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

Although SHUSA believes that the expectations reflected in these forward-looking statements are reasonable as of the date on which the statements are made, these statements are not guarantees of future performance and involve risks and uncertainties based on various factors and assumptions, many of which are beyond the Company's control. For more information regarding these risks and uncertainties as well as additional risks that the Company faces, refer to the Risk Factors detailed in Item 1A of Part 1 of the Company's annual report on Form 10-K for the year ended December 31, 2016. Among the factors that could cause SHUSA’s financial performance to differ materially from that suggested by forward-looking statements are:

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

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

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

In conjunction with a ten-year private label financing agreement with Fiat Chrysler Automobiles US LLC ("FCA") that became effective May 1, 2013 (the "Chrysler Agreement"), SC offers a full spectrum of auto financing products and services to FCA customers and dealers under the Chrysler Capital brand. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. Refer to Note 1416 for additional details.

As of ~~June 30, 2017,~~March 31, 2018, SC was owned approximately ~~58.7%~~68.0% by SHUSA and ~~41.3%~~32.0% by ~~noncontrolling~~other shareholders. During 2017, SHUSA increased its ownership in SC; refer to additional details in Note 21 of the Company's Annual Report on Form 10-K as of December 31, 2017. Common shares of SC ("SC Common Stock") are listed on the New York Stock Exchange (the "NYSE") under the trading symbol "SC."

These Condensed Consolidated Financial Statements include the assets, liabilities, revenues and expenses accounts of the Company and its consolidated subsidiaries, including the Bank, SC, and certain special purpose financing trusts utilized in financing transactions that are considered VIEs. The Company generally consolidates VIEs for which it is deemed to be the primary beneficiary and generally consolidates voting interest entities ("VOEs") in which the Company has a controlling financial interest. ~~The Condensed~~All significant intercompany balances and transactions have been eliminated in consolidation. These Consolidated Financial Statements have been prepared by the Company pursuant to Securities and Exchange Commission ("SEC") regulations. ~~All significant intercompany balances and transactions have been eliminated in consolidation.~~ Additionally, where applicable, the Company's accounting policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. ~~However, in~~In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments of a normal and recurring nature necessary for a fair statement of the ~~Condensed~~ Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholder's Equity and Statements of Cash Flows ("SCF") for the periods indicated, and contain adequate disclosure for the fair statement of this interim financial information.

We have made certain corrections to previously disclosed amounts to correct for errors related to the classification of ~~Deferred Tax~~cash flows from the sale of automobiles returned to the Company at the end of a lease term.

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

Beginning ~~December 31, 2015~~June 30, 2014 through ~~March 31,~~September 30, 2017, ~~net deferred tax assets and net deferred tax liabilities~~cash flows from the sale of ~~entities filing separate U.S. Federal tax returns~~automobiles returned to the Company at the end of a lease term were ~~improperly offset~~incorrectly recorded in the ~~Company’s~~ Consolidated ~~Balance Sheet. As a result,~~SCF, resulting in an overstatement of cash flows from investing activities (Proceeds from the ~~Company understated Deferred Tax Assets, Total Assets, Deferred Tax Liabilities~~sale and ~~Total Liabilities by $981.7 million, $989.8 million, $791.2 million, $756.1 million, $743.0 million,~~termination of operating leases) and ~~$804.5~~an understatement of cash flows from operating activities (Depreciation, amortization and accretion) in the amount of $149.9 million for the ~~periods~~three-months ended March 31, ~~2017, December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016,~~2017. There was no net impact to cash provided by financing activities. The misclassification errors did not impact the net change in cash and ~~December 31, 2015, respectively.~~

Management has identified (i) ~~accounting for consolidation, (ii) business combinations, (iii)~~ the allowance for loan losses for originated and purchased loans and the reserve for unfunded lending commitments, ~~(iv) loan modifications~~(ii) valuation of automotive leases and ~~troubled debt restructurings (“TDRs”), (v)~~residuals, (iii) accretion of discounts and subvention on RICs, (iv) goodwill, (vi) ~~derivatives~~fair value of financial instruments, and ~~hedging activities, and (vii)~~(v) income taxes as the Company's significant accounting policies and estimates, in that they are important to the portrayal of the Company's financial condition, results of operations and cash flows and the accounting estimates related thereto require management's most difficult, subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's ~~December 31, 2016~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2017.

As of ~~June 30, 2017,~~March 31, 2018, with the exception of the items noted in the section captioned "Recently Adopted Accounting ~~Policies"~~Standards" below, there have been no significant changes to the Company's accounting policies as disclosed in the Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

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

As a result of the adoption of the new accounting standards outlined above, the Company recorded a cumulative net increase to opening Retained earnings of $42.0 million. Those impacts were attributed to the following ASUs adopted during the period:

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

As required by the adoption of ASU ~~2016-17,~~ ~~Consolidation (Topic 810), Interest Held Through Related Parties That Are Under Common Control.~~ ~~This~~2016-18 and ASU ~~amends~~2014-09, the ~~guidance~~following additional accounting policy disclosures are required for the nature of cash restrictions, and revenue recognized from contracts with customers from disclosures included in ~~generally accepted accounting principles~~our Annual Report on Form 10-K for the year ended December 31, 2017:

Cash, Cash Equivalents, and Restricted Cash

Cash deposited to support securitization transactions, lockbox collections, and related required reserve accounts are recorded in the ~~U.S. ("GAAP")~~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 line of credit or trust. The Company also maintains restricted cash primarily related to cash posted as collateral related to derivative agreements, cash restricted for investment purposes and cash advanced for loan purchases.

Revenue Recognized from Contracts with Customers

Depository services

Depository services are performed under an agreement with a customer, and those services include: personal deposit account opening and maintaining, checking service, online banking service, 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.

Commissions and trailer fees

Commission fees are earned from the selling of annuity contracts to customers on ~~related parties~~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 to which it could be entitled to earn. Commissions are generally associated with point-in-time transactions or agreements that are ~~under common control. Specifically,~~one year or less. The performance obligation is satisfied immediately and revenue is recognized as the ~~new ASU requires that~~Company performs the service.

Interchange income, net

The Company has entered into agreements with payment networks, in which the Company will issue the payment network's credit card as part of the Company's credit card portfolio. Each time a ~~single decision maker consider indirect interests held by~~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 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 considerations 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 ~~parties under common control~~to upfront sign-on bonuses and program development bonuses, which are amortized over the remainder of the agreement's life on a ~~proportionate basis in~~straight-line basis.

13

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

Underwriting service fees

SIS, as a ~~manner consistent with its evaluation~~registered broker-dealer, performs underwriting services by raising investment capital from investors on behalf of ~~indirect interests held through other related parties. The adoption of this ASU did not~~corporations that are issuing securities. Underwriting services have ~~an impact~~one performance obligation, which is satisfied on the ~~Company's financial position~~day SIS purchases the securities.

Underwriting services include multiple parties in delivering the performance obligation. The Company has evaluated whether it is the principal or ~~results~~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 ~~operations.~~the securities and the public offering price, and expenses are recorded as the proportionate share of the underwriting costs incurred by SIS. 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.

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 when the Company performs the administration and management of a customer’s account. The transaction price includes variable consideration, however there is uncertainty associated with accurately estimating revenue to be earned in the future. The Company earns and recognizes investment management fees on a quarterly basis based on the average assets under management.

Non-discretionary investment advisory fees are earned when the Company provides investment advisory services to customers, such as recommending the rebalancing or restructuring of the securities in the Customer’s account. The transaction price for investment advisory fees includes both fixed consideration, in the form of a minimum annual fee, and variable consideration dependent on the average assets under management, calculated similarly to investment management fees above. The Company earns investment advisory fees on a quarterly basis based on the minimum annual fee and the average assets under management.

NOTE 2. RECENT ACCOUNTING DEVELOPMENTS

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, superseding the revenue recognition requirements in ASC 605. This ASU requires an entity to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment includes a five-step process to assist an entity in achieving the main principle(s) of revenue recognition under ASC 605. In August 2015, the FASB issued ASU 2015-14, which formalized the deferral of the effective date of the amendment for a period of one year from the original effective date. Following the issuance of ASU 2015-14, the amendment will be effective for the Company for the first annual period beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09, which revises the structure of the indicators to determine whether the entity is the principal or agent in a revenue transaction, and eliminated two of the indicators (“the entity’s consideration is in the form of a commission” and “the entity is not exposed to credit risk”) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB also issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity's promise to grant a license with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU 2016-12, an amendment to ASU 2014-09, which provided practical expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on transition, collectability, non-cash consideration and the presentation of sales and other similar taxes. In December 2016, the FASB issued ASU 2016-20, a separate update for technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09, to increase stakeholders’ awareness of the proposals and to expedite improvements to Update 2014-09. The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption.

Because the ASU does not apply to revenue associated with leases and financial instruments (including loans, securities, and derivatives), the Company does not expect the new guidance to have a material impact on the elements of its Consolidated Statements of Operations most closely associated with leases and financial instruments (such as interest income, interest expense and securities gains and losses). The Company expects to adopt this ASU in the first quarter of 2018 using a modified retrospective approach with a cumulative-effect adjustment to opening retained earnings. The Company’s ongoing implementation efforts include the identification of other revenue streams that are within the scope of the new guidance and reviewing related contracts with customers to determine whether any accounting changes will be required. The timing and classification of certain contract costs presented in the Consolidated Statements of Operations is under evaluation and could change upon adoption. Finally, the Company is evaluating changes that will be required to applicable disclosures.

12

~~SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTE 2. RECENT ACCOUNTING DEVELOPMENTS (continued)~~

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance, as amended, in this update supersedes the current lease accounting guidance for both lessees and lessors under ASC 840, Leases. The new guidance requires lessees to evaluate whether a lease is a finance lease using criteria similar to what lessees use today to determine whether they have a capital lease. Leases not classified as finance leases are classified as operating leases. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. The lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similarly to today’s guidance for operating leases. The new guidance will require lessors to account for leases using an approach that is substantially similar to the existing ~~guidance for sales-type, direct financing leases and operating leases.~~guidance. This new guidance will be effective for the Company for the first reporting period beginning after December 15, 2018, with earlier adoption permitted. The Company does not intend to early adopt this ASU. Adoption of this amendment must be applied on a modified retrospective approach. The Company is in the process of reviewing our existing property and equipment lease contracts, as well as service contracts that may include embedded leases. Upon adoption, the Company expects to report higher assets and liabilities from recording the present value of the future minimum lease payments of the leases.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This new guidance significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For ~~available-for-sale~~AFS debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the ~~OTTI~~other-than-temporary impairment (“OTTI') model. ItThe standard also simplifies the accounting model for purchased credit-impaired debt securities and loans. The new guidance will be effective for the Company for the first reporting period beginning after December 15, 2019, with earlier adoption permitted. Adoption of this new guidance can be applied only on a prospective basis as a cumulative-effect adjustment to retained earnings. The Company is currently evaluating the impact of the new guidance on its Consolidated Financial Statements. It is expected that the new model will include different assumptions used in calculating credit losses, such as estimating losses over the estimated life

14

NOTE 2. RECENT ACCOUNTING DEVELOPMENTS (continued)

of a financial asset, and will consider expected future changes in macroeconomic conditions. The adoption of this ASU may result in an increase to the Company’s allowance for credit losses ~~(“ACL”~~("ACL"), which will depend upon the nature and characteristics of the Company's portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at that date. The Company currently does not intend to early adopt this new guidance.

~~In January 2017, the FASB also issued ASU 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.~~ It removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The new rules provide that a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The revised guidance will be applied prospectively, and is effective for calendar year-end SEC filers in 2020. Early adoption is permitted for impairment tests performed after January 1, 2017. The Company is in the process of evaluating the impacts of the adoption of this ASU.

In addition to those described in detail above, the Company is ~~also~~ in the process of evaluating the following ASUs, and does not expect them to have a material impact on the Company's financial position, results of operations, or disclosures:

ASU ~~2016-01,~~2017-06, ~~Financial Instruments - Overall (Subtopic 825-10)~~Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): ~~Recognition and Measurement of Financial Assets and Financial Liabilities.~~

~~ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments~~

~~ASU 2016-16,~~ ~~Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory~~

~~ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash (A~~Employee Benefit Plan Master Trust Reporting (a consensus of the ~~FASB~~ Emerging Issues Task Force)

~~ASU 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~

~~ASU 2017-05,~~ Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

13

~~SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTE 2. RECENT ACCOUNTING DEVELOPMENTS (continued)~~

~~ASU 2017-07,~~ ~~Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~

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

~~ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting~~

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

NOTE 3. INVESTMENT SECURITIES

Summary of Investment in Debt Securities ~~Summary~~ - ~~Available-for-sale~~AFS and ~~Held-to-maturity~~HTM

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

June 30, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Loss

Fair
Value
(in thousands)
U.S. Treasury securities $ 1,678,867
$ 927
$ (2,368 ) $ 1,677,426
Corporate debt securities 196,721
300
—
197,021
Asset-backed securities (“ABS”) 751,225
13,996
(1,417 ) 763,804
Equity securities 11,879
—
(547 ) 11,332
State and municipal securities 27
—
—
27
Mortgage-backed securities (“MBS”):
U.S. government agencies - Residential 5,477,266
6,894
(52,051 ) 5,432,109
U.S. government agencies - Commercial 1,296,178
2,734
(7,129 ) 1,291,783
Federal Home Loan Mortgage Corporation (“FHLMC”)
and Federal National Mortgage Association ("FNMA") - Residential debt securities 9,115,809
12,835
(125,420 ) 9,003,224
FHLMC and FNMA - Commercial debt securities 23,320
—
(458 ) 22,862
Non-agency securities 2
—
—
2
Total investment securities available-for-sale $ 18,551,294
$ 37,686
$ (189,390 ) $ 18,399,590



	March 31, 2018									December 31, 2017
(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	$	1,388,611	$	4	$	(13,510	)	$	1,375,105	$	1,006,219	$	—	$	(8,107	)	$	998,112
Corporate debt securities	2,722		1		—			2,723		11,639		21		—			11,660
Asset-backed securities (“ABS”)	482,770		6,341		(1,879		)	487,232		501,575		6,901		(1,314		)	507,162
Equity securities ⁽¹⁾	—		—		—			—		11,428		—		(614		)	10,814
State and municipal securities	21		—		—			21		23		—		—			23
Mortgage-backed securities (“MBS”):
GNMA - Residential	3,999,258		5,022		(99,197		)	3,905,083		4,745,998		3,531		(62,524		)	4,687,005
GNMA - Commercial	895,577		82		(17,192		)	878,467		1,377,449		179		(19,917		)	1,357,711
FHLMC and FNMA - Residential	6,879,034		417		(228,635		)	6,650,816		6,958,433		1,093		(141,393		)	6,818,133
FHLMC and FNMA - Commercial	22,840		—		(693		)	22,147		23,003		—		(440		)	22,563
Total investments in debt securities AFS	$	13,670,833	$	11,867	$	(361,106	)	$	13,321,594	$	14,635,767	$	11,725	$	(234,309	)	$	14,413,183

14

~~SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTE 3. INVESTMENT SECURITIES (continued)~~

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Loss

Fair
Value
(in thousands)
U.S. Treasury securities $ 1,857,357
$ 1,826
$ (2,326 ) $ 1,856,857
ABS 1,196,702
16,410
(2,388 ) 1,210,724
Equity securities 11,716
—
(565 ) 11,151
State and municipal securities 30
—
—
30
MBS:
U.S. government agencies - Residential 5,424,412
3,253
(64,537 ) 5,363,128
U.S. government agencies - Commercial 948,696
1,998
(8,196 ) 942,498
FHLMC and FNMA - Residential debt securities 7,765,003
6,712
(154,858 ) 7,616,857
FHLMC and FNMA - Commercial debt securities 23,636
—
(670 ) 22,966
Non-agency securities 14
—
—
14
Total investment securities available-for-sale $ 17,227,566
$ 30,199
$ (233,540 ) $ 17,024,225
(1) Reflects the reclassification of the Company's investments in equity securities to Other investments as a result of the adoption of ASU 2016-01 as of January 1, 2018.

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

June 30, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Loss

Fair
Value
(in thousands)
MBS:
U.S. government agencies - Residential $ 1,575,037
$ 1,193
$ (27,219 ) $ 1,549,011
Total investment securities held-to-maturity $ 1,575,037
$ 1,193
$ (27,219 ) $ 1,549,011



	March 31, 2018									December 31, 2017
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss			Fair Value
MBS:
GNMA - Residential	$	1,947,672	$	—	$	(62,258	)	$	1,885,414	$	1,447,669	$	722	$	(26,150	)	$	1,422,241
GNMA - Commercial	929,685		—		(17,401		)	912,284		352,139		325		(767		)	351,697
Total investments in debt securities HTM	$	2,877,357	$	—	$	(79,659	)	$	2,797,698	$	1,799,808	$	1,047	$	(26,917	)	$	1,773,938

15

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Loss

Fair
Value
(in thousands)
MBS:
U.S. government agencies - Residential $ 1,658,644
$ 2,195
$ (25,426 ) $ 1,635,413
Total investment securities held-to-maturity $ 1,658,644
$ 2,195
$ (25,426 ) $ 1,635,413

NOTE 3. INVESTMENT SECURITIES (continued)

The Company continuously evaluates its investment strategies in light of changes in the regulatory and market environments that could have an impact on capital and liquidity. Based on this evaluation, it is reasonably possible that the Company may elect to pursue other strategies relative to its investment securities portfolio. During the three-month period ended March 31, 2018, the Company transferred approximately $1.2 billion of MBS from AFS to HTM in conjunction with Santander's capital management strategy.

As of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company had ~~investment~~investments in debt securities ~~available-for-sale~~AFS with an estimated fair value of ~~$6.5~~$6.1 billion and ~~$7.2~~$5.9 billion, respectively, pledged as collateral, which was comprised of the following: ~~$3.0~~$3.1 billion and ~~$3.2~~$3.0 billion, respectively, were pledged as collateral for the Company's borrowing capacity with the Federal Reserve Bank ~~("FRB"~~(the "FRB"); ~~$2.4~~$2.1 billion and ~~$3.0~~$2.3 billion, respectively, were pledged to secure public fund deposits; ~~$102.2~~$225.1 million and ~~$109.7~~$243.8 million, respectively, were pledged to various independent parties to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; ~~$622.1~~$347.4 million and ~~$622.0~~$0.0 million, respectively, were pledged to deposits with clearing organizations; and ~~$332.0~~$325.6 million and ~~$271.2~~$387.9 million, respectively, were pledged to secure the Company's customer overnight sweep product.

At ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company had ~~$48.2~~$44.9 million and ~~$44.8~~$47.0 million, respectively, of accrued interest related to investment securities which is included in the ~~Accrued interest receivable~~Other assets line of the Company's Condensed Consolidated Balance ~~Sheet.~~

15

~~SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTE 3. INVESTMENT SECURITIES (continued)~~Sheets.

Contractual Maturity of Debt Securities

Contractual maturities of the Company’s debt securities ~~available-for-sale~~AFS at ~~June 30, 2017~~March 31, 2018 were as follows:

Amortized Cost Fair Value
(in thousands)
Due within one year $ 1,223,057
$ 1,222,961
Due after 1 year but within 5 years 1,253,062
1,265,742
Due after 5 years but within 10 years 228,059
226,979
Due after 10 years 15,835,237
15,672,576
Total $ 18,539,415
$ 18,388,258



(in thousands)	Amortized Cost		Fair Value
Due within one year	$	540,050	$	539,712
Due after 1 year but within 5 years	1,214,394		1,207,322
Due after 5 years but within 10 years	169,152		165,500
Due after 10 years	11,747,237		11,409,060
Total	$	13,670,833	$	13,321,594

Contractual maturities of the Company’s debt securities ~~held-to-maturity~~HTM at ~~June 30, 2017~~March 31, 2018 were as follows:


	Amortized Cost		Fair Value
	(in thousands)
(in thousands)					Amortized Cost		Fair Value
Due within one year					$	—	$	—
Due after 1 year but within 5 years					—		—
Due after 5 years but within 10 years					—		—
Due after 10 years	$	1,575,037	$	1,549,011	$	2,877,357	$	2,797,698
Total	$	1,575,037	$	1,549,011	$	2,877,357	$	2,797,698

NOTE 3. INVESTMENT SECURITIES (continued)

The following tables present the aggregate amount of unrealized losses as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 on securities in the Company’s ~~available-for-sale~~AFS investment portfolios classified according to the amount of time those securities have been in a continuous loss position:

The following tables present the aggregate amount of unrealized losses as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 on debt securities in the Company’s held-to-maturity investment portfolios classified according to the amount of time those securities have been in a continuous loss position:

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

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

The Company ~~did not record any material~~recorded no OTTI ~~in earnings~~ related to its investment securities for the three-month ~~and six-month~~ periods ended ~~June 30,~~March 31, 2018 and 2017, ~~and recognized $34 thousand and $44 thousand OTTI for the three-month and six-month periods ended June 30, 2016.~~respectively.

NOTE 3. INVESTMENT SECURITIES (continued)

Management has concluded that the unrealized losses on its debt ~~and equity~~ securities for which it has not recognized OTTI (which were comprised of ~~560~~531 individual securities at ~~June 30, 2017)~~March 31, 2018) are temporary in nature since (1) they reflect the increase in interest rates, which lowers the current fair value of the securities, (2) they are not related to the underlying credit quality of the issuers, (3) the entire contractual principal and interest due on these securities is currently expected to be recoverable, (4) the Company does not intend to sell these investments at a loss and (5) it is more likely than not that the Company will not be required to sell the investments before recovery of the amortized cost basis, which for the Company's debt securities may be at maturity. Accordingly, the Company has concluded that the impairment on these securities is not ~~other-than-temporary.~~other than temporary.

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

The Company recognized ~~$11.1 million~~$18.0 thousand for the three-month ~~and six-month periods~~period ended ~~June 30, 2017,~~March 31, 2018 in net ~~gains~~losses on the sale of AFS investment securities as a result of overall balance sheet and interest rate risk management. The net ~~gain~~loss realized for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 was primarily comprised of the sale of ~~U.S. Treasury securities with a book value of $739.4 million for a gain of $1.8 million, and the sale of MBS's,~~MBS, including FHLMC residential debt securities and collateralized mortgage obligations ("CMOs"), with a ~~book~~fair value of ~~$555.6 million~~$319 thousand for a ~~gain~~loss of ~~$9.3 million.~~$18 thousand.

The Company recognized $31.3 million and $57.7 million for the three-month and six-month periods ended June 30, 2016 in net gains on the sale of AFS investment securities as a result of overall balance sheet and interest rate risk management. The net gain realizedThere was no significant activity for the three-month period ended ~~June 30, 2016 was primarily comprised~~March 31, 2017.

Other Investments consisted of the sale of U.S. Treasury securities with a book value of $344.4 million for a gain of $0.3 million, corporate debt securities sold with a book value of $1.4 billion for a gain of $5.9 million, and the sale of MBS's, including FHLMC residential debt securities and CMO's, with a book value of $1.3 billion for a gain of $24.7 million. The net gain realized for the six-month period ended June 30, 2016 was primarily comprised of the sale of state and municipal securities with a book value of $748.0 million for a gain of $19.9 million, the sale of U.S. Treasury securities with a book value of $3.2 billion for a gain of $7.0 million, corporate debt securities sold with a book value of $1.4 billion for a gain of $5.9 million, and the sale of MBS, including FHLMC residential debt securities and CMO's, with a book value of $1.3 billion for a gain of $24.7 million.

Other investments primarily include the Company's investment in the stock of the ~~FHLB~~Federal Home Loan Bank ("FHLB") of Pittsburgh and the ~~FRB with aggregate carrying amounts of $653.2 million and $680.5 million as of June 30, 2017 and December 31, 2016, respectively.~~FRB. These stocks do not have readily determinable fair values because their ownership is restricted and they lack a market. The stocks can be sold back only at their par value of $100 per share, and FHLB stock can be sold back only to the FHLB or to another member institution. Accordingly, these stocks are carried at cost. During the three-month ~~and six-month periods~~period ended ~~June 30, 2017,~~March 31, 2018, the Company purchased ~~$75.6 million and $88.8~~$10.2 million of FHLB stock at par ~~respectively,~~ and redeemed ~~$52.6 million and $117.1~~$25.9 million of FHLB stock at par. There was no gain or loss associated with these redemptions. During the three-month ~~and six-month periods~~period ended ~~June 30, 2017,~~March 31, 2018, the Company did not purchase any FRB stock.

Other investments also ~~include $70.0 million and $50.4 million of~~includes low-income housing tax credit ("(“LIHTC") investments, time deposits with a maturity of greater than 90 days held at non-affiliated financial institutions, trading securities, and $10.9 million of equity securities measured at fair value with changes in fair value

NOTE 3. INVESTMENT SECURITIES (continued)

recognized in net income. These consist primarily of Community Reinvestment Act (“CRA") mutual fund investments reclassified as a result of ~~June 30, 2017 and~~the first quarter 2018 adoption of ASU 2016-01, discussed further in Note 1. These investments were included in Investments AFS at December 31, ~~2016, respectively.~~2017.

~~The~~With the exception of equity and trading securities which are measured at fair value, the Company evaluates these other investments for impairment based on the ultimate recoverability of the carrying value, rather than by recognizing temporary declines in value.

The Company's loans are reported at their outstanding principal balances net of any ~~unearned income,~~ cumulative charge-offs, unamortized deferred fees and costs and unamortized premiums or discounts. The Company maintains an ACL to provide for losses inherent in its portfolios. Certain loans are pledged as collateral for borrowings, securitizations, or special purpose entities ("(“SPEs"). These loans totaled ~~$52.2~~$47.3 billion at ~~June 30, 2017~~March 31, 2018 and ~~$53.5~~$50.8 billion at December 31, ~~2016.~~2017.

Loans that the Company intends to sell are classified as ~~loans-held-for-sale (“LHFS”).~~LHFS. The LHFS portfolio balance at ~~June 30, 2017~~March 31, 2018 was ~~$2.5~~$2.0 billion, compared to ~~$2.6~~$2.5 billion at December 31, ~~2016.~~2017. LHFS in the residential mortgage portfolio are ~~either~~ reported at either estimated fair value (if the fair value option (the "FVO") is elected) or at the lower of cost or fair value. For a discussion on the valuation of LHFS at fair value, see Note 1614 to the Condensed Consolidated Financial Statements. During the third quarter of 2015, the Company determined that it no longer intended to hold certain personal lending assets at SC for investment. The Company adjusted the ACL associated with SC's personal loan portfolio through the provision for credit losses to value the portfolio at the lower of cost or market. Upon transferring the loans to LHFS at fair value, the adjusted credit loss allowance was released as a charge-off. Loan originations and purchasesLoans under SC’s personal lending platform ~~during 2016~~ have been classified as ~~held for sale~~HFS and ~~subsequent~~ adjustments to lower of cost or market are recorded through Miscellaneous Income (Expense), net on the Condensed Consolidated Statements of Operations. As of ~~June 30, 2017,~~March 31, 2018, the carrying value of the personal unsecured ~~held-for-sale~~HFS portfolio was ~~$971.9 million.~~$1.0 billion.

Interest on loans is credited to income as it is earned. Loan origination fees and certain direct loan origination costs are deferred and recognized as adjustments to interest income in the Condensed Consolidated Statements of Operations over the contractual life of the loan utilizing the interest ~~method~~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 ~~quarterly~~monthly basis. At ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, accrued interest receivable on the Company's loans was ~~$503.2~~$450.0 million and ~~$554.5~~$515.9 million, respectively.

During the quarter ended March 31, 2018, the Company sold substantially all of its mortgage warehouse facilities, which had a book value of $499.2 million for net proceeds of $515.8 million. The $16.7 million gain on sale is recognized within Miscellaneous income, net on the Condensed Consolidated Statements of Operations.

NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The following presents the composition of the gross loans and leases ~~held-for-investment~~HFI by portfolio and by rate type:

~~GAAP~~Generally accepted accounting principles (“GAAP") requires that entities disclose information about the credit quality of their 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 ~~an alternate~~similar categorization compared to the financial statement categorization of loans to model and calculate the ACL and track the credit quality, delinquency and impairment status of the underlying loan populations. In disaggregating its financing receivables portfolio, the Company’s methodology begins with the commercial and consumer segments.

