. The MPLFA requires SC to maintain at least $2.5 billion and $2.5 billion for each of floorplan and retail financing. In turn, Stellantis must provide designated minimum threshold percentages of its subvention business to SC.
Agreements
In connection with the sale of RICs through securitizations and other sales, SC and SBNA have made standard representations and warranties customary in the consumer finance industry. Violations of these representations and warranties may require SC or SBNA to repurchase loans previously sold to on or off-balance sheet Trusts or other third parties. As of December 31, 2024, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for SC's or SBNA's ABS or other sales. In the opinion of management, the potential exposure of other recourse obligations related to SC’s RIC sale agreements is not expected to have a material adverse effect on the Company's or SC’s or SBNA's business, consolidated financial position, results of operations, or cash flows.
NOTE 20. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
Santander has provided guarantees on the covenants, agreements, and obligations of SC under the governing documents of its warehouse facilities and privately issued amortizing notes. These guarantees are limited to the obligations of SC as servicer.
Since November 2015, SC is party to 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 December 31, 2024 and December 31, 2023 not subject to a market price check was zero.
Other Off-Balance Sheet Risk
Other off-balance sheet risk stems from financial instruments that do not meet the definition of guarantees under applicable accounting guidance and from other relationships that include items such as indemnifications provided in the ordinary course of business and intercompany guarantees.
NOTE 20. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
Contingent Liabilities
The Company entered into employment contracts in which the Company agreed to make guaranteed payments totaling $157.2 million, provided that certain employees remained employed with the Company. These payments include cash and ADRs of Santander to be paid as follows:
2025 $ 69,880
2026 44,358
2027 21,225
2028 16,394
5,353
Total $ 157,210
The Company had no other material amounts related to deferred compensation at December 31, 2024.
Legal and Regulatory Proceedings
The Company, including its subsidiaries, is and in the future periodically expects to be party to, or otherwise involved in, various claims, disputes, lawsuits, investigations, regulatory matters and other legal matters and proceedings that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of any such claim, dispute, lawsuit, investigation, regulatory matter and/or legal proceeding, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of the matters, or the eventual loss, fines or penalties related to the matters, if any. Accordingly, except as provided below, the Company is unable to reasonably estimate a range of its potential exposure, if any, to these claims, disputes, lawsuits, investigations, regulatory matters and other legal proceedings at this time. It is reasonably possible that actual outcomes or losses may differ materially from the Company's current assessments and estimates, and any adverse resolution of any of these matters against it could materially and adversely affect the Company's business, financial position, liquidity, and results of operations.
The Company establishes an accrued liability for legal and regulatory proceedings when those matters present material loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued that are reasonably possible.
As of December 31, 2024 and December 31, 2023, the Company accrued aggregate legal and regulatory liabilities of approximately $18.8 million and $12.4 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 $38.6 million as of December 31, 2024 and $14.6 million as of December 31, 2023. Set forth below are descriptions of the significant lawsuits, regulatory matters, and other legal proceedings to which the Company is subject.
Consumer Lending Cases
The Company and its subsidiaries are 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.
NOTE 20. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
Enterprise Financial Group v. SC. EFG, a former guaranteed auto protection products and services provider to SC, sued SC for breach of contract, alleging that SC placed non-conforming loans in the program, resulting in EFG losses. The case is pending in Texas District Court, Dallas County, and is captioned Enterprise Financial Group v. SC, Case No. 18-08119. SC asserted a counterclaim against EFG seeking approximately $10.5 million in connection with EFG’s refusal to pay claims. A jury trial concluded on November 2, 2022 and the jury awarded EFG $5 million and SC $4.2 million. On May 9, 2023, the court issued a final judgment awarding EFG approximately $10.6 million, and eliminating the jury award of $4.2 million in favor of SC. On July 17, 2023, the court heard arguments on SC’s motion for judgment notwithstanding the verdict, a new trial and remittitur. The court denied SC's motions for judgment notwithstanding the verdict, new trial, or remittitur. On December 31, 2024, the Court of Appeals for the Fifth District of Texas at Dallas denied SC's appeal of the trial court judgment. SC filed a petition for rehearing with the appellate court on January 14, 2025.
Real Legacy Assurance ERISA Litigation. On April 13, 2020, participants of the Real Legacy Assurance Plan, a pension plan, filed an amended complaint adding SSLLC as a defendant to an ERISA putative class action pending against the owner of Real Legacy, Real Legacy Board members, the Plan’s trustee, actuaries, and other defendants. The case is pending in the United States District Court for the District of Puerto Rico and captioned Vega-Ortiz et al v. Cooperativa de Seguros Multiples de Puerto Rico, et al, Civ. No. 3:19-cv-02056. The amended complaint alleges that SSLLC served as an investment manager to the Real Legacy Assurance Plan and breached its fiduciary duties by failing to ensure that the plan was adequately funded. On November 24, 2021, the court denied each of the defendants’ motions to dismiss. SSLLC filed its answer and discovery is ongoing. On April 4, 2023, the court granted the plaintiffs' motion for class certification. In August 2024, plaintiffs and SSLLC filed a motion seeking approval of a settlement under which SSLLC will pay plaintiffs $400,000 in exchange for a full release. Banco Popular objected to the settlement.