The commercial segmentation reflects line of business distinctions. The ~~three commercial real estate lines~~CRE line of business ~~distinctions include “Corporate banking,” which~~ includes commercial and industrial owner-occupied real estate ~~“Middle market real estate,” which represents the portfolio of~~and specialized lending for investment real ~~estate, including financing~~estate. The Company's allowance methodology further classifies loans in this line of business into construction and non-construction loans; however, the methodology for ~~continuing care retirement communities~~development and ~~“Santander real estate capital”, which is the commercial real estate portfolio~~determination of the ~~specialized lending group.~~allowance is generally consistent between the two portfolios. "Commercial and industrial" includes non-real estate-related commercial and industrial 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 business.

The Company's portfolio classes are substantially the same as its financial statement categorization of loans for the 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. ~~"RIC~~"RICs and auto loans" includes the Company's direct automobile loan portfolios, but excludes RV and marine RICs. "Personal unsecured loans" includes personal revolving loans and credit cards. “Other consumer” includes an acquired portfolio of marine RICs and RV contracts as well as indirect auto loans.

NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

In accordance with the Company's accounting policy when establishing the collective ACL for originated loans, the Company's estimate of losses on recorded investment includes the estimate of the related net unaccreted discount balance that is expected at the time of charge-off, while it considers the entire unaccreted discount for loan portfolios purchased at a discount as available to absorb the credit losses when determining the ACL specific to these portfolios. This accounting policy is not applicable for the purchased loan portfolios acquired with evidence of credit deterioration, on which we elected to apply the FVO.

During the ~~six months~~three-month periods ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the Company originated ~~$3.4~~$2.0 billion and ~~$4.6~~$1.6 billion, respectively, in Chrysler Capital loans, which represented ~~43%~~46% and ~~52%~~42%, respectively, of the Company's total RIC originations. As of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016, SC's~~2017, the Company's auto RIC portfolio consisted of ~~$7.2~~$7.0 billion and ~~$7.4~~$8.2 billion, respectively, of Chrysler Capital loans, which represented 31% and ~~32%~~37%, respectively, of ~~SC's~~the Company's auto RIC portfolio.

NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The recorded investment in non-accrual loans disaggregated by class of financing receivables and other non-performing assets is summarized as follows:

The servicing practices for RICs originated after January 1, 2017 changed such that there is an increase in the minimum payment requirements. While this change does impact the measurement of customer delinquencies, we concluded that it does not have a significant impact on the amount or timing of the recognition of credit losses and allowance for loan losses. For reporting of past due loans, a payment of 90% or more of the amount due is considered to meet the contractual requirements. For certain RICs originated prior to January 1, 2017, the Company considers 50% of a single payment due sufficient to qualify as a payment for past due classification purposes. For RICs originated after January 1, 2017, the required minimum payment is 90% of the scheduled payment, regardless of which origination channel through which the receivable was ~~originated through.~~originated. The ~~Company aggregates~~payment following the partial ~~payments in determining whether~~payment must be a full payment, ~~has been missed in computing past due status.~~

The age of recorded investments in past due loans and accruing loans ~~greater than~~ 90 days or greater past due disaggregated by class of financing receivables is summarized as follows:

Impaired loans disaggregated by class of financing receivables are summarized as follows:

NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The Company recognized interest income, not including the impact of purchase accounting adjustments, of ~~$437.9~~$261.2 million for the ~~six-month~~three-month period ended ~~June 30, 2017~~March 31, 2018 on approximately $~~5.6~~5.8 billion of TDRs that were in performing status as of ~~June 30, 2017~~March 31, 2018.

The Company recognized interest income, not including the impact of purchase accounting adjustments, of $~~657.5~~795.4 million for the year ended December 31, ~~2016~~2017 on approximately ~~$5.2~~$5.8 billion of TDRs that were in performing status as of December 31, ~~2016~~2017.

Commercial credit quality disaggregated by class of financing receivables is summarized according to standard regulatory classifications as follows:

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.

Commercial loan credit quality indicators by class of financing receivables are summarized as follows:

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 as follows:

All of the Company’s commercial loan modifications are based on the circumstances of the individual customer, including specific customers' complete relationships 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 and interest rate ~~reductions, etc.~~reductions. Modifications for commercial loan TDRs generally, although not always, result in bifurcation of the original loan into A and B notes. The A note is restructured to allow for upgraded risk rating and return to accrual status after a sustained period of payment performance has been achieved (typically six months for monthly payment schedules). The B note, if any, is structured as a deficiency note; the balance is charged off but the debt is usually not forgiven. Commercial TDRs are generally placed on non-accrual status until the Company believes repayment under the revised terms is reasonably assured and a sustained period of repayment performance has been achieved (typically six months for a monthly amortizing loan). TDRs are subject to analysis for specific reserves by either calculating the present value of expected future cash flows or, if collateral-dependent, calculating the fair value of the collateral less its estimated cost to sell. The TDR classification will remain on the loan until it is paid in full or liquidated.

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 debt-to-income ("(“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 the Company’s other consumer portfolios, including RICs and auto loans, the terms of the modifications generally include one or a combination of: a reduction of the stated interest rate of the loan to a rate of interest lower than the current market rate for new debt with similar risk, an extension of the maturity date or principal forgiveness.

Consumer TDRs excluding RICs are generally placed on non-accrual status until the Company believes repayment under the revised terms is reasonably assured and a sustained period of repayment performance has been achieved (typically six months for a monthly amortizing loan). Any loan that has remained current for the six months immediately prior to modification will remain on accrual status after the modification is implemented. RIC TDRs are placed on nonaccrual status when the Company believes repayment under the revised terms is not reasonably assured, and considered for return to accrual when a sustained period of repayment performance has been achieved. The TDR classification will remain on the loan until it is paid in full or liquidated.

In addition to loans identified as TDRs above, the guidance also requires loans discharged under Chapter 7 bankruptcy proceedings to be considered TDRs and collateral-dependent, regardless of delinquency status. TDRs that are collateral-dependent loans must be written down to the fair market value of the collateral, less costs to sell and classified as non-accrual/non-performing loans (“NPLs") for the remaining life of the loan.

The ALLL is established to recognize losses inherent in funded loans intended to be ~~held for investment~~HFI that are probable and can be reasonably estimated. Prior to loans being placed in TDR status, the Company generally measures its allowance under a loss contingency methodology in which consumer loans with similar risk characteristics are pooled and loss experience information is monitored for credit risk and deterioration with statistical tools considering factors such as delinquency, LTV and credit scores.

Upon TDR modification, the Company generally measures impairment based on a present value of expected future cash flows methodology considering all available evidence, by discounting expected future cash flows using the original effective interest rate or fair value of collateral less costs to sell. The amount of the required ALLL is equal to the difference between the loan’s impaired value and the recorded investment.

~~When a~~RIC TDRs that subsequently default continue to have impairment measured based on the difference between the recorded investment of the RIC and the present value of expected cash flows. For the Company's other consumer TDR ~~subsequently~~portfolios, impairment on subsequent defaults ~~the Company~~is generally ~~measures impairment~~measured based on the fair value of the collateral, if applicable, less its estimated cost to sell.

Typically, commercial loans whose terms are modified in a TDR will have been identified as impaired prior to modification and accounted for generally using a present value of expected future cash flows methodology, unless the loan is considered collateral-dependent. Loans considered collateral-dependent are measured for impairment based on their fair values of collateral less estimated cost to sell. Accordingly, upon TDR modification or if a TDR modification subsequently defaults, the allowance methodology remains unchanged.

A TDR is generally considered to have subsequently defaulted if, after modification, the loan becomes 90 days past due. For RICs, a TDR is considered to have subsequently defaulted after modification at the earlier of the date of repossession or 120 days past due. The following table details period-end recorded investment balances of TDRs that became TDRs during the past twelve-month period and have subsequently defaulted during the three-month ~~and six-month~~ periods ended ~~June 30,~~March 31, 2018 and March 31, 2017, ~~and June 30, 2016,~~ respectively.

The Company has operating leases which are included in the Company's Condensed Consolidated Balance Sheets as Operating lease assets, net. The leased vehicle portfolio consists primarily of leases originated under the Chrysler Agreement.

The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of ~~June 30, 2017~~March 31, 2018 (in thousands):

Lease income was $540.9 million and $496.0 million for the three-month ~~and six-month~~ periods ended ~~June 30,~~March 31, 2018 and 2017, ~~was $489.0~~respectively.

During the three-month periods ended March 31, 2018 and 2017, the Company recognized $53.2 million and ~~$985.1~~$22.7 million, respectively, ~~compared~~of net gains on the sale of operating lease assets that had been returned to ~~$456.9 million and $877.8 million, respectively, for~~ the ~~three-month and six-month periods ended June 30, 2016.~~Company at the end of the lease term. These amounts are recorded within Miscellaneous income, net in the Company's Condensed Consolidated Statements of Operations.

Lease expense was $424.3 million and $358.8 million for the three-month ~~and six-month~~ periods ended ~~June 30,~~March 31, 2018 and 2017, ~~was $369.2 million and $728.0 million, respectively, compared to $322.2 million and $615.0 million, respectively, for the three-month and six-month periods ended June 30, 2016.~~respectively.

39

The Company transfers RICs and ~~leased vehicles~~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 the Condensed Consolidated ~~Balance Sheets.~~Financial Statements.

For further description of the ~~Company's~~Company’s securitization activities, involvement with VIEs and accounting policies regarding consolidation of VIEs, see Note 7 of ~~the 2016~~its Annual Report on Form ~~10-K.~~10-K for 2017.

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

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

The Company retains servicing responsibility 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~~Miscellaneous income. As of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company was servicing ~~$27.7~~$25.4 billion and ~~$27.4~~$26.1 billion, respectively, of RICs that have been transferred to consolidated Trusts. The remainder of the Company’s RICs remains unpledged.

NOTE 6. ~~VARIABLE INTEREST ENTITIES~~VIEs (continued)

Below is a summary of the cash flows received from the on-balance sheet Trusts for the periods indicated:

During the three-month ~~and six-month~~ periods ended ~~June 30,~~March 31, 2018 and 2017, the Company sold ~~$536.3~~$1.5 billion and $700.0 million ~~and $1.2 billion~~ of gross RICs to VIEs in off-balance sheet securitizations for a loss of ~~$3.5~~$16.9 million and ~~$6.2~~$2.7 million, respectively. The ~~transaction was~~transactions were executed under ~~the new~~ securitization ~~platform-SPAIN~~platforms with Santander. Santander ~~will hold~~holds eligible vertical interests in notes and certificates of not less than 5% to comply with the ~~DFA~~DFA's risk retention rules. ~~For the three-month and six-month periods ended June 30, 2016, the Company executed no off-balance sheet securitizations with VIEs in which it has continuing involvement.~~

As of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company was servicing ~~$3.0~~$4.4 billion and ~~$2.7~~$3.4 billion, respectively, of gross RICs that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call. The portfolio was comprised as follows:

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

A summary of the cash flows received from the off-balance sheet Trusts for the periods indicated is as follows:

During the first quarter of 2018, the reportable segments (and reporting units) formerly known as Commercial Banking and CRE were combined and presented as Commercial Banking. Refer to Note 18 for further discussion on the change in reportable segments. There were no additions or removals of underlying lines of business in connection with this reporting change. As a result, goodwill assigned to these former reporting units of $542.6 million and $870.4 million, for Commercial Banking and CRE, respectively, have been combined. There were no additions or impairments of goodwill for the three-month period ended March 31, 2018.

There were no additions, impairments, or re-allocations of goodwill for the three-month period ended March 31, 2017.

The Company ~~including its Santander BanCorp subsidiary,~~ conducted its last annual goodwill impairment tests as of October 1, ~~2016~~2017 using generally accepted valuation methods. After conducting an analysis of the fair value of each reporting unit as of October 1, ~~2016,~~2017, the Company determined that nothe full amount of goodwill attributed to Santander BanCorp of $10.5 million was impaired and, as a result, it was written-off, primarily due to the unfavorable economic environment in Puerto Rico and the additional adverse effects of Hurricane Maria. No impairments of goodwill attributed to other reporting units were ~~identified as a result of the annual impairment tests.~~identified.

At ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company did not have any intangibles, other than goodwill, that were not subject to amortization.

Amortization expense on intangible assets was ~~$15.4~~$15.3 million and ~~$30.9 million and $17.8 million and $35.7~~$15.5 million for the three-month ~~and six-month~~ periods ended ~~June 30,~~March 31, 2018 and March 31, 2017, ~~and June 30, 2016,~~ 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:

NOTE 8. OTHER ASSETS

The following is a detail of items that comprise other assets at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017:

Income tax receivables consists primarily of accrued federal tax receivables.

Derivative assets at fair value represent the net amount of derivatives presented in the Condensed Consolidated Financial Statements, including the impact of amounts offsetting recognized assets. Refer to the offsetting of financial assets table in Note 1112 to these Condensed Consolidated Financial Statements for the detail of these amounts.

The Company maintains an MSR asset for sold residential real estate loans serviced for others. At ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the balance of these loans serviced for others accounted for at fair value was $~~15.3~~14.8 billion and ~~$15.4~~$14.9 billion, respectively. The Company accounts for a majority of its residential MSRs using the FVO. Changes in fair value are recorded through the ~~Mortgage banking income,~~Miscellaneous Income, net ~~line of~~on the Condensed Consolidated Statements of Operations. The fair value of the MSRs at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016 was~~2017 were $~~146.1~~160.1 million and $~~146.6~~146.0 million, respectively. See further discussion on the valuation of the MSRs in Note ~~16.~~14. 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 1112 to these Condensed Consolidated Financial Statements. The remainder of MSRs not accounted for using the FVO are accounted for at lower of cost or market.

43

The following table presents a summary of activity for the Company's residential MSRs that are included in the Condensed Consolidated Balance Sheets.

Deposits collateralized by investment securities, loans, and other financial instruments totaled ~~$2.4~~$2.1 billion and ~~$3.0~~$2.3 billion at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively.

Demand deposit overdrafts that have been reclassified as loan balances were ~~$28.9~~$155.7 million and ~~$42.3~~$38.9 million at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively.

NOTE 10. BORROWINGS

Total borrowings and other debt obligations at ~~June 30, 2017~~March 31, 2018 were ~~$43.4~~$38.4 billion, compared to ~~$43.5~~$39.0 billion at December 31, ~~2016.~~2017. The Company's debt agreements impose certain limitations on dividends other payments and transactions. The Company is currently in compliance with these limitations.

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

The Bank ~~repurchased $14.2 million of its real estate investment trust ("REIT") preferred debt. During the first quarter of 2017, the Bank repurchased $881.0 million of its 2.00% senior notes due 2018~~had no new securities issuances and senior floating rate notes due 2018. The Company recorded loss on debt extinguishment related to these debt repurchases and early repayments of $4.0 million and $10.7 million for the three and six-month period ended June 30, 2017, respectively. The Company did not repurchase any outstanding borrowings in the open market during the ~~three or six-month~~three-month period ended ~~June 30, 2016.~~March 31, 2018.

During the first quarter of ~~2017,~~2018, the Company ~~issued $1.0 billion in aggregate principal amount of its 3.70% senior notes due March 2022. The proceeds of these notes were primarily used to fund loans to the Company's U.S. subsidiaries.~~

45

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

June 30, 2017 December 31, 2016
Balance
Effective
Rate
Balance
Effective
Rate
(dollars in thousands)
Parent Company
Senior notes, due November 2017⁽¹⁾
$ 599,626
2.80 % $ 599,206
2.67 %
3.45% senior notes, due August 2018 499,017
3.62 % 498,604
3.62 %
2.70% senior notes, due May 2019 997,773
2.82 % 997,207
2.82 %
2.65% senior notes, due April 2020 995,450
2.82 % 994,672
2.82 %
3.70% senior notes, due March 2022 993,979
3.82 % —
— %
4.50% senior notes, due July 2025 1,095,199
4.56 % 1,094,955
4.56 %
Junior subordinate debentures - Capital Trust VI , due June 2036 69,810
7.91 % 69,798
7.91 %
Common securities - Capital Trust VI 10,000
7.91 % 10,000
7.91 %
Junior subordinate debentures - Capital Trust IX, due July 2036 149,448
2.84 % 149,434
2.49 %
Common securities - Capital Trust IX 4,640
2.84 % 4,640
2.49 %
Senior notes, due July 2019⁽²⁾
388,499
2.25 % —
— %
Senior notes, due September 2019 ⁽²⁾
370,699
2.42 % —
— %
Other IHC Entities
Overnight Funds Purchase, due within one year, due April 2017 690
1.05 % 830
0.50 %
2.00% subordinated debt, maturing through 2042 40,689
2.00 % 40,457
2.00 %
Short-term borrowings, due within one year, due April 2017 78,000
1.13 % 54,000
0.63 %
Total due to others overnight, due within one year, due April 2017 27,000
1.13 % 17,000
0.63 %
Short-term borrowings, due within one year, April 2017 58,284
0.25 % 207,173
0.25 %
Short-term borrowings, due within one year, July 2017 3,260
0.35 % —
— %
Short-term borrowings, due within one year, September 2017 13,412
0.35 % —
— %
Temporary subordinated debt to Santander, due within one year 525,771
3.75 % —
— %
Total Parent Company and other subsidiaries' borrowings and other debt obligations $ 6,921,246
3.31 % $ 4,737,976
3.21 %

NOTE 10. BORROWINGS (continued)

The Bank had outstanding irrevocable letters of credit totaling ~~$777.3~~$485.8 million from the FHLB of Pittsburgh at ~~June 30, 2017,~~March 31, 2018, used to secure uninsured deposits placed with the Bank by state and local governments and their political subdivisions.

NOTE 10. BORROWINGS (continued)

The following tables present information regarding SC's secured structured financings as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

NOTE 10. BORROWINGS (continued)

49

NOTE 12. DERIVATIVES

General

The Company uses derivative financial instruments primarily to help manage exposure to interest rate, foreign exchange, equity and credit risk, as well as 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.~~activities, and often provides commercial loan customers the option to purchase derivative products to hedge interest rate risk associated with loans made by the Bank. The Company uses derivative financial instruments as risk management tools and not for speculative trading purposes. The fair value of all derivative balances is recorded within Other assets and Other liabilities on the Condensed Consolidated Balance Sheet.

See Note 1614 for discussion of the valuation methodology for derivative instruments.

NOTE 12. DERIVATIVES (continued)

Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying asset, index, or 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 contract ~~are~~is calculated to determine required payments under the derivative contract. The Company controls the credit risk of its derivative contracts through credit approvals, limits and monitoring procedures. The underlying asset is typically a referenced interest rate (commonly the Overnight Indexed Swap ("OIS") rate or LIBOR), security, credit spread or index.

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

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 International Swaps and Derivatives Association, Inc. ("ISDA") ~~Master Agreements~~master agreements if the Company's ratings fall below a specified level, typically investment grade. As of ~~June 30, 2017~~March 31, 2018, derivatives in this category had a fair value of ~~$19.8~~$1.7 million. The credit ratings of the Company and the Bank are currently considered investment grade. During the ~~second~~first quarter of ~~2017,~~2018, no additional collateral would be required if there were a further 1- or 2- notch downgrade by either Standard & Poor's ("S&P") or Moody's Investor Services ("Moody's").

As of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, 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 $~~35.2~~7.3 million and $~~27.0~~10.4 million, respectively. The Company had $~~38.1~~10.7 million and $~~28.3~~15.7 million in cash and securities collateral posted to cover those positions as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, 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 and forward sale or purchase commitments.~~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.

The Company has outstanding interest rate swap agreements designed to hedge a portion of the Company’s floating rate assets, and liabilities (including its borrowed funds). All of these swaps have been deemed as highly effective cash flow hedges. The ~~effective portion~~gain or loss on the derivative instrument is reported as a component of ~~the hedging gains and losses associated with these hedges is recorded in~~ accumulated other comprehensive ~~income;~~income and reclassified into earnings in the ~~ineffective portion~~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 ~~hedging gains and losses is recorded in earnings.~~hedged item.

The last of the hedges is scheduled to expire in December 2030. The Company includes all components of each derivative's gain or loss in the assessment of hedge effectiveness. ~~The earnings impact of the ineffective portion of these hedges was not material for the six-month periods ended June 30, 2017 and 2016.~~ As of ~~June 30, 2017,~~March 31, 2018, the Company ~~expects $1.4~~expected $34.7 million of ~~gross gains~~gains/losses recorded in accumulated other comprehensive loss to be reclassified to earnings during the subsequent twelve months as the future cash flows occur.

NOTE ~~11.~~12. DERIVATIVES (continued)

Other Derivative Activities

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

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

The Company typically retains the servicing rights related to residential mortgage loans that are sold. 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.

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

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. Exposure to gains and losses on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.

NOTE 12. DERIVATIVES (continued)

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

The following Condensed Consolidated Statement of Operations line items were impacted by the Company’s derivative activities for the ~~six-month~~three-month periods ended ~~June 30, 2017~~March 31, 2018 and ~~2016~~2017:

The amount of loss recognized in Other Comprehensive Income for cash flow hedge derivatives was $16.1 million and $4.1 million, net of tax, for the three-month periods ended ended March 31, 2018 and March 31, 2017, respectively.

~~(1) Gains are disclosed as positive numbers while losses are shown as a negative number regardless~~The amount of gain reclassified from Other Comprehensive Income into earnings for cash flow hedge derivatives was $1.2 million for the ~~line item being affected.~~

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 ISDA master agreement. The Company's financial instruments, including resell and repurchase agreements, securities lending arrangements, derivatives and cash collateral, may be eligible for offset on its Condensed Consolidated Balance ~~Sheet.~~Sheets.

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

Information about financial assets and liabilities that are eligible for offset on the Condensed Consolidated Balance Sheet as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, respectively, is presented in the following tables:

NOTE ~~12.~~13. INCOME TAXES

An income tax provision of ~~$92.0 million and $170.9~~$95.3 million was recorded for the three-month ~~and six-month periods~~period ended ~~June 30, 2017, respectively,~~March 31, 2018, compared to ~~$153.3 million and $232.1~~$78.9 million for the corresponding ~~periods~~period in ~~2016.~~2017. This resulted in an effective tax rate ("ETR") of ~~24.2% and 27.5%~~27.0% for the three-month ~~and six-month periods~~period ended ~~June 30, 2017, respectively,~~March 31, 2018, compared to ~~35.8% and 37.6%~~32.5% for the corresponding ~~periods~~period in ~~2016.~~2017.

The decrease in the ETR for the three-month ~~and six-month periods ending June 30, 2017~~period ended March 31, 2018 was ~~predominantly~~ due to the ~~undistributed net earnings~~reduction in the Federal corporate income tax rate provided for by the TCJA as enacted on December 22, 2017 and effective January 1, 2018. The full impact of ~~a Puerto Rico subsidiary~~the corporate rate reduction on the period-over-period decrease in the ETR was partially off-set by the impact of the TCJA provision that ~~will be indefinitely reinvested outside~~disallows tax deductions for FDIC premiums, and was further off-set by the ~~U.S.,~~impact of discrete tax benefits booked in ~~addition to~~ the ~~increase in~~first quarter of 2017 for certain state tax ~~credits.~~

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.

NOTE 13. INCOME TAXES (continued)

As noted above, the TCJA, among other things, reduced the federal corporate income tax rate from 35% to 21%. Due to the complexities involved in accounting for the enactment of the TCJA, SEC Staff Accounting Bulletin (“SAB”) 118 specifies, among other things, that reasonable estimates of the income tax effects of the TCJA should be used, if determinable. Further, SAB 118 clarifies accounting for income taxes under ASC Topic 740, Income Taxes (ASC 740), if information is not yet available or complete and provides for up to a one-year period in which to complete the required analyses and accounting (the measurement period). The Company has obtained and analyzed all currently available information to record the effect of the change in tax law. While we were able to make a reasonable estimate of the impact of the reduction in the corporate tax rate and the other provisions of the TCJA, the accounting may be impacted by other analyses related to the TCJA, technical corrections or other amendments to the TCJA, and further accounting or administrative tax guidance.

The Company filed a lawsuit against the United States in 2009 in Federal District Court in Massachusetts relating to the proper tax consequences of two financing transactions with an international bank through which the Company borrowed $1.2 billion. As a result of these financing transactions, the Company paid foreign taxes of $264.0 million during the years 2003 through 2007 and claimed a corresponding foreign tax credit for foreign taxes paid during those years, which the Internal Revenue Service ("IRS") disallowed. The IRS also disallowed the Company's deductions for interest expense and transaction costs, totaling $74.6 million in tax liability, and assessed penalties and interest totaling approximately $92.5 million. The Company has paid the taxes, penalties and interest associated with the IRS adjustments for all tax years, and the lawsuit will determine whether the Company is entitled to a refund of the amounts paid.

OnIn November ~~13,~~ 2015, the Federal District Court ~~issued a written opinion in favor of~~granted the ~~Company on all contested issues,~~Company's motions for summary judgment and ~~in a judgment issued on January 13, 2016,~~later ordered amounts assessed by the IRS for the years 2003 through 2005 to be refunded to the Company. The IRS appealed that ~~judgment. On December 15, 2016,~~judgment, and the U.S. Court of Appeals for the First Circuit partially reversed the judgment of the Federal District ~~Court. Pursuant to the First Circuit's decision,~~Court, finding that the Company is not entitled to claim the foreign tax credits it claimed but will be allowed to exclude from income $132.0 million (representing half of the U.K. taxes the Company paid) and will be allowed to claim the interest expense deductions. The ~~First Circuit ordered the~~ case ~~to be~~has been remanded to the Federal District Court for further proceedings to determine, among other issues, whether penalties should be sustained. On ~~March 16, 2017,~~remand, the parties are awaiting the Court’s decision on motions for summary judgment filed by the Company ~~filed a petition requesting~~regarding the U.S. Supreme Court to hear its appeal of the First Circuit Court's decision. On June 26, 2017 the U.S. Supreme Court denied the Company’s request, and the case has now been remanded to the Federal District Court as ordered by the Court of Appeals.remaining issues.

In response to the First Circuit's decision, the Company, at December 31, 2016, used its previously established $230.1 million tax reserve to write off deferred tax assets and a portion of the receivable that would not be realized under the Court's decision. Additionally, the Company established a ~~$36.0~~$36.8 million tax reserve in relation to items that have not yet been determined by the courts, including potential penalties. Over the next 12 months, it is reasonably possible that changes in the reserve for uncertain tax positions could range from a decrease of ~~$36~~$36.8 million to ~~an increase of $0 million.~~no change.

With few exceptions, the Company is no longer subject to federal, state and non-U.S. income tax examinations by tax authorities for years prior to ~~2003.~~2006.

57The Company applies an aggregate portfolio approach whereby income tax effects from accumulated other comprehensive income are released only when an entire portfolio (i.e. all related units of account) of a particular type is liquidated, sold or extinguished.

A portion of the Company’s assets and liabilities are carried at fair value, including AFS investment securities and derivative instruments. In addition, the Company elects to account for its residential mortgages HFS and a portion of its MSRs at fair value. Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include impairments for certain loans and foreclosed assets.

As of March 31, 2018, $14.4 billion of the Company’s total assets consisted of financial instruments measured at fair value on a recurring basis, including financial instruments for which the Company elected the FVO. Approximately $174.4 million of these financial assets were measured using quoted market prices for identical instruments, or Level 1 inputs. Approximately $13.6 billion of these financial assets were measured using valuation methodologies involving market-based and market-derived information, or Level 2 inputs. Approximately $678.6 million of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 4.7% of total assets measured at fair value on a recurring basis and approximately 0.5% of total consolidated assets.

Fair value is defined in GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. GAAP establishes a fair value reporting hierarchy to maximize the use of observable inputs when measuring fair value and defines the three levels of inputs as noted below:

Assets and liabilities measured at fair value, by their nature, result in a higher degree of financial statement volatility. 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.

Any models used to determine fair values or validate dealer quotes based on the descriptions below are subject to review and testing as part of the Company's model validation and internal control testing processes.

The Bank's Market Risk Department is responsible for determining and approving the fair values of all assets and liabilities valued at fair value, including the Company's Level 3 assets and liabilities. Price validation procedures are performed and the results are reviewed for Level 3 assets and liabilities by the Market Risk Department. Price validation procedures performed for these assets and liabilities can include comparing current prices to historical pricing trends by collateral type and vintage, comparing prices by product type to indicative pricing grids published by market makers, and obtaining corroborating dealer prices for significant securities.

The Company reviews the assumptions utilized to determine fair value on a quarterly basis. Any changes in methodologies or significant inputs used in determining fair values are further reviewed to determine if a change in fair value level hierarchy has occurred. Transfers in and out of Levels 1, 2 and 3 are considered to be effective as of the end of the quarter in which they occur.

There were no transfers between Levels 1, 2 or 3 during the three-month periods ended March 31, 2018 and 2017 for any assets or liabilities valued 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 March 31, 2018 and December 31, 2017.