Santander Consumer USA Holdings Inc. Stockholders Litigation. A consolidated, certified class action litigation is pending in the Court of Chancery of the State of Delaware captioned In re Santander Consumer USA Holdings Inc. Stockholders Litigation, No. 2022-0689, filed by former SC shareholders against SHUSA, Santander and current and former SC directors and officers alleging breaches of fiduciary duty related to SHUSA’s January 2022 acquisition of the remaining minority shares of SC, allegedly resulting in a failure to fairly compensate the minority shareholders. On October 14, 2024, the defendants entered into a definitive settlement agreement resolving the litigation. The settlement agreement contemplates a combined payment by defendants of $162.5 million, inclusive of all attorneys' fees and expenses, and a full and complete release of all claims. Of such amount, a substantial majority will be covered by insurance. On December 17, 2024, the court approved the settlement, reserving judgment on the amount of an incentive award due to the lead plaintiff.
These matters are ongoing and could in the future result in the imposition of damages, fines, or other penalties. No assurance can be given that the ultimate outcome of these matters or any resulting proceedings would not materially and adversely affect the Company's business, financial condition, and results of operations.
Regulatory Investigations and Proceedings
The Company is party to, or is periodically otherwise involved in, reviews, investigations, examinations, and proceedings (both formal and informal), and information-gathering requests, by government and self-regulatory agencies, including the FRB of Boston, the CFPB, the DOJ, the SEC, the CFTC, the Federal Trade Commission and various state regulatory and enforcement agencies.
SanCap
SanCap is cooperating with the SEC in connection with an inquiry focused on compliance with business-related communications on messaging platforms that were not approved by SanCap. The inquiry follows a number of regulatory settlements with other firms covering similar matters. On January 13, 2025, the SEC announced resolution of this investigation, along with similar resolutions with 11 other firms. Under the SEC order resolving the investigation, SanCap agreed to pay a $4 million civil penalty and have its internal audit function perform an audit of SanCap's policies and procedures regarding such communications.
NOTE 21. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company conducts business with Santander and its subsidiaries. Santander policy requires that these transactions occur at prevailing market rates and terms, and, where applicable, these transactions are compliant with United States banking regulations. All extensions of credit by (and certain credit exposures of) the Bank to other Santander affiliates are legally required to be secured by eligible collateral. The following disclosures below are the more significant related party transactions entered into during the periods presented:
Mezzanine and Stockholder's Equity
Refer to Note 12 of these Consolidated Financial Statements for activities related to the Company's common and preferred stock wholly owned by Santander. The Company did not receive any capital contributions from Santander in 2024, 2023, or 2022.
Letters of credit and other Credit Facilities
In the normal course of business, SBNA provides letters of credit and standby letters of credit to affiliates. During the years ended December 31, 2024 and 2023, the average unfunded balance outstanding under these commitments was $175.8 million and $167.2 million, respectively. BSI also provides standby letters of credit to affiliates. As of December 31, 2024 and 2023, the outstanding balance under these commitments was $393.4 million and $310.2 million, respectively. Santander's New York branch also provides standby letters of credit to the Bank. As of December 31, 2024, and 2023, no amounts have been drawn under these standby letters of credit.
Santander provides a liquidity line to SHUSA for the purpose of supporting additional liquidity for SHUSA's and its subsidiaries' CIB business activities. At December 31, 2024, SHUSA had $4.0 billion in uncommitted available liquidity, of which it had drawn zero.
Debt and Other Securities
The Company and its subsidiaries have various debt agreements with affiliates, including Santander. For a listing of these debt agreements, see Note 10 to these Consolidated Financial Statements.
Derivatives
As of December 31, 2024 and 2023, the Company has entered into derivative agreements with Santander, which consist primarily of swap agreements to hedge interest rate risk and foreign currency exposure with notional values of $47.4 billion and $48.4 billion, respectively.
Loans to Officers and Directors
In the ordinary course of business, we may provide loans to our executive officers and directors, also known as Regulations O insiders. Pursuant to our policy, such loans are generally issued on the same terms as those prevailing at the time for comparable loans to unrelated persons and do not involve more than the normal risk of collectability. As permitted by Regulation O, certain mortgage loans to directors and executive officers of the Company are priced at up to a 0.25% discount to market as part of a widely-available employee benefit program but contain no other terms than terms available in comparable transactions with non-employees. The 0.25% discount is discontinued when an employee terminates his or her employment with the Company. The outstanding balance of these loans as of December 31, 2024 and 2023 was $0.3 million and $1.0 million, respectively.
NOTE 21. RELATED PARTY TRANSACTIONS (continued)
Deposit and checking accounts
At December 31, 2024, affiliates of Santander that are not consolidated by SHUSA had deposits with SBNA of $256.9 million and $141.8 million as of December 31, 2024 and December 31, 2023, respectively.
SHUSA and SBNA Service Agreements
The Company and its affiliates entered into or were subject to various service agreements with Santander and its affiliates. The following agreements do not eliminate in consolidation:
•NW Services Co., a Santander affiliate doing business as Aquanima, is under contract with the Company to provide procurement services, with fees paid in the amount of $12.3 million in 2024, $11.9 million in 2023 and $11.9 million in 2022. The fees related to this agreement are recorded in Technology, outside service, and marketing expense in the Consolidated Statements of Operations. There were no material payables in connection with this agreement in 2024 or 2023.
•Santander Global Technology and Operations S.L. and Santander Global Technologies Mexico are under contract with the Company to provide professional services, IT development, support, and administration, with fees for these services paid in the amount of $121.9 million in 2024, $139.3 million in 2023 and $123.1 million in 2022. The fees related to this agreement are capitalized in Premises and equipment, net on the Consolidated Balance Sheets. There were no material payables in connection with this agreement in 2024 or 2023.
•Santander Back-Offices Globales Mayoristas S.A., a Santander affiliate, is under contract with the Company to provide administrative services and back-office support for SBNA’s derivative, foreign exchange and hedging transactions and programs. Fees were paid to Santander Back-Offices Globales Mayoristas S.A. with respect to this agreement in the amounts of $4.0 million in 2024, $8.4 million in 2023 and $8.1 million in 2022. There were no material payables in connection with this agreement in 2024 or 2023. The fees related to this agreement are recorded in Technology, outside service, and marketing expense in the Consolidated Statements of Operations.
•During the years ended December 31, 2024, 2023 and 2022, the Company paid $0.2 million, $1.0 million, $13.2 million to Santander for the development and implementation of global projects as part of internal expense allocation. There were no material payables in connection with this agreement in 2024 or 2023.
•Open Digital Services, SL, a Santander affiliate, is under contract with the Company to provide development support and services in connection with the Company's Openbank platform. During the years ended December 31, 2024 and 2023, the Company paid $43.0 million and $20.7 million, respectively. There were no material payables at December 31, 2024 and 2023 in connection with this agreement in 2024 or 2023.
•SBNA and SanCap entered into an agreement with Santander's New York branch under which the three entities have been operating under a 'one CIB' model in the U.S. where certain risk management, project management and reporting functions are performed in centralized teams for the benefit of CIB. Further, CIB leverages cross-function reporting, resulting in certain employees providing services outside their legal entity of employment. The transactions between SBNA and SanCap eliminate in consolidation. The transactions involving Santander's New York branch do not eliminate and for the years ended December 31, 2024, 2023, and 2022, SBNA paid total fees net of fees received, of $24.4 million, and of $15.0 million, respectively, and received net fee income $8.4 million, which the Company recognized within Miscellaneous income, net in the Consolidated Statements of Operations. At December 31, 2024 and 2023, the Company had a net receivable from Santander's New York branch of $13.3 million and $13.3 million in connection with this agreement.
•In 2024, SanCap received Service fees, net of $140.3 million in connection with services provided to Santander New York Branch in connection with its U.S. Banking business. At December 31, 2024, SanCap had receivables in connection with these services of $49.5 million.
•In the fourth quarter of 2022, the Company entered into an office rental agreement for shared space at 437 Madison Avenue, New York, New York for which the Company recorded straight-line rent expense of $14.0 million for the year ended December 31, 2024. A majority of this amount is eliminated within consolidated entities. Approximately $10.0 million for the year ended December 31, 2024 was assigned to Santander for space utilized by Santander's New York branch employees and receivable at December 31, 2024. There were no material receivable amounts related to this agreement at December 31, 2024.
NOTE 21. RELATED PARTY TRANSACTIONS (continued)
U.S. Auto related-party transactions
During the year ended December 31, 2022, SC incurred interest expense on a committed unsecured revolving credit agreement with Santander in the amount of $29.0 million.
On March 2, 2022, the Company purchased an equity investment in AutoFi, a privately held corporation that provides technology solutions to the auto industry, including services to online auto marketplaces, auto dealers, and auto lenders, including SC. The investment consisted of $22.9 million of common stock purchased from existing shareholders and $41.1 million of preferred shares of a new series issuance, for a $64.0 million total, resulting in the Company holding approximately 9.4% of the total equity shares of AutoFi. The Company did not obtain voting rights for its shares; however, it was granted one seat on AutoFi’s Board of Directors (now consisting of 6 voting members including SHUSA). During the years ended December 31, 2024 and 2023, the Company recorded approximately $10 million and $6 million in impairments on this investment.
Repurchase Agreements and Securities Trading
During the year ended December 31, 2024, SanCap entered into intercompany repurchase agreements and securities trading with Santander and its affiliates. The gross principal amount outstanding on these repurchase agreements, which do not eliminate in consolidation, was $1.1 billion at December 31, 2024. During the year ended December 31, 2024, the amount of income / expense related to these accounts was negligible to the overall results of the Company and Santander.
Employee Services Agreements
The Company has agreements with and between its consolidated entities under which certain employees provide services, including HR, IT, legal, compliance, accounting, and other services across entities. Intercompany revenues and expenses for these services eliminate in consolidation.
In addition to those noted above, other subsidiaries of the Company have entered into or were subject to various agreements with Santander or its affiliates. Those agreements include the following:
•BSI enters into transactions with affiliated entities in the ordinary course of business. During the year ended December 31, 2024 and 2023, BSI had loan participations outstanding with recourse to Santander of $210.0 million and $210.0 million, respectively. As of December 31, 2024, BSI had deposits with unconsolidated affiliates of $11.1 million. BSI had short-term borrowings with unconsolidated affiliates of $752.3 million at December 31, 2024, compared to $427.5 million as of December 31, 2023. BSI had deposits from unconsolidated affiliates of $18.8 million and $5.6 million as of December 31, 2024 and 2023, respectively. BSI also leases space from affiliated entities that eliminate in consolidation.