(in thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2018		Level 1		Level 2		Level 3		Balance at December 31, 2017
Financial assets:
U.S. Treasury securities	$	174,439	$	1,200,666	$	—	$	1,375,105	$	139,615	$	858,497	$	—	$	998,112
Corporate debt	—		2,723		—		2,723		—		11,660		—		11,660
ABS	—		138,598		348,634		487,232		—		156,910		350,252		507,162
State and municipal securities	—		21		—		21		—		23		—		23
MBS	—		11,456,513		—		11,456,513		—		12,885,412		—		12,885,412
Investment in debt securities AFS⁽³⁾⁽⁶⁾	174,439		12,798,521		348,634		13,321,594		139,615		13,912,502		350,252		14,402,369
Other investments - trading securities	1		3,023		—		3,024		1		—		—		1
RICs HFI⁽⁴⁾	—		—		167,597		167,597		—		—		186,471		186,471
LHFS ⁽¹⁾⁽⁵⁾	—		162,468		—		162,468		—		197,691		—		197,691
MSRs ⁽²⁾	—		—		160,130		160,130		—		—		145,993		145,993
Other assets - derivatives ⁽³⁾	—		586,396		2,254		588,650		—		461,139		2,105		463,244
Total financial assets	$	174,440	$	13,550,408	$	678,615	$	14,403,463	$	139,616	$	14,571,332	$	684,821	$	15,395,769
Financial liabilities:
Other liabilities - derivatives ⁽³⁾	—		570,150		509		570,659		—		427,217		594		427,811
Total financial liabilities	$	—	$	570,150	$	509	$	570,659	$	—	$	427,217	$	594	$	427,811

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



(in thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2018		Level 1		Level 2		Level 3		Balance at December 31, 2017
Impaired commercial LHFI	$	—	$	132,339	$	310,237	$	442,576	$	—	$	226,832	$	356,343	$	583,175
Foreclosed assets	—		2,373		104,014		106,387		—		20,011		106,581		126,592
Vehicle inventory	—		415,262		—		415,262		—		325,203		—		325,203
LHFS⁽¹⁾	—		—		1,798,222		1,798,222		—		—		2,324,830		2,324,830
Auto loans impaired due to bankruptcy	—		128,641		—		128,641		—		121,578		—		121,578
MSRs	—		—		9,381		9,381		—		—		9,273		9,273

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

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

A portion of the Company's MSRs are measured at fair value on a nonrecurring basis. These MSRs are priced internally using a DCF model. The DCF model incorporates assumptions that market participants would use in estimating future net servicing income, including portfolio characteristics, prepayments assumptions, discount rates, delinquency and foreclosure rates, late charges, other ancillary revenues, cost to service and other economic factors. Due to the unobservable nature of certain valuation inputs, these MSRs are classified as Level 3.

The following table presents the ~~components~~increases and decreases in value of ~~accumulated other comprehensive income/(loss), net of related tax,~~certain assets that are measured at fair value on a nonrecurring basis for ~~the three-month and six-month periods ended June 30, 2017 and 2016, respectively.~~

The tables below present the changes in Level 3 balances for the three-month periods ended March 31, 2018 and 2017, respectively, for those assets and liabilities measured at fair value on a recurring basis.



	Three-Month Period Ended March 31, 2018															Three-Month Period Ended March 31, 2017
(in thousands)	Investments AFS			RICs HFI			MSRs			Derivatives			Total			Investments AFS			RICs HFI			MSRs			Derivatives			Total
Balances, beginning of period	$	350,252		$	186,471		$	145,993		$	1,514		$	684,230		$	814,567		$	217,170		$	146,589		$	(29,000	)	$	1,149,326
Losses in other comprehensive income	(499		)	—			—			—			(499		)	(619		)	—			—			—			(619		)
Gains/(losses) in earnings	—			5,276			15,043			134			20,453			—			16,891			1,457			1,194			19,542
Additions/Issuances	—			1,349			2,755			—			4,104			—			13,331			5,730			—			19,061
Settlements⁽¹⁾	(1,119		)	(25,499		)	(3,661		)	97			(30,182		)	(240,494		)	(44,919		)	(4,321		)	97			(289,637		)
Balances, end of period	$	348,634		$	167,597		$	160,130		$	1,745		$	678,106		$	573,454		$	202,473		$	149,455		$	(27,709	)	$	897,673
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period	$	—		$	5,276		$	15,043		$	(14	)	$	20,305		$	—		$	16,891		$	1,457		$	(800	)	$	17,548

The gains in earnings reported in the table above related to the RICs HFI for which the Company elected the FVO are driven by three primary factors: 1) the recognition of interest ~~rate swap contracts designated~~income, 2) recoveries of previously charged-off RICs, and 3) actual performance of the portfolio since the Change in Control. Recoveries from RICs that were charged off at the Change in Control date are a direct increase to the gain recognized within the portfolio. In accordance with ASC 805, Business Combinations, the Company did not ascribe a fair value to the portfolio of sub-prime charged-off RICs at the Change in Control date. Recoveries of previously charged off loans are usually recorded as a reduction to charge-offs in the period in which the recovery is made; however, in instances where the FVO is elected, it will flow through the fair value mark. At the Change in Control date, the UPB of the previously charged-off RIC portfolio was approximately $3.0 billion.

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

Debt securities accounted for at fair value include both AFS and trading securities portfolios. 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. Trading securities and certain of the Company's U.S. Treasury securities are valued utilizing observable market quotes. The Company obtains vendor trading platform data (actual prices) from a number of live data sources, including active market makers and interdealer brokers. These certain investment securities are, therefore, classified as Level 1.

Actively traded quoted market prices for the majority of the debt securities AFS, such as U.S. Treasury and government agency securities, corporate debt, state and municipal securities, and MBS, are not readily available. The Company's principal markets for its investment securities are the secondary institutional markets with an exit price that is predominantly reflective of bid-level pricing in these markets. These investment securities are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.

Certain ABS are valued using DCF models. The DCF models are obtained from a third-party pricing vendor who uses observable market data and therefore are classified as Level 2. Other ABS that could not be valued using a third-party pricing service are valued using an internally-developed DCF model. When estimating the fair value using this model, the Company uses its best estimate of the key assumptions, which include the discount rates and forward yield curves. The Company uses comparable bond indices based on industry, term, and rating to discount the expected future cash ~~flow hedges.~~flows. Determining the comparability of assets involves significant subjectivity related to asset type differences, cash flows, performance and other inputs. The inability of the Company to corroborate the fair value of the ABS due to the limited available observable data on these ABS resulted in a fair value classification of Level 3.

~~(2)~~

Realized gains and losses on investments in debt securities are recognized in the Condensed Consolidated Statements of Operations through Net ~~(gains)~~(losses)/~~losses reclassified into Net gain~~gains on sale of investment securities ~~sales~~

For certain RICs HFI, the Company has elected the FVO. The fair values of RICs are estimated using the DCF model. In estimating the fair value using this model, the Company uses significant unobservable inputs on key assumptions, which includes historical default rates and adjustments to reflect voluntary prepayments, prepayment rates based on available data from a comparable market securitization of similar assets, discount rates reflective of the cost of funding debt issuance and recent historical equity yields, recovery rates based on the average severity utilizing reported severity rates and loss severity utilizing available market data from a comparable securitized pool. Accordingly, RICs HFI for which the Company has elected the FVO are classified as Level 3.

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

These loans are regularly traded in active markets, and observable pricing information is available from market participants. The prices are adjusted as necessary to include the embedded servicing value in the loans as well as the specific characteristics of certain loans that are priced based on the pricing of similar loans. These adjustments represent unobservable inputs to the valuation, and are not significant given the relative insensitivity of the value to changes in these inputs to the fair value of the loans. Accordingly, residential mortgage LHFS are classified as Level 2. Gains and losses on residential mortgage LHFS are recognized in the Condensed Consolidated ~~Statement~~Statements of Operations ~~for the sale of available-for-sale securities.~~

The model to value MSRs estimates the present value of the future net ~~periodic pension costs.~~cash flows from mortgage servicing activities based on various assumptions. These cash flows include servicing and ancillary revenue, offset by the estimated costs of performing servicing activities. Significant assumptions used in the valuation of residential MSRs include changes in anticipated loan prepayment rates ("CPRs") and the discount rate, reflective of a market participant's required return on an investment for similar assets. 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. All of these assumptions are considered to be unobservable inputs. Historically, servicing costs and discount rates have been less volatile than CPR and earnings rates, both of which are directly correlated with changes in market interest rates. Increases in prepayment speeds, 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. For each of these items, the Company makes assumptions based on current market information and future expectations. All of the assumptions are based on standards that the Company believes would be utilized by market participants in valuing MSRs and are derived and/or benchmarked against independent public sources. Accordingly, MSRs are classified as Level 3. Gains and losses on MSRs are recognized on the Condensed Consolidated Statements of Operations through Miscellaneous income, net. See further discussion on MSRs in Note 8.

Listed below are the most significant inputs that are utilized by the Company in the evaluation of residential MSRs:

Significant increases (decreases) in any of those inputs in isolation would result in significantly (lower) higher fair value measurements. 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.

The valuation of these instruments is determined using widely accepted valuation techniques, including DCF analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable and unobservable market-based inputs. The fair value represents the estimated amount the Company would receive or pay to terminate the contract or agreement, taking into account current interest rates, foreign exchange rates, equity prices and, when appropriate, the current creditworthiness of the counterparties.

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

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

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

Gains and losses related to derivatives affect various line items in the Condensed Consolidated Statements of Operations. See Note 12 for a discussion of derivatives activity.

The following table presents quantitative information about the significant unobservable inputs within significant Level 3 recurring and nonrecurring assets and liabilities at March 31, 2018 and December 31, 2017.

NOTE ~~13. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)~~14. FAIR VALUE (continued)

~~(1) Net gains/(losses) reclassified into Interest~~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:

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 ~~debt obligations~~valuation techniques. These techniques involve uncertainties resulting in variability in estimates affected by changes in assumptions and risks of the ~~Condensed Consolidated Statement~~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 ~~Operations~~a particular financial instrument, nor does it reflect potential taxes and the expenses that would be incurred in an actual sale or settlement. Accordingly, the aggregate fair value amounts presented above do not represent the underlying value of the Company.

The Company's LHFS portfolios that are measured using the FVO consist of ~~interest rate swap contracts designated~~residential mortgage LHFS. The adoption of the FVO on residential mortgage loans classified as ~~cash flow hedges.~~

Beginning January 1, 2018 the Company adopted the new accounting standard, "Revenue from Contracts with Customers", which requires the Company to disclose a disaggregation of revenue from contracts with customers that falls within the scope of this new accounting standard. The scope of the guidance explicitly excludes net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives. Therefore, the Company has evaluated the revenue streams within our Non-interest income line items to determine whether they are in-scope or out-of-scope. The following table presents the Company's Non-interest income disaggregated by revenue source.

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on ~~borrowings~~its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or using expected cost plus margin.

In instances where incremental costs, such as commission expenses, are incurred and ~~other debt obligations in~~the period of benefit is equal to or less than one year, the Company has elected to apply the practical expedient where the Company expenses such amounts as incurred. These costs are recorded within Compensation and benefits, within the Condensed Consolidated ~~Statement~~Statements of ~~Operations for settlements of interest rate swap~~Operations.

In instances where contracts ~~designated as cash flow hedges.~~

~~(3) Unrealized losses/(gains) previously recognized in accumulated other comprehensive income on securities~~

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less or (ii) contracts for which ~~OTTI was recognized during~~we recognize revenue at the ~~period. See further discussion in Note 3~~amount to which we have the ~~Condensed Consolidated Financial Statements.~~

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

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, letters of credit and loans sold with recourse is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For forward contracts and interest rate swaps, caps and floors, the contract or notional amounts do not represent exposure to credit loss. The Company controls the credit risk of its forward contracts and interest rate swaps, caps and floors through credit approvals, limits and monitoring procedures. See Note 1112 to these Condensed Consolidated Financial Statements for discussion of all derivative contract commitments.

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

Included within the reported balances for Commitments to extend credit at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are ~~$6.6~~$6.3 billion and ~~$6.3~~$6.4 billion, respectively, of commitments that can be canceled by the Company without notice.

The following table details the amount of commitments to extend credit expiring per period as of the dates indicated:

Such commitments, included in the Commitments to extend credit table above, 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 periodically reviewed based on account usage, customer creditworthiness and loan qualifications.

NOTE 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

The Company’s letters of credit meet the definition of a guarantee. Letters of credit commit the Company to make payments on behalf of its customers if specified future events occur. The guarantees are primarily issued to support public and private borrowing arrangements. The weighted average term of these commitments at ~~June 30, 2017~~March 31, 2018 was ~~12.3~~16.7 months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. In the event of a requested draw by the beneficiary that complies with the terms of the letter of credit, the Company would be required to honor the commitment. The Company has various forms of collateral for these letters of credit, including real estate assets and other customer business assets. The maximum undiscounted exposure related to these commitments at ~~June 30, 2017~~March 31, 2018 was ~~$1.8~~$1.4 billion. The fees related to letters of credit are deferred and amortized over the life of the respective commitments, and were immaterial to the Company’s financial statements at ~~June 30, 2017.~~March 31, 2018. 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. As of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the liability related to these letters of credit was ~~$5.2~~$3.5 million and ~~$8.1~~$18.2 million, respectively, which is recorded within the reserve for unfunded lending commitments in Other liabilities on the Condensed Consolidated Balance Sheet. The credit risk associated with letters of credit is monitored using the same risk rating system utilized within the loan and financing lease portfolio. Also included within the reserve for unfunded lending commitments at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were lines of credit outstanding of ~~$106.6~~$86.4 million and ~~$114.4~~$90.9 million, respectively.

The following table details the amount of letters of credit expiring per period as of the dates indicated:

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 FNMA, the Company retained a portion of the associated credit risk. The UPB outstanding of loans sold in these programs was ~~$253.5~~$102.6 million as of ~~June 30, 2017~~March 31, 2018 and ~~$341.7~~$136.0 million as of December 31, ~~2016.~~2017. As a result of its agreement with FNMA, the Company retained a 100% first loss position on each multifamily loan sold to FNMA until the earlier

to occur of (i) the aggregate approved losses on multifamily loans sold to FNMA reaching the maximum loss exposure for the

portfolio as a whole of ~~$34.4~~$12.2 million as of ~~June 30, 2017~~March 31, 2018 and ~~$34.4~~$12.2 million as of December 31, ~~2016,~~2017 or (ii) the time when such loans sold to FNMA under this program are fully paid off. Any losses sustained as a result of impediments in standard representations and warranties would be in addition to the maximum loss exposure.

At the time of the sale, the Company established a liability which represented the fair value of the retained credit exposure and the amount the Company estimates it would have to pay a third party to assume the retained recourse obligation. The estimated liability is calculated as the present value of losses that the portfolio is projected to incur based upon specific internal ~~specific~~ information and an industry-based default curve with a range of estimated losses. At ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company had ~~$2.6~~$0.9 million and ~~$3.8~~$1.3 million, respectively, of reserves classified in Accrued expenses and payables on the Condensed Consolidated Balance Sheets related to the retained credit exposure for loans sold to the FNMA under this program. The Company's commitment will expire in March 2039 based on the maturity of the loans sold with recourse. Losses sustained by the Company may be offset, or partially offset, by proceeds resulting from the disposition of the underlying mortgaged properties. Approval from the FNMA is required for all transactions related to the liquidation of properties underlying the mortgages.

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

NOTE 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

SC is ~~obligated~~party to make purchase price holdback payments to a third-party originator of auto loans it has purchased when losses are lower than originally expected. SC also is obligated to make total return settlement payments to this third-party originator in 2017 if returns on the purchased loans are greater than originally expected. These obligations are accounted for as derivatives (Note 11).

Under terms of an application transfer agreement with an original equipment manufacturer (“OEM") other than ~~Fiat Chrysler Automobiles US LLC ("FCA"),~~FCA, SC has the first opportunity to review for its own portfolio any credit applications turned down by the OEM's captive finance company. The agreement does not require SC to originate any loans, but for each loan originated SC will pay the OEM a referral ~~fee, comprised of a volume bonus fee and a loss betterment bonus~~ fee.

In connection with the sale of RICs through securitizations and other sales, SC has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require SC to repurchase loans previously sold to on- or off-balance sheet Trusts or other third parties. As of ~~June 30, 2017,~~March 31, 2018, there were no loans that were the subject of a demand to repurchase or replace for breach of representations ~~and~~or warranties for SC's ABS or other sales. In the opinion of management, the potential exposure of other recourse obligations related to SC’s RIC sales agreements will not have a material adverse effect on SC’s consolidated financial position, results of operations, or cash flows.

Under terms of the Chrysler Agreement, SC must make revenue sharing payments to FCA and also must make gain-sharing payments to FCA when residual gains on leased vehicles exceed a specified threshold. SC had accrued ~~$16.1~~$11.6 million and ~~$10.1~~$6.6 million at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively, related to these obligations.

The Chrysler Agreement requires, among other things, that SC bears the risk of loss on loans originated pursuant to the agreement, but also that FCA shares in any residual gains and losses from consumer leases. The agreement also requires that SC maintains at least $5.0 billion in funding available for dealer inventory financing and $4.5 billion of financing dedicated to FCA retail financing. In turn, FCA must provide designated minimum threshold percentages of its subvention business to SC. The Chrysler Agreement is subject to early termination in certain circumstances, including the failure by either party to comply with certain of its ongoing obligations under the agreement. These obligations include SC's meeting specified escalating penetration rates for the first five years of the agreement. SC has not met these penetration rates at ~~June 30, 2017.~~March 31, 2018. If the Chrysler Agreement were to terminate, there could be a materially adverse impact to our and SC's business financial condition and results of operations.

Until January 31, 2017, SC had a flow agreement with Bank of America whereby SC was committed to sell up to $300.0 million of eligible loans to the bank each month. On October 27, 2016, Bank of America notified SC that it was terminating the flow agreement effective January 31, 2017 and, accordingly, the flow agreement has terminated. SC retains servicing on all sold loans and may receive or pay a servicer performance payment based on an agreed-upon formula if performance on the sold loans is better or worse, respectively, than expected performance at the time of sale. Servicer payments are due six years from the cut-off date of each loan sale. SC had accrued ~~$8.9~~$7.5 million and ~~$9.8~~$8.1 million at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively, related to this obligation.

NOTE 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

Until May 1, 2017, SC sold loans to ~~Citizens Bank of Pennsylvania ("CBP")~~CBP under terms of a flow agreement and predecessor sale agreements. Under the flow agreement, as amended, CBP's committed purchases of Chrysler Capital prime loans were a maximum of $200.0 million and a minimum of $50.0 million per quarter. SC retains servicing on the sold loans and will owe CBP a loss-sharing payment capped at 0.5% of the original pool balance if losses exceed a specified threshold, established on a pool-by-pool basis. Loss-sharing payments are due the month in which net losses exceed the established threshold of each loan sale. The Company had accrued ~~$4.6~~$5.5 million and $5.6 million at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, respectively, related to this obligation.

As of ~~June 30, 2017,~~March 31, 2018, SC iswas party to a forward flow asset sale agreement with a third party under the terms of which SC is committed to sell charged-off loan receivables in bankruptcy status on a quarterly basis until sales total at least $200.0 million in proceeds. On June 29, 2015, SC and the third party executed an amendment to the forward flow asset sale agreement which increased the committed sales of charged off loan receivables in bankruptcy status to $275.0 million. On September 30, 2015, SC and the third party executed a second amendment to the forward flow asset sale agreement which required sales to occur quarterly. On November 13, 2015, SC and the third party executed a third amendment to the forward flow asset sale agreement which increased the committed sales of charged off loan receivables in bankruptcy status to $350.0 million. However, any sale of more than $275.0 million is subject to a market price check. As of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the remaining aggregate commitments were ~~$119.3~~$88.0 million and ~~$166.2~~$98.9 million, respectively.

SC is or may be subject to potential liability under various other contingent exposures. SC had accrued $3.4 million and $6.3 million at March 31, 2018 and December 31, 2017, respectively, for other miscellaneous contingencies.

Our footprint was impacted by three significant hurricanes during the third quarter of 2017, Hurricane Harvey, which struck the State of Texas and the surrounding region, Hurricane Irma, which primarily struck the State of Florida, and Hurricane Maria, which struck the island of Puerto Rico. Each of these hurricanes resulted in widespread flooding, power outages and associated damage to real and personal property in the affected areas Our SC subsidiary, headquartered in Dallas, Texas, our BSI subsidiary, headquartered in Miami, Florida, and our Santander BanCorp, BSPR and SSLLC subsidiaries in Puerto Rico were most directly affected by these

hurricanes. In Puerto Rico, there was significant damage to the ~~terms~~infrastructure and the power grid on the entire island, which resulted in extended delays in BSPR returning to normal operations.

The Company assessed the potential additional credit losses related to its consumer and commercial lending exposures in the greater Texas, Florida and Puerto Rico regions. As a result, the Company's ALLL had approximately $110 million of ~~a separation agreement among SC`s former Chief Executive Officer ("CEO") Thomas G. Dundon, SC, DDFS LLC,~~reserves at March 31, 2018 related to the hurricanes. However, for credit exposures in Puerto Rico, given the current state of the region, the Company has had limited information with which to estimate probable credit losses. As of March 31, 2018, the Company has approximately $3.4 billion of loan exposures in Puerto Rico, consisting of $1.6 billion in consumer loans, $1.8 billion in commercial loans including $220 million in loans to municipalities. The Company will continue to monitor and ~~Santander, upon satisfaction~~assess the impact of ~~applicable conditions, including receipt~~these hurricanes on our subsidiaries’ businesses, and may establish additional reserves for losses in future periods.

See discussion under the "Puerto Rico FINRA Arbitrations" section of ~~required regulatory approvals, SC will owe Mr. Dundon a cash payment of up to $115.1 million.~~Note 16 below for further discussion.

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 ~~14.~~16. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

Periodically, the Company is party to, or otherwise involved in, various lawsuits, investigations, regulatory matters and other legal proceedings that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of any such 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 matter. Accordingly, except as provided below, the Company is unable to reasonably estimate a range of its potential exposure, if any, to these lawsuits, investigations, regulatory matters and other legal proceedings at this time. However, 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 have a material adverse effect on the Company's financial position, liquidity, and results of operations.

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

As of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company ~~has~~ accrued aggregate legal and regulatory liabilities of ~~$63.7~~$167.2 million and ~~$98.8~~$161.8 million, respectively. Further, the Company estimates the aggregate range of reasonably possible losses for legal and regulatory proceedings in excess of reserves of up to $260 million and $255 million as of March 31, 2018 and December 31, 2017, respectively. Descriptions of the material lawsuits, regulatory matters and other legal proceedings to which the Company is subject are set forth below.

In 2014, the Bank commenced discussions with the OCC to address concerns that some customers may have paid for but did not receive certain benefits of SIP, an identity theft protection product from the Bank's third-party vendor. In response to those concerns, as of December 31, 2016, the Bank made $37.3 million in total remediation payments to customers. Notwithstanding those payments, onOn March 26, 2015, the Bank entered into a ~~Consent~~ Cease and Desist Order ~~("SIP~~(the "SIP Consent Order") with the OCC regarding identified deficiencies in SBNA's billing practices with regard to ~~SIP.~~SIP, an identity theft protection product from the Bank's third party vendor. Pursuant to the SIP Consent Order, the Bank paid a civil monetary penalty ("CMP") of ~~$6.0~~$6 million and agreed to remediate customers who paid for but may not have received certain benefits of SIP. ~~As indicated above, as of~~Prior to entering into the ~~end of 2014, all~~SIP Consent Order, the Bank made $37.3 million in remediation payments to customers, ~~had been mailed a refund~~ representing the total amount paid for product enrollment.

Subsequently, the Bank commenced a further review in order to remediate checking account customers who may have been charged an overdraft fee and credit card customers who may have been charged an over limit fee and/or finance charge related to SIP product fees. The approximate amount of the expected additional remediation ~~was~~is $5.2 million. ~~On June 26, 2015, the~~The Bank sent its formal response to the SIP Consent Order and, on October 15, 2015, the OCC responded objecting to the Bank's response and proposed reimbursement and action plans. On December 14, 2015, the Bank re-submitted a revised response and enhanced reimbursement and action plans and, on December 21, 2015, received a notice of non-objection from the OCC. Since that time,is currently implementing the actions and remediation set forth in the Bank’s action plans ~~are underway, as is ongoing quarterly reporting~~ to ~~the OCC.~~

On April 1, 2014, the Bank received a civil investigative demand ("CID") from the CFPB requesting information and documents in connection with the Bank’s marketing to consumers of overdraft coverage for ATM and onetime debit card transactions through a third-party vendor. On July 14, 2016, the Bank entered into a consent order with the CFPB regarding these practices. Pursuant to the terms of the consent order, the Bank paid a CMP of $10.0 million and agreed to validate the elections made by customers who opted in to overdraft coverage for ~~ATM~~automated teller machine ("ATM") and onetime debit card transactions in connection with telemarketing by the third-party vendor. The Bank is also required to make certain changes to its ~~third party~~third-party vendor oversight policy and its customer complaint policy. The Bank is currently implementing a remediation plan and working to meet the other consent order requirements. It is possible that additional litigation could be filed as a result of these issues.

NOTE 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

On ~~May 22, 2013,~~July 2, 2015, the ~~Bank received~~Company entered into a ~~subpoena from the U.S. Attorney's Office for the Southern District of New York seeking information regarding claims for foreclosure expenses incurred in connection~~written agreement with the ~~foreclosure~~FRB of ~~loans insured or guaranteed by~~Boston. Under the ~~Federal Housing Agency,~~terms of that written agreement, the ~~FNMA or~~Company is required to make enhancements with respect to, among other matters, Board oversight of the FHLMC. The Bank continues to cooperate with the investigation; however, there can be no assurance that claims or litigation will not arise from this matter. There is insufficient information/status to assess a likelihood of fines/penalties or other loss and/or estimates at this time.consolidated organization, risk management, capital planning and liquidity risk management.

Periodically, SC is party to, or otherwise involved in, various lawsuits and other legal proceedings that arise in the ordinary course of business.

Deka Lawsuit: SC is a defendant in a purported securities class action lawsuit ~~was filed~~(the "Deka Lawsuit") in the United States District Court, ~~Southern~~Northern District of ~~New York,~~Texas, captioned ~~Steck~~Deka Investment GmbH et al. v. Santander Consumer USA Holdings Inc. et al., No. ~~1:14-cv-06942 (the "Deka Lawsuit").~~3:15-cv-2129-K. The Deka Lawsuit ~~was brought~~is against SC, certain of its current and former directors and executive officers and certain institutions that served as underwriters in SC's ~~IPO~~initial public offering (the "IPO") , including SIS, on behalf of a class consisting of those who purchased or otherwise acquired ~~SC's~~SC securities between January 23, 2014 and June 12, 2014. In June 2015, the venue of the Deka Lawsuit was transferred to the United States District Court, Northern District of Texas. In September 2015, the court granted a motion to appoint lead plaintiffs and lead counsel, and the Deka Lawsuit is now captioned Deka Investment GmbH et al. v.Santander Consumer USA Holdings, Inc. et al., No. 3:15-cv-2129-K.

Feldman Lawsuit:On October 15, 2015, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Feldman v. Jason A. Kulas, et al., C.A. No. 11614 (the "Feldman Lawsuit"). The Feldman Lawsuit names as defendants certain current and former members of SC’s Board of Directors, and names SC as a nominal defendant. The complaint alleges, among other things, that the current and former director defendants breached their fiduciary duties in connection with overseeing SC’s ~~subprime~~nonprime auto lending practices, resulting in harm to SC. The complaint seeks unspecified damages and equitable relief. On December 29, 2015, the Feldman Lawsuit was stayed pending the resolution of the Deka Lawsuit.

Parmelee Lawsuits: Two purported securities class action lawsuits filed in March and April 2016 in the United States District Court, Northern District of Texas, were consolidated and are now captioned Parmelee v. Santander Consumer USA Holdings Inc. et al., No. 3:16-cv-783 (the "Parmelee Lawsuits"). The Parmelee Lawsuits were filed against SC and certain of its current and former directors and executive officers on behalf of a class consisting of all those who purchased or otherwise acquired SC securities between February 3, 2015 and March 15, 2016. The complaint alleges, among other things, that SC violated federal securities laws by making false or misleading statements, as well as failing to disclose material adverse facts, in its periodic reports filed under the Exchange Act and certain other public disclosures, in connection with, among other things, SC’s change in its methodology for estimating its ACL and the correction of such ACL for prior periods. On January 3, 2018, the court granted SC’s motion to dismiss the lawsuit as to defendant Ismail Dawood (SC’s former Chief Financial Officer) and denied the motion as to all other defendants.