•SanCap enters into transactions with affiliated entities in the ordinary course of business. SanCap executes, clears certain of its securities transactions through various affiliates in Latin America and Europe, participates in underwriting activities for affiliates, earns revenue from investment and other services performed for affiliates, and also pays for management, administrative support, system, and risk management services provided by affiliates. These transactions eliminate in consolidation.
•SanCap pays for the cost of personnel, management, administrative support, risk management, and other services provided by affiliates. These transactions eliminate in consolidation. The amount paid eliminates in consolidation. During the year, SanCap entered into short-term intercompany securities financing activities with the Bank, the effects of which also eliminated in consolidation.
•SSLLC maintains a contract with the Bank to provide integrated services and conduct broker-dealer activities and insurance services. SSLLC collects amounts due from customers on behalf of the Bank and remits the amounts net of fees. Fees recognized related to this agreement eliminate in consolidation.
NOTE 22. REGULATORY MATTERS
The Company is subject to the regulations of certain federal, state, and foreign agencies, and undergoes periodic examinations by such regulatory authorities.
The minimum U.S. regulatory capital ratios for banks under Basel III are 4.5% for the CET1 capital ratio, 6.0% for the Tier 1 capital ratio, 8.0% for the total capital ratio, and 4.0% for the leverage ratio. To qualify as “well-capitalized,” regulators require banks to maintain capital ratios of at least 6.5% for the CET1 capital ratio, 8.0% for the Tier 1 capital ratio, 10.0% for the total capital ratio, and 5.0% for the leverage ratio. At December 31, 2024 and 2023, SBNA met the well-capitalized capital ratio requirements.
As a BHC, SHUSA is required to maintain a CET1 capital ratio of at least 4.5%, a Tier 1 capital ratio of at least 6.0%, a total capital ratio of at least 8.0%, and a leverage ratio of at least 4.0%. The Company’s capital levels exceeded the ratios required for BHCs. The Company's ability to make capital distributions will depend on the Federal Reserve's review of the Company's capital plan, the results of the stress tests described in this Form 10-K, and the Company's capital status, as well as other supervisory factors.
The DFA mandates an enhanced supervisory framework, which, among other things, means that the Company is subject to both internal and Federal Reserve run stress tests. The Federal Reserve also has discretionary authority to establish additional prudential standards, on its own or at the Financial Stability Oversight Council's recommendation, regarding contingent capital, enhanced public disclosures, short-term debt limits, and otherwise as it deems appropriate.
For a discussion of Basel III and the standardized approach and related future changes to the minimum U.S. regulatory capital ratios, see the section of the MD&A captioned "Regulatory Matters."
NOTE 22. REGULATORY MATTERS (continued)
The FDIA established five capital tiers: well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. A depository institution’s capital tier depends on its capital levels in relation to various capital measures, which include leverage and risk-based capital measures and certain other factors. Depository institutions that are not classified as well-capitalized or adequately-capitalized are subject to various restrictions regarding capital distributions, payment of management fees, acceptance of brokered deposits and other operating activities.
Federal banking laws, regulations and policies also limit SBNA’s ability to pay dividends and make other distributions to the Company. The Bank 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 be required if the Bank is 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 2024, 2023, and 2022, SBNA did not pay dividends to SHUSA. During 2024, 2023, and 2022, the Company paid common stock cash dividends to Santander of $1.1 billion, $3.0 billion and $4.8 billion, respectively, and preferred stock cash dividends to Santander of $176.9 million, $90.8 million, and zero, respectively.
During 2024, the Company did not issue any preferred stock. During 2023, the Company issued $1.0 billion of Series F Preferred Stock and $500 million of Series G Preferred Stock. During 2022, the Company issued $500 million of Series E Preferred Stock. Refer to Note 12 of the Consolidated Financial Statements for further discussion of these transactions.
The following schedule summarizes the actual capital balances of SBNA and SHUSA at December 31, 2024 and 2023:
REGULATORY CAPITAL
(Dollars in thousands) CET 1 Capital Ratio Tier 1 Capital
Ratio Total Capital
Ratio Leverage
Ratio
SBNA at December 31, 2024(1):
Regulatory capital $ 11,843,518 $ 11,843,518 $ 12,686,405 $ 11,843,518
Capital ratio 17.67 % 17.67 % 18.93 % 11.54 %
SHUSA at December 31, 2024(1):
Regulatory capital $ 13,723,689 $ 15,838,682 $ 18,176,680 $ 15,838,682
Capital ratio 12.71 % 14.66 % 16.83 % 9.27 %
CET 1 Capital Ratio Tier 1 Capital
Ratio Total Capital
Ratio Leverage
Ratio
SBNA at December 31, 2023(1):
Regulatory capital $ 11,303,222 $ 11,303,222 $ 12,194,680 $ 11,303,222
Capital ratio 15.96 % 15.96 % 17.22 % 11.55 %
SHUSA at December 31, 2023(1):
Regulatory capital $ 14,204,804 $ 16,434,790 $ 18,837,604 $ 16,434,790
Capital ratio 12.37 % 14.32 % 16.41 % 9.82 %
(1) Capital ratios calculated under CECL transition provisions permitted by the CARES Act.
NOTE 23. BUSINESS SEGMENT INFORMATION
Business Segment Products and Services
The Company’s reportable segments are based principally around the customers the Company serves. The Company has identified the following reportable segments: Auto, CBB, C&I, CRE, CIB, and Wealth Management.
•The Auto segment includes the Company's consumer and commercial auto loans and leases and the Company's commercial loans to dealers and dealer floorplan financing products. This includes the Company's specialized consumer finance subsidiary focused on vehicle finance and third-party servicing. The specialized consumer finance subsidiary'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. The Company offers a full spectrum of auto financing products and services to captive financing companies. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. The Company also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders.
•The CBB segment includes the products and services provided to consumer and small business banking customers, including consumer deposit, small business banking, unsecured lending, and investment services. This segment offers a wide range of products and services to consumers and business banking customers, including demand and interest-bearing demand deposit accounts, money market and savings accounts, CDs, and retirement savings products. It also offers lending products such as unsecured personal loans, credit cards, and small business loans such as business lines of credit. In addition, the Company makes investment services available to its retail customers, including products such as annuities, mutual funds, managed accounts, and insurance products through a networking agreement with a consolidated affiliate.
•The C&I segment currently provides commercial lines, loans, letters of credit, receivables financing, commercial credit cards, and cash management and deposit services to lower middle market commercial customers and to medium- and large-sized commercial customers, as well as financing and deposits for government entities. This segment also provides niche product financing for specific industries.
•The CRE segment offers CRE loans, CEVF, and multifamily loans, as well as cash management and deposit services to customers. This category also includes community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.
•The CIB segment serves the needs of global corporate and institutional customers by leveraging the international footprint of Santander to provide financing and banking services to corporations with over $500 million in annual revenues. CIB's offerings and strategy are based on Santander's local and global capabilities in wholesale banking. CIB also includes the Company's institutional broker-dealer that provides services in investment banking, sales, trading, and equity research reports.
•The Wealth Management segment consists of the Company's international private banking and financial operations Services and includes the full range of banking and asset management services to foreign individuals and corporations based primarily in Latin America.
The Company also offers customer-related derivatives across segments to hedge interest rate risk. In the C&I, CRE, and CIB business segments and the dealer commercial lending division of the Auto business segment, the Company offers derivatives relating to foreign exchange and lending arrangements. See Note 14 to these Consolidated Financial Statements for additional details.
The Other category includes certain immaterial subsidiaries, the unallocated interest expense on the Company's borrowings and other debt obligations and certain unallocated corporate income and indirect expenses.
NOTE 23. BUSINESS SEGMENT INFORMATION (continued)
The Chief Operating Decision Maker is the Company's CEO. The Company's segment results are derived from the Company’s business unit profitability reporting system by specifically attributing managed balance sheet assets, deposits and other liabilities and their related interest income or expense to each of the segments. Funds transfer pricing methodologies are utilized to allocate a cost for funds used or a credit for funds provided to business line deposits, loans and selected other assets using a matched funding concept. The methodology includes a liquidity premium adjustment, which considers an appropriate market participant spread for commercial loans and deposits based on 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. These 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 these 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 are dynamic processes and are 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 practical.
Results of Segments
The following tables outline the discreet financial information regularly provided to the CODM.
NOTE 23. BUSINESS SEGMENT INFORMATION (continued)
Year ended
SHUSA Reportable Segments
Consumer Activities Commercial Activities
December 31, 2024 Auto CBB C&I CRE CIB Wealth Management Other (1)
Total
(in thousands)
Interest income
$ 6,413,954 $ 2,936,381 $ 988,260 $ 1,535,054 $ 3,886,608 $ 372,343 $ (2,666,464) $ 13,466,136
Interest expense
2,764,998 1,466,384 632,687 1,034,675 3,767,155 156,952 (1,934,273) 7,888,578
Fees and other income
71,853 139,054 66,264 75,983 661,321 321,832 89,763 1,426,070
Lease income
2,178,597 - - - - - - 2,178,597
Credit loss expense / (benefit) 1,955,368 18,447 (66,184) 69,767 (37,540) - (2,739) 1,937,119
Lease expense
1,707,582 - - - 611 - - 1,708,193
General, administrative and other expenses
1,334,282 1,421,597 214,494 138,473 843,645 279,904 333,880 4,566,275
Income/(loss) before income taxes 902,174 169,007 273,527 368,122 (25,942) 257,319 (973,569) 970,638
Total assets 60,421,685 9,505,663 3,740,417 23,265,209 25,351,991 7,570,085 35,393,700 165,248,750
(1) Other includes the results of the immaterial entities, earnings from non-strategic assets, the investment portfolio, interest expense on the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.
NOTE 23. BUSINESS SEGMENT INFORMATION (continued)
Year ended
SHUSA Reportable Segments
Consumer Activities Commercial Activities
December 31, 2023 Auto CBB C&I CRE CIB Wealth Management Other (1)
Total
(in thousands)
Interest income
$ 5,877,997 $ 2,686,686 $ 942,533 $ 1,339,814 $ 3,656,939 $ 367,263 $ (2,516,142) $ 12,355,090
Interest expense
2,221,376 1,075,053 619,659 891,395 3,455,439 94,013 (1,877,193) 6,479,742
Fees and other income
17,540 259,680 55,507 24,813 365,336 248,668 30,315 1,001,859
Lease income
2,462,916 - 70 - 4 - - 2,462,990
Credit loss expense / (benefit) 1,798,268 301,884 (23,299) 176,183 (20,666) 205 (6,137) 2,226,438
Lease expense
1,922,921 (469) (100) (139) 3,066 - - 1,925,279
General, administrative and other expenses
1,350,734 1,462,047 260,759 135,239 626,269 279,425 287,251 4,401,724
Income/(loss) before income taxes 1,065,154 107,851 141,091 161,949 (41,829) 242,288 (889,748) 786,756
Total assets 61,712,245 12,085,567 5,129,520 23,616,225 26,416,104 7,576,807 28,436,107 164,972,575
(1) Refer to corresponding notes above.