SC is also party to various lawsuits pending in federal and state courts alleging violations of state and federal consumer lending laws, including, without limitation, the Equal Credit Opportunity Act (the “ECOA”), 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 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

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

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

On March 21, 2017, SC and SHUSA entered into a written agreement ~~(the "2017 Written Agreement")~~ with the FRBB. Under the terms of ~~the 2017 Written Agreement,~~that agreement, SC is required to enhance its compliance risk management program, board oversight of risk management and senior management oversight of risk management, and SHUSA is required to enhance its oversight of SC's management and operations.

On January 10, 2017, the Attorney General of the State of Mississippi (the "Mississippi AG") filed a lawsuit against SC in the Chancery Court of the First Judicial District of Hinds County, State of Mississippi, captioned State of Mississippi ex rel. Jim Hood, Attorney General of the State of Mississippi v. Santander Consumer USA Inc., C.A. # G-2017-28. The complaint alleges that SC engaged in unfair and deceptive business practices to induce Mississippi consumers to apply for loans that they could not afford. The complaint asserts claims under the Mississippi Consumer Protection Act (the "MCPA") and seeks unspecified civil penalties, equitable relief and other relief. On March 31, 2017, SC filed motions to dismiss the Mississippi AG’s ~~lawsuit. On May 18, 2017, SC~~lawsuit, and subsequently filed a motion to stay the ~~Mississippi AG’s~~ lawsuit pending the resolution of an interlocutory appeal relating to the MCPA before the Mississippi Supreme Court in Purdue Pharma, L.P., et al. v. State, No. 2017-IA- 00300-SCT. On ~~May 30,~~September 25, 2017, the ~~Mississippi AG filed an opposition to~~court granted the motion to stay and ordered a stay of all proceedings, excluding discovery and final briefing on ~~June 14, 2017, SC filed a reply~~motions to ~~the Mississippi AG’s opposition.~~dismiss.

NOTE 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

In February ~~25,~~ 2015, SC entered into a consent order with the DOJ, approved by the United States District Court for the Northern District of Texas, which resolves the DOJ's claims against ~~the Company~~SC that certain of its repossession and collection activities during the period between January 2008 and February 2013 violated the SCRA. The consent order requires SC to pay a civil fine in the amount of $55,000, as well as at least $9.4 million to affected servicemembers consisting of $10,000 per servicemember plus compensation for any lost equity (with interest) for each repossession by SC, and $5,000 per servicemember for each instance where SC sought to collect repossession-related fees on accounts where a repossession was conducted by a prior account holder. The consent order also provides for monitoring by the DOJ of the ~~Company’s~~SC’s SCRA compliance for a period of five years and requires SC to undertake certain additional remedial measures.

On July 31, 2015, the CFPB notified SC that it had referred to the DOJ certain alleged violations by SC of the ECOA regarding statistical disparities in markups charged by automobile dealers to protected groups on loans originated by those dealers and purchased by SC and the treatment of certain types of income in SC's underwriting process. On September 25, 2015, the DOJ notified SC that, based on the referral from the CFPB, it has initiated an investigation under the ECOA of SC's pricing of automobile loans.

Periodically, SSLLC is party to pending and threatened legal actions and proceedings, including Financial Industry Regulatory Authority (“FINRA”) arbitration actions and class action claims.

As of ~~June 30, 2017,~~March 31, 2018, SSLLC ~~has~~had received ~~232~~379 FINRA arbitration cases related to Puerto Rico bonds and Puerto Rico closed-end ~~funds.~~funds ("CEFs"). Most of these cases are based upon concerns regarding the local Puerto Rico securities market. The statements of claims allege, among other things, fraud, negligence, breach of fiduciary duty, breach of contract, unsuitability, over-concentration and failure to supervise. There ~~are 151~~were 267 arbitration cases that ~~remain~~remained pending as of ~~June 30, 2017~~March 31, 2018.

As a result of Hurricane Maria impacting the Puerto Rico market including declines in Puerto Rico bond and CEF prices, it is possible that additional arbitration claims and/or increased claim amounts may be asserted in future periods.

~~On September 12, 2016, customers~~Santander, Santander BanCorp, BSPR, SSLLC, Santander Asset Management, LLC and several directors and members of ~~certain Puerto Rico closed-end funds (“CEFs”) filed~~senior management of these entities are defendants in a purported class action and shareholder derivative ~~and class action~~suit pending in the United States District Court ~~of First Instance~~for the District of the Commonwealth of Puerto Rico ~~Superior Court of San Juan,~~ captioned Dionisio Trigo ~~González~~Gonzalez et al. v. Banco Santander, S.A. et al., ~~Civil~~ No. ~~2016-0857. Customers filed this action against Santander, Santander BanCorp, Banco Santander Puerto Rico, SSLLC, Santander Asset Management, LLC, and several directors and senior management~~3:2016cv02868 (the “Trigo Lawsuit”). Brought by customers of ~~those entities. The~~certain CEFs, the complaint alleges misconduct including that the entities and individuals created, controlled, managed and advised certain CEFs within the First Puerto Rico Family of Funds (the “Funds”) from March 1, 2012 through the present to the detriment of the Funds and their shareholders. Brought on behalf of the Funds and ~~Puerto-Rico based~~Puerto-Rico-based investors, the complaint ~~contains numerous allegations and~~ seeks unspecified damages but alleges damages to be at least tens of millions of dollars. The court denied plaintiffs’ motion to remand the case ~~was removed~~ to ~~U.S.~~Puerto Rico state court, and plaintiffs have sought reconsideration of that decision.

SSLLC, Santander BanCorp, BSPR, the Company and Santander are defendants in a putative class action alleging federal securities and common law claims relating to the solicitation and purchase of more than $180 million of Puerto Rico bonds and $101 million of CEFs during the period from December 2012 to October 2013. The case is pending in the United States District Court for the District of Puerto ~~Rico. Plaintiffs moved~~Rico and is captioned Jorge Ponsa-Rabell, et. al. v. SSLLC, Civ. No. 3:17-cv-02243 (the "Ponsa-Rabell Lawsuit"). The amended complaint alleges that defendants acted in concert to ~~remand~~defraud purchasers in connection with the ~~action back~~underwriting and sale of Puerto Rico municipal bonds, CEFs and open-end funds. The court denied a motion to ~~state court, Plaintiffs' motion is pending.~~consolidate the Trigo Lawsuit with the Ponsa-Rabell Lawsuit.

~~SHUSA does~~Mexican Government Bonds Purported Antitrust Class Action: On March 30, 2018, a purported antitrust class action was filed in the United States District Court, Southern District of New York, captioned Oklahoma Firefighters & Pension Retirement System, et al.v. Banco Santander, S.A. et al.,No. 1:18-cv-02830-JPO (the “MGB Lawsuit”). The MGB Lawsuit is against the Company, SIS, Santander, Banco Santander (Mexico), S.A. Institucion de Banca Multiple, Grupo Financiero Santander and Santander Investment Bolsa, Sociedad de Valores, S.A. on behalf of a class of persons who entered into Mexican government bond (“MGB”) transactions between January 1, 2006 and April 19, 2017, where such persons were either domiciled in the United States or, if domiciled outside the United States, transacted in the United States. The complaint alleges, among other things, that the Santander defendants and the other defendants violated U.S. antitrust laws by conspiring to rig auctions and/or fix prices of MGBs.

NOTE 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES (continued)

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 ~~believe that there are any other proceedings, threatened or pending, that, if determined~~materially and adversely ~~would have a material adverse effect on~~affect the ~~consolidated~~Company's business, financial ~~position,~~condition and results of ~~operations, or liquidity of the Company.~~

The Company has various debt agreements with Santander. For a listing of these debt agreements, see Note 1110 to the Condensed Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. The Company and its affiliates also entered into or were subject to various service agreements with Santander and its affiliates. Each of these agreements was made in the ordinary course of business and on market terms.

Contributions from Santander that impact common stock and paid in capital within the Condensed Consolidated Statements of Stockholder's Equity are disclosed within the table below:

On ~~March 28,~~January 1, 2018, the Company purchased certain assets and assumed certain liabilities of Produban Servicios Informaticos Generales S.L. and Ingenieria De Software Bancario S.L., both affiliates of Santander. The book value and fair value of the net assets acquired was $2.8 million and $15.3 million respectively. Related to this transaction, in 2017, ~~SHUSA~~the Company received a ~~$9.0 million~~net capital contribution from ~~Santander.~~Santander of $2.8 million, representing cash received of $15.3 million and a return of capital of $12.5 million for the difference between the fair value of the assets purchased and the book value on the balance sheets of the affiliates. The Companyre-evaluated the assets received on January 1, 2018 and recorded an additional $0.3 million to additional paid-in capital. The Company contributed these assets at book value of $3.1 million to SBNA, a subsidiary of the Company on January 1, 2018.

During the first quarter of 2018, the Company recorded a $3.2 million deferred tax asset on the assets purchased by the Company to establish the intangible under Section 197 of the Internal Revenue Code.

On March 29, 2017, SC entered into a Master Securities Purchase Agreement ~~(“MSPA”~~("MSPA") with Santander, ~~whereby~~under which it has the option to sell a contractually determined amount of eligible prime loans to Santander, through the ~~SPAIN~~Santander Prime Auto Issuing Note Trust (“SPAIN") securitization platform, for a term ending in December 2018. SC will provide servicing on all loans originated under this arrangement. For the ~~six~~three months ended ~~June 30,~~March 31, 2017, the Company sold $700 million of loans at fair value under this MSPA. The MSPA was amended in March 2018 and under this amended agreement, SC sold ~~$1.2~~$1.5 billion of prime loans ~~under this agreement~~to Santander at fair value during the three months ended March 31, 2018. Total losses of $16.9 million and $2.7 million were recognized ~~a loss~~for the three-months periods ended March 31, 2018 and March 31, 2017, respectively, which are included in Miscellaneous income, net in the Condensed Consolidated Statements of ~~$6.2 million. The Company~~Operations. SC had ~~$5.2~~$15.4 million and $13.0 million of collections due to Santander as of ~~June 30, 2017.~~

~~Pursuant~~Beginning in 2018, SC agreed to the loan agreement, if at any time the value of SC Common Stock pledged under the Pledge Agreement is less than 150% of the aggregate principal amount outstanding under the loan agreement, DDFS has an obligation to either (a) repay a portion of the outstanding principal amount, such that the value of the pledged collateral is equal to at least 200% of the outstanding principal amount, or (b) pledge additional shares of SC Common Stock such that the value of the additional shares of SC Common Stock, togetherprovide SBNA with origination support services in connection with the ~~29,598,506 shares already pledged under~~processing, underwriting, and purchase of RICs, primarily from Chrysler dealers. In addition, SC agreed to perform the ~~Pledge Agreement, is equal~~servicing for any RICs originated on SBNA's behalf. During the three-month period ended March 31, 2018, SC facilitated SBNA's purchase of $24 million of RICs. SC recognizes referral fee income and servicing fee income related to ~~at least 200% of the outstanding principal amount. The value of the pledged collateral is less than 150% of aggregate principal amount outstanding under the loan~~this agreement and DDFS has not taken any of the collateral posting actions described in clauses (a) or (b) above. Moreover, as noted above, on April 17, 2017, the loan agreement matured and became due and payable on that date. If Santander declares the borrower’s obligations under the loan agreement due and payable as a result of an event of default (including with respect to the collateral posting obligations described above), under the terms of the loan agreement and the Pledge Agreement, Santander’s ability to rely upon the shares of SC Common Stock subject to the Pledge Agreement is, subject to certain exceptions, limited to the right to consummate the Call Transaction at the price specifiedeliminates in the ~~Shareholders Agreement. Because the borrower failed to pay obligations under the loan agreement on April 17, 2017, the borrower is in default and is currently being charged the default rate~~consolidation of interest provided for in the loan agreement. The loan agreement generally defines the default interest rate as the base rate plus 2%. The base rate under the loan agreement is the higher of (1) the federal funds rate plus ½ of 1% or (2) the prime rate, which is the annual rate of interest publicly announced by Santander NY from time to time. As of April 21, 2017, the prime rate as announced by Santander NY was 4%.

The Company’s reportable segments are focused principally around the customers the Company serves. During the first quarter of 2018, the Chief Operating Decision Maker ("CODM") made certain changes in its business lines that drove a reorganization of its business leadership to provide enhanced customer service to its clients and to better align management teams and resources with the manner in which the CODM allocates resources and assesses business performance. Accordingly, the following changes were made within the Company's reportable segments:

All prior period results have been recast to conform to the new composition of reportable segments.

The Company has identified the following reportable segments:

The Other category includes certain immaterial subsidiaries such as BSI, ~~Banco Santander Puerto Rico, SIS,~~BSPR, SSLLC, and ~~SSLLC,~~SFS, the unallocated interest expense on the Company's borrowings and other debt obligations and certain unallocated corporate income and indirect expenses.

NOTE 18. BUSINESS SEGMENT INFORMATION (continued)

The Company’s segment results, excluding SC and the entities that have become part of the IHC, are derived from the Company’s business unit profitability reporting system by specifically attributing managed balance sheet assets, deposits and other liabilities and their related interest income or expense to each of the segments. ~~Funds transfer pricing ("FTP")~~FTP methodologies are utilized to allocate a cost for funds used or a credit for funds provided to business line deposits, loans and selected other assets using a matched funding concept. The methodology includes a liquidity premium adjustment, which considers an appropriate market participant spread for commercial loans and deposits by analyzing the mix of borrowings available to the Company with comparable maturity periods.

Other income and expenses are managed directly by each reportable segment, including fees, service charges, salaries and benefits, and other direct expenses, as well as certain allocated corporate expenses, and are accounted for within each segment’s financial results. Accounting policies for the lines of business are the same as those used in preparation of the Condensed Consolidated Financial Statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses and other financial elements to each line of business. Where practical, the results are adjusted to present consistent methodologies for the segments.

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

The ~~Chief Operating Decision Maker ("CODM"), as described by ASC 280, Segment Reporting,~~CODM, manages SC on a historical basis by reviewing the results of SC on a pre-Change in Control basis. The Results of Segments table discloses SC's operating information on the same basis that it is reviewed by ~~SHUSA's~~the CODM. The adjustments column includes adjustments to reconcile SC's GAAP results to SHUSA's consolidated results.

NOTE 18. ~~INTERMEDIATE HOLDING COMPANY~~

EXECUTIVE SUMMARY

Santander Holdings USA, Inc. ("SHUSA" or the "Company") is the parent holding company of Santander Bank, National Association, (the "Bank" or "SBNA"), a national banking association, and owns approximately ~~59%~~68% of Santander Consumer USA Holdings Inc. (together with its subsidiaries, "SC"), a specialized consumer finance company focused on vehicle finance and third-party servicing. SHUSA is headquartered in Boston, Massachusetts and the Bank's main office is in Wilmington, Delaware. SC is headquartered in Dallas, Texas. SHUSA is a wholly-owned subsidiary of Banco Santander, S.A. ("Santander"). SHUSA is also the parent company of Santander BanCorp (together with its subsidiaries, “Santander BanCorp”), a holding company headquartered in Puerto Rico which offers a full range of financial services through its wholly-owned banking subsidiary, Banco Santander Puerto ~~Rico;~~Rico ("BSPR"); Santander Securities LLC (“SSLLC”), a broker-dealer headquartered in Boston; Banco Santander International (“BSI”), a financial services company located in Miami that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; Santander Investment Securities Inc. (“SIS”), a registered broker-dealer located in New York providing services in investment banking, institutional sales, trading and offering research reports of Latin American and European equity and fixed-income securities; and several other subsidiaries.

The Bank's principal markets are in the Mid-Atlantic and Northeastern United States. The Bank uses its deposits, as well as other financing sources, to fund its loan and investment portfolios. The Bank earns interest income on its loan and investment portfolios. In addition, the Bank generates non-interest income from a number of sources, including deposit and loan services, sales of loans and investment securities, capital markets products and bank-owned life insurance ("BOLI"). The principal non-interest expenses include employee compensation and benefits, occupancy and facility-related costs, technology and other administrative expenses. The financial results, of the Bank are affected by the economic environment, including interest rates and consumer and business confidence and spending, as well as the competitive conditions within the Bank's geographic footprint.

SC's primary business is the indirect origination and securitization of retail installment contracts ("RICs"), principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to subprime retail consumers. Further information about SC’s business is provided below in the “Chrysler Capital” section.

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

In 2014, an initial public offering ("IPO") of shares of SC's common stock (the “SC Common Stock”) was declared effective by the Securities and Exchange Commission (the "SEC"). Prior to the IPO, the Company owned approximately 65% of SC ~~Common Stock. SC Common Stock is now listed for trading on the New York Stock Exchange under the trading symbol “SC”.~~

SC offers a full spectrum of auto financing products and services to Chrysler customers and dealers under the Chrysler Capital brand ("Chrysler Capital"), the trade name used in providing services under the ten-year private label financing agreement with Fiat Chrysler Automobiles US LLC ("FCA"), formerly Chrysler Group LLC, signed by SC in 2013 (the "Chrysler Agreement"). 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.

93

The target penetration rate as of April 30, ~~2017 (the end of the third year of the Chrysler Agreement)~~2018 was ~~64%, and the target penetration rate as of April 30, 2018 is~~ 65%. SC's actual penetration rate as of ~~June 30, 2017~~March 31, 2018 was ~~20%, an improvement from the penetration rate of 17% as of December 31, 2016.~~28%. The penetration rate has been constrained due to ~~the~~a more competitive landscape and low interest rates, causing ~~its~~SC's subvented loan offers not to be materially more attractive than other lenders' offers. While SC has not achieved the targeted penetration rates to date, Chrysler Capital continues to be a focal point of its strategy, SC continues to work with FCA to improve penetration rates, and SC remains committed to the Chrysler Agreement.

SC has worked strategically and collaboratively with FCA to continue to strengthen its relationship and create value within the Chrysler Capital program. SC has partnered with FCA to roll out two new pilot programs, including a dealer rewards program and a nonprime subvention program. During the ~~six months~~three-month period ended ~~June 30, 2017,~~March 31, 2018, SC originated ~~$3.4~~more than $2.0 billion in Chrysler Capital loans, which ~~represented 43%~~represents approximately 46% of its total RIC originations, with an approximately even share between prime and non-prime, as well as more than ~~$3.0~~$2.1 billion in Chrysler Capital leases. Since its May 1, 2013 launch, Chrysler Capital has originated ~~$41.9~~more than $47.2 billion in retail loans and ~~$20.6~~$25.7 billion in leases, and facilitated the origination of $3.0 billion in leases and dealer loans for the Bank. As of ~~June 30, 2017,~~March 31, 2018, SC's auto RIC portfolio consisted of ~~$7.2~~$7.0 billion of Chrysler Capital loans, which represents 31% of SC's auto RIC portfolio.

SC also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile and recreational and marine vehicle portfolios for other lenders. Additionally, SC has several relationships through which it has provided ~~personal loans, private-label credit cards and~~ other consumer finance products. ~~In October 2015, SC announced its planned exit from the personal lending business.~~

SC has dedicated financing facilities in place for its Chrysler Capital business. SC periodically sells consumer RICs through these flow agreements and, when market conditions are favorable, it accesses the asset-backed securities ("ABS") market through securitizations of consumer RICs. SC also periodically enters into bulk sales of consumer vehicle leases with a third party. SC typically retains servicing of loans and leases sold or securitized, and may also retain some residual risk in sales of leases. SC has also entered into an agreement with a third party whereby SC will periodically sell charged-off loans.

~~SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES~~


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

During the ~~second~~first quarter of ~~2017,~~2018, unemployment ~~declined,~~remained steady, while market results ~~improved~~were mixed and the preliminary gross domestic product ("GDP") growth rate ~~came in under expectations, marking overall mixed results for~~slowed from the ~~U.S. economy.~~prior quarter.

The unemployment rate at ~~June 30, 2017 decreased to 4.4%~~March 31, 2018 was unchanged at 4.1% compared to ~~4.5%~~4.1% at ~~March~~December 31, 2017 and was ~~down from 4.9%~~lower compared to 4.5% one year ago. According to the U.S. Bureau of Labor Statistics, employment ~~increased~~rose in health care, manufacturing, and professional and business services, ~~and in mining,~~ while ~~retail trade lost jobs.~~remaining unchanged across other sectors.

The Bureau of Economic Analysis ("BEA") advance estimate indicates that real GDP grew at an annualized rate of ~~2.6%~~2.3% for ~~the second quarter of 2017, compared to 1.4% in~~ the first quarter of ~~2017.The acceleration~~2018, compared to 2.9% for the fourth quarter of 2017. According to the BEA, the deceleration in ~~real GDP~~growth was affected by slowing in ~~the second quarter is reflective of positive contributions from~~ personal consumption expenditures, ~~non-residential fixed investment,~~ exports, ~~and federal government spending. These positive contribution were partly offset by negative contributions from private~~ residential fixed ~~investment, private inventory~~ investment, and state and local government spending. This was partially offset by growth in private inventory investment.

Market year-to-date returns for the following indices based on closing prices at ~~June 30, 2017~~March 31, 2018 were:

At its ~~July 2017~~March 2018 meeting, the Federal Open Market Committee decided to raise the federal funds rate target to ~~1% - 1.25%~~1.50-1.75% , ~~indicating~~reflecting that the labor market has continued to strengthen and that economic activity has continued to expand at a ~~moderate~~solid pace. ~~Inflation~~Overall inflation remains ~~just~~ below the targeted rate of 2.0%.

The 10-year Treasury bond rate at ~~June 30, 2017~~March 31, 2018 was ~~2.3%~~2.74%, ~~down~~up from ~~2.5%~~2.40% at December 31, ~~2016. Over the past twelve months, however, the 10-year Treasury bond rate increased 81 basis points.~~2017. Within the industry, changes within this metric isare often considered to correspond to changes in 15-year and 30-year mortgage rates.

At the time of filing this Form 10-Q, ~~second~~current quarter ~~2017~~2018 information was not available; however, for the ~~first~~fourth quarter of 2017, mortgage originations ~~were down~~decreased approximately ~~23.19%~~11.89% over the ~~fourth~~prior quarter, ~~of the prior year, but up 3.14%~~and decreased 20.61% year-over-year. Similarly, refinancing activity showed an ~~overall~~increase of approximately 1.32% over the prior quarter, but a decrease of ~~approximately 9.7% from March 2016 to March 2017. After reaching its peak in 2009, the~~42.2% year-over- year.

The ratio of nonperforming loans ("NPLs") to total gross loans for U.S. banks declined for six consecutive years, to just under 1.5% in 2015. ~~This trend confirmed an improvement in credit quality and downward~~NPL trends ~~in general allowance reserves and has continued throughout 2016 and early 2017.~~have remained relatively flat since that time. NPLs for U.S. commercial banks were approximately 1.17% of loans using the latest available data which was as of the fourth quarter of 2017, compared to 1.17% for the prior quarter.

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

The following table presents Moody's, ~~and~~ Standard & Poor's ("S&P") and Fitch credit ratings for the Bank, and BSPR, SHUSA, Santander, and the Kingdom of Spain, ~~and Banco Santander Puerto Rico ("BSPR")~~ as of ~~June 30, 2017:~~March 31, 2018:

On January 19, 2018, Fitch upgraded Spain's Long-term Foreign Currency and Local Currency rating to A- from BBB+ and upgraded Spain's Short-term Foreign Currency and Local Currency rating to F1 from F2.

On March ~~31, 2017,~~23, 2018, Standard & Poor's upgraded Spain's Long-term rating to A1- from BBB+.

On April 6, 2018, Standard & Poor's raised ~~its outlook on~~Santander's long- and short-term ratings by one notch to A and A-1, respectively. Standard & Poor's also raised the long term ratings of SHUSA by one notch to BBB+ and SBNA to A-. The short-term ratings for SHUSA and SBNA were not changed.

On April 13, 2018, Moody's upgraded Spain's ~~sovereign credit~~ rating to ~~"positive"~~Baa1 from "stable", saying it believed the country's strong economic performance would continue over the next two years. On June 6, 2017 Standard and Poor's revised their outlook on Santander to stable from positive, saying it's stable outlook reflects limited prospects for ratings upside until we see evidence that the integration of Banco Popular is proceeding smoothly, not facing meaningful business or financial setbacks.Baa2.

~~During the second quarter of 2017, there were no changes~~On April 17, 2018, Moody's upgraded Santander's long- and short-term ratings by one notch to ~~SHUSA's or the Bank's ratings.~~A-2 and P-1, respectively.

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 could impact SHUSA's or its subsidiaries' credit ratings, and any other change in the condition of Santander could affect SHUSA.

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

On May 3, 2017, the Financial Oversight and Management Board ~~for~~of Puerto Rico (“FOB”) submitted a request to the Federal District Court of Puerto Rico to apply Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) to the Commonwealth of Puerto Rico. Title III of PROMESA allows the Commonwealth of Puerto Rico to enter into a debt restructuring process notwithstanding that Puerto Rico is barred from traditional bankruptcy protection under Chapter 9 of the U.S. Bankruptcy Code.

On July 2, 2017, the Puerto Rican Electric Power Authority ("PREPA") submitted a request to the Federal District Court of Puerto Rico to apply Title III of PROMESA to PREPA.

As of ~~June 30,, 2017,~~March 31, 2018, SHUSA did not have material direct credit exposure to the Commonwealth of Puerto Rico, and its exposure to Puerto Rico municipalities in total was approximately ~~$230~~$220 million. As of ~~June 30, 2017,~~March 31, 2018, municipalities had not been designated “covered” territorial instrumentalities subject to the requirements of PROMESA, and the municipalities were current on their debt obligations to SHUSA. Under PROMESA, the FOB has sole discretion to designate territorial instrumentalities such as municipalities as covered entities subject to PROMESA’s requirements. If the FOB determines to designate municipalities as covered entities under PROMESA, the FOB could initiate debt restructuring of municipalities that have debt obligations to SHUSA, if deemed necessary.

Our footprint was impacted by three significant hurricanes during the third quarter of 2017, Hurricane Harvey, which struck the State of Texas and the surrounding region, Hurricane Irma, which primarily struck the State of Florida, and Hurricane Maria, which struck the island of Puerto Rico. Each of these hurricanes resulted in widespread flooding, power outages and associated damage to real and personal property in the affected areas. Our SC subsidiary headquartered in Dallas, Texas, our BSI subsidiary headquartered in Miami, Florida, and our Santander BanCorp, BSPR and SSLLC subsidiaries in Puerto Rico were most directly affected by these hurricanes. In Puerto Rico, there was significant damage to the infrastructure and the power grid on the entire island, which resulted in extended delays in BSPR returning to normal operations.

The Company assessed the potential additional credit losses related to its consumer and commercial lending exposures in the greater Texas, Florida and Puerto Rico regions. As a result, the Company's ALLL has approximately $110 million of reserves at March 31, 2018 related to the hurricanes. However, for credit exposures in Puerto Rico, given the current state in the region, the Company has had limited information with which to estimate probable credit losses. As of March 31, 2018, the Company has approximately $3.4 billion of loan exposures in Puerto Rico consisting of $1.6 billion in consumer loans, $1.8 billion in commercial loans, including $220 million in loans to municipalities. The Company will continue to monitor and assess the impact of these hurricanes on our subsidiaries’ businesses, and may establish additional reserves for losses in future periods.

REGULATORY MATTERS

The activities of the Company and its subsidiaries, including the Bank 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 and shareholders.

~~The Parent Company~~SHUSA is the parent holding company of SBNA and other consolidated subsidiaries, and is a legal entity separate and distinct from its subsidiaries. In addition to those arising as a result of the Comprehensive Capital Analysis and Review (“CCAR”) process ~~and written agreements~~ described under the caption “Stress Tests and Capital Adequacy” below, SHUSA and SBNA are subject to various regulatory restrictions relating to the payment of dividends, including regulatory capital minimums and the requirement to remain "well-capitalized" under prompt corrective action regulations. As a consolidated subsidiary of the Company, SC is included in various regulatory restrictions relating to payment of dividends as described in the “Stress Tests and Capital Adequacy” discussion in this section.

During the three-month period ended March 31, 2018, the Company paid cash dividends on common stock of $5.0 million to its sole shareholder, Santander.

In addition, the following regulatory matters are in the process of being phased in or evaluated by the Company.