Year ended
SHUSA Reportable Segments
Consumer Activities Commercial Activities
December 31, 2022 Auto CBB C&I CRE CIB Wealth Management Other (1)
Total
(in thousands)
Interest income
$ 5,275,803 $ 1,779,457 $ 525,745 $ 744,905 $ 1,232,015 $ 191,374 $ (1,328,106) $ 8,421,193
Interest expense
1,234,801 375,527 214,498 386,223 1,053,581 13,748 (1,031,648) 2,246,730
Fees and other income
128,613 300,316 62,691 36,407 245,955 258,939 45,674 1,078,595
Lease income
2,650,223 - 433 - 12 - - 2,650,668
Credit loss expense / (benefit)
1,730,062 216,600 47,788 7,321 19,651 - (2,605) 2,018,817
Lease expense
2,034,288 - 315 - 2,112 - - 2,036,715
General, administrative and other expenses
1,260,977 1,517,245 253,010 125,830 456,796 244,862 241,344 4,100,064
Income/(loss) before income taxes 1,794,511 (29,599) 73,258 261,938 (54,158) 191,703 (489,523) 1,748,130
Total assets 62,645,083 13,107,982 6,289,544 20,464,295 30,478,602 7,854,953 27,353,861 168,194,320
(1) Refer to corresponding notes above.
NOTE 24. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information of the parent company is as follows:
BALANCE SHEETS
At December 31,
2024 2023
(in thousands)
Assets
Cash and cash equivalents $ 3,833,795 $ 2,858,612
Other investment securities
93,811 62,615
Loans to bank subsidiaries 550,000 500,000
Loans to non-bank subsidiaries 5,685,838 5,234,463
Investment in subsidiaries:
Bank subsidiaries 9,784,600 8,979,330
Non-bank subsidiaries (1)
10,652,590 10,828,135
Premises and equipment, net 41,116 35,402
Equity method investments 4,716 4,706
Restricted cash 67,313 66,822
Deferred tax assets, net 33,737 53,189
Other assets
563,849 586,467
Total assets $ 31,311,365 $ 29,209,741
Liabilities and stockholder's equity
Borrowings and other debt obligations $ 13,000,039 $ 11,249,393
Borrowings from non-bank subsidiaries 155,667 157,794
Deferred tax liabilities, net 2,180 62,507
Other liabilities 477,952 239,150
Total liabilities 13,635,838 11,708,844
Mezzanine equity 2,000,000 2,000,000
Stockholder's equity 15,675,527 15,500,897
Total liabilities, mezzanine, and stockholder's equity $ 31,311,365 $ 29,209,741
(1) At both December 31, 2024 and December 31, 2023, the Company had $945.9 million of goodwill attributable to the Auto reporting unit.
NOTE 24. PARENT COMPANY FINANCIAL INFORMATION (continued)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
Year Ended December 31,
2024 2023 2022
(in thousands)
Dividends from bank subsidiary $ 160,000 $ 420,000 $ 40,000
Dividends from non-bank subsidiaries 1,000,000 1,758,963 4,500,000
Interest income 407,637 288,045 247,043
Income/(expense) from equity method investments
10 37 (1,355)
Other income
330,939 111,283 84,363
Total income 1,898,586 2,578,328 4,870,051
Interest expense 651,095 484,058 357,727
Other expense 666,822 318,472 297,162
Total expense 1,317,917 802,530 654,889
Income before income taxes and equity in net income/(loss) less dividends from subsidiaries
580,669 1,775,798 4,215,162
Income tax benefit (158,606) (168,423) (72,191)
Income/(loss) before equity in net income/(loss) less dividends from subsidiaries
739,275 1,944,221 4,287,353
Equity in net (loss)/income less dividends from bank subsidiaries
541,960 (27,186) 341,935
Equity in net (loss)/income less dividends from non-bank subsidiaries
(203,836) (984,133) (3,224,281)
Net income/(loss) 1,077,399 932,902 1,405,007
Other comprehensive income, net of tax:
Net unrealized gains/(losses) on cash flow hedge derivative financial instruments
182,349 261,145 (435,647)
Net unrealized gains/(losses) recognized on investment securities
160,205 6,021 (716,667)
Pension and post-retirement actuarial gains, net of tax 5,314 3,289 4,401
Total other comprehensive gain/(loss)
347,868 270,455 (1,147,913)
Comprehensive income/(loss) $ 1,425,267 $ 1,203,357 $ 257,094
NOTE 24. PARENT COMPANY FINANCIAL INFORMATION (continued)
STATEMENT OF CASH FLOWS
For The Year Ended December 31,
2024 2023 2022
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 1,077,399 $ 932,902 $ 1,405,007
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax expense/(benefit)
(29,764) 35,113 333,309
Equity in net (income)/loss less dividends from subsidiaries:
Bank subsidiaries (1)
(541,960) 27,186 (341,935)
Non-bank subsidiaries (2)
203,836 984,133 3,224,281
Depreciation, amortization, and accretion 48,570 38,154 50,981
Other operating activities, net
218,380 (342,488) (207,156)
Net cash provided by/(used in) operating activities
976,461 1,675,000 4,464,487
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of other investments (43,599) (4,538) (64,000)
Net capital (contributed to)/returned from subsidiaries
(2,826) (140,415) 11,587
Originations of loans to subsidiaries (3)
(40,676,600) (25,008,600) (25,827,535)
Repayments of loans by subsidiaries (3)
40,175,225 23,312,075 28,139,597
Acquisition of PCH - - (447,954)
Proceeds from business divestitures 74,543 - -
Purchases of premises and equipment (12,392) (13,058) (14,261)
Net cash (used in)/provided by investing activities
(485,649) (1,854,536) 1,797,434
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Parent Company debt obligations (1,500,000) - (3,314,190)
Net proceeds received from Parent Company debt obligations 3,237,638 1,991,615 2,926,264
Net change in borrowings from non-bank subsidiaries (2,127) 3,935 1,833
Dividends paid on preferred stock
(176,927) (90,774) -
Dividends paid on common stock (1,125,000) (3,000,000) (4,750,000)
Stock repurchase - - (2,532,365)
Proceeds from business divestitures, net of tax
51,278 - -
Preferred stock offering - 1,500,000 500,000
Net cash provided by/(used in) financing activities
484,862 404,776 (7,168,458)
Net increase/(decrease) in cash, cash equivalents, and restricted cash
975,674 225,240 (906,537)
Cash, cash equivalents, and restricted cash at beginning of period 2,925,434 2,700,194 3,606,731
Cash, cash equivalents, and restricted cash at end of period (4)
$ 3,901,108 $ 2,925,434 $ 2,700,194
(1) Amounts for the years ended December 31, 2024, 2023, and 2022 exclude dividends from Bank subsidiaries of $160.0 million, $420.0 million, and $40.0 million, respectively.
(2) Amounts for the years ended December 31, 2024, 2023, and 2022 exclude dividends from non-bank subsidiaries of $1.0 billion, $1.8 billion, and $4.5 billion, respectively.
(3) Amounts for the years ended December 31, 2024 and 2023 exclude non-cash loan renewals of $500.0 million and $1.0 billion, respectively.
(4) Amounts for the years ended December 31, 2024, 2023, and 2022 include cash and cash equivalents balances of $3.8 billion, $2.9 billion, and $2.6 billion, respectively, and restricted cash balances of $67.3 million, $66.8 million, and $56.7 million, respectively.
NOTE 25. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the years ended December 31, 2024, 2023, and 2022 was as follows:
Year ended December 31,
2024 2023 2022
(in thousands)
SUPPLEMENTAL DISCLOSURES
Income taxes paid/(received), net $ 105,035 $ 329,836 $ (554,758)
Interest paid 7,952,547 6,178,880 2,035,904
NON-CASH TRANSACTIONS
Loans transferred to/(from) OREO and other repossessed assets
50,069 54,416 11,901
Loans transferred from/(to) LHFI (from)/to LHFS, net 578,118 768,655 464,460
Transfer of financial interest in a VIE - Loans 1,290,891 347,443 -
Transfer of financial interest in a VIE - Borrowings
1,105,745 293,044 -
Unsettled purchases of investment securities 18,488 17,744 21,242
AFS investment securities transferred to HTM investment securities 3,882 - 2,982,195
Non-cash transfer of financial assets in an off-balance sheet securitization transaction 53,050 - -

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its auditors on accounting principles, practices, or financial statement disclosure during and through the date of the financial statements included in this report.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A - 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 the Evaluation Date. Based on this evaluation, our CEO and CFO have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company's internal control over financial reporting is a process designed under the supervision of the Company's CEO and CFO and effected by the Company's Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with GAAP.
Management's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
As of December 31, 2024, management assessed the effectiveness of the Company's internal control over financial reporting based on the criteria established in "Internal Control - Integrated Framework" (the 2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2024.
PricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024, as stated in their report, which appears in Part II, Item 8 of this Annual Report on Form 10-K.
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 Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B - OTHER INFORMATION
Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
(Amounts presented as actuals)
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.
The following activities are disclosed in response to Section 13(r) with respect to Santander and its affiliates. During the period covered by this report:
•Santander UK holds ten blocked accounts for seven customers that are currently designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander UK on these accounts for the year ended December 31, 2024 were negligible relative to the overall profits of Santander.
•Santander Consumer Finance, S.A. holds through its Belgian branch seven blocked correspondent accounts for an Iranian bank that is currently designated by the U.S. under the SDGT sanctions program. The accounts have been blocked since 2008. No revenues or profits were generated by the Belgian branch on these accounts in the year ended December 31, 2024.
•Santander Brasil holds three blocked accounts for three customers with domicile in Brazil designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander Brasil on these accounts in the year ended December 31, 2024 were negligible relative to the overall profits of Santander.
•Santander also has certain legacy performance guarantees for the benefit of an Iranian bank that is currently designated by the U.S. under the SDGT sanctions program (standby letters of credit to guarantee the obligations, either under tender documents or under contracting agreements, of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.