OnIn February ~~18,~~ 2014, the Federal Reserve issued the final rule ~~to strengthen regulatory oversight~~implementing certain enhanced prudential standards (“EPS”) mandated by Section 165 of ~~FBOs~~the Dodd-Frank Wall Street Reform and Consumer Protection Act (the ~~“FBO~~“DFA") (“FBO Final Rule”). Under the ~~FBO~~ Final Rule, FBOs with over $50 billion of U.S. non-branch assets, including Santander, ~~must~~were required to consolidate U.S. subsidiary activities under an ~~IHC.~~intermediate holding company (an “IHC"). In addition, the FBO Final Rule ~~requires~~required U.S. ~~BHCs~~bank holding companies ("BHCs") and FBOs with at least $50 billion in total U.S. consolidated non-branch assets to be subject to EPS and heightened capital, liquidity, risk management, and stress testing requirements. Due to both its global and U.S. non-branch total consolidated asset size, Santander was subject to both of the above provisions of the FBO Final Rule. As a result of this rule, Santander has transferred substantially all of its U.S. bank and non-bank subsidiaries previously outside the Company to the Company, which became an IHC effective July 1, 2016. These subsidiaries include Santander BanCorp, a Puerto Rico bank holding company, Banco Santander International, a private bank headquartered in Miami ("BSI"); Santander Investment Securities, Inc., a broker-dealer located in New York ("SIS"); and Santander Securities LLC, a Puerto Rico broker-dealer ("SSLLC"). A phased-in approach is being used for the standards and requirements at both the FBO and the IHC. As a ~~result, as discussed~~U.S. BHC with more than $50 billion in ~~Note 18, on July 1, 2017, Santander also transferred ownership of an additional entity, Santander Financial Services, Inc. ("SFS"),~~total consolidated assets, the Company became subject to the ~~Company.~~EPS on January 1, 2015. Other standards of the FBO Final Rule will be phased in through January 1, 2019.

In July 2013, the Federal Reserve, the FDIC and the OCC released final U.S. Basel III ~~Regulatory Capital Rule Implementation~~regulatory capital rules implementing the global regulatory capital reforms of Basel III that are applicable to both SHUSA and the Bank. The final rules established a comprehensive capital framework that includes both the advanced approaches for the largest internationally active U.S. banks, formerly known as Basel II, and a standardized approach that applies to all banking organizations with over $500 million in assets. Subject to various transition periods, this rule became effective for SHUSA on January 1, 2015.

The rules narrow the definition of regulatory capital and establish higher minimum risk-based capital ratios and prompt corrective action thresholds that, when fully phased in, require banking organizations, including the Company and the Bank, to maintain a minimum common equity tier 1 ("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 capital conservation buffer of 2.5% above these minimum ratios is being phased in over three years starting in 2016, beginning at 0.625% and increasing by that amount on each subsequent January 1, until the buffer reaches 2.5% on January 1, 2019. This buffer is required for banking institutions and BHCs to avoid restrictions on their ability to make capital distributions, including paying dividends.

The U.S. Basel III regulatory capital rules include deductions from and adjustments to common equity Tier 1 ("CET1"). Implementation of the deductions and other adjustments to CET-1 for the Company and the Bank began on January 1, 2015 and are being phased in over three years. Phased-in changesCET1. These include, for example, the requirement that mortgage servicing rights ("MSRs"), deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities are deducted from CET1 to the extent any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.

See the Bank Regulatory Capital section of this ~~Management's Discussion and Analysis of Financial Condition and Results of Operations (the "MD&A")~~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.

~~Basel III Capital Conservation Buffer~~If capital has reached the 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 the Federal Deposit Insurance Corporation Improvement Act (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.

A capital conservation buffer of 2.5% above these minimum ratios is being phased in over three years, which began in 2016 at 0.625% and increases by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019. This capital conservation buffer is required for banking institutions and bank holding companies ("BHCs"), and failureAt March 31, 2018, the Bank met the criteria to ~~maintain the capital conservation buffer can lead to restrictions on the ability to make capital distributions, including paying dividends.~~

The Company is subject to ~~written agreements with~~ the Federal ~~Reserve Bank (the "FRB") of Boston that address stress testing and capital adequacy:~~

Under the capital plan rule, the Company is considered a large and non-complex BHC. The Federal Reserve may object to the Company’s capital plan if the Federal Reserve determines that the Company has not demonstrated an ability to maintain capital above each minimum regulatory capital ratio on a pro forma basis under expected and stressful conditions throughout the planning horizon. ~~The Company is considered a large~~Large and non-complex ~~BHC under~~BHCs such as the ~~capital rule plan, and as a result is~~Company are no longer subject to the qualitative ~~assessment~~objection criteria of the capital plan rule bywhich are applied to larger banks that fall outside the ~~Federal Reserve.~~large and non-complex BHC definition.

In ~~June 2017, the Company announced that~~September 2014, the Federal Reserve, the FDIC, and the OCC finalized a rule to implement the Basel III liquidity coverage ratio (the “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 ("HQLA") equal to its expected net cash outflow for a 30-day time horizon. This rule implements a phased implementation approach under which the most globally important covered companies (more than $700 billion in assets) and large regional financial institutions ($250 billion to $700 billion in assets) were required to begin phasing-in the LCR requirements in January 2015. Smaller covered companies (more than $50 billion in assets), such as ~~part~~the Company, were required to calculate the LCR monthly beginning January 2016. In November 2015, the Federal Reserve published a revised final LCR rule. Under this revision, the Company was required to calculate the modified US LCR (the "US LCR") on a monthly basis beginning with data as of January 31, 2016. There is no requirement to submit the calculation to the Federal Reserve. The Company will be required to publicly disclose its US LCR results beginning October 1, 2018.

In October 2014, the Basel Committee on Banking Supervision issued the final standard for the net stable funding ratio (the “NSFR”). The NSFR is designed to promote more medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon The NSFR requires banks to maintain a stable funding profile in relation to their on- and off-balance sheet activities, thereby reducing the likelihood that disruptions to a bank's regular sources of funding will erode its liquidity in a way that could increase the risk of its ~~CCAR process,~~failure and potentially lead to broader systemic stress. In May 2016, the Federal Reserve issued a proposed rule for NSFR applicable to U.S. financial institutions. The proposed rule has not been finalized, and the Company is currently evaluating the impact this proposed rule would have on its financial position, results of operations and disclosures.

The DFA requires all BHCs and FBOs with assets of $50 billion or more to prepare and regularly update resolution plans. The 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. In addition, the insured depository resolution plan rule requires that a bank with assets of $50 billion or more develop a plan for its resolution in a manner that ensures that depositors receive 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. Santander and the Bank most recently submitted resolution plans in accordance with these rules in December 2015.

On January 29, 2018, the Federal Reserve and the Federal Deposit Insurance Corporation (the “FDIC”) completed their assessments of the 2015 resolution plans and provided their expectations for future resolution plans to the 19 foreign-based banking organizations, including Santander. The banking agencies did not object to Santander’s 2015 plan or provide any substantive feedback on the ~~capital~~submission. Instead, the banking agencies clarified their expectations for how the 2018 resolution plan ~~submitted~~should build on the 2015 submission. Importantly, the 2018 resolution plan can incorporate, by ~~the Company as part~~reference, elements of the ~~CCAR process~~2015 plan that have not materially changed. In addition, the banking agencies requested that the 2018 plan provide updated information on how any organizational changes as a result of forming an IHC impact the resolution strategy. The 2018 resolution plan is due by December 31, 2018.

In September 2016, the OCC issued final guidelines that requires a bank with consolidated assets of $50 billion to develop and maintain a recovery plan that is appropriate for its size, risk profile, activities, and complexity, including the ~~capital distributions included~~complexity of its organizational and legal entity structure. As provided in the ~~plan. That capital~~final rule, SBNA must complete its initial recovery plan included planned capital distributions across the following categories: (1) common stock dividends from SHUSA to Santander, (2) common stock dividends from SC, (3) redemption of the remaining balance of SHUSA's 7.908% trust preferred securities, and (4) dividends on the Company's preferred stock and payments on its trust preferred securities. On June 28, 2017, SHUSA's Board of Directors approved the following capital distributions for the third quarter of 2017: (1) a dividend payment of $0.45625 per share on the Company's preferred stock, (2) a common stock dividend payment to Santander of $5.0 million, and (3) redemption of the remaining balance of the Company's trust preferred securities. While no longer subject to the qualitative assessment of the revised capital plan rule, the Company remains subject to the written agreements with the FRB of Boston described above, and may not make or permit any subsidiary to make any capital distribution, without the prior written approval of the Federal Reserve.by July 2018.

The Federal Reserve adopted a final rule in December 2016 that ~~will require~~requires certain U.S. organizations to maintain a minimum amount of loss-absorbing instruments, including a minimum amount of unsecured long-term debt ("LTD") (the “TLAC Rule”). The TLAC Rule ~~which amends Regulation YY,~~ applies to U.S. global systemically important banks ("G-SIB") and to IHCs with $50 billion or more in U.S. non-branch assets that are controlled by a global systemically important ~~FBOs.~~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 ~~long-term debt (“LTD”)~~LTD and Tier 1 capital. As a result, SHUSA will need to hold the higher of 18% of its risk-weighted assets ("RWAs") or 9% of its total consolidated assets in the form of TLAC. 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. In addition tothe TLAC ~~the rule~~Rule, requires SHUSA to hold LTD ~~in an amount no less than the greater~~ of at least 6% of its RWAs or 3.5% of its total consolidated assets. The ~~final rule~~TLAC Rule is effective January 1, 2019.

The DFA added new Section 13 to the BHC Act, which is commonly referred to as the “Volcker Rule.” The Volcker Rule prohibits a “banking entity” from engaging in “proprietary trading” or engaging in any of the following activities with respect to a hedge fund or a private equity fund (together, 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 insured depository institution, 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 the Bank and SC), as well as other Santander subsidiaries in the United States and abroad.

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

Depository institutions must remain in compliance with Sections 23A and 23B of the Federal Reserve Act and ~~FRB~~the Federal Reserve's Regulation W, ~~("Reg. W"),~~ which governs the activities of the Company and its banking subsidiaries with affiliated companies and individuals. Section 23A ~~places~~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. The aggregate of all covered transactions is limited to 10% of a bank’s capital and surplus for any one affiliate and 20% for all affiliates. Certain covered transactions also must meet collateral requirements that range from 100% to 130% depending on the type of transaction.

Section 23B of the Federal Reserve Act prohibits ana depository institution from engaging in certain transactions with affiliates unless the transactions are considered ~~arm`s-length.~~arms'-length. To meet the definition of arms-length, the terms of the transaction must be the same, or at least as favorable, as those for similar transactions with non-affiliated companies.

As a U.S. domiciled subsidiary of a global parent with significant non-bank affiliates, the Company faces elevated compliance risk in this area.

In August 2014, the ~~SEC unanimously voted to adopt~~Securities and Exchange Commission (the "SEC") adopted final rules known as Regulation AB II that, among other things, expanded disclosure requirements and modified the offering and shelf registration process for asset-backed securities (“ABS”). All offerings of publicly registered ABS and all reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for outstanding publicly-registered ABS ~~must~~were required to comply with the new rules and disclosures on and after November 23, 2015, except for asset-level disclosures. Compliance with the new rules regarding asset-level disclosures iswas required for all offerings of publicly registered ABS on and after November 23, 2016. SC must comply with these rules, which affects ~~the~~ SC's public securitization platform.

SBNA and ~~Banco Santander Puerto Rico~~BSPR are subject to the requirements of the CRA, which requires the appropriate ~~Federal~~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. ~~Banco Santander Puerto Rico’s~~BSPR’s current CRA rating is ~~“Outstanding.” The Bank’s most recent public~~“Outstanding” and SBNA’s current CRA ~~report of examination rated the Bank as “Needs to Improve” for the January 1, 2011 through December 31, 2013 evaluation period. The Bank’s~~ rating based solely on the applicable CRA lending, service and investment tests would have been “Satisfactory.” However, the overall rating was lowered to “Needs to Improve” due to previously disclosed instances of non-compliance by the Bank that are being remediated.is "Satisfactory." The OCC takes into account the Bank’s CRA rating in considering certain regulatory applications the Bank 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 addition, there may be some negative impacts on aspects of the Bank’s business as a result of the downgrade. For example, certain categories of depositors are restricted from making deposits in banks with a “Needs to Improve” rating.

On ~~March 23, 2017,~~April 1, 2014, the ~~Company~~Bank received a civil investigative demand from the CFPB requesting information and ~~SC entered into a written agreement~~documents in connection with the ~~FRB~~Bank’s marketing to consumers of ~~Boston. Under~~overdraft coverage for automated teller machine ("ATM") and onetime debit card transactions through a third-party vendor. On July 14, 2016, the terms of this written agreement, SC is required to enhance its compliance risk management program, SC’s Board and management are required to enhance their oversight of SC’s risk management program, and the Company is required to enhance, among other matters, its Board oversight of SC’s management and operations.

On February 25, 2015, SC entered into a consent order with the Department of Justice (the "DOJ"), approved by the United States District Court for the Northern District of Texas, which resolves the DOJ’s claims against ~~the Company~~SC that certain of its repossession and collection activities during the period of time between January 2008 and February 2013 violated the ~~SCRA.~~Servicemembers’ Civil Relief Act (the “SCRA”). The consent order requires usSC to pay a civil fine in the amount of $55,000, as well as at least $9.4 million to affected servicemembers, consisting of $10,000 per servicemember plus compensation for any lost equity (with interest) for each repossession by usSC and $5,000 per servicemember for each instance where weSC sought to collect repossession-related fees on accounts where a repossession was conducted by a prior account holder. The consent order ~~also~~ requires us to undertake additional remedial measures. The consent order also subjects usSC to monitoring by the DOJ for compliance with the SCRA for a period of five years.

On March 26, 2015, the Bank entered into a cease and desist order (the "SIP Consent Order") with the OCC regarding identified deficiencies in SBNA's billing practices with regard to SIP, an identity theft protection product from the Bank’s third-party vendor. Pursuant to the SIP Consent Order, the Bank paid a CMP of $6.0 million and agreed to remediate customers who paid for but may not have received certain benefits of the SIP. Prior to entering into the SIP Consent Order, the Bank made $37.3 million in remediation payments to customers, representing the total amount paid for product enrollment.

Subsequently, the Bank commenced a further review in order to remediate checking account customers who may have been charged an overdraft fee and credit card customers who may have been charged an over limit fee and/or finance charge related to SIP product fees. The approximate amount of the expected additional remediation is $5.2 million. The Bank is currently implementing plans to reimburse customers.

On July 2, 2015, the Company entered into a written agreement with the FRB of Boston. Under the terms of that written agreement, the Company is required to make enhancements with respect to, among other matters, Board oversight of the consolidated organization, risk management, capital planning and liquidity risk management.

In July 2015, the CFPB notified SC that it had referred to the DOJ certain alleged violations by SC of the Equal Credit Opportunity Act (the “ECOA”) regarding (i) statistical disparities in mark-ups charged by automobile dealers to protected groups on loans originated by those dealers and purchased by SC and (ii) the treatment of certain types of income in SC's underwriting process. In September 2015, the DOJ notified SC that it had initiated an investigation under the ECOA of SC's pricing of automobile loans based on the referral from the CFPB. SC resolved the DOJ investigation pursuant to a confidential agreement with the CFPB.

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as amended (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.

On July 1, 2016, ownership of several Santander subsidiaries, including Santander BanCorp, BSI, SIS and SSLLC, were transferred to the Company. As these entities were and are solely owned and controlled by Santander prior to and after July 1, 2016, in accordance with ASC 805, the transaction has been accounted for under the common control guidance, which requires the Company to recognize the assets and liabilities transferred at their historical cost of the transferring entity at the date of the transfer. Additionally, as this transaction represents a change in reporting entity, the guidance requires retrospective combination of the entities for all periods presented in these financial statements as if the combination had been in effect since inception of common control.

The Company reported pre-tax income of ~~$379.7 million and $622.4~~$353.3 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017,~~March 31, 2018, compared to a pre-tax income of ~~$428.7 million and $617.2~~$242.6 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2016.~~March 31, 2017. Factors contributing to ~~these changes~~this increase were as follows:

Net interest income decreased ~~$23.1 million and $116.4~~$106.6 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 compared to the ~~corresponding periods in 2016. These overall decreases were~~first quarter of 2017. This decrease was primarily due to a decrease in yield on interest income earned on loans and an increase in interest expense on borrowings due to ~~lower~~higher borrowing ~~levels and lower yield rates.~~rate.

Interest income on investment securities and interest-earning deposits increased ~~$26.4 million and $26.1~~$11.7 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 compared to the ~~corresponding periods in 2016.~~first quarter of 2017. The average balance of investment securities and interest-earning deposits for the ~~six-month~~three-month period ended ~~June 30, 2017~~March 31, 2018 was ~~$27.3~~$22.6 billion with an average yield of ~~1.81%~~2.27%, compared to an average balance of ~~$30.8~~$27.9 billion with an average yield of ~~1.43%~~1.67% for the ~~corresponding period in 2016.~~first quarter of 2017. The increase in interest income on investment securities and interest-earning deposits for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 was primarily attributable to an increase of ~~$10.0 million and $20.6~~$6.4 million in interest income on investments ~~held-to-maturity~~HTM due to increased volume, and an increase of ~~$13.7 million and $1.5~~$14.1 million in ~~interest income on investments available-for-sale~~interest-earning deposits due to an increased yield ~~rates~~of 2.19% for the three-month period ended March 31, 2018 compared to 0.93% for the ~~corresponding periods in 2016.~~

Interest income on loans decreased ~~$56.4 million and $158.3~~$91.2 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 compared to the ~~corresponding periods~~first quarter of 2017, primarily due to declines in ~~2016.~~RIC rates, which comprised $110.3 million of the decrease. The average balance of total loans was ~~$86.5~~$82.7 billion with an average yield of ~~8.57%~~8.45% for the ~~six-month~~three-month period ended ~~June 30, 2017,~~March 31, 2018, compared to ~~$90.6~~$87.3 billion with an average yield of ~~8.53%~~8.43% for the ~~corresponding period in 2016.~~first quarter of 2017. The decrease in the average balance of total loans of ~~$4.1~~$4.6 billion was primarily due to a decline in the ~~volume in~~balance of the commercial loan portfolio. The average balance of commercial loans was ~~$42.4~~$38.6 billion with an average yield of ~~3.60%~~3.98% for the ~~six-month~~three-month period ended ~~June 30, 2017,~~March 31, 2018, compared to ~~$46.9~~$43.2 billion with an average yield of ~~3.31%~~3.46% for the corresponding period in 2016. The decrease in interest income on loans was primarily due to the activity in the RIC and auto loan portfolio. Interest income on the RIC and auto loan portfolio decreased $61.3 million and $140.5 million for the three-month and six-month periods ended June 30, 2017 due to a drop in interest rates. The average interest ratefirst quarter of ~~the portfolio decreased from 18.61% in 2016 to 17.20% in~~ 2017.

Interest expense on deposits and related customer accounts ~~decreased $14.5 million and $28.0~~increased $13.4 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 compared to the ~~corresponding periods~~first quarter of 2017, primarily due to a increase in ~~2016.~~average cost of interest rates. The average balance of total interest-bearing deposits was ~~$50.1~~$45.9 billion with an average cost of 0.66% for the three-month period ended March 31, 2018 compared to an average balance of $51.2 billion with an average cost of 0.48% for the ~~six-month period ended June 30, 2017, compared to an average balance~~first quarter of ~~$52.9 billion with an average cost~~2017.

Interest expense on borrowed funds increased ~~$7.7 million and $12.3~~$13.7 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 compared to the ~~corresponding periods in 2016.~~first quarter of 2017. The increase in interest expense on borrowed funds was due to ~~an increase in the~~ interest paid at higher rate ~~paid for~~during the three-month ~~and six-month periods~~period ended ~~June 30, 2017.~~March 31, 2018. The average balance of total borrowings was ~~$42.1 billion and $42.7~~$39.0 billion with an average cost of ~~2.84% and 2.77%~~3.12% for the three-month ~~and six-month periods~~period ended ~~June 30, 2017, respectively,~~March 31, 2018, compared to an average balance of ~~$49.9 billion and $50.1~~$43.3 billion with an average cost of ~~2.33% and 2.31%~~2.69% for the ~~corresponding periods in 2016.~~first quarter of 2017. The average balance of borrowed funds decreased from ~~June 30, 2016~~March 31, 2017 to ~~June 30, 2017,~~March 31, 2018, primarily due to the decrease in ~~FHLB~~Federal Home Loan Bank ("FHLB") advances as a result of maturities and terminations. The increase in interest expense on borrowed funds is due to the Company issuing $2.3 billion of long-term debt at higher fixed rates in 2017 to increase liquidity and to meet the FRB TLAC requirement.

~~SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES~~


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

PROVISION FOR CREDIT LOSSES

The provision for credit losses is based on credit loss experience, growth or contraction of specific segments of the loan portfolio, and the estimate of losses inherent in the portfolio. The provision for credit losses for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 was ~~$604.8~~$502.5 million, ~~and $1.3 billion,~~ compared to ~~$613.8~~$735.4 million ~~and $1.5 billion~~ for ~~the corresponding periods in 2016. This~~2017. The decrease for the ~~six-month~~three-month period ended ~~June 30, 2017~~March 31, 2018 was primarily ~~related~~due to decreases in the ~~buildup of the~~overall loan portfolio resulting in a decreased allowance for loan and lease losses ("ALLL") ~~coverage ratio throughout 2016, mainly on the RIC~~ and ~~auto loan portfolio. The provision continues to reflect the growth of~~a decline in originations, stabilizing credit performance for non-troubled debt restructuring ("TDR") loans, and recovery rates for the RIC and auto loan portfolio.

The Company's net charge-offs ~~increased $148.7~~decreased $48.8 million for the three-month period ended ~~June 30, 2017, and increased $225.4 million for the six-month period ended June 30, 2017~~March 31, 2018 compared to the corresponding ~~periods~~period in ~~2016.~~2017.

Consumer charge-offs decreased $18.3 million for the three-month period ended March 31, 2018 compared to the corresponding period in 2017. The decrease was comprised of a $15.3 million decrease in consumer auto loan charge-offs, and a $5.3 million increase in consumer loans held in Puerto Rico offset by an $2.2 million increase in home mortgage charge-offs.

Consumer recoveries increased $37.8 million for the three-month period ended March 31, 2018 compared to the corresponding period in 2017. This increase was comprised of a $38.7 million increase in consumer auto loan recoveries, offset by a $1.2 million decrease in other consumer loan recoveries.

Consumer net charge-offs as a percentage of average consumer loans were 1.3% for the three-month period ended March 31, 2018, compared to 1.4% for the corresponding period in 2017.

Commercial charge-offs increased ~~$26.9 million and $10.1~~$6.8 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017, respectively~~March 31, 2018 compared to ~~the~~ corresponding ~~periods~~period in ~~2016. The three-month~~2017. This increase was ~~primarily due to~~comprised of a ~~$26.9 million increase in Commercial real estate charge-offs, and the six-month increase was primarily due to a $23.4~~$14.8 million increase in Commercial Banking charge-offs, offset by a ~~$10.0~~$3.5 million decrease in ~~Commercial Fleet charge-offs.~~commercial fleet charge-offs, a $3.5 million decrease in Middle Market CRE charge-offs, and a $1.5 million decrease in charge-offs for commercial loans in Puerto Rico.

Commercial recoveries decreased ~~$12.3 million and $27.6~~$0.6 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017, respectively~~March 31, 2018 compared to the corresponding ~~periods~~period in ~~2016. The three-month~~2017. This decrease was primarily due to a ~~$5.8~~$1.2 million decrease in ~~commercial real estate~~ recoveries for continuing care retirement communities, and a ~~$5.7~~$1.4 million decrease in commercial fleet recoveries, offset by a $2.2 million increase in corporate banking recoveries.

Commercial loan net charge-offs as a percentage of average commercial loans, including multifamily loans, ~~were 0.12% and 0.16%~~was 0.06% for the three-month ~~and six-month periods~~period ended ~~June 30, 2017, respectively.~~

Total non-interest income increased ~~$8.4 million and $39.7~~$74.9 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 compared to the ~~corresponding periods in 2016.~~first quarter of 2017. The ~~increases~~increase for the three-month ~~and six-month periods~~period ended ~~June 30, 2017 were~~March 31, 2018 was primarily due to the increase in lease income associated with the continued growth of the lease portfolio and ~~RICs.~~increases in miscellaneous income. T~~his was~~hese increases were offset by ~~a decrease~~decreases in ~~net gains recognized on investment securities due to no securities sales in the three-month~~consumer and ~~six-month periods ended June 30, 2017, and a decrease in consumer~~commercial loan fees due to the reduction of loans serviced by the ~~Company.~~Company as well as a decrease in net gains recognized in earnings for the three-month period ended March 31, 2018.

Consumer fees decreased ~~$9.8 million and $31.2~~$10.8 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018, compared to the ~~corresponding period in 2016. The~~first quarter of 2017. This decrease ~~in consumer fees for the three-month and six-month periods ended June 30, 2017~~ was primarily due to a ~~$23.3 million and $48.6~~$21.6 million decrease in loan fee income, which was attributable to ~~the~~a reduction ofin loans serviced by the Company due to loan sales and payoffs and lower reserve recourse releases in ~~2017.~~2018. This was partially offset by an increase of $2.5 million in ~~other consumer fees including credit cards and~~ consumer deposit ~~fees.~~fees for the three-month period ended March 31, 2018.

Commercial fees consists of deposit overdraft fees, deposit ~~automated teller machine ("ATM")~~ATM fees, cash management fees, letter of credit fees, and loan syndication fees for commercial accounts. Commercial fees decreased ~~$8.2 million and $13.1~~$5.0 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 compared to the ~~corresponding periods in 2016,~~first quarter of 2017. This decrease was primarily due to ~~a decrease~~lower capital markets income.

Lease income increased $44.9 million for the three-month period ended March 31, 2018 compared to the first quarter of 2017. This increase was the result of the growth in ~~unused line~~the Company's lease portfolio, with an average balance of ~~credit fees~~$10.3 billion for the three-month period ended March 31, 2018, compared to $9.8 billion at March 31, 2017.

The Company recognized $0.7 million in net losses on sale of ~~$3.5~~investment securities for the three-month period ended March 31, 2018 compared to the net gains of $0.5 million ~~and a decrease of $5.9 million due to a decrease in syndication fees.~~

Miscellaneous income increased $47.1 million for the three-month period ended March 31, 2018 compared to the first quarter of 2017. Factors contributing to this change were as follows:

Mortgage banking income consisted of fees associated with servicing loans not held by the Company, as well as originations, amortization, and changes in the fair value of MSRs and recourse reserves. Mortgage banking income also included gains or losses on the sale of mortgage loans, home equity loans, home equity lines of credit, and mortgage-backed securities ("MBS"). Gains or losses on mortgage banking derivative and hedging transactions are also included in Mortgage banking income.

Mortgage banking revenue increased ~~$3.5 million and $0.4~~$3.2 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 compared to the ~~corresponding periods in 2016. The increases~~first quarter of 2017. This increase for ~~2017 were~~the period ended March 31, 2018 was primarily attributable to ~~$10.3~~$13.6 million of gains related to MSR valuation and $1.9 million of higher ~~net~~ gains ~~from changes in MSR fair value,~~related to residential mortgage sales. These gains were partially offset by ~~$5.7~~$12.7 million of ~~lower net gains on sales of residential mortgage loans and related securities.~~losses from hedging activities.

~~Since 2015, mortgage interest~~Interest rates ~~have remained stable, resulting~~continued to rise in ~~relative stability in mortgage banking fees from rate changes.~~the three-month period ended March 31, 2018.

The following table details interest rates on certain residential mortgage loans for the Bank as of the dates indicated:

Other factors, such as portfolio sales, servicing, and re-purchases, have continued to affect mortgage banking revenue.

Mortgage and multifamily loan servicing fees decreased ~~$0.3 million and $0.5~~$0.4 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018, compared to the ~~corresponding periods in2016.~~first quarter of 2017. At ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the Company serviced mortgage and multifamily real estate loans for the benefit of others with a principal balance totaling ~~$414.2~~$198.2 million and ~~$770.4~~$556.6 million, respectively. The decrease in loans serviced for others iswas primarily due to ~~pay downs~~pay-downs received during the remainder of ~~2016~~2017 and ~~2017.~~2018.