In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the year ended December 31, 2024 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 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Omitted.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11 - EXECUTIVE COMPENSATION
Omitted.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDER MATTERS
Omitted.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13 - RELATED PARTY TRANSACTIONS
Omitted.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
Fees of the Independent Auditor
The following table set forth the aggregate fees for services rendered, for the fiscal year ended December 31, 2024 by our principal accounting firm, PricewaterhouseCoopers LLP.
Fiscal Year Ended December 31, 2024(1)
Parent Company and SBNA SC All Other Entities Total
(in thousands)
Audit Fees (2)
$ 9,926 $ 6,050 $ 2,179 $ 18,155
Audit-Related Fees (3)
915 588 280 1,783
Tax Fees (4)
100 225 - 325
All Other Fees (5)
2 - - 2
Total Fees (6)
$ 10,943 $ 6,863 $ 2,459 $ 20,265
(1) Represents proposed fees approved by the Audit Committee.
(2) Audit fees include fees associated with the annual audit of financial statements and the audit of internal control over financial reporting, reviews of the interim financial statements included in quarterly reports and statutory/subsidiary audits.
(3) Audit-related fees principally include attestation and agreed-upon procedures which address accounting, reporting and control matters, consent to use the Company's report in connection with various documents filed with the SEC, and comfort letters issued to underwriters for securities offerings.
(4) Tax fees include tax compliance, tax advice and tax planning.
(5) All other fees are fees for any services not included in the first three categories.
(6) Total fees exclude $525.0 million for sustainability assurance engagements.
The following table set forth the aggregate fees for services rendered for the fiscal year ended December 31, 2023.
Fiscal Year Ended December 31, 2023(1)
Parent Company and SBNA SC All Other Entities Total
(in thousands)
Audit Fees (2)
$ 9,231 $ 5,673 $ 1,875 $ 16,779
Audit-Related Fees (3)
1,175 766 500 2,441
Tax Fees (4)
1,350 250 - 1,600
All Other Fees(5)
10 12 - 22
Total Fees (6)
$ 11,766 $ 6,701 $ 2,375 $ 20,842
(1) Audit fees for 2023 have been adjusted to reflect amounts billed in 2024 related to 2023 audits.
(2) Audit fees include fees associated with the annual audit of financial statements and the audit of internal control over financial reporting, reviews of the interim financial statements included in quarterly reports and statutory/subsidiary audits.
(3) Audit-related fees principally include attestation and agreed-upon procedures which address accounting, reporting and control matters, consent to use the Company's report in connection with various documents filed with the SEC, and comfort letters issued to underwriters for securities offerings.
(4) Tax fees include tax compliance, tax advice and tax planning.
(5) All other fees are fees for any services not included in the first three categories.
(6) Total fees exclude $525.0 million for sustainability assurance engagements.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by Independent Auditor
During 2024, SHUSA’s Audit Committee pre-approved 100% of audit and non-prohibited, non-audit services provided by the independent auditor. These services may have included audit services, audit-related services, tax services and other services. Pre-approval was generally provided by the Audit Committee for up to one year and any pre-approval was detailed as to the particular service or category of services and was subject to a specific budget. In addition, the Audit Committee may also have pre-approved particular services on a case-by-case basis. For each proposed service, the Audit Committee received detailed information sufficient to enable it to pre-approve and evaluate such service. The Audit Committee may have delegated pre-approval authority to one or more of its members. Any pre-approval decision made under delegated authority was communicated to the Audit Committee at or before its next scheduled meeting. There were no waivers by the Audit Committee of the pre-approval requirement for permissible non-audit services in 2024.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
1. The following Consolidated Financial Statements as set forth in Part II, Item 8 of this Annual Report on Form 10-K are filed herein:
Consolidated Financial Statements.
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholder's Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
2. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are omitted because the required information is either not applicable, not required or is shown in the respective financial statements or in the notes thereto.
(b)
(3.1) Amended and Restated Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s Current Report on Form 8-K filed December 21, 2022) (Commission File Number 001-16581)
(3.2) Articles of Amendment to the Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of Santander Holdings USA, Inc.’s Current Report on Form 8-K filed June 15, 2023) (Commission File Number 001-16581)
(3.3) Articles of Amendment to the Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Santander Holdings USA, Inc.’s S-3ASR filed December 15, 2023) (Commission File Number 333-276089)
(3.4) 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 Annual Report on Form 10-K. Santander Holdings USA, Inc. agrees to furnish copies to the SEC on request.
(23.1) Consent of PricewaterhouseCoopers LLP (Santander Holdings USA, Inc.) (Filed herewith)
(31.1) Chief Executive Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
(31.2) Chief Financial Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
(32.1) Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
(32.2) Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
(101.INS) Inline XBRL Instance Document (Filed herewith)
(101.SCH) Inline XBRL Taxonomy Extension Schema (Filed herewith)
(101.CAL) Inline XBRL Taxonomy Extension Calculation Linkbase (Filed herewith)
(101.DEF) Inline XBRL Taxonomy Extension Definition Linkbase (Filed herewith)
(101.LAB) Inline XBRL Taxonomy Extension Label Linkbase (Filed herewith)
(101.PRE) Inline XBRL Taxonomy Extension Presentation Linkbase (Filed herewith)