Net gains on sales of residential mortgage loans and related securities ~~decreased $5.7 million and $4.8~~increased $1.9 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017, respectively,~~March 31, 2018 compared to the ~~corresponding periods in 2016.~~first quarter of 2017. For the three-month ~~and six-month periods~~period ended ~~June 30, 2017,~~March 31, 2018, the Company sold ~~$940.0 million~~$0.3 billion of mortgage loans for gains of ~~$5.7~~$6.2 million, compared to ~~$889.7 million~~$0.6 billion of loans sold for gains of ~~$10.5~~$4.4 million for the ~~corresponding period in 2016.~~

The Company periodically sells qualifying mortgage loans to the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA") and the Federal National Mortgage Association ("FNMA") in return for MBS issued by those agencies. The Company records these transactions as sales when the transfers meet all of the accounting criteria for a sale. For those loans sold to the agencies for which the Company retains the servicing rights, the Company recognizes the servicing rights at fair value. These loans are also generally sold with standard representation and warranty provisions, which the Company recognizes at fair value. Any difference between the carrying value of the transferred mortgage loans and the fair value of the MBS, servicing rights, and representation and warranty reserves is recognized as gain or loss on sale.

The Company previously sold multifamily loans in the secondary market to FNMA while retaining servicing. In September 2009, the Bank elected to stop selling multifamily loans to FNMA and, since that time, has retained all production for the multifamily loan portfolio. Under the terms of the multifamily sales program with FNMA, the Company retained a portion of the credit risk associated with those loans. As a result of that agreement, the Company retains a 100% first loss position on each multifamily loan sold to FNMA under the program until the earlier to occur of (i) the aggregate approved losses on the multifamily loans sold to FNMA reaching the maximum loss exposure for the portfolio as a whole or (ii) all of the loans sold to FNMA under the program are fully paid off.

At ~~June 30, 2017,~~March 31, 2018, the Company serviced loans with a principal balance of ~~$253.5~~$102.6 million for FNMA, compared to ~~$341.7~~$136.0 million at December 31, ~~2016.~~2017. These loans had a credit loss exposure of ~~$34.4~~$12.2 million as of ~~both June 30, 2017 and~~March 31, 2018, compared to $12.2 million as of December 31, ~~2016.~~2017. Losses, if any, resulting from representation and warranty defaults would be in addition to the Company's credit loss exposure. The servicing asset for these loans ~~has completely~~is fully amortized.

The Company has established a liability related to the fair value of the retained credit exposure for multifamily loans sold to ~~the~~ FNMA. This liability represents the amount the Company estimates it would have to pay a third party to assume the retained recourse obligation. The estimated liability represents the present value of the estimated losses the portfolio is projected to incur based upon specific internal ~~specific~~ information and an industry-based default curve with a range of estimated losses. As of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company had a liability of ~~$2.6~~$0.9 million and ~~$3.8~~$1.3 million, respectively, related to the fair value of the retained credit exposure for multifamily loans sold to the FNMA under this program.

Net ~~gains on~~loss from hedging activities ~~decreased $2.0 million and $23.0 million~~ for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 was $11.6 million compared to the ~~corresponding periods~~gain of $1.0 million in ~~2016.~~the first quarter of 2017. This variance for the ~~three-month and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 was primarily due to the decrease in the mortgage loan pipeline valuation and the Company's hedging strategy in the current mortgage rate environment.

Net gains/losses ~~and gains~~ from changes in MSR fair value were a ~~loss of $1.2 million and a~~net gain of ~~$0.3~~$15.0 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017 and~~March 31, 2018 as compared to a net ~~loss~~gain of ~~$11.5 million and $25.8~~$1.5 million for the corresponding period in ~~2016.~~2017. The value of the related MSRs carried at fair value at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 was ~~$146.1~~$160.1 million and ~~$146.6~~$146.0 million, respectively. The MSR asset fair value ~~changes~~change for the three-month ~~and six-month periods~~period ended ~~June 30, 2017 were~~March 31, 2018 was the result of fluctuations in interest rates.

The Company recognized ~~$5.3 million and $9.9~~$3.9 million of principal reductions for the three-month ~~and six-month periods~~period ended ~~June 30, 2017,~~March 31, 2018, compared to ~~$6.6 million and $12.7~~$4.6 million for the ~~corresponding periods in 2016.~~first quarter of 2017. Principal reduction activity is impacted by changes in the level of prepayments and mortgage ~~refinancing and generally follows along with interest rates.~~

Total general and administrative expenses increased ~~$76.8 million and $161.2~~$95.8 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 compared to the ~~corresponding periods in 2016.~~first quarter of 2017. Factors contributing to this increase were as follows:

Total other expenses decreased ~~$33.6 million and $71.1~~$5.2 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017~~March 31, 2018 compared to the ~~corresponding periods in 2016.~~first quarter of 2017. The primary factors contributing to ~~these decreases~~this decrease were:

INCOME TAX PROVISION

An income tax provision of ~~$92.0 million and $170.9~~$95.3 million was recorded for the three-month ~~and six-month periods~~period ended ~~June 30, 2017, respectively,~~March 31, 2018, compared to ~~$153.3 million and $232.1~~an income tax provision of $78.9 million for the corresponding ~~periods~~period in ~~2016.~~2017. This resulted in an effective tax ~~rates~~rate ("ETR") of ~~24.2% and 27.5%~~27.0% for the three-month ~~and six-month periods~~period ended ~~June 30, 2017, respectively,~~March 31, 2018, compared to ~~35.8% and 37.6%~~32.5% for the corresponding ~~periods~~period in ~~2016.~~

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's segments at ~~June 30, 2017~~March 31, 2018 consisted of Consumer and Business Banking, Commercial Banking, ~~Commercial Real Estate,~~ Global Corporate Banking ("GCB"), and SC. For additional information with respect to the Company's reporting segments and changes to the segments beginning in the first quarter of 2018, see Note 1718 to the Condensed Consolidated Financial Statements.

Consumer and Business Banking reported a loss before income taxes of $19.4 million for the three-month period ended March 31, 2018 compared to a loss before income taxes of $52.2 million for the three-month period ended March 31, 2017. Factors contributing to this change were as follows:

Commercial Banking reported income before income taxes of $113.9 million for the three-month ~~and six-month periods~~period ended ~~June 30, 2017,~~March 31, 2018, compared to income before income taxes of $83.5 million for the three-month period ended March 31, 2017. Factors contributing to this change were as follows:

GCB reported income before income taxes of $27.2 million for the three-month period ended March 31, 2018 compared to ~~$19.8 billion~~income before income taxes of $48.3 million for the three-month period ended March 31, 2017. Factors contributing to this change were as ~~of June 30, 2016.~~

The Other category reported losses before income taxes of ~~June 30, 2017,~~$58.5 million for the three-month period ended March 31, 2018, compared to ~~$15.4 billion~~losses before income taxes of $33.8 million for the three-month period ended March 31, 2017. Factors contributing to this change were as ~~of June 30, 2016.~~follows:

SC reported income before income taxes of $299.6 million for the three-month period ended March 31, 2018, compared to income before income taxes of $221.4 million for the three-month period ended March 31, 2017. Factors contributing to this change were as follows:

LOAN PORTFOLIO

The Company's ~~loan~~loans held for investment ("LHFI") portfolioconsisted of the following at the dates indicated:

Commercial loans decreased approximately ~~$3.4 billion,~~$962.3 million, or ~~7.6%~~2.5%, from December 31, ~~2016~~2017 to ~~June 30, 2017, and decreased $5.7 billion, or 12.2%, from June 30, 2016 to June 30, 2017. The~~March 31, 2018. This decrease ~~from December 31, 2016 to June 30, 2017~~ was primarily due to a decrease in commercial and industrial loans of ~~$2.7 billion, which includes payoffs to approximately 900 loans totaling $1.5 billion.~~$725.7 million. Additionally, there was a decrease in multifamily loans of ~~$443.2~~$192.5 million as the ~~company~~Company switches ~~it's~~its focus ~~to Commercial Real Estate banking. Commercial real estate~~from CRE loans. CRE loans decreased ~~$312.3~~$206.7 million.

Commercial loans decreased approximately $4.1 billion, or 9.7%, from March 31, 2017 to March 31, 2018. This decrease was primarily due to a decrease in commercial and industrial loans of $3.5 billion due mainly to a decrease in Global Commercial Banking driven by strategy to reduce exposure. Additionally, there was a decrease in multifamily loans of $380.5 million ~~offset by an increase of $70.6 million in Other~~as the Company switches its focus from CRE loans to place emphasis on core commercial ~~loans.~~

Consumer loans secured by real estate increased ~~$167.8~~$232.2 million, or ~~1.2%~~1.6%, from December 31, ~~2016~~2017 to ~~June 30, 2017, and increased $345.9 million, or 2.5%, from June 30, 2016 to June 30, 2017. The~~March 31, 2018. This increase ~~from December 31, 2016 to June 30, 2017~~ was comprised of an increase in the residential mortgage portfolio of ~~$265.1~~$351.3 million due to an increase in new loan originations, offset by a decrease in the home equity loans and lines of credit portfolio of ~~$97.3~~$119.1 million.

Consumer loans secured by real estate increased $1.2 billion, or 9.1%, from March 31, 2017 to March 31, 2018. This increase was comprised of an increase in the residential mortgage portfolio of $1.4 billion due to an increase in new loan originations, offset by a decrease in the home equity loans and lines of credit portfolio of $152.7 million.

RICs increased ~~$336.4~~$182.5 million, or ~~1.2%~~0.7%, from December 31, ~~2016~~2017 to ~~June 30, 2017, and increased $307.4 million, or 1.1%, from June 30, 2016 to June 30, 2017.~~March 31, 2018. The ~~increase was primarily due to the $1.4 billion~~ increase in the RIC and auto ~~loans - originated portfolio. The growth~~loan portfolio was primarily due to an increase in new originations of $502.3 million, which was partially offset by a $319.8 million decrease in RICs and auto loan portfolio-purchased. The decrease in the RIC and auto loan portfolio-purchased was due to run-off of the portfolio from normal paydown and chargeoff activity.

RICs decreased $607.6 million, or 2.4%, from March 31, 2017 to March 31, 2018. The decrease in the RIC and auto loan portfolio ~~- purchased portfolio~~was primarily due to a decrease in RICs and auto loan portfolio-purchased of ~~$914.6 million. This~~$1.5 billion, which was partially offset by a $853.8 million increase in new originations. The decrease isin the RIC and auto loan portfolio-purchased was due to run-off of the ~~portfolio.~~portfolio from normal paydown and chargeoff activity.

Other consumer loans remained relatively flat from December 31, 2017 to March 31, 2018, with a decrease of $75.0 million and from March 31, 2017 to March 31, 2018 with a decrease of $125.6 million.

As of ~~June 30, 2017, 68.8%~~March 31, 2018, 83.0% of the Company's RIC and auto loan portfolio was comprised of nonprime loans (defined by the Company as customers with a ~~FICO~~^®Fair Isaac Corporation 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. While underwriting guidelines were 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 decrease consumer demand for used automobiles and other consumer products, weaken collateral values and increase losses in the event of default. Because SC's historical focus for such credit has been predominantly on nonprime consumers, the actual rates of delinquencies, defaults, repossessions, and losses on these loans could be more dramatically affected by a general economic downturn.

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

At ~~June 30, 2017,~~March 31, 2018, a typical RIC was originated with an average annual percentage rate of ~~15.6%~~16.1% and was purchased from the dealer at a discount of 0.3%. All of the Company's RICs and auto loans are fixed-rate loans.

Nonprime RICs and personal unsecured loans have a higher inherent risk of loss than prime loans. The Company records an ALLL to cover its estimate of inherent losses on its RICs incurred as of the balance sheet date. As of ~~June 30, 2017,~~March 31, 2018, SC's personal unsecured portfolio was held for sale and thus does not have a related allowance.

As a result of the strategic evaluation of SC's personal lending portfolio, in the third quarter of 2015, SC began reviewing strategic alternatives for exiting its personal loan portfolios. In connection with this review, on October 9, 2015, SC delivered a 90-day notice of termination of its loan purchase agreement with LendingClub. On February 1, 2016, SC completed the sale of substantially all of its LendingClub loans to a third-party buyer at an immaterial premium to par value. On April 14, 2017, SC sold the remaining portfolio, comprised of personal installment loans, to a third-party buyer.

SC's other significant personal lending relationship is with Bluestem. SC continues to perform in accordance with the terms and operative provisions of the agreements under which it is obligated to purchase personal revolving loans originated by Bluestem for a term ending in 2020, or 2022 if extended at Bluestem's option. The Bluestem loan portfolio is carried as held for sale in our Condensed Consolidated Financial Statements. Accordingly, the Company has recorded lower-of-cost-or-market adjustments on this portfolio, and there may be further such adjustments required in future periods' financial statements. Management is currently evaluating alternatives for the Bluestem portfolio.

CREDIT RISK MANAGEMENT

Extending credit to customers exposes the Company to credit risk, which is the risk that contractual principal and interest due on loans will not be collected due to the inability or unwillingness of the borrower to repay the loan. The Company manages credit risk in its loan portfolio through adherence to consistent standards, guidelines, and limitations established by the Company’s Board of Directors as set forth in its Board-approved Risk Appetite Statement. Written loan policies establish underwriting standards, lending limits, and other standards or limits deemed necessary and prudent. Various approval levels based on the amount of the loan and other key credit attributes have also been established. To ensure ~~consistency and~~credit quality, loans are executed in accordance with the ~~Company's~~Company’s credit and governance standards ~~authority to approve loans is shared jointly between the businesses and the Credit~~consistent with its Enterprise Risk ~~Review group.~~Management Framework. Loans over certain dollar thresholds require approval by the Company's credit committees, with higher balance loans requiring approval by more senior level committees.

The Credit Risk Review group conducts ongoing independent reviews of the credit quality of the Company’s loan portfolios and credit management processes to ensure the accuracy of the risk ratings and adherence to established policies and procedures, verify compliance with applicable laws and regulations, provide objective measurement of the risk inherent in the loan portfolio, and ensure that proper documentation exists. The results of these periodic reviews are reported to business line management, Risk Management and the Audit Committee of both the Company and the Bank. The Company maintains a classification system for loans that identifies those requiring a higher level of monitoring by management because of one or more factors, including borrower performance, business conditions, industry trends, the ~~nature~~liquidity and value of the collateral, ~~collateral margin,~~ economic conditions, or other factors. Loan credit quality is subject to scrutiny by business unit management, credit risk professionals, and Internal Audit.

The following discussion summarizes the underwriting policies and procedures for the major categories within the loan portfolio and addresses SHUSA’s strategies for managing the related credit risk. Additional credit risk management related considerations are discussed further in the "Allowance for Loan and Lease Losses" section of this MD&A.

Commercial loans principally represent commercial real estate loans (including multifamily loans), loans to commercial and industrial customers, and automotive dealer floor plan loans. Credit risk associated with commercial loans is primarily influenced by prevailing and expected economic conditions and the level of underwriting risk SHUSA is willing to assume. To manage credit risk when extending commercial credit, the Company focuses on assessing the borrower’s capacity and willingness to repay and obtaining sufficient collateral. Commercial and industrial loans are generally secured by the borrower’s assets and by personal guarantees. Commercial real estate loans are originated primarily within the Mid-Atlantic, New York, and New England market areas and are secured by real estate at specified LTV ratios and often by a guarantee of the borrower.

Credit risk in the direct and indirect consumer loan portfolio is controlled by strict adherence to underwriting standards that consider DTI levels, the creditworthiness of the borrower, and collateral values. In the home equity loan portfolio, combined LTV ("CLTV") ratios are generally limited to 90% for both first and second liens. SHUSA originates and purchases fixed-rate and adjustable rate residential mortgage loans that are secured by the underlying 1-4 family residential properties. Credit risk exposure in this area of lending is minimized by the evaluation of the creditworthiness of the borrower, including debt-to-equity ratios, credit scores, and adherence to underwriting policies that emphasize conservative LTV ratios of generally no more than 80%. Residential mortgage loans originated or purchased in excess of an 80% LTV ratio are generally insured by private mortgage insurance, unless otherwise guaranteed or insured by the Federal, state, or local government. SHUSA also utilizes underwriting standards which comply with those of the FHLMC or FNMA. Credit risk is further reduced, since a portion of the Company’s fixed-rate mortgage loan production is sold to investors in the secondary market without recourse.

The Company’s consumer loans not secured by real estate include RICs acquired from manufacturer-franchised dealers in connection with their sale of used and new automobiles and trucks, as well as acquired consumer marine, RV and credit card loans. Credit risk is mitigated to the extent possible through early and robust collection practices, which includes the repossession of vehicles.

The Company closely monitors delinquencies as another means of maintaining high asset quality. Collection efforts generally begin within 15 days after a loan payment is missed by attempting to contact all borrowers and offer a variety of loss mitigation alternatives. If these attempts fail, the Company will attempt to gain control of collateral in a timely manner in order to minimize losses. While liquidation and recovery efforts continue, officers continue to work with the borrowers, if appropriate, to recover all money owed to the Company. The Company monitors delinquency trends at 30, 60, and 90 days past due. These trends are discussed at monthly management Credit Risk Review Committee meetings and at the Company's and the Bank's Board of Directors' meetings.

NON-PERFORMING ASSETS

~~No commercial loans were 90 days or more past due and still accruing interest as of June 30, 2017.~~ Potential problem loans are loans not currently classified as NPLs for which management has doubts about the borrowers’ ability to comply with the present repayment terms. These assets are principally loans delinquent more than 30 days but less than 90 days. Potential problem commercial loans totaled approximately ~~$137.2~~$186.9 million and ~~$120.7~~$112.3 million at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. Potential problem consumer loans amounted to $3.3 billion and $4.2 billion ~~and $4.3 billion~~ at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. Management has included these loans in its evaluation and reserved for them during the respective periods.

Non-performing assets increased during the period to ~~$2.6~~$3.0 billion, or ~~2.0%~~2.3% of total assets, at ~~June 30, 2017,~~March 31, 2018, compared to ~~$2.4~~$3.3 billion, or ~~1.8%~~2.6% of total assets, at December 31, ~~2016,~~2017, primarily attributable to an increase in NPLs in the commercial and industrial and RIC ~~auto loan portfolios, offset by a decrease~~portfolios. The increase in the ~~mortgage~~non-accrual commercial and ~~home equity~~industrial NPL portfolio was driven by obligors that experienced credit difficulties during the year. The increase in the other commercial NPL portfolio was primarily driven by one obligor located in Puerto Rico that experienced business disruptions due to Hurricane Maria.

The increase in RIC non-accrual loans as of March 31, 2018 was the result of the Company classifying $837.3 million of RIC TDR loans that were less than 60 days past due, but for which repayment was not reasonably assured, as non-accrual. Until repayment is reasonably assured, the Company is applying the cost recovery method to this RIC portfolio, which accelerated the reduction of the outstanding RIC balance and correspondingly reduced the required allowance and decreased the allowance for loan ~~portfolios.~~losses as a percentage of the NPL ratio. In addition, the purchased RIC ALLL/NPL portfolio decreased primarily due to a $0.3 billion, or 17.4%, decline in the portfolio as it is in run-off.

Non-performing assets consist of NPLs, which represent loans and leases no longer accruing interest, ~~other real estate owned ("OREO")~~OREO properties, and other repossessed assets. When interest accruals are suspended, accrued but uncollected interest income is reversed, with accruals charged against earnings. The Company generally places all commercial loans and consumer loans secured by real estate on non-performing status at 90 days past due for interest, principal or maturity, or earlier if it is determined that the collection of principal or interest on the loan is in doubt. For certain individual portfolios, including the RIC portfolio, non-performing status will begin atwhen the RICs are more than 60 days past due. Personal unsecured loans, including credit cards, generally continue to accrue interest until they are 180 days delinquent, at which point they are charged-off and all accrued but uncollected interest is removed from interest income.

In general, when the borrower's ability to make required interest and principal payments has resumed and collectability is no longer believed to be in doubt, the loan or lease is returned to accrual status. Generally, commercial loans categorized as non-performing remain in non-performing status until the payment status is current and an event occurs that fully remediates the impairment or the loan demonstrates a sustained period of performance without a past due event, and there is reasonable assurance as to the collectability of all amounts due. Within the residential mortgage and home equity portfolios, accrual status is generally systematically driven, so that if the customer makes a payment that brings the loan below 90 days past due, the loan automatically returns to accrual status.

Commercial NPLs ~~increased $38.4~~decreased $37.8 million from December 31, ~~2016~~2017 to ~~June 30, 2017. At~~ ~~June 30, 2017, commercial~~March 31, 2018. Commercial NPLs accounted for ~~1.0%~~ ~~of commercial LHFI, compared to 0.9%~~1.1% and 1.2% of commercial LHFI at March 31, 2018 and December 31, ~~2016.~~2017, respectively. The ~~increase~~decrease in commercial NPLs was comprised of ~~an $81.8~~a $30.7 million ~~increase~~decrease in ~~the~~ commercial and industrial ~~portfolio, primarily with customers related to the energy sector, offset by~~NPLs, and a $6.3 million decrease ~~of $52.9 million~~ in the ~~commercial real estate~~CRE portfolio.

RICs and amortizing ~~term~~ personal loans are classified as non-performing when they are greater than 60 days past due (i.e., 61 days past due) 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 a performing status and the Company returns to accruing interest on the loan. The accrual of interest on revolving personal loans continues until the loan is charged off.

RIC TDRs are placed on non-accrual status when the Company believes repayment under the revised terms is not reasonably assured and, at the latest, when the account becomes past due more than 60 days. For loans on non-accrual status, interest income is recognized on a cash basis, however, the Company continues to assess the recognition of cash received on those loans in order to identify whether certain of those loans should also be placed on a cost recovery basis. For TDR loans on non-accrual status, the accrual of interest is resumed and reinstated if a delinquent account subsequently becomes 60 days or less past due. However, for TDR loans placed on cost recovery basis, the Company returns to accrual when a sustained period of repayment performance has been achieved. Based on deteriorating TDR vintage performance, beginning January 1, 2017, the Company believes repayment under the revised terms is not reasonably assured for a RIC that is already on non-accrual status (i.e., more than 60 days past due) and has received a modification or deferment that qualifies as a TDR event. In addition, any TDR that subsequently receives a third deferral is placed on non-accrual status. Further, the Company has determined that certain of these loans should also be placed on a cost recovery basis.

Interest is accrued when earned in accordance with the terms of the RIC. For certain RICs originated prior to January 1, 2017, the Company considers 50% of a single payment due sufficient to qualify as a payment for past due classification purposes. For RICs originated after January 1, 2017, the required minimum payment is 90% of the scheduled payment, regardless of through which origination channel the receivable was ~~originated through.~~originated. The Company aggregates partial payments in determining whether a full payment has been missed in computing past due status.

NPLs in the RIC and auto loan portfolio ~~increased $215.6~~decreased $220.9 million from December 31, ~~2016~~2017 to ~~June 30, 2017. The increase was comprised of a $239.4 million increase in RICs and auto loans-originated offset by a $23.7 million decrease in RICs - purchased.~~March 31, 2018. At ~~June 30, 2017,~~March 31, 2018, non-performing RICs and auto loans accounted for ~~5.9%~~7.4% of total RIC and auto ~~loans held for investment,~~LHFI, compared to ~~5.2%~~8.3% of total RICs and auto loans at December 31, ~~2016.~~ 2017.

NPLs in the unsecured and other consumer loan portfolio ~~decreased $1.9~~increased $0.9 million from December 31, ~~2016~~2017 to ~~June 30, 2017.~~March 31, 2018. At ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, non-performing personal unsecured and other consumer loans accounted for 0.8% and ~~0.9%~~0.7% of total unsecured and other consumer loans, respectively.

~~Foreclosure Activity~~

The NPL ratio is ~~significantly~~ higher for the Company's residential mortgage loan portfolio compared to its consumer loans secured by real estate portfolio due to a number of factors, ~~including:~~including the prolonged workout and foreclosure resolution processes for residential mortgage ~~loans;~~loans, differences in risk ~~profiles;~~profiles, and mortgage loans located outside the Northeast and Mid-Atlantic United States.

The percentage of NPLs in foreclosure status decreased from 48.8% at December 31, 2017 to 48.3% at March 31, 2018 for residential mortgages and decreased from 52.2% at December 31, 2017 to 51.5% at March 31, 2018 for home equity loans.

In recent years, select states and territories within the Bank’s footprint have experienced delays in the foreclosure process and therefore, impact NPL volume. Counties in New Jersey have historically displayed significant delays in foreclosure sale timelines and New York has been experiencing similar court delays which impacts foreclosure inventory outflow.

Puerto Rico’s economy remains ~~immerse~~ in an economic and fiscal crisis that has already extended for ~~11-years.~~11 years. The island’s economy continues experiencing adjustments related to the aftermath of the housing market crisis, to the banking industry consolidation in ~~2010;~~2010 and to multiple rounds of austerity measures implemented in recent years in an attempt to stabilize the public sector fiscal crisis. These circumstances have eroded confidence and prolonged the contraction in economic ~~activity.~~activity prior to the impact of 2017's hurricanes. Refer to the "Economic and Business Environment" section of this MD&A for additional information on the impact of Hurricane Maria on Puerto Rico.

The following table represents the concentration of foreclosures by state and ~~U.S territories~~U.S. territory for the Company as a percentage of total foreclosures at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively:

The foreclosure closings issue has a greater impact on the residential mortgage portfolio than the consumer real estate secured portfolio due to the larger volume of loans in first lien position in that portfolio which have equity upon which to foreclose. Exclusive of Chapter 7 bankruptcy NPL accounts, approximately 98.6% of the 90+ day delinquent loan balances in the residential mortgage portfolio are secured by a first lien, while only ~~53.8%~~53.5% of the 90+ day delinquent loan balances in the consumer real estate secured portfolio are secured by a first lien. Consumer real estate secured NPLs may get charged off more quickly due to the lack of equity to foreclose from a second lien position.

The performance of the Alt-A segment has remained poor, averaging ~~a 9.8%~~an 8.2% NPL ratio in ~~2017.~~2018. Alt-A mortgage originations were discontinued in ~~2008 and have continued to run off at an average rate of 2.0% per month.~~2008. Alt-A NPL balances represented 64.6% of the total residential mortgage loan portfolio NPL balance at the end of the first quarter of 2009, when the portfolio was placed in run-off, compared to ~~16.0%~~11.6% at ~~June 30, 2017.~~March 31, 2018. As the Alt-A segment runs off and higher quality residential mortgages are added to the portfolio, the shift in product mix is expected to lower NPL ~~balances.~~balances as a percentage of the residential mortgage portfolio.

Overall, total delinquencies decreased by $1.0 billion, or 19.1%, from December 31, 2017 to March 31, 2018 primarily driven by RICs and auto loan delinquencies which decreased $1.0 billion. Delinquencies in the RIC and auto loan portfolio at December 31, 2017 were primarily a result of a decline in the credit quality of the 2015 vintage RICs, which have a higher percentage of loans with no FICO scores. Due to payments and charge-offs on 2015 vintage RICs that continued in 2018, the 2015 vintage RICs had a lower impact on delinquencies at March 31, 2018 than December 31, 2017. Commercial loan delinquencies increased by $54.7 million from December 31, 2017 to March 31, 2018, primarily related to commercial and industrial loans located in Puerto Rico due to overall economic conditions on the island.

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

TDRs are generally placed in nonaccrual status upon modification, unless the loan was performing immediately prior to modification. For most portfolios, TDRs may return to accrual status after demonstrating at least six consecutive months of sustained payments following modification, as long as the Company believes the principal and interest of the restructured loan will be paid in full. RIC TDRs are placed on nonaccrual status when the Company believes repayment under the revised terms is not reasonably assured, and considered for return to accrual when a sustained period of repayment performance has been achieved. To the extent the TDR is determined to be collateral-dependent and the source of repayment depends on the operation of the collateral, the loan may be returned to accrual status based on the foregoing parameters. To the extent the TDR is determined to be collateral-dependent and the source of repayment depends on disposal of the collateral, the loan may not be returned to accrual status.

The following table summarizes TDRs at the dates indicated:

The following table provides a summary of TDR activity:

In accordance with its policies and guidelines, the Company at times offers payment deferrals to borrowers on its RICs, under which the consumer is allowed to move up to three delinquent payments to the end of the loan. More than 90% of deferrals granted are for two months. The policies and guidelines limit the number and frequency of deferrals that may be granted to one deferral every six months and eight months over the life of a loan, while some marine and RV contracts have a maximum of twelve months in extensions to reflect their longer term. Additionally, the Company generally limits the granting of deferrals on new accounts until a requisite number of payments has been received. During the deferral period, the Company continues to accrue and collect interest on the loan in accordance with the terms of the deferral agreement.

At the time a deferral is granted, 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. TDRs are placed on nonaccrual status when the Company believes repayment under the revised terms is not reasonably assured, and considered for return to accrual when a sustained period of repayment performance has been achieved.

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 ~~that~~ deferrals impact the ultimate timing of when an account is charged off, historical charge-off ratios, loss confirmation periods, and cash flow forecasts used in the determination of the adequacy of the ALLL for loans classified as TDRs are also impacted. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the ALLL and related provision for loan and lease losses. Changes in these ratios and periods are considered in determining the appropriate level of the ALLL and related provision for loan and lease losses. For loans that are classified as TDRs, the Company generally compares the present value of expected cash flows to the outstanding recorded investment of TDRs to determine the amount of allowance and related provision for credit losses that should be recorded. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated costs to sell.

The ACL is maintained at levels ~~that~~ management considers adequate to provide for losses based upon an evaluation of known and inherent risks in the loan portfolio. Management's evaluation takes into consideration the risks inherent in the portfolio, past loan and lease loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, the level of originations, credit quality metrics such as FICO^®scores and CLTV, internal risk ratings, economic conditions 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 ACL ~~increased $128.5~~decreased $77.6 million from December 31, ~~2016~~2017 to ~~June 30, 2017.~~March 31, 2018. The increase in the overall ACL was primarily attributable to ~~continued growth in~~the increased amount of TDR's within SC's RIC and auto loan portfolio.

Management regularly monitors the condition of the Company's portfolio, considering factors such as historical loss experience, trends in delinquencies and NPLs, changes in risk composition and underwriting standards, the experience and ability of staff, and regional and national economic conditions and trends.

Generally, the Company’s LHFI are carried at amortized cost, net of ALLL, which includes the estimate of any related net discounts that are expected at the time of charge-off. In the case of loans purchased in a bulk purchase or business combination, the entire discount on the loan portfolio is considered as available to absorb the credit losses when determining the ALLL. For these loans, the Company records provisions for credit losses when incurred losses exceed the unaccreted purchase discount.

The risk factors inherent in the ACL are continuously reviewed and revised by management when conditions indicate that the estimates initially applied are different from actual results. The Company also performs a comprehensive analysis of the ACL on a quarterly basis. In addition, the Company performs a review each quarter of allowance levels ~~based on nationally published statistics is conducted quarterly.~~

For the commercial loan portfolio excluding small business loans (businesses with annual sales of up to $3.0 million), the Company has specialized credit officers, a monitoring unit, and workout units that identify and manage potential problem loans. Changes in management factors, financial and operating performance, company behavior, industry factors and external events and circumstances are evaluated on an ongoing basis to determine whether potential impairment is evident and/or additional analysis is needed. For the commercial loan portfolios, risk ratings are assigned to each loan to differentiate risk within the portfolio, reviewed on an ongoing basis by credit risk management and revised, if needed, to reflect the borrower’s current risk profile and the related collateral position. The risk ratings consider factors such as financial condition, debt capacity and coverage ratios, market presence and quality of management. Generally, credit officers reassess a borrower’s risk rating on at least an annual basis, and more frequently if warranted. This reassessment process is managed by credit officers and is overseen by the credit monitoring group to ensure consistency and accuracy in risk ratings, as well as the appropriate frequency of risk rating reviews by the Company’s credit officers. The Company’s Credit Risk Review Committee assesses whether the Company’s Credit Risk Review Framework and risk management guidelines established by the Company’s Board and applicable laws and regulations are being followed, and reports key findings and relevant information to the Board. The Company’s Credit Risk Review group regularly performs loan reviews and assesses the appropriateness of assigned risk ratings. When credits are downgraded below a certain level, the Company’s Workout Department becomes responsible for managing the credit risk. Risk rating actions are generally reviewed formally by one or more credit committees depending on the size of the loan and the type of risk rating action being taken. Detailed analyses are completed that support the risk rating and management’s strategies for the customer relationship going forward.

If a loan is identified as impaired and is not collateral-dependent, impairment is measured based on a ~~discounted cash flow ("DCF")~~DCF methodology.

When the Company determines that the value of an impaired loan is less than its carrying amount, the Company recognizes impairment through a provision estimate or a charge-off to the allowance. Management performs these assessments on at least a quarterly basis. For commercial loans, a charge-off is recorded when a loan, or a portion thereof, is considered uncollectible and of such little value that its continuance on the Company’s books as an asset is not warranted. Charge-offs are recorded on a monthly basis, and partially charged-off loans continue to be evaluated on at least 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.

The portion of the ALLL related to the commercial portfolio was ~~$428.2~~$462.1 million at ~~June 30, 2017 (1.0%~~March 31, 2018 (1.2% of commercial LHFI) and ~~$449.8~~$443.8 million at December 31, ~~2016 (1.0%~~2017 (1.1% of commercial LHFI). The primary factor resulting in the ~~decreased~~increased ACL allocated to the commercial portfolio is, in part, due to ~~the current economic environment impacting our commercial customers, primarily~~a decline in the ~~energy sector. Management recorded additional reserves for this portfolio during~~overall balance of the ~~first quarter~~commercial loan portfolio.

The consumer loan and small business loan portfolios are monitored for credit risk and deterioration with statistical tools considering factors such as delinquency, LTV ratios, and internal and external credit scores. Management evaluates the consumer portfolios throughout their life cycles on a portfolio basis. When problem loans are identified that are secured with collateral, management examines the loan files to evaluate the nature and type of collateral. Management documents the collateral type, the date of the most recent valuation, and whether any liens exist to determine the value to compare against the committed loan amount.

Residential mortgages not adequately secured by collateral are generally charged-off to fair value less cost to sell when deemed to be uncollectible or are delinquent 180 days or more, whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Examples that would demonstrate repayment likelihood 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.

For residential mortgage loans, loss severity assumptions are incorporated into 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 CLTV bands in these portfolios. CLTVs 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 CLTV. The Company's ALLL incorporates the refreshed CLTV information to update the distribution of defaulted loans by CLTV as well as the associated loss given default for each CLTV band. Reappraisals at the individual property level are not considered cost-effective or necessary on a recurring basis; however, reappraisals are performed on certain higher risk accounts to support line management activities and default servicing decisions, or when other situations arise for which the Company believes the additional expense is warranted.

The Company considers the delinquency status of its senior liens in cases in which the Company services the lien. The Company currently services the senior lien on ~~25.5%~~25.0% of its junior lien home equity principal balances. Of the junior lien home equity loan and line of credit balances that are current, ~~1.0%~~1.5% have a senior lien that is one or more payments past due. When the senior lien is delinquent but the junior lien is current, allowance levels are adjusted to reflect loss estimates consistent with the delinquency status of the senior lien. The Company also extrapolates these impacts to the junior lien portfolio when the senior lien is serviced by another investor and the delinquency status of that senior lien is unknown.

Depository and lending institutions in the U.S. generally are expected to experience a significant volume of home equity lines of credit that will be approaching the end of their draw periods over the next several years, following the growth in home equity lending experienced during 2003 through 2007. As a result, many of these home equity lines of credit will either convert to amortizing loans or have principal due as balloon payments. The Company's home equity lines of credit generated after 2007 are generally open-ended, revolving loans with fixed-rate lock options and draw periods of up to 10 years, along with amortizing repayment periods of up to 20 years. The Company currently monitors delinquency rates for amortizing and non-amortizing lines, as well as other credit quality metrics, including FICO^® credit scoring model scores and LTV ratios. The Company's home equity lines of credit are generally underwritten considering fully drawn and fully amortizing levels. As a result, the Company currently does not anticipate a significant deterioration in credit quality when these home equity lines of credit begin to amortize.

For RICs and personal unsecured loans at SC, the Company ~~estimates~~maintains an ALLL for the ~~ALLL~~Company's held-for-investment portfolio not classified as TDRs at a level ~~considered~~estimated to be adequate to ~~cover probable~~absorb credit losses of the recorded investment inherent in the ~~non-TDR~~ portfolio, based on a holistic assessment, including both quantitative and ~~records~~qualitative considerations. For TDR loans, the allowance is comprised of impairment ~~on the TDR portfolio~~measured using a DCF model. RICs and personal unsecured loans are considered separately in assessing the required ALLL using product-specific allowance methodologies applied on a pooled basis. ~~For RICs,~~

The quantitative framework is supported by credit models that consider several credit quality indicators including, but not limited to, historical loss experience and current portfolio trends. The transition-based Markov model provides data on a granular and disaggregated/segment basis as it utilizes recently observed loan transition rates from various loan statuses to forecast future losses. Transition matrices in the ~~Company segregates the portfolio~~Markov model are categorized based on ~~homogeneity into pools based~~account characteristics such as delinquency status, TDR type (e.g., deferment, modification, etc.), internal credit risk, origination channel, months on ~~source, then further stratifies each pool by vintage~~book, thin/thick file and ~~custom loss forecasting score. For each vintage and risk segment,~~time since TDR event. The credit models utilized differ among the Company's ~~vintage model predicts~~RIC and personal loan portfolios. The credit models are adjusted by management through qualitative reserves to incorporate information reflective of the ~~timing of unit losses and the loan balances at the time of default.~~ current business environment.

Auto loans are charged off when an account becomes 120 days delinquent if the Company has not repossessed the vehicle. The Company writes the vehicle down to the estimated recovery amount of the collateral when the automobile is repossessed and legally available for disposition.

The Company considers changes in the used vehicle index when forecasting recovery rates to apply to the gross losses forecasted by the vintage model. Its models do not include other macro-economic factors. Instead, the ALLL process considers factors such as unemployment rates and bankruptcy trends as potential qualitative overlays. Management reviews idiosyncratic and systemic risks facing the business. This qualitative overlay framework enables the ALLL process to arrive at a provision that reflects all relevant information, including both quantitative model outputs and qualitative overlays.

The Company's allowance models and reserve levels are back-tested on a quarterly basis to ensure that both remain within appropriate ranges. As a result, management believes that the current ALLL is maintained at a level sufficient to absorb inherent losses in the consumer portfolios.

~~Additionally, the~~The Company reserves for certain inherent but undetected, losses that are probable within the loan and lease portfolios. This is considered to be reasonably sufficient to absorb imprecisions of models orand to otherwise provide for coverage of inherent losses in the Company's entire loan and lease portfolios. These imprecisions may include loss factors inherent in the loan portfolio that may not have been discreetly contemplated in the general and specific components of the allowance, as well as potential variability in estimates. Period-to-period changes in the Company's historical unallocated ~~allowance for loan and lease loss~~ALLL positions are considered in light of these factors. The unallocated ALLL was $47.0 million at ~~June 30, 2017~~both March 31, 2018 and December 31, ~~2016~~.2017.

In addition to the ALLL, the Company estimates probable losses related to unfunded lending commitments. The reserve for unfunded lending commitments consists of two elements: (i) an allocated reserve, which is determined by an analysis of historical loss experience and risk factors, current economic conditions, performance trends within specific portfolio segments, and any other pertinent information, and (ii) an unallocated reserve to account for a level of imprecision in management's estimation process. Additions to the reserve for unfunded lending commitments are made by charges to the provision for credit losses, and this reserve is classified within Other liabilities on the Company's Condensed Consolidated Balance ~~Sheet.~~Sheets. Once an unfunded lending commitment becomes funded and is carried as a loan, the corresponding reserves are transferred to the ALLL.

The reserve for unfunded lending commitments decreased from ~~$122.4~~$109.1 million at December 31, ~~2016~~2017 to ~~$111.8~~$89.9 million at ~~June 30, 2017. This change was primarily due to a reduction during 2016 in off-balance sheet lending commitments.~~March 31, 2018. During the three-month ~~and six-month periods~~period ended ~~June 30, 2017,~~March 31, 2018, SBNA transferred ~~$6.6~~$6.3 billion of unfunded commitments to extend credit to an unconsolidated related ~~party.~~party, which reduced the required reserve for unfunded commitments. The net impact of the change in the reserve for unfunded lending commitments to the overall ACL was immaterial.

INVESTMENT SECURITIES

Investment securities consist primarily of U.S. Treasuries, MBS, ABS and stock in the FHLB and FRB. MBS consist of pass-through, collateralized mortgage obligations ("(“CMOs"), and adjustable rate mortgages issued by federal agencies. 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 Investor Service at the date of issuance. The Company’s ~~available-for-sale~~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.

Total investment securities ~~available-for-sale increased $1.4~~AFS decreased $1.1 billion to ~~$18.4~~$13.3 billion at ~~June 30, 2017,~~March 31, 2018, compared to ~~$17.0~~$14.4 billion at December 31, ~~2016.~~2017. During the ~~six-month~~three-month period ended ~~June 30, 2017,~~March 31, 2018, the composition of the Company's investment portfolio changed due to ~~increase in MBS, which were offset by~~ a decrease in ~~ABS.~~ MBS and ABS, offset by an increase in U.S Treasury Securities. MBS decreased by $1.4 billion primarily due to a transfer to HTM for $1.2 billion and $563.7 million of principal paydowns and maturities. U.S. Treasuries increased by ~~$1.8 billion~~$377.0 million primarily due to investment purchases of ~~$3.6 billion, offset by $1.8 billion of principal paydowns and maturities.~~$350 million. ABS ~~securities~~ decreased ~~$446.9~~$19.9 million, primarily due to ~~$223.8~~$17.5 million of principal ~~paydowns .~~paydowns. For additional information with respect to the Company’s investment securities, see Note 3 to the Condensed Consolidated Financial Statements.

Debt securities for which the Company has the positive intent and ability to hold the securities until maturity are classified as ~~held-to-maturity~~HTM securities. ~~Held-to-maturity~~HTM securities are reported at cost and adjusted for amortization of premium and accretion of discount. Total investment securities ~~held-to-maturity~~HTM were ~~$1.6~~$2.9 billion at ~~June 30, 2017.~~March 31, 2018. The Company had 2266 investment securities classified as ~~held-to-maturity~~HTM as of ~~June 30, 2017.~~

Total gross unrealized losses ~~decreased~~on investments in debt securities - AFS increased by ~~$44.2~~$143.6 million to ~~$189.4~~$361.1 million during the ~~six-month~~three-month period ended ~~June 30,~~March 31, 2018 compared to the three-month period ended March 31, 2017. The ~~majority~~increase is comprised of ~~the decrease~~increases in unrealized losses ~~was in the MBS portfolios. The unrealized losses decreased within the MBS portfolios by $43.2 million. Refer~~of $36.7 million on GNMA residential securities and $87.2 million on FNMA/FHLMC residential securities primarily due to ~~Note 3 to the Condensed Consolidated Financial Statements for additional details.~~

Other investments, which consists primarily of FHLB stock and FRB stock, ~~decreased~~increased from ~~$730.8~~$658.9 million at December 31, ~~2016~~2017 to ~~$723.2~~$765.0 million at ~~June 30, 2017,~~March 31, 2018, primarily due to an increase in CDs greater than 90 days to maturity of $99.4 million. Also, the Company ~~redeeming $117.1~~redeemed $25.9 million of FHLB stock at par, that was partially offset by the Company's purchase of ~~$88.8~~$10.2 million of FHLB stock at par. There was no gain or loss associated with these redemptions. During the period ended ~~June 30, 2017,~~March 31, 2018, the Company did not purchase any FRB stock.

The average life of the ~~available-for-sale~~AFS investment portfolio (excluding certain ABS) at ~~June 30, 2017~~March 31, 2018 was approximately ~~4.59~~4.69 years. The average effective duration of the investment portfolio (excluding certain ABS) at ~~June 30, 2017~~March 31, 2018 was approximately ~~3.10~~3.40 years. The actual maturities of MBS ~~available-for-sale~~AFS will differ from contractual maturities because borrowers ~~may~~ have the right to prepay obligations without prepayment penalties.

The following table presents the fair value of investment securities by obligor at the dates indicated:

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

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 8 to the Condensed Consolidated Financial Statements.

The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate.

The Company also utilizes forward contracts to manage market risk associated with certain expected investment securities sales and equity options, which manage its market risk associated with certain customer deposit products.

For additional information on foreign exchange contracts, derivatives and hedging activities, see Note 1112 to the Condensed Consolidated Financial Statements.

Incorporated by reference from Part I, Item 2 , MD&A ~~of Financial Condition and Results of Operations~~ — ~~Asset~~"Asset and Liability ~~Management~~Management" above.

Our management, with the participation of our ~~CEO~~Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), has evaluated the effectiveness of our disclosure controls and procedures ~~(as~~as defined in Rules 13a- 15(e) and 15d- 15(e) under the ~~Securities~~ Exchange Act, ~~of 1934, as amended (the “Exchange Act”)),~~ as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of ~~June 30, 2017,~~March 31, 2018, we did not maintain effective disclosure controls and procedures because of the material weaknesses in internal control over financial reporting described below. Notwithstanding these material weaknesses, based on the additional analysis and other post-closing procedures performed, management believes that the Condensed Consolidated Financial Statements included in this report fairly present in all material respects our financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with GAAP.

A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:

The Company's financial reporting involves complex accounting matters emanating from our majority-owned subsidiary SC. We determined there was a material weakness in the design and operating effectiveness of the controls pertaining to our oversight of ~~our SC subsidiary's~~SC's accounting for transactions that are significant to the Company’s internal control over financial reporting. These deficiencies included (a) ineffective oversight to ensure accountability at SC for the performance of internal controls over financial reporting and to ensure corrective actions, where necessary, were appropriately prioritized and implemented in a timely manner; and (b) inadequate resources and technical expertise at SHUSA to perform effective oversight of the application of accounting and financial reporting activities that are significant to the Company’s consolidated financial statements.

We have identified the following material weaknesses emanating from SC:

We did not maintain effective internal control over financial reporting related to the following areas: control environment, risk assessment, control activities and monitoring:

~~145~~

Various deficiencies were identified in the credit loss allowance process related to review, monitoring and approval processes over models and model changes that aggregated to a material weakness. The following controls did not operate effectively:

This material weakness relates to the following financial statement line items: the allowance for loan and lease losses, provision for credit losses, and the related disclosures within Note 4 - Loans and Allowance for Credit Losses.

Various deficiencies were identified in the accretion process related to review, monitoring and ~~approval~~governance processes over models ~~and model changes~~ that aggregated to a material weakness. The following controls did not operate effectively:

This material weakness relates to the following financial statement line items: loans held for investment, loans held for sale, the allowance for loan and lease losses, interest income - loans, provision for credit losses, miscellaneous (loss)/income, net and the related disclosures within Note 4 - Loans and Allowance for Credit Losses.

~~8. Review of New, Unusual or Significant Transactions~~

Management identified a material weakness in internal control over the Company's process to prepare and review the Statement of Cash Flows ("SCF") and Notes to the Consolidated Financial Statements. Specifically, the Company concluded that it did not have adequate controls designed and in place over the preparation and review of such information.

The Company is currently working to remediate the material weaknesses described above, including assessing the need for additional remediation steps and implementing additional measures to remediate the underlying causes that gave rise to the material weaknesses. The Company is committed to maintaining a strong internal control environment and to ensure that a proper, consistent tone is communicated throughout the organization, including the expectation that previously existing deficiencies will be remediated through implementation of processes and controls ~~ensuring~~to ensure strict compliance with GAAP.



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

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



Large accelerated filer o		Accelerated filer o

Non-accelerated filer þ		(Do not check if smaller reporting company)

		Smaller reporting company o

		Emerging growth company o



Class		Outstanding at ~~July 31, 2017~~April 30, 2018
Common Stock (no par value)		530,391,043 shares




	Page

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017	4

Condensed Consolidated Statements of Operations for the three-month period ended March 31, 2018 and ~~six-month periods ended June 30,~~ 2017 ~~and 2016~~	5

Condensed Consolidated Statements of Comprehensive Income for the three-month period ended March 31, 2018 and ~~six-month periods ended June 30,~~ 2017 ~~and 2016~~	6

Condensed Consolidated Statements of Stockholder's Equity for the ~~six-month periods~~three-month period ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~	7

Condensed Consolidated Statements of Cash Flows for the ~~six-month periods~~three-month period ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~	8

Notes to Condensed Consolidated Financial Statements	9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	9375

Item 3. Quantitative and Qualitative Disclosures About Market Risk	~~145~~122

Item 4. Controls and Procedures	~~145~~122

PART II. OTHER INFORMATION	~~150~~126

Item 1. Legal Proceedings	~~150~~126

Item 1A. Risk Factors	~~150~~126

Item 2. Unregistered Sales of Equity Securities and use of Proceeds	~~150~~126

Item 3. Defaults upon Senior Securities	~~150~~126

Item 4. Mine Safety Disclosures	~~150~~126

Item 5. Other Information	~~150~~126

Item 6. Exhibits	~~151~~127

SIGNATURES	~~153~~129


Ex-31.1 Certification
Ex-31.2 Certification
Ex-32.1 Certification
Ex-32.2 Certification
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT



ABS: Asset-backed securities		DCF: Discounted cash flow
ACL: Allowance for credit losses		DDFS: Dundon DFS LLC
AFS: Available-for-sale		DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act
ALLL: Allowance for loan and lease losses		~~Deka Lawsuit~~DOJ:~~: Purported securities class action lawsuit filed against SC on August 26, 2014~~ Department of Justice
Alt-A: Loans originated through brokers outside the Bank's geographic footprint, often lacking full documentation		~~DFA:~~ DRIVE~~Dodd-Frank Wall Street Reform and Consumer Protection Act~~: Drive Auto Receivables Trust
~~AOD:~~ASC ~~Assurance of Discontinuance~~		~~DOJ:~~ ~~Department of Justice~~
~~APR:~~ ~~Annual percentage rate~~: Accounting Standards Codification		DTI: Debt-to-income
~~ASC~~ASU: Accounting Standards ~~Codification~~Update		ECOA: Equal Credit Opportunity Act
~~ASU~~ATM:~~: Accounting Standards Update~~ Automated teller machine		EPS: Enhanced Prudential Standards
~~ATM:~~Bank ~~Automated teller machine~~: Santander Bank, National Association		ETR: Effective tax rate
~~Bank~~BEA: ~~Santander Bank, National Association~~Bureau of Economic Analysis		Exchange Act: Securities Exchange Act of 1934, as amended
BHC: Bank holding company		FASB: Financial Accounting Standards Board
BOLI: Bank-owned life insurance		FBO: Foreign banking organization
BSI: Banco Santander International		FCA: Fiat Chrysler Automobiles US LLC
BSPR: Banco Santander Puerto Rico		FDIA: Federal Deposit Insurance Corporation Improvement Act
CBP: Citizens Bank of Pennsylvania		FDIC: Federal Deposit Insurance Corporation
CCAR: Comprehensive Capital Analysis and Review		Federal Reserve: Board of Governors of the Federal Reserve System
CD: Certificate(s) of deposit		FHLB: Federal Home Loan Bank
~~CEVF~~CEF: ~~Commercial equipment vehicle financing~~Closed end fund		FHLMC: Federal Home Loan Mortgage Corporation
~~CET1~~CEO: ~~Common equity Tier 1~~Chief Executive Officer		FICO^®: Fair Isaac Corporation credit scoring model
~~CFPB~~CEVF: ~~Consumer Financial Protection Bureau~~Commercial equipment vehicle financing		Final Rule: Rule implementing certain of the EPS mandated by Section 165 of the DFA
CET1: Common equity Tier 1		FINRA: Financial Industrial Regulatory Authority
CFPB: Consumer Financial Protection Bureau		FNMA: Federal National Mortgage Association
Change in Control: First quarter 2014 change in control and consolidation of SC		~~FNMA:~~ FOB:~~Federal National Mortgage Association~~ Financial Oversight and Management Board of Puerto Rico
Chrysler Agreement: Ten-year private label financing agreement with Fiat Chrysler Automobiles US LLC, formerly Chrysler Group LLC, signed by SC		FRB: Federal Reserve Bank
Chrysler Capital: Trade name used in providing services under the Chrysler Agreement		~~FTP:~~ ~~Funds transfer pricing~~
~~CLTV:~~ ~~Combined loan-to-value~~		FVO: Fair value option
~~CMO:~~CID ~~Collateralized mortgage obligation~~: Civil investigative demand		GAAP: Accounting principles generally accepted in the United States of America
~~CMP:~~CLTV: ~~Civil monetary penalty~~Combined loan-to-value		GAP: Guaranteed auto protection
CMO: Collateralized mortgage obligation		GCB: Global Corporate Banking
CMP: Civil monetary penalty		HFI: Held for investment
CODM: Chief Operating Decision Maker		~~HQLA:~~HTM ~~High-quality liquid assets~~: Held to maturity
Company: Santander Holdings USA, Inc.		IHC: U.S. intermediate holding company
Consent Order: Consent order signed by the Bank with the CFPB on July 14, 2016 regarding the Bank’s overdraft coverage practices for ATM and one-time debit card transactions		IPO: Initial public offering
COSO: Committee of Sponsoring Organizations		IRS: Internal Revenue Service
Covered Fund: hedge fund or a private equity fund under the Volcker Rule		~~IRS:~~ISDA: ~~Internal Revenue Service~~International Swaps and Derivatives Association, Inc.
CPR: Changes in anticipated loan prepayment rates		~~ISDA:~~LendingClub: ~~International Swaps and Derivatives Association, Inc.~~LendingClub Corporation, a peer-to-peer personal lending platform company from which SC acquires loans under flow agreements
CRA: Community Reinvestment Act		~~IT:~~LCR: ~~Information technology~~Liquidity coverage ratio
CRE: Commercial Real Estate


		LHFI: Loans held-for-investment



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



~~Lending Club:~~ ~~LendingClub Corporation, a peer-to-peer personal lending platform company from which SC acquired loans under flow agreements~~		RV~~: Recreational vehicle~~
~~LCR:~~ ~~Liquidity coverage ratio~~		~~RWA: Risk-weighted assets~~
~~LHFI:~~ ~~Loans held-for-investment~~		~~S&P: Standard & Poor's~~
LHFS: Loans held-for-sale		Santander NY: ~~Banco~~New York branch of Santander ~~S.A.~~
LIBOR: London Interbank Offered Rate		Santander ~~BanCorp: Santander BanCorp and its subsidiaries~~
~~LIHTC:~~ ~~Low Income Housing Tax Credit~~		~~Santander NY: New York branch of Banco Santander, S.A.~~
~~LTD:~~ ~~Long-term debt~~		~~Santander~~ UK: Santander UK plc
~~LTV:~~LTD: ~~Loan-to-value~~Long-term debt		SBNA: Santander Bank, National Association
~~MBS:~~LTV: ~~Mortgage-backed securities~~Loan-to-value		SC: Santander Consumer USA Holdings Inc. and its subsidiaries
~~Massachusetts AG:~~MBS: ~~Massachusetts Attorney General~~Mortgage-backed securities		SC Common Stock: Common shares of SC
MD&A: Management's Discussion and Analysis of Financial Condition and Results of Operations		SCF: Statement of cash flows
MSR: Mortgage servicing right		SCRA: Servicemembers Civil Relief Act
MVE: Market value of equity		SDART: Santander Drive Auto Receivables Trust, a SC securitization platform
NCI: Non-controlling interest		SDGT: Specially Designated Global Terrorist
NMD: Non-maturity deposits		SEC: Securities and Exchange Commission
~~NPL:~~NMTC ~~Non-performing loan~~: New market tax credits		Securities Act: Securities Act of 1933, as amended
~~NSFR:~~NPL: ~~Net stable funding ratio~~Non-performing loan		Separation Agreement: Agreement entered into by Thomas Dundon, the former Chief Executive Officer of SC, DDFS, SC and Santander on July 2, 2015
NSFR: Net stable funding ratio		SFS: Santander Financial Services, Inc.
NYSE: New York Stock Exchange		~~SFS~~SHUSA: Santander ~~Financial Services,~~Holdings USA, Inc.
OCC: Office of the Comptroller of the Currency		~~SHUSA~~SIS:: Santander ~~Holdings USA,~~Investment Securities Inc.
OEM: Original equipment manufacturer		~~SIS:~~ ~~Santander Investment Securities Inc.~~
~~OIS:~~ ~~Overnight indexed swap~~		SPAIN: Santander Prime Auto Issuing Note Trust, a securitization platform
~~Order:~~OREO: ~~OCC consent order signed by SBNA on January 26, 2012 which replaced a prior order signed by the Bank and other parties with the OTS~~Other real estate owned		SPE: Special purpose entity
~~OREO:~~OTTI: ~~Other real estate owned~~Other-than-temporary impairment		Sponsor Holdings: Sponsor Auto Finance Holding Series LP
~~OTTI:~~Parent Company: ~~Other-than-temporary impairment~~the parent holding company of SBNA and other consolidated subsidiaries		SSLLC: Santander Securities LLC
~~Parent Company:~~PROMESA ~~the parent holding company of Santander Bank, National Association~~: Puerto Rico Management and ~~other consolidated subsidiaries~~Economic Stability Act		~~TDR:~~Subvention: ~~Troubled debt restructuring~~
~~Pledge Agreement:~~ ~~Agreement which, pursuant~~Reimbursement of the finance provider by a manufacturer for the difference between a market loan or lease rate and the below-market rate given to ~~the loan agreement, 29,598,506 shares of SC’s common stock owned by DDFS LLC are pledged as collateral under~~ a ~~related pledge agreement.~~		~~TLAC:~~ ~~Total loss-absorbing capacity~~customer.
REIT: Real estate investment trust		~~Trusts:~~TCJA ~~Securitization trusts~~: Tax Cut and Jobs Act of 2017
RIC: Retail installment contract		~~VIE:~~TDR: ~~Variable interest entity~~Troubled debt restructuring
RV: Recreational vehicle		TLAC: Total loss-absorbing capacity
RWA: Risk-weighted assets		Trusts: Securitization trusts
S&P: Standard & Poor's		UPB: Unpaid principal balance
Santander: Banco Santander, S.A.		VOE: Voting ~~interest~~rights entity
Santander BanCorp: Santander BanCorp and its subsidiaries


	June 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
	(in thousands)						(in thousands)
ASSETS
Cash and cash equivalents	$	7,539,679		$	10,035,859		$	7,900,607		$	6,519,967
Investment securities:
Available-for-sale at fair value	18,399,590			17,024,225
Held-to-maturity (fair value of $1,549,011 and $1,635,413 as of June 30, 2017 and December 31, 2016, respectively)	1,575,037			1,658,644
Trading securities	10,245			1,630
Other investments	723,201			730,831
Loans held-for-investment ^{(1) (5)}	82,956,779			85,819,785
Allowance for loan and lease losses ⁽⁵⁾	(3,953,608		)	(3,814,464		)
Net loans held-for-investment	79,003,171			82,005,321
Loans held-for-sale ⁽²⁾	2,503,811			2,586,308
Available-for-sale ("AFS") at fair value							13,321,594			14,413,183
Held-to-maturity ("HTM") (fair value of $2,797,698 and $1,773,938 as of March 31, 2018 and December 31, 2017, respectively)							2,877,357			1,799,808
Other investments (includes Trading securities of $3,024 and $1 as of March 31, 2018 and December 31, 2017, respectively)							765,041			658,864
Loans held-for-investment ("LHFI")^{(1) (5)}							80,118,328			80,740,852
Allowance for loan and lease losses ("ALLL") ⁽⁵⁾							(3,853,209		)	(3,911,575		)
Net LHFI							76,265,119			76,829,277
Loans held-for-sale ("LHFS") ⁽²⁾							1,960,695			2,522,486
Premises and equipment, net ⁽³⁾	909,227			996,498			791,882			849,061
Operating lease assets, net ⁽⁵⁾⁽⁶⁾	9,914,860			9,747,223			10,770,896			10,474,308
Accrued interest receivable ⁽⁵⁾	551,425			599,321
Equity method investments	231,997			255,344
Goodwill	4,454,925			4,454,925			4,444,389			4,444,389
Intangible assets, net	566,329			597,244			520,468			535,753
Bank-owned life insurance	1,783,348			1,767,101
Bank-owned life insurance ("BOLI")							1,804,133			1,795,700
Restricted cash ⁽⁵⁾	3,280,999			3,016,948			3,810,962			3,818,807
Other assets ^{(4) (5)}	3,307,851			2,882,868			3,994,748			3,632,427
TOTAL ASSETS	$	134,755,695		$	138,360,290		$	129,227,891		$	128,294,030
LIABILITIES
Accrued expenses and payables	$	3,046,733		$	2,821,712		$	2,949,708		$	2,825,263
Deposits and other customer accounts	62,956,555			67,240,690			61,841,175			60,831,103
Borrowings and other debt obligations ⁽⁵⁾	43,379,055			43,524,445			38,350,245			39,003,313
Advance payments by borrowers for taxes and insurance	177,538			163,498			209,088			159,321
Deferred tax liabilities, net	1,553,283			1,420,315			1,037,909			969,996
Other liabilities ⁽⁵⁾	745,277			810,872			996,685			799,403
TOTAL LIABILITIES	111,858,441			115,981,532			105,384,810			104,588,399
STOCKHOLDER'S EQUITY
Preferred stock (no par value; $25,000 liquidation preference; 7,500,000 shares authorized; 8,000 shares outstanding at both June 30, 2017 and December 31, 2016)	195,445			195,445
Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both June 30, 2017 and December 31, 2016)	16,581,877			16,599,497
Preferred stock (no par value; $25,000 liquidation preference; 7,500,000 shares authorized; 8,000 shares outstanding at both March 31, 2018 and December 31, 2017)							195,445			195,445
Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both March 31, 2018 and December 31, 2017)							17,732,184			17,723,010
Accumulated other comprehensive loss	(151,813		)	(193,208		)	(370,281		)	(198,431		)
Retained earnings	3,315,083			3,020,149			3,685,111			3,462,674
TOTAL SHUSA STOCKHOLDER'S EQUITY	19,940,592			19,621,883			21,242,459			21,182,698
Noncontrolling interest	2,956,662			2,756,875
Noncontrolling interest ("NCI")							2,600,622			2,522,933
TOTAL STOCKHOLDER'S EQUITY	22,897,254			22,378,758			23,843,081			23,705,631
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	134,755,695		$	138,360,290		$	129,227,891		$	128,294,030


	Three-Month Period Ended June 30,					Six-Month Period Ended June 30,					Three-Month Period Ended March 31,
	2017		2016			2017		2016			2018			2017
	(in thousands)										(in thousands)
INTEREST INCOME:
Loans	$	1,868,918	$	1,925,269		$	3,707,856	$	3,866,116		$	1,747,734		$	1,838,938
Interest-earning deposits	20,476		14,473			38,910		28,507			32,513			18,433
Investment securities:
Available-for-sale	95,015		81,268			176,441		174,973
Held-to-maturity	10,011		—			20,643		—
AFS											73,505			81,427
HTM											17,064			10,632
Other investments	5,025		8,399			11,188		17,583			5,248			6,163
TOTAL INTEREST INCOME	1,999,445		2,029,409			3,955,038		4,087,179			1,876,064			1,955,593
INTEREST EXPENSE:
Deposits and other customer accounts	58,824		73,354			120,818		148,847			75,424			61,993
Borrowings and other debt obligations	298,872		291,169			589,907		577,642			304,690			291,035
TOTAL INTEREST EXPENSE	357,696		364,523			710,725		726,489			380,114			353,028
NET INTEREST INCOME	1,641,749		1,664,886			3,244,313		3,360,690			1,495,950			1,602,565
Provision for credit losses	604,768		613,767			1,340,214		1,512,229			502,534			735,445
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	1,036,981		1,051,119			1,904,099		1,848,461			993,416			867,120
NON-INTEREST INCOME:
Consumer and Commercial fees	162,334		180,320			316,702		360,997
Mortgage banking income, net	15,092		11,546			28,266		27,896
Bank-owned life insurance	14,052		16,437			31,351		30,165
Consumer and commercial fees											138,561			154,349
Lease income	489,043		456,946			985,087		877,802			540,896			496,045
Miscellaneous income, net	39,377		24,528			86,415		62,844
Miscellaneous income, net⁽¹⁾											124,570			77,505
TOTAL FEES AND OTHER INCOME	719,898		689,777			1,447,821		1,359,704			804,027			727,899
Other-than-temporary impairment recognized in earnings	—		(34		)	—		(44		)
Net gain on sale of investment securities	9,049		30,798			9,569		58,058
Net gain recognized in earnings	9,049		30,764			9,569		58,014
Net (losses)/gains on sale of investment securities											(663		)	519
TOTAL NON-INTEREST INCOME	728,947		720,541			1,457,390		1,417,718			803,364			728,418
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and benefits	455,616		420,319			907,857		855,951			469,406			452,241
Occupancy and equipment expenses	163,553		151,453			326,264		297,284			159,340			162,712
Technology expense	66,502		71,370			122,275		126,589
Outside services	59,003		68,618			107,278		145,011
Marketing expense	36,754		21,564			68,218		42,042
Technology, outside service, and marketing expense											152,282			135,509
Loan expense	95,872		104,261			194,217		206,891			96,814			98,324
Lease expense	369,240		322,159			728,032		614,993			424,266			358,792
Other administrative expenses	95,096		105,128			197,334		201,493			103,554			102,238
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES	1,341,636		1,264,872			2,651,475		2,490,254			1,405,662			1,309,816
OTHER EXPENSES:
Amortization of intangibles	15,424		17,754			30,915		35,686			15,288			15,491
Deposit insurance premiums and other expenses	17,596		13,505			35,426		39,017			16,761			17,830
Loss on debt extinguishment	3,991		45,573			10,740		78,445			2,212			6,749
Other miscellaneous expenses	7,535		1,286			10,541		5,563			3,601			3,006
TOTAL OTHER EXPENSES	44,546		78,118			87,622		158,711			37,862			43,076
INCOME BEFORE INCOME TAX PROVISION	379,746		428,670			622,392		617,214			353,256			242,646
Income tax provision	91,983		153,256			170,920		232,117			95,321			78,937
NET INCOME INCLUDING NONCONTROLLING INTEREST	287,763		275,414			451,472		385,097
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST	104,724		108,472			155,352		179,747
NET INCOME INCLUDING NCI											257,935			163,709
LESS: NET INCOME ATTRIBUTABLE TO NCI											74,397			50,628
NET INCOME ATTRIBUTABLE TO SANTANDER HOLDINGS USA, INC.	$	183,039	$	166,942		$	296,120	$	205,350		$	183,538		$	113,081



	Common Shares Outstanding	Preferred Stock			Common Stock and Paid-in Capital		Accumulated Other Comprehensive (Loss)/Income			Retained Earnings			Noncontrolling Interest			Total Stockholder's Equity
Balance, January 1, 2016	530,391	$	270,445		$	16,629,822	$	(170,530	)	$	2,672,393		$	2,444,970		$	21,847,100
Comprehensive income attributable to Santander Holdings USA, Inc.	—	—			—		133,034			205,350			—			338,384
Other comprehensive loss attributable to noncontrolling interest	—	—			—		—			—			(21,726		)	(21,726		)
Net income attributable to noncontrolling interest	—	—			—		—			—			179,747			179,747
Impact of Santander Consumer USA Holdings Inc. stock option activity	—	—			69		—			—			10,572			10,641
Redemption of Preferred Stock		(75,000		)	—		—			—			—			(75,000		)
Capital contribution from Shareholder	—	—			100		—			—			—			100
Stock issued in connection with employee benefit and incentive compensation plans	—	—			395		—			—			—			395
Dividends paid on preferred stock	—	—			—		—			(7,829		)	—			(7,829		)
Balance, June 30, 2016	530,391	$	195,445		$	16,630,386	$	(37,496	)	$	2,869,914		$	2,613,563		$	22,271,812




	Common Shares Outstanding	Preferred Stock		Common Stock and Paid-in Capital			Accumulated Other Comprehensive (Loss)/Income			Retained Earnings			Noncontrolling Interest			Total Stockholder's Equity
Balance, January 1, 2017	530,391	195,445		16,599,497			(193,208		)	3,020,149			2,756,875			22,378,758
Cumulative effect adjustment upon adoption of ASU 2016-09	—	—		(26,456		)	—			14,764			37,401			25,709
Comprehensive (loss)/income attributable to SHUSA	—	—		—			18,967			113,081			—			132,048
Other comprehensive income attributable to NCI	—	—		—			—			—			2,990			2,990
Net income attributable to NCI	—	—		—			—			—			50,628			50,628
Impact of SC stock option activity	—	—		—			—			—			4,431			4,431
Capital from shareholder	—	—		9,000			—			—			—			9,000
Stock issued in connection with employee benefit and incentive compensation plans	—	—		(164		)	—			—			—			(164		)
Dividends paid on preferred stock	—	—		—			—			(3,650		)	—			(3,650		)
Balance, March 31, 2017	530,391	$	195,445	$	16,581,877		$	(174,241	)	$	3,144,344		$	2,852,325		$	22,599,750

Balance, January 1, 2018	530,391	195,445		17,723,010			(198,431		)	3,462,674			2,522,933			23,705,631
Cumulative-effect adjustment upon adoption of new accounting standards and other (Note 1)	—	—		—			(39,094		)	47,549			—			8,455
Comprehensive income attributable to SHUSA	—	—		—			(132,756		)	183,538			—			50,782
Other comprehensive income attributable to NCI	—	—		—			—			—			4,079			4,079
Net income attributable to NCI	—	—		—			—			—			74,397			74,397
Contribution from shareholder and related tax impact (Note17)	—	—		9,174			—			—			—			9,174
Impact of stock issued in connection with employee benefit and incentive compensation plans	—	—		—			—			—			4,961			4,961
Dividends paid on common stock	—	—		—			—			(5,000		)	—			(5,000		)
Dividends paid to NCI	—	—		—			—			—			(5,748		)	(5,748		)
Dividends paid on preferred stock	—	—		—			—			(3,650		)	—			(3,650		)
Balance, March 31, 2018	530,391	$	195,445	$	17,732,184		$	(370,281	)	$	3,685,111		$	2,600,622		$	23,843,081



(in thousands)	Balance at December 31, 2017		Adjustments			Balance at January 1, 2018
Assets - LHFI	$	80,740,852	$	5,514		$	80,746,366
Other assets	3,632,427		(3,592		)	3,628,835
Total Assets	128,294,030		1,922			128,295,952

Liabilities - Other liabilities	799,403		(1,378		)	798,025
Total Liabilities	104,588,399		(1,378		)	104,587,021

Stockholders' Equity - Retained earnings	3,462,674		3,300			3,465,974
Total Stockholders' Equity	23,705,631		3,300			23,708,931



	March 31, 2018
(in thousands)	As Reported		Balance Without Adoption
Assets - LHFI	$	80,118,328	$	80,113,022
Other assets	3,994,748		3,998,267
Total assets	129,227,891		129,226,104

Liabilities - Other liabilities	996,685		998,063
Total Liabilities	105,384,810		105,386,188

Stockholders' Equity - Retained earnings	3,685,111		3,681,946
Total Stockholders' Equity	23,843,081		23,839,916



	Impact to Retained earnings
	(in thousands)

Adoption of ASU 2014-09, Revenue Recognition	$	3,300
Adoption of ASU 2016-1, Financial Instruments	(418		)
Adoption of ASU 2018-02, Statement of Comprehensive Income	39,094
Cumulative-effect adjustment upon adoption of new accounting standards	$	41,976
Other adjustments at subsidiary	5,573
Net impact to opening Retained earnings	$	47,549



	June 30, 2017
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities	$	1,108,481	$	(2,368	)	$	—	$	—		$	1,108,481	$	(2,368	)
ABS	182,988		(614		)	111,071		(803		)	294,059		(1,417		)
Equity securities	769		(14		)	9,839		(533		)	10,608		(547		)
MBS:
U.S. government agencies - Residential	3,380,422		(42,644		)	824,169		(9,407		)	4,204,591		(52,051		)
U.S. government agencies - Commercial	603,981		(3,528		)	88,151		(3,601		)	692,132		(7,129		)
FHLMC and FNMA - Residential debt securities	4,951,101		(41,745		)	1,816,126		(83,675		)	6,767,227		(125,420		)
FHLMC and FNMA - Commercial debt securities	22,405		(448		)	457		(10		)	22,862		(458		)
Total investment securities available-for-sale	$	10,250,147	$	(91,361	)	$	2,849,813	$	(98,029	)	$	13,099,960	$	(189,390	)


(1)	Excludes the net realized gains/(losses) related to investments in debt securities held for trading purposes.


(1)	Changes in the fair value of equity securities were not recognized in earnings prior to the adoption of ASU 2016-01.



Commercial Portfolio Segment⁽²⁾
Major Loan Classifications⁽¹⁾	June 30, 2017		December 31, 2016
	(in thousands)
Commercial LHFI:
Commercial real estate:
Corporate Banking	$	3,499,075	$	3,693,109
Middle Market Real Estate	5,171,464		5,180,572
Santander Real Estate Capital	1,129,185		1,238,362
Total commercial real estate	9,799,724		10,112,043
Commercial and industrial ⁽³⁾	16,129,649		18,812,002
Multifamily	8,240,516		8,683,680
Other commercial	6,902,989		6,832,403
Total commercial LHFI	$	41,072,878	$	44,440,128


~~(1)~~	~~These represent the Company's loan categories based on SEC Regulation S-X, Article 9.~~


~~(2)~~	~~These represent the Company's loan classes used to determine its ALLL.~~


~~(3)~~	~~Commercial and industrial loans excluded $160.3 million of LHFS at June 30, 2017 and excluded $121.1 million of LHFS at December 31, 2016.~~



Consumer Portfolio Segment⁽²⁾
Major Loan Classifications⁽¹⁾	June 30, 2017		December 31, 2016
	(in thousands)
Consumer loans secured by real estate:
Residential mortgages⁽³⁾	$	8,040,363	$	7,775,272
Home equity loans and lines of credit	5,903,913		6,001,192
Total consumer loans secured by real estate	13,944,276		13,776,464
Consumer loans not secured by real estate:
RICs and auto loans - originated ⁽⁴⁾	23,466,768		22,104,918
RICs and auto loans - purchased ⁽⁴⁾	2,554,220		3,468,803
Personal unsecured loans⁽⁵⁾	1,229,497		1,234,094
Other consumer	689,140		795,378
Total consumer LHFI	$	41,883,901	$	41,379,657


~~(3)~~	~~Residential mortgages exclude $318.0 million and $462.9 million of LHFS at June 30, 2017 and December 31, 2016, respectively.~~


~~(4)~~	~~RIC and auto loans exclude $1.1 billion and $924.7 million of LHFS at June 30, 2017 and December 31, 2016, respectively.~~


~~(5)~~	~~Personal unsecured loans exclude $971.9 million and $1.1 billion of LHFS at June 30, 2017 and December 31, 2016, respectively.~~


(1)	UPB does not include amounts related to the loan receivables - unsecured and loan receivables from dealers due to the short-term and revolving nature of these receivables.


(2)	The Company elected to account for these loans, which were acquired with evidence of credit deterioration, under the FVO.


(3)	Includes purchase marks of $4.4 million and $5.5 million related to purchase loan portfolios on which we elected to apply the FVO at March 31, 2018 and December 31, 2017, respectively.


	Three-Month Period Ended June 30, 2017											Three-Month Period Ended March 31, 2018
	Commercial			Consumer			Unallocated		Total
	(in thousands)
ALLL, beginning of period	$	453,019		$	3,422,821		$	47,023	$	3,922,863
Provision for loan and lease losses	26,687			584,998			—		611,685
Charge-offs	(60,514		)	(1,128,919		)	—		(1,189,433		)
Recoveries	9,056			599,437			—		608,493
Charge-offs, net of recoveries	(51,458		)	(529,482		)	—		(580,940		)
ALLL, end of period	$	428,248		$	3,478,337		$	47,023	$	3,953,608

Reserve for unfunded lending commitments, beginning of period	$	119,620		$	776		$	—	$	120,396
Release of reserve for unfunded lending commitments	(6,937		)	20			—		(6,917		)
Loss on unfunded lending commitments	(1,668		)	—			—		(1,668		)
Reserve for unfunded lending commitments, end of period	111,015			796			—		111,811
Total ACL, end of period	$	539,263		$	3,479,133		$	47,023	$	4,065,419

	Six-Month Period Ended June 30, 2017
	Commercial			Consumer			Unallocated		Total
	(in thousands)
ALLL, beginning of period	$	449,835		$	3,317,606		$	47,023	$	3,814,464
(in thousands)												Commercial			Consumer			Unallocated		Total
Allowance for loan and lease losses ("ALLL"), beginning of period												$	443,796		$	3,420,756		$	47,023	$	3,911,575
Provision for loan and lease losses	45,465			1,303,556			—		1,349,021			41,232			480,548			—		521,780
Charge-offs	(86,687		)	(2,366,199		)	—		(2,452,886		)	(32,960		)	(1,218,936		)	—		(1,251,896		)
Recoveries	19,635			1,223,374			—		1,243,009			10,006			661,744			—		671,750
Charge-offs, net of recoveries	(67,052		)	(1,142,825		)	—		(1,209,877		)	(22,954		)	(557,192		)	—		(580,146		)
ALLL, end of period	$	428,248		$	3,478,337		$	47,023	$	3,953,608		$	462,074		$	3,344,112		$	47,023	$	3,853,209
Reserve for unfunded lending commitments, beginning of period	$	121,613		$	806		$	—	$	122,419		$	108,805		$	306		$	—	$	109,111
Release of reserve for unfunded lending commitments	(8,797		)	(10		)	—		(8,807		)
Loss on unfunded lending commitments	(1,801		)	—			—		(1,801		)
(Release of)/Provision for reserve for unfunded lending commitments												(19,263		)	17			—		(19,246		)
Reserve for unfunded lending commitments, end of period	111,015			796			—		111,811			89,542			323			—		89,865
Total ACL, end of period	$	539,263		$	3,479,133		$	47,023	$	4,065,419		$	551,616		$	3,344,435		$	47,023	$	3,943,074
Ending balance, individually evaluated for impairment⁽¹⁾	$	73,946		$	1,636,770				$	1,710,716		$	94,993		$	1,628,930		$	—	$	1,723,923
Ending balance, collectively evaluated for impairment	354,302			1,841,567			47,023		2,242,892			367,081			1,715,182			47,023		2,129,286

Financing receivables:
Ending balance	$	41,233,130		$	44,227,460		$	—	$	85,460,590		$	38,400,180		$	43,678,843		$	—	$	82,079,023
Ending balance, evaluated under the FVO or lower of cost or fair value	160,252			2,377,177			—		2,537,429			195,721			1,798,347			—		1,994,068
Ending balance, individually evaluated for impairment⁽¹⁾	640,255			6,202,430			—		6,842,685			568,557			6,315,802			—		6,884,359
Ending balance, collectively evaluated for impairment	40,432,623			35,647,853			—		76,080,476			37,635,902			35,564,694			—		73,200,596


(1)	Consists of loans in troubled debt restructuring ("TDR") status.


	Three-Month Period Ended June 30, 2016											Three-Month Period Ended March 31, 2017
	Commercial			Consumer			Unallocated		Total
	(in thousands)
ALLL, beginning of period	$	557,643		$	2,962,976		$	47,245	$	3,567,864
(Release of) / Provision for loan and lease losses	(16,555		)	646,828			—		630,273
Charge-offs	(33,604		)	(1,032,129		)	—		(1,065,733		)
Recoveries	21,373			612,110			—		633,483
Charge-offs, net of recoveries	(12,231		)	(420,019		)	—		(432,250		)
ALLL, end of period	$	528,857		$	3,189,785		$	47,245	$	3,765,887

Reserve for unfunded lending commitments, beginning of period	$	172,828		$	740		$	—	$	173,568
(Release of) / Provision for unfunded lending commitments	(16,509		)	3			—		(16,506		)
Loss on unfunded lending commitments	(166		)	—			—		(166		)
Reserve for unfunded lending commitments, end of period	156,153			743			—		156,896
Total ACL, end of period	$	685,010		$	3,190,528		$	47,245	$	3,922,783

	Six-Month Period Ended June 30, 2016
	Commercial			Consumer			Unallocated		Total
	(in thousands)
(in thousands)												Commercial			Consumer			Unallocated		Total
ALLL, beginning of period	$	456,812		$	2,742,088		$	47,245	$	3,246,145		$	449,835		$	3,317,606		$	47,023	$	3,814,464
Provision for loan and lease losses	101,378			1,402,810			—		1,504,188			18,777			718,558			—		737,335
Charge-offs	(76,613		)	(2,174,289		)	—		(2,250,902		)	(26,173		)	(1,237,280		)	—		(1,263,453		)
Recoveries	47,280			1,219,176			—		1,266,456			10,580			623,937			—		634,517
Charge-offs, net of recoveries	(29,333		)	(955,113		)	—		(984,446		)	(15,593		)	(613,343		)	—		(628,936		)
ALLL, end of period	$	528,857		$	3,189,785		$	47,245	$	3,765,887		$	453,019		$	3,422,821		$	47,023	$	3,922,863

Reserve for unfunded lending commitments, beginning of period	$	148,206		$	814		$	—	$	149,020		$	121,613		$	806		$	—	$	122,419
Provision for / (Release of) unfunded lending commitments	8,112			(71		)	—		8,041
(Release of) unfunded lending commitments												(1,860		)	(30		)	—		(1,890		)
Loss on unfunded lending commitments	(165		)	—			—		(165		)	(133		)	—			—		(133		)
Reserve for unfunded lending commitments, end of period	156,153			743			—		156,896			119,620			776			—		120,396
Total ACL, end of period	$	685,010		$	3,190,528		$	47,245	$	3,922,783		$	572,639		$	3,423,597		$	47,023	$	4,043,259
Ending balance, individually evaluated for impairment⁽¹⁾	$	146,427		$	1,242,254		$	—	$	1,388,681		$	99,914		$	1,518,545		$	—	$	1,618,459
Ending balance, collectively evaluated for impairment	382,430			1,947,531			47,245		2,377,206			353,105			1,904,276			47,023		2,304,404

Financing receivables:
Ending balance	$	47,236,185		$	44,028,656		$	—	$	91,264,841		$	42,415,806		$	43,402,053		$	—	$	85,817,859
Ending balance, evaluated under the fair value option or lower of cost or fair value⁽¹⁾	464,265			3,048,680			—		3,512,945
Ending balance, evaluated under the FVO or lower of cost or fair value⁽¹⁾												103,834			2,008,152			—		2,111,986
Ending balance, individually evaluated for impairment⁽¹⁾	784,627			5,081,761			—		5,866,388			675,116			6,040,694			—		6,715,810
Ending balance, collectively evaluated for impairment	45,987,293			35,898,215			—		81,885,508			41,636,856			35,353,207			—		76,990,063


	Three-Month Period Ended									Six-Month Period Ended									Three-Month Period Ended
	June 30, 2017									June 30, 2017									March 31, 2018
	Purchased			Originated			Total			Purchased			Originated			Total
	(in thousands)
(in thousands)																			Purchased			Originated			Total
ALLL, beginning of period	$	495,221		$	2,707,884		$	3,203,105		$	559,092		$	2,538,127		$	3,097,219		$	384,167		$	2,779,044		$	3,163,211
Provision for loan and lease losses	55,141			502,256			557,397			81,266			1,162,779			1,244,045
(Release of) / Provision for loan and lease losses																			(15,830		)	487,159			471,329
Charge-offs	(150,143		)	(939,328		)	(1,089,471		)	(338,829		)	(1,947,381		)	(2,286,210		)	(105,510		)	(1,078,515		)	(1,184,025		)
Recoveries	68,452			521,854			590,306			167,142			1,039,141			1,206,283			59,899			594,952			654,851
Charge-offs, net of recoveries	(81,691		)	(417,474		)	(499,165		)	(171,687		)	(908,240		)	(1,079,927		)	(45,611		)	(483,563		)	(529,174		)
ALLL, end of period	$	468,671		$	2,792,666		$	3,261,337		$	468,671		$	2,792,666		$	3,261,337		$	322,726		$	2,782,640		$	3,105,366



	Three-Month Period Ended									Six-Month Period Ended
	June 30, 2016									June 30, 2016
	Purchased			Originated			Total			Purchased			Originated			Total
	(in thousands)
ALLL, beginning of period	$	589,107		$	2,137,270		$	2,726,377		$	590,807		$	1,891,989		$	2,482,796
Provision for loan and lease losses	47,617			572,145			619,762			121,252			1,246,565			1,367,817
Charge-offs	(194,169		)	(789,788		)	(983,957		)	(458,961		)	(1,614,868		)	(2,073,829		)
Recoveries	173,068			422,813			595,881			362,525			818,754			1,181,279
Charge-offs, net of recoveries	(21,101		)	(366,975		)	(388,076		)	(96,436		)	(796,114		)	(892,550		)
ALLL, end of period	$	615,623		$	2,342,440		$	2,958,063		$	615,623		$	2,342,440		$	2,958,063



	Three-Month Period Ended
	March 31, 2017
(in thousands)	Purchased			Originated			Total
ALLL, beginning of period	$	559,092		$	2,538,127		$	3,097,219
Provision for loan and lease losses	26,125			660,524			686,649
Charge-offs	(188,686		)	(1,008,053		)	(1,196,739		)
Recoveries	98,690			517,286			615,976
Charge-offs, net of recoveries	(89,996		)	(490,767		)	(580,763		)
ALLL, end of period	$	495,221		$	2,707,884		$	3,203,